Intrinsic value of Dawson Geophysical - DWSN

Previous Close

$3.87

  Intrinsic Value

$2.01

stock screener

  Rating & Target

sell

-48%

  Value-price divergence*

+18%

Previous close

$3.87

 
Intrinsic value

$2.01

 
Up/down potential

-48%

 
Rating

sell

 
Value-price divergence*

+18%

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

We calculate the intrinsic value of DWSN 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 0.1

 

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, %
  -43.40
  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
  133
  136
  139
  142
  146
  151
  156
  161
  167
  173
  180
  187
  194
  202
  211
  220
  230
  240
  251
  262
  274
  287
  300
  314
  329
  345
  361
  379
  397
  416
  436
Variable operating expenses, $m
 
  122
  125
  128
  132
  136
  140
  145
  150
  156
  162
  168
  175
  182
  190
  198
  207
  216
  226
  236
  247
  259
  271
  283
  297
  311
  326
  341
  358
  375
  394
Fixed operating expenses, $m
 
  67
  68
  70
  72
  74
  75
  77
  79
  81
  83
  85
  87
  90
  92
  94
  96
  99
  101
  104
  107
  109
  112
  115
  118
  121
  124
  127
  130
  133
  136
Total operating expenses, $m
  183
  189
  193
  198
  204
  210
  215
  222
  229
  237
  245
  253
  262
  272
  282
  292
  303
  315
  327
  340
  354
  368
  383
  398
  415
  432
  450
  468
  488
  508
  530
Operating income, $m
  -49
  -53
  -55
  -56
  -57
  -59
  -60
  -61
  -63
  -64
  -66
  -67
  -68
  -70
  -71
  -73
  -74
  -75
  -77
  -78
  -80
  -81
  -82
  -84
  -85
  -87
  -88
  -90
  -91
  -92
  -94
EBITDA, $m
  -5
  -40
  -41
  -42
  -43
  -44
  -45
  -46
  -47
  -47
  -48
  -49
  -49
  -50
  -51
  -51
  -52
  -52
  -52
  -53
  -53
  -53
  -53
  -53
  -53
  -53
  -53
  -53
  -52
  -52
  -51
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
Earnings before tax, $m
  -46
  -53
  -55
  -56
  -57
  -59
  -60
  -62
  -63
  -64
  -66
  -67
  -69
  -70
  -71
  -73
  -74
  -76
  -77
  -79
  -80
  -82
  -83
  -85
  -86
  -88
  -89
  -90
  -92
  -93
  -95
Tax expense, $m
  -6
  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
  -40
  -53
  -55
  -56
  -57
  -59
  -60
  -62
  -63
  -64
  -66
  -67
  -69
  -70
  -71
  -73
  -74
  -76
  -77
  -79
  -80
  -82
  -83
  -85
  -86
  -88
  -89
  -90
  -92
  -93
  -95

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  55
  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
  188
  136
  139
  142
  146
  151
  156
  161
  167
  173
  180
  187
  194
  202
  211
  220
  230
  240
  251
  262
  274
  287
  300
  314
  329
  345
  361
  379
  397
  416
  436
Adjusted assets (=assets-cash), $m
  133
  136
  139
  142
  146
  151
  156
  161
  167
  173
  180
  187
  194
  202
  211
  220
  230
  240
  251
  262
  274
  287
  300
  314
  329
  345
  361
  379
  397
  416
  436
Revenue / Adjusted assets
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
Average production assets, $m
  130
  132
  135
  139
  143
  147
  152
  157
  162
  168
  175
  182
  189
  197
  205
  214
  224
  234
  244
  255
  267
  279
  292
  306
  320
  336
  352
  369
  387
  405
  425
Working capital, $m
  61
  8
  8
  9
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
Total debt, $m
  2
  0
  1
  1
  2
  2
  3
  3
  4
  5
  5
  6
  7
  8
  9
  10
  11
  12
  13
  15
  16
  17
  19
  21
  22
  24
  26
  28
  30
  32
  34
Total liabilities, $m
  17
  15
  16
  16
  17
  17
  18
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  36
  37
  39
  41
  43
  45
  47
  49
Total equity, $m
  171
  120
  123
  126
  130
  134
  138
  143
  148
  153
  159
  166
  172
  179
  187
  195
  204
  213
  222
  232
  243
  254
  266
  279
  292
  306
  320
  336
  352
  369
  387
Total liabilities and equity, $m
  188
  135
  139
  142
  147
  151
  156
  161
  167
  173
  179
  187
  194
  202
  211
  220
  230
  240
  250
  262
  274
  286
  300
  315
  329
  345
  361
  379
  397
  416
  436
Debt-to-equity ratio
  0.012
  0.000
  0.010
  0.010
  0.010
  0.020
  0.020
  0.020
  0.030
  0.030
  0.030
  0.040
  0.040
  0.040
  0.050
  0.050
  0.050
  0.060
  0.060
  0.060
  0.070
  0.070
  0.070
  0.070
  0.080
  0.080
  0.080
  0.080
  0.080
  0.090
  0.090
Adjusted equity ratio
  0.872
  0.887
  0.887
  0.887
  0.887
  0.887
  0.887
  0.887
  0.887
  0.887
  0.887
  0.887
  0.887
  0.887
  0.887
  0.887
  0.887
  0.887
  0.887
  0.887
  0.887
  0.887
  0.887
  0.887
  0.887
  0.887
  0.887
  0.887
  0.887
  0.887
  0.887

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -40
  -53
  -55
  -56
  -57
  -59
  -60
  -62
  -63
  -64
  -66
  -67
  -69
  -70
  -71
  -73
  -74
  -76
  -77
  -79
  -80
  -82
  -83
  -85
  -86
  -88
  -89
  -90
  -92
  -93
  -95
Depreciation, amort., depletion, $m
  44
  13
  14
  14
  14
  15
  15
  16
  16
  17
  17
  18
  19
  20
  21
  21
  22
  23
  24
  26
  27
  28
  29
  31
  32
  34
  35
  37
  39
  41
  42
Funds from operations, $m
  21
  -40
  -41
  -42
  -43
  -44
  -45
  -46
  -47
  -48
  -48
  -49
  -50
  -50
  -51
  -51
  -52
  -52
  -53
  -53
  -53
  -54
  -54
  -54
  -54
  -54
  -54
  -54
  -53
  -53
  -52
Change in working capital, $m
  12
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
Cash from operations, $m
  9
  -40
  -41
  -42
  -43
  -44
  -45
  -46
  -47
  -48
  -49
  -49
  -50
  -51
  -51
  -52
  -53
  -53
  -53
  -54
  -54
  -54
  -55
  -55
  -55
  -55
  -55
  -55
  -54
  -54
  -53
Maintenance CAPEX, $m
  0
  -13
  -13
  -14
  -14
  -14
  -15
  -15
  -16
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
New CAPEX, $m
  -8
  -3
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
Cash from investing activities, $m
  -23
  -16
  -16
  -17
  -18
  -18
  -20
  -20
  -22
  -22
  -23
  -24
  -25
  -27
  -28
  -30
  -30
  -32
  -34
  -35
  -38
  -39
  -41
  -43
  -45
  -47
  -50
  -52
  -55
  -58
  -61
Free cash flow, $m
  -14
  -56
  -58
  -59
  -61
  -63
  -65
  -67
  -68
  -70
  -72
  -74
  -76
  -78
  -79
  -81
  -83
  -85
  -87
  -89
  -91
  -94
  -96
  -98
  -100
  -102
  -104
  -107
  -109
  -111
  -114
Issuance/(repayment) of debt, $m
  -8
  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
  2
Issuance/(repurchase) of shares, $m
  0
  56
  57
  59
  61
  63
  65
  66
  68
  70
  72
  73
  75
  77
  79
  81
  83
  85
  87
  89
  91
  93
  95
  97
  99
  101
  104
  106
  108
  110
  113
Cash from financing (excl. dividends), $m  
  -8
  56
  57
  59
  61
  64
  66
  67
  69
  71
  73
  74
  76
  78
  80
  82
  84
  86
  88
  90
  92
  94
  97
  99
  101
  103
  106
  108
  110
  112
  115
Total cash flow (excl. dividends), $m
  -22
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
Retained Cash Flow (-), $m
  39
  -56
  -57
  -59
  -61
  -63
  -65
  -66
  -68
  -70
  -72
  -73
  -75
  -77
  -79
  -81
  -83
  -85
  -87
  -89
  -91
  -93
  -95
  -97
  -99
  -101
  -104
  -106
  -108
  -110
  -113
Prev. year cash balance distribution, $m
 
  53
  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
 
  -3
  -57
  -59
  -61
  -62
  -64
  -66
  -68
  -69
  -71
  -73
  -75
  -77
  -79
  -80
  -82
  -84
  -86
  -88
  -90
  -92
  -94
  -96
  -98
  -100
  -103
  -105
  -107
  -109
  -111
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  -2
  -52
  -51
  -50
  -48
  -47
  -45
  -42
  -40
  -37
  -35
  -32
  -29
  -26
  -24
  -21
  -18
  -16
  -14
  -11
  -10
  -8
  -6
  -5
  -4
  -3
  -2
  -2
  -1
  -1
Current shareholders' claim on cash, %
  100
  59.7
  35.5
  21.0
  12.5
  7.4
  4.4
  2.6
  1.5
  0.9
  0.6
  0.3
  0.2
  0.1
  0.1
  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
  0.0

Dawson Geophysical Company provides onshore seismic data acquisition services in the continental United States and Canada. The company acquires and processes 2-D, 3-D, and multi-component seismic data for its clients, including oil and gas companies, and independent oil and gas operators, as well as providers of multi-client data libraries. It operates seismic crