Intrinsic value of Danaos - DAC

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$1.70

  Intrinsic Value

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  Value-price divergence*

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of DAC stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -12.32
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  498
  579
  593
  608
  625
  644
  665
  687
  712
  738
  767
  797
  829
  864
  900
  939
  980
  1,024
  1,070
  1,119
  1,170
  1,224
  1,281
  1,342
  1,405
  1,472
  1,543
  1,617
  1,695
  1,777
  1,863
Variable operating expenses, $m
 
  377
  386
  396
  407
  419
  433
  447
  463
  481
  499
  519
  540
  562
  586
  611
  638
  667
  697
  728
  762
  797
  834
  873
  915
  958
  1,004
  1,053
  1,103
  1,157
  1,213
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  711
  377
  386
  396
  407
  419
  433
  447
  463
  481
  499
  519
  540
  562
  586
  611
  638
  667
  697
  728
  762
  797
  834
  873
  915
  958
  1,004
  1,053
  1,103
  1,157
  1,213
Operating income, $m
  -213
  202
  207
  212
  218
  225
  232
  240
  248
  258
  268
  278
  289
  301
  314
  328
  342
  357
  373
  390
  408
  427
  447
  468
  490
  514
  538
  564
  591
  620
  650
EBITDA, $m
  -84
  337
  344
  353
  363
  374
  386
  400
  414
  429
  446
  463
  482
  502
  523
  546
  570
  595
  622
  650
  680
  712
  745
  780
  817
  856
  897
  940
  985
  1,033
  1,083
Interest expense (income), $m
  69
  93
  95
  98
  100
  103
  106
  110
  114
  118
  122
  127
  132
  138
  144
  150
  156
  163
  171
  179
  187
  195
  205
  214
  225
  235
  247
  259
  271
  284
  298
Earnings before tax, $m
  -366
  109
  111
  115
  118
  122
  126
  130
  135
  140
  145
  151
  157
  164
  171
  178
  186
  194
  203
  212
  222
  232
  243
  254
  266
  278
  292
  306
  320
  336
  352
Tax expense, $m
  0
  29
  30
  31
  32
  33
  34
  35
  36
  38
  39
  41
  42
  44
  46
  48
  50
  52
  55
  57
  60
  63
  65
  69
  72
  75
  79
  83
  86
  91
  95
Net income, $m
  -366
  79
  81
  84
  86
  89
  92
  95
  98
  102
  106
  110
  115
  120
  125
  130
  136
  142
  148
  155
  162
  169
  177
  185
  194
  203
  213
  223
  234
  245
  257

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  74
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  3,127
  3,667
  3,751
  3,848
  3,956
  4,076
  4,207
  4,351
  4,506
  4,673
  4,852
  5,044
  5,249
  5,467
  5,698
  5,944
  6,205
  6,480
  6,772
  7,080
  7,405
  7,749
  8,111
  8,492
  8,894
  9,318
  9,763
  10,233
  10,727
  11,246
  11,792
Adjusted assets (=assets-cash), $m
  3,053
  3,667
  3,751
  3,848
  3,956
  4,076
  4,207
  4,351
  4,506
  4,673
  4,852
  5,044
  5,249
  5,467
  5,698
  5,944
  6,205
  6,480
  6,772
  7,080
  7,405
  7,749
  8,111
  8,492
  8,894
  9,318
  9,763
  10,233
  10,727
  11,246
  11,792
Revenue / Adjusted assets
  0.163
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
Average production assets, $m
  3,177
  3,606
  3,689
  3,784
  3,890
  4,008
  4,137
  4,278
  4,431
  4,595
  4,772
  4,960
  5,162
  5,376
  5,604
  5,845
  6,102
  6,373
  6,659
  6,962
  7,282
  7,620
  7,976
  8,351
  8,747
  9,163
  9,601
  10,063
  10,548
  11,059
  11,597
Working capital, $m
  -2,430
  14
  15
  15
  16
  16
  17
  17
  18
  18
  19
  20
  21
  22
  23
  23
  25
  26
  27
  28
  29
  31
  32
  34
  35
  37
  39
  40
  42
  44
  47
Total debt, $m
  2,505
  2,725
  2,790
  2,863
  2,946
  3,038
  3,139
  3,248
  3,367
  3,495
  3,632
  3,779
  3,935
  4,102
  4,279
  4,467
  4,667
  4,877
  5,101
  5,336
  5,585
  5,848
  6,125
  6,417
  6,724
  7,048
  7,389
  7,748
  8,126
  8,523
  8,941
Total liabilities, $m
  2,639
  2,805
  2,870
  2,943
  3,026
  3,118
  3,219
  3,328
  3,447
  3,575
  3,712
  3,859
  4,015
  4,182
  4,359
  4,547
  4,747
  4,957
  5,181
  5,416
  5,665
  5,928
  6,205
  6,497
  6,804
  7,128
  7,469
  7,828
  8,206
  8,603
  9,021
Total equity, $m
  488
  862
  882
  904
  930
  958
  989
  1,022
  1,059
  1,098
  1,140
  1,185
  1,233
  1,285
  1,339
  1,397
  1,458
  1,523
  1,591
  1,664
  1,740
  1,821
  1,906
  1,996
  2,090
  2,190
  2,294
  2,405
  2,521
  2,643
  2,771
Total liabilities and equity, $m
  3,127
  3,667
  3,752
  3,847
  3,956
  4,076
  4,208
  4,350
  4,506
  4,673
  4,852
  5,044
  5,248
  5,467
  5,698
  5,944
  6,205
  6,480
  6,772
  7,080
  7,405
  7,749
  8,111
  8,493
  8,894
  9,318
  9,763
  10,233
  10,727
  11,246
  11,792
Debt-to-equity ratio
  5.133
  3.160
  3.160
  3.170
  3.170
  3.170
  3.170
  3.180
  3.180
  3.180
  3.190
  3.190
  3.190
  3.190
  3.200
  3.200
  3.200
  3.200
  3.210
  3.210
  3.210
  3.210
  3.210
  3.220
  3.220
  3.220
  3.220
  3.220
  3.220
  3.230
  3.230
Adjusted equity ratio
  0.136
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -366
  79
  81
  84
  86
  89
  92
  95
  98
  102
  106
  110
  115
  120
  125
  130
  136
  142
  148
  155
  162
  169
  177
  185
  194
  203
  213
  223
  234
  245
  257
Depreciation, amort., depletion, $m
  129
  135
  138
  141
  145
  150
  154
  160
  165
  171
  178
  185
  193
  201
  209
  218
  228
  238
  248
  260
  272
  284
  298
  312
  326
  342
  358
  375
  394
  413
  433
Funds from operations, $m
  252
  214
  219
  225
  231
  238
  246
  255
  264
  274
  284
  295
  307
  320
  334
  348
  363
  379
  396
  414
  433
  454
  475
  497
  520
  545
  571
  599
  627
  658
  690
Change in working capital, $m
  -10
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
Cash from operations, $m
  262
  124
  219
  224
  231
  238
  246
  254
  263
  273
  283
  295
  307
  319
  333
  347
  362
  378
  395
  413
  432
  452
  473
  495
  519
  543
  569
  597
  625
  656
  687
Maintenance CAPEX, $m
  0
  -132
  -135
  -138
  -141
  -145
  -150
  -154
  -160
  -165
  -171
  -178
  -185
  -193
  -201
  -209
  -218
  -228
  -238
  -248
  -260
  -272
  -284
  -298
  -312
  -326
  -342
  -358
  -375
  -394
  -413
New CAPEX, $m
  0
  -70
  -83
  -95
  -106
  -118
  -129
  -141
  -153
  -164
  -176
  -189
  -201
  -214
  -228
  -242
  -256
  -271
  -287
  -303
  -320
  -338
  -356
  -375
  -395
  -416
  -438
  -461
  -486
  -511
  -537
Cash from investing activities, $m
  -9
  -202
  -218
  -233
  -247
  -263
  -279
  -295
  -313
  -329
  -347
  -367
  -386
  -407
  -429
  -451
  -474
  -499
  -525
  -551
  -580
  -610
  -640
  -673
  -707
  -742
  -780
  -819
  -861
  -905
  -950
Free cash flow, $m
  253
  -78
  1
  -8
  -17
  -25
  -33
  -41
  -49
  -57
  -64
  -72
  -80
  -88
  -96
  -104
  -112
  -121
  -129
  -138
  -148
  -157
  -167
  -177
  -188
  -199
  -211
  -223
  -236
  -249
  -263
Issuance/(repayment) of debt, $m
  -251
  57
  65
  74
  83
  92
  101
  110
  119
  128
  137
  147
  157
  167
  177
  188
  199
  211
  223
  236
  249
  263
  277
  292
  308
  324
  341
  359
  378
  397
  418
Issuance/(repurchase) of shares, $m
  0
  41
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -251
  98
  65
  74
  83
  92
  101
  110
  119
  128
  137
  147
  157
  167
  177
  188
  199
  211
  223
  236
  249
  263
  277
  292
  308
  324
  341
  359
  378
  397
  418
Total cash flow (excl. dividends), $m
  1
  -21
  66
  66
  66
  67
  67
  68
  70
  71
  73
  75
  77
  79
  82
  84
  87
  90
  94
  97
  101
  105
  110
  115
  119
  125
  130
  136
  142
  149
  155
Retained Cash Flow (-), $m
  354
  -20
  -20
  -23
  -25
  -28
  -31
  -34
  -36
  -39
  -42
  -45
  -48
  -51
  -54
  -58
  -61
  -65
  -69
  -72
  -76
  -81
  -85
  -90
  -94
  -100
  -105
  -110
  -116
  -122
  -128
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  0
  46
  43
  41
  38
  36
  35
  33
  32
  31
  30
  29
  28
  27
  27
  26
  26
  25
  25
  25
  25
  25
  25
  25
  25
  25
  26
  26
  27
  27
Discount rate, %
 
