Intrinsic value of Donnelley Financial Solutions - DFIN

Previous Close

$23.40

  Intrinsic Value

$62.82

stock screener

  Rating & Target

str. buy

+168%

  Value-price divergence*

0%

Previous close

$23.40

 
Intrinsic value

$62.82

 
Up/down potential

+168%

 
Rating

str. buy

 
Value-price divergence*

0%

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

We calculate the intrinsic value of DFIN 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 0.7

 

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, %
  -6.29
  11.30
  10.67
  10.10
  9.59
  9.13
  8.72
  8.35
  8.01
  7.71
  7.44
  7.20
  6.98
  6.78
  6.60
  6.44
  6.30
  6.17
  6.05
  5.95
  5.85
  5.77
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.37
  5.33
  5.30
Revenue, $m
  984
  1,095
  1,212
  1,335
  1,463
  1,596
  1,735
  1,880
  2,031
  2,187
  2,350
  2,519
  2,695
  2,878
  3,068
  3,265
  3,471
  3,685
  3,908
  4,140
  4,383
  4,635
  4,899
  5,174
  5,462
  5,763
  6,077
  6,405
  6,749
  7,109
  7,485
Variable operating expenses, $m
 
  909
  1,002
  1,098
  1,200
  1,305
  1,415
  1,529
  1,648
  1,772
  1,900
  1,989
  2,128
  2,273
  2,423
  2,579
  2,741
  2,910
  3,086
  3,270
  3,461
  3,660
  3,869
  4,086
  4,313
  4,551
  4,799
  5,058
  5,330
  5,614
  5,911
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
  878
  909
  1,002
  1,098
  1,200
  1,305
  1,415
  1,529
  1,648
  1,772
  1,900
  1,989
  2,128
  2,273
  2,423
  2,579
  2,741
  2,910
  3,086
  3,270
  3,461
  3,660
  3,869
  4,086
  4,313
  4,551
  4,799
  5,058
  5,330
  5,614
  5,911
Operating income, $m
  106
  186
  210
  236
  263
  291
  320
  351
  383
  415
  450
  530
  567
  605
  645
  687
  730
  775
  822
  871
  922
  975
  1,030
  1,088
  1,149
  1,212
  1,278
  1,347
  1,419
  1,495
  1,574
EBITDA, $m
  149
  242
  267
  295
  323
  352
  383
  415
  448
  483
  519
  556
  595
  635
  677
  721
  766
  813
  862
  914
  967
  1,023
  1,081
  1,142
  1,205
  1,272
  1,341
  1,414
  1,489
  1,569
  1,652
Interest expense (income), $m
  0
  21
  24
  28
  31
  35
  39
  44
  48
  53
  58
  63
  68
  73
  79
  85
  91
  97
  104
  111
  118
  126
  133
  141
  150
  159
  168
  178
  188
  199
  210
Earnings before tax, $m
  94
  165
  186
  208
  232
  256
  281
  307
  334
  363
  392
  467
  499
  532
  566
  602
  639
  678
  718
  760
  804
  849
  897
  947
  999
  1,053
  1,110
  1,169
  1,231
  1,297
  1,365
Tax expense, $m
  35
  45
  50
  56
  63
  69
  76
  83
  90
  98
  106
  126
  135
  144
  153
  163
  173
  183
  194
  205
  217
  229
  242
  256
  270
  284
  300
  316
  332
  350
  368
Net income, $m
  59
  121
  136
  152
  169
  187
  205
  224
  244
  265
  286
  341
  364
  388
  413
  439
  466
  495
  524
  555
  587
  620
  655
  691
  729
  769
  810
  854
  899
  946
  996

