Intrinsic value of Destination Maternity - DEST

Previous Close

$1.28

  Intrinsic Value

$1.15

stock screener

  Rating & Target

hold

-10%

  Value-price divergence*

+2%

Previous close

$1.28

 
Intrinsic value

$1.15

 
Up/down potential

-10%

 
Rating

hold

 
Value-price divergence*

+2%

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

We calculate the intrinsic value of DEST 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 2017), $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 0.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -13.03
  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
  434
  443
  453
  465
  478
  492
  508
  525
  544
  564
  586
  609
  634
  660
  688
  718
  749
  782
  818
  855
  894
  935
  979
  1,025
  1,074
  1,125
  1,179
  1,235
  1,295
  1,358
  1,424
Variable operating expenses, $m
 
  448
  458
  470
  483
  498
  514
  532
  550
  571
  593
  616
  641
  668
  696
  726
  758
  792
  827
  865
  905
  947
  991
  1,038
  1,087
  1,138
  1,193
  1,250
  1,311
  1,374
  1,441
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
  438
  448
  458
  470
  483
  498
  514
  532
  550
  571
  593
  616
  641
  668
  696
  726
  758
  792
  827
  865
  905
  947
  991
  1,038
  1,087
  1,138
  1,193
  1,250
  1,311
  1,374
  1,441
Operating income, $m
  -4
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
EBITDA, $m
  14
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
Interest expense (income), $m
  0
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
Earnings before tax, $m
  -8
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
Tax expense, $m
  25
  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
Net income, $m
  -33
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  3
  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
  176
  176
  180
  185
  190
  196
  202
  209
  217
  225
  233
  243
  253
  263
  274
  286
  299
  312
  326
  341
  356
  373
  390
  409
  428
  448
  470
  492
  516
  541
  567
Adjusted assets (=assets-cash), $m
  173
  176
  180
  185
  190
  196
  202
  209
  217
  225
  233
  243
  253
  263
  274
  286
  299
  312
  326
  341
  356
  373
  390
  409
  428
  448
  470
  492
  516
  541
  567
Revenue / Adjusted assets
  2.509
  2.517
  2.517
  2.514
  2.516
  2.510
  2.515
  2.512
  2.507
  2.507
  2.515
  2.506
  2.506
  2.510
  2.511
  2.510
  2.505
  2.506
  2.509
  2.507
  2.511
  2.507
  2.510
  2.506
  2.509
  2.511
  2.509
  2.510
  2.510
  2.510
  2.511
Average production assets, $m
  89
  90
  92
  95
  97
  100
  104
  107
  111
  115
  119
  124
  129
  135
  140
  146
  153
  160
  167
  174
  182
  191
  200
  209
  219
  229
  240
  252
  264
  277
  290
Working capital, $m
  29
  39
  40
  41
  42
  43
  45
  46
  48
  50
  52
  54
  56
  58
  61
  63
  66
  69
  72
  75
  79
  82
  86
  90
  94
  99
  104
  109
  114
  119
  125
Total debt, $m
  43
  42
  45
  48
  51
  55
  59
  63
  68
  73
  79
  85
  91
  98
  105
  113
  121
  130
  139
  148
  159
  169
  180
  192
  205
  218
  232
  247
  262
  278
  295
Total liabilities, $m
  115
  114
  117
  120
  123
  127
  131
  135
  140
  145
  151
  157
  163
  170
  177
  185
  193
  202
  211
  220
  231
  241
  252
  264
  277
  290
  304
  319
  334
  350
  367
Total equity, $m
  61
  62
  64
  65
  67
  69
  71
  74
  77
  79
  82
  86
  89
  93
  97
  101
  105
  110
  115
  120
  126
  132
  138
  144
  151
  158
  166
  174
  182
  191
  200
Total liabilities and equity, $m
  176
  176
  181
  185
  190
  196
  202
  209
  217
  224
  233
  243
  252
  263
  274
  286
  298
  312
  326
  340
  357
  373
  390
  408
  428
  448
  470
  493
  516
  541
  567
Debt-to-equity ratio
  0.705
  0.680
  0.700
  0.730
  0.760
  0.790
  0.830
  0.860
  0.890
  0.930
  0.960
  0.990
  1.030
  1.060
  1.090
  1.120
  1.150
  1.180
  1.210
  1.230
  1.260
  1.290
  1.310
  1.330
  1.360
  1.380
  1.400
  1.420
  1.440
  1.460
  1.470
Adjusted equity ratio
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -33
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
Depreciation, amort., depletion, $m
  18
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  12
  13
  13
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
Funds from operations, $m
  7
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
Change in working capital, $m
  -4
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
Cash from operations, $m
  11
  2
  1
  1
  1
  1
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -4
Maintenance CAPEX, $m
  0
  -9
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
New CAPEX, $m
  -13
  -2
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -13
Cash from investing activities, $m
  -13
  -11
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -36
  -37
  -39
  -41
Free cash flow, $m
  -2
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -35
  -36
  -38
  -40
  -42
  -45
Issuance/(repayment) of debt, $m
  4
  2
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
Issuance/(repurchase) of shares, $m
  0
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  23
  24
  25
  26
  28
  29
  31
  33
  34
  36
Cash from financing (excl. dividends), $m  
  3
  10
  11
  12
  12
  14
  14
  15
  16
  17
  19
  19
  20
  22
  23
  24
  25
  27
  28
  30
  31
  34
  35
  37
  39
  41
  43
  46
  48
  50
  53
Total cash flow (excl. dividends), $m
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  6
  7
  7
  8
  8
  8
Retained Cash Flow (-), $m
  32
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -26
  -28
  -29
  -31
  -33
  -34
  -36
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
 