  11.30
  11.87
  12.46
  13.08
  13.74
  14.42
  15.14
  15.90
  16.70
  17.53
  18.41
  19.33
  20.29
  21.31
  22.37
  23.49
  24.67
  25.90
  27.19
  28.55
  29.98
  31.48
  33.06
  34.71
  36.44
  38.27
  40.18
  42.19
  44.30
  46.51
PV of cash for distribution, $m
 
  0
  37
  30
  25
  20
  16
  13
  10
  8
  6
  5
  3
  3
  2
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5

Danaos Corporation, together with its subsidiaries, owns and operates containerships in Greece and internationally. The company offers seaborne transportation services, as well as charters its vessels to liner companies. As of March 18, 2016, it had a fleet of 59 containerships aggregating 353,586 twenty foot equivalent units. The company was formerly known as Danaos Holdings Limited and changed its name to Danaos Corporation in October 2005. Danaos Corporation was founded in 1972 and is based in Piraeus, Greece.

FINANCIAL RATIOS  of  Danaos (DAC)

Valuation Ratios
P/E Ratio -0.5
Price to Sales 0.4
Price to Book 0.4
Price to Tangible Book
Price to Cash Flow 0.7
Price to Free Cash Flow 0.7
Growth Rates
Sales Growth Rate -12.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate -100%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 513.3%
Interest Coverage -4
Management Effectiveness
Return On Assets -8.7%
Ret/ On Assets - 3 Yr. Avg. -0.6%
Return On Total Capital -11.1%
Ret/ On T. Cap. - 3 Yr. Avg. -2.7%
Return On Equity -55%
Return On Equity - 3 Yr. Avg. -13.5%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 75.3%
Gross Margin - 3 Yr. Avg. 76.8%
EBITDA Margin -33.7%
EBITDA Margin - 3 Yr. Avg. 20.6%
Operating Margin -42.8%
Oper. Margin - 3 Yr. Avg. 11.7%
Pre-Tax Margin -73.5%
Pre-Tax Margin - 3 Yr. Avg. -17.9%
Net Profit Margin -73.5%
Net Profit Margin - 3 Yr. Avg. -17.9%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 0%

DAC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DAC stock intrinsic value calculation we used $568 million for the last fiscal year's total revenue generated by Danaos. The default revenue input number comes from 2016 income statement of Danaos. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our DAC stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 11.3%, whose default value for DAC is calculated based on our internal credit rating of Danaos, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Danaos.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of DAC stock the variable cost ratio is equal to 65.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for DAC stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Danaos.

Corporate tax rate of 27% is the nominal tax rate for Danaos. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the DAC stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for DAC are equal to 622.4%.

Life of production assets of 26.8 years is the average useful life of capital assets used in Danaos operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for DAC is equal to 2.5%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $842 million for Danaos - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 105.409 million for Danaos is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Danaos at the current share price and the inputted number of shares is $0.2 billion.


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Stock chart of DAC Financial statements of DAC Annual reports of DAC
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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