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  36
  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
  979
  1,090
  1,206
  1,328
  1,455
  1,588
  1,727
  1,871
  2,021
  2,177
  2,338
  2,507
  2,682
  2,863
  3,052
  3,249
  3,454
  3,667
  3,889
  4,120
  4,361
  4,612
  4,875
  5,149
  5,435
  5,734
  6,047
  6,373
  6,715
  7,073
  7,448
Adjusted assets (=assets-cash), $m
  943
  1,090
  1,206
  1,328
  1,455
  1,588
  1,727
  1,871
  2,021
  2,177
  2,338
  2,507
  2,682
  2,863
  3,052
  3,249
  3,454
  3,667
  3,889
  4,120
  4,361
  4,612
  4,875
  5,149
  5,435
  5,734
  6,047
  6,373
  6,715
  7,073
  7,448
Revenue / Adjusted assets
  1.043
  1.005
  1.005
  1.005
  1.005
  1.005
  1.005
  1.005
  1.005
  1.005
  1.005
  1.005
  1.005
  1.005
  1.005
  1.005
  1.005
  1.005
  1.005
  1.005
  1.005
  1.005
  1.005
  1.005
  1.005
  1.005
  1.005
  1.005
  1.005
  1.005
  1.005
Average production assets, $m
  139
  154
  171
  188
  206
  225
  245
  265
  286
  308
  331
  355
  380
  406
  433
  460
  489
  520
  551
  584
  618
  654
  691
  730
  770
  813
  857
  903
  952
  1,002
  1,055
Working capital, $m
  144
  120
  133
  147
  161
  176
  191
  207
  223
  241
  259
  277
  296
  317
  337
  359
  382
  405
  430
  455
  482
  510
  539
  569
  601
  634
  668
  705
  742
  782
  823
Total debt, $m
  587
  686
  789
  897
  1,010
  1,128
  1,251
  1,378
  1,511
  1,650
  1,793
  1,943
  2,098
  2,259
  2,427
  2,601
  2,782
  2,971
  3,168
  3,373
  3,587
  3,810
  4,043
  4,286
  4,540
  4,805
  5,082
  5,372
  5,676
  5,993
  6,325
Total liabilities, $m
  868
  967
  1,070
  1,178
  1,291
  1,409
  1,532
  1,659
  1,792
  1,931
  2,074
  2,224
  2,379
  2,540
  2,708
  2,882
  3,063
  3,252
  3,449
  3,654
  3,868
  4,091
  4,324
  4,567
  4,821
  5,086
  5,363
  5,653
  5,957
  6,274
  6,606
Total equity, $m
  111
  123
  136
  150
  164
  179
  195
  211
  228
  246
  264
  283
  303
  324
  345
  367
  390
  414
  439
  466
  493
  521
  551
  582
  614
  648
  683
  720
  759
  799
  842
Total liabilities and equity, $m
  979
  1,090
  1,206
  1,328
  1,455
  1,588
  1,727
  1,870
  2,020
  2,177
  2,338
  2,507
  2,682
  2,864
  3,053
  3,249
  3,453
  3,666
  3,888
  4,120
  4,361
  4,612
  4,875
  5,149
  5,435
  5,734
  6,046
  6,373
  6,716
  7,073
  7,448
Debt-to-equity ratio
  5.288
  5.570
  5.790
  5.980
  6.140
  6.280
  6.410
  6.520
  6.620
  6.710
  6.790
  6.860
  6.920
  6.980
  7.030
  7.080
  7.130
  7.170
  7.210
  7.250
  7.280
  7.310
  7.340
  7.370
  7.390
  7.420
  7.440
  7.460
  7.480
  7.500
  7.520
Adjusted equity ratio
  0.080
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  59
  121
  136
  152
  169
  187
  205
  224
  244
  265
  286
  341
  364
  388
  413
  439
  466
  495
  524
  555
  587
  620
  655
  691
  729
  769
  810
  854
  899
  946
  996
Depreciation, amort., depletion, $m
  43
  56
  57
  58
  60
  61
  63
  64
  66
  67
  69
  26
  28
  30
  32
  34
  36
  38
  41
  43
  45
  48
  51
  54
  57
  60
  63
  66
  70
  74
  78
Funds from operations, $m
  109
  177
  193
  211
  229
  248
  268
  288
  310
  332
  355
  367
  392
  418
  445
  473
  502
  533
  565
  598
  632
  668
  706
  745
  786
  829
  873
  920
  969
  1,020
  1,074
Change in working capital, $m
  3
  12
  13
  13
  14
  15
  15
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  35
  36
  38
  40
  41
Cash from operations, $m
  106
  164
  180
  197
  215
  233
  252
  272
  293
  315
  337
  349
  373
  398
  424
  451
  480
  509
  540
  572
  606
  640
  677
  715
  754
  795
  839
  884
  931
  981
  1,032
Maintenance CAPEX, $m
  0
  -10
  -11
  -13
  -14
  -15
  -17
  -18
  -19
  -21
  -23
  -24
  -26
  -28
  -30
  -32
  -34
  -36
  -38
  -41
  -43
  -45
  -48
  -51
  -54
  -57
  -60
  -63
  -66
  -70
  -74
New CAPEX, $m
  -26
  -15
  -16
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -36
  -37
  -39
  -41
  -42
  -44
  -46
  -48
  -51
  -53
Cash from investing activities, $m
  -29
  -25
  -27
  -30
  -32
  -34
  -37
  -38
  -40
  -43
  -46
  -48
  -51
  -54
  -57
  -60
  -63
  -66
  -69
  -74
  -77
  -81
  -85
  -90
  -95
  -99
  -104
  -109
  -114
  -121
  -127
Free cash flow, $m
  77
  139
  153
  167
  183
  199
  216
  234
  252
  272
  292
  300
  322
  344
  368
  392
  417
  443
  470
  499
  528
  559
  591
  625
  660
  696
  735
  775
  816
  860
  906
Issuance/(repayment) of debt, $m
  289
  99
  103
  108
  113
  118
  123
  128
  133
  138
  144
  149
  155
  161
  168
  174
  181
  189
  197
  205
  214
  223
  233
  243
  254
  265
  277
  290
  303
  317
  332
Issuance/(repurchase) of shares, $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
  0
Cash from financing (excl. dividends), $m  
  -60
  99
  103
  108
  113
  118
  123
  128
  133
  138
  144
  149
  155
  161
  168
  174
  181
  189
  197
  205
  214
  223
  233
  243
  254
  265
  277
  290
  303
  317
  332
Total cash flow (excl. dividends), $m
  21
  237
  256
  275
  296
  317
  339
  362
  385
  410
  435
  450
  477
  506
  535
  566
  598
  632
  667
  704
  742
  782
  824
  868
  914
  962
  1,012
  1,065
  1,120
  1,177
  1,238
Retained Cash Flow (-), $m
  513
  -12
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -32
  -34
  -35
  -37
  -39
  -40
  -42
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
 
  225
  242
  262
  281
  302
  323
  345
  368
  392
  417
  431
  457
  485
  514
  544
  575
  608
  642
  678
  715
  754
  794
  837
  881
  928
  977
  1,028
  1,081
  1,137
  1,196
Discount rate, %
 
  10.90
  11.45
  12.02
  12.62
  13.25
  13.91
  14.61
  15.34
  16.10
  16.91
  17.75
  18.64
  19.57
  20.55
  21.58
  22.66
  23.79
  24.98
  26.23
  27.54
  28.92
  30.37
  31.89
  33.48
  35.15
  36.91
  38.76
  40.69
  42.73
  44.87
PV of cash for distribution, $m
 
  203
  195
  186
  175
  162
  148
  133
  118
  102
  87
  71
  59
  47
  38
  29
  22
  16
  12
  8
  6
  4
  2
  1
  1
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Donnelley Financial Solutions, Inc. provides financial communications and data services for the investment and capital markets worldwide. It offers communication tools and services to allow its clients to comply with ongoing regulatory filings, primarily with the SEC; and communications services to create, manage, and deliver registration statements, prospectuses, proxies, and other communications to the SEC and its current and potential shareholders and investors. The company also provides virtual data rooms to facilitate the deal management requirements of capital markets and mergers and acquisitions transactions; and data and analytics services that help professionals uncover intelligence from financial disclosure contained within public filings made with the SEC. In addition, it offers language solutions, including translation, editing, interpreting, proof-reading, and multilingual typesetting; and specialized content services, such as transcreation, copywriting, linguistic validation by subject matter experts, transcription, voice-over, subtitling, and localization, as well as application testing and quality assurance. The company is based in Chicago, Illinois.


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FINANCIAL RATIOS  of  Donnelley Financial Solutions (DFIN)

Valuation Ratios
P/E Ratio 12.9
Price to Sales 0.8
Price to Book 6.9
Price to Tangible Book
Price to Cash Flow 7.2
Price to Free Cash Flow 9.5
Growth Rates
Sales Growth Rate -6.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -3.7%
Cap. Spend. - 3 Yr. Gr. Rate 5.4%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 528.8%
Total Debt to Equity 528.8%
Interest Coverage 0
Management Effectiveness
Return On Assets 6.6%
Ret/ On Assets - 3 Yr. Avg. 9.8%
Return On Total Capital 8.7%
Ret/ On T. Cap. - 3 Yr. Avg. 18.1%
Return On Equity 16.1%
Return On Equity - 3 Yr. Avg. 23.3%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 37.1%
Gross Margin - 3 Yr. Avg. 38.8%
EBITDA Margin 13.9%
EBITDA Margin - 3 Yr. Avg. 15.5%
Operating Margin 10.8%
Oper. Margin - 3 Yr. Avg. 11.9%
Pre-Tax Margin 9.6%
Pre-Tax Margin - 3 Yr. Avg. 11.5%
Net Profit Margin 6%
Net Profit Margin - 3 Yr. Avg. 7.1%
Effective Tax Rate 37.2%
Eff/ Tax Rate - 3 Yr. Avg. 38.3%
Payout Ratio 0%

DFIN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DFIN stock intrinsic value calculation we used $984 million for the last fiscal year's total revenue generated by Donnelley Financial Solutions. The default revenue input number comes from 2016 income statement of Donnelley Financial Solutions. 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 DFIN stock valuation model: a) initial revenue growth rate of 11.3% 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 10.9%, whose default value for DFIN is calculated based on our internal credit rating of Donnelley Financial Solutions, 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 Donnelley Financial Solutions.
    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 DFIN stock the variable cost ratio is equal to 83.5%.

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 DFIN 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 Donnelley Financial Solutions.

Corporate tax rate of 27% is the nominal tax rate for Donnelley Financial Solutions. 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 DFIN 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 DFIN are equal to 14.1%.

Life of production assets of 13.6 years is the average useful life of capital assets used in Donnelley Financial Solutions 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 DFIN is equal to 11%. 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 - $111 million for Donnelley Financial Solutions - 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 29.077 million for Donnelley Financial Solutions 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 Donnelley Financial Solutions at the current share price and the inputted number of shares is $0.7 billion.

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COMPANY NEWS

▶ Donnelley Financial posts 1Q profit   [06:49AM  Associated Press]
▶ Donnelley Financial reports 4Q loss   [06:47AM  Associated Press]
Stock chart of DFIN Financial statements of DFIN Annual reports of DFIN
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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