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -26
  -28
Discount rate, %
 
  5.90
  6.20
  6.50
  6.83
  7.17
  7.53
  7.91
  8.30
  8.72
  9.15
  9.61
  10.09
  10.60
  11.13
  11.68
  12.27
  12.88
  13.52
  14.20
  14.91
  15.65
  16.44
  17.26
  18.12
  19.03
  19.98
  20.98
  22.03
  23.13
  24.29
PV of cash for distribution, $m
 
  -7
  -6
  -6
  -6
  -6
  -5
  -5
  -5
  -4
  -4
  -4
  -3
  -3
  -3
  -2
  -2
  -2
  -2
  -1
  -1
  -1
  -1
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  84.2
  70.7
  59.1
  49.1
  40.7
  33.6
  27.6
  22.7
  18.5
  15.1
  12.2
  9.9
  8.0
  6.5
  5.2
  4.2
  3.3
  2.7
  2.1
  1.7
  1.4
  1.1
  0.9
  0.7
  0.5
  0.4
  0.3
  0.3
  0.2
  0.2

Destination Maternity Corporation designs and retails maternity apparel. As of January 30, 2016, the company operated 1,815 retail locations, including 536 stores in the United States, Canada, and Puerto Rico under the Motherhood Maternity, A Pea in the Pod, and Destination Maternity names; and 1,279 leased department locations in the United States, Puerto Rico, and England. It also operated 193 international franchised locations comprising 25 stand-alone stores in the Middle East, South Korea, Mexico, and Israel; and 168 shop-in-shop locations in South Korea, Mexico, and Israel. The company’s Motherhood Maternity brand serves the moderate priced portion of the maternity apparel business with stores located in regional malls, strip and power centers, and central business districts; and A Pea in the Pod brand offers an assortment of designer label maternity pieces with stores located in regional malls, lifestyle centers, and central business districts. Its Destination Maternity stores provide Motherhood Maternity and A Pea in the Pod products; and a line of maternity-related accessories, nursing products, health and fitness products, books, and body and nutritional products located in regional malls and lifestyle centers. The company also sells its merchandise on the Internet through brand-specific Websites, including Motherhood.com and APeaInThePod.com; DestinationMaternity.com; and MotherhoodCanada.ca and Amazon.com Websites. In addition, it provides Two Hearts Maternity by Destination Maternity at Sears stores through a leased department relationship; and Oh Baby by Motherhood collection through a product and license agreement at Kohl’s stores, as well as through Kohls.com Website. The company was formerly known as Mothers Work, Inc. and changed its name to Destination Maternity Corporation in December 2008. Destination Maternity Corporation was founded in 1982 and is headquartered in Moorestown, New Jersey.

FINANCIAL RATIOS  of  Destination Maternity (DEST)

Valuation Ratios
P/E Ratio -0.5
Price to Sales 0
Price to Book 0.3
Price to Tangible Book
Price to Cash Flow 1.6
Price to Free Cash Flow -9
Growth Rates
Sales Growth Rate -13%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -55.2%
Cap. Spend. - 3 Yr. Gr. Rate -20.9%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 50.8%
Total Debt to Equity 70.5%
Interest Coverage 0
Management Effectiveness
Return On Assets -16.7%
Ret/ On Assets - 3 Yr. Avg. -8.7%
Return On Total Capital -27.7%
Ret/ On T. Cap. - 3 Yr. Avg. -14.9%
Return On Equity -42.9%
Return On Equity - 3 Yr. Avg. -20.5%
Asset Turnover 2.2
Profitability Ratios
Gross Margin 52.3%
Gross Margin - 3 Yr. Avg. 47.7%
EBITDA Margin 2.3%
EBITDA Margin - 3 Yr. Avg. -3.2%
Operating Margin -0.9%
Oper. Margin - 3 Yr. Avg. -6.1%
Pre-Tax Margin -1.8%
Pre-Tax Margin - 3 Yr. Avg. -6.7%
Net Profit Margin -7.6%
Net Profit Margin - 3 Yr. Avg. -6.2%
Effective Tax Rate -312.5%
Eff/ Tax Rate - 3 Yr. Avg. -76.8%
Payout Ratio 0%

DEST stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DEST stock intrinsic value calculation we used $434 million for the last fiscal year's total revenue generated by Destination Maternity. The default revenue input number comes from 2017 income statement of Destination Maternity. 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 DEST 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 5.9%, whose default value for DEST is calculated based on our internal credit rating of Destination Maternity, 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 Destination Maternity.
    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 DEST stock the variable cost ratio is equal to 101.2%.

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 DEST 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 Destination Maternity.

Corporate tax rate of 27% is the nominal tax rate for Destination Maternity. 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 DEST 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 DEST are equal to 20.4%.

Life of production assets of 10 years is the average useful life of capital assets used in Destination Maternity 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 DEST is equal to 8.8%. 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 - $61 million for Destination Maternity - 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 13.299 million for Destination Maternity 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 Destination Maternity at the current share price and the inputted number of shares is $0.0 billion.

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COMPANY NEWS

▶ Destination Maternity reports 1Q loss   [Jun-08-17 06:56AM  Associated Press]
▶ Destination Maternity reports 4Q loss   [Apr-13-17 07:05AM  Associated Press]
▶ Destination Maternity Down With Sears and Macy's   [Apr-03-17 04:17PM  GuruFocus.com]
▶ [$$] Orchestra-Premaman Reaches Deal for Destination Maternity   [09:29AM  at The Wall Street Journal]
▶ CFO Moves: Destination Maternity Corp., AMC Networks Inc.   [05:15PM  at The Wall Street Journal]
▶ [$$] Orchestra-Premaman Boosts Cash in Destination Maternity Offer   [Feb-08-16 10:35AM  at The Wall Street Journal]
Stock chart of DEST Financial statements of DEST
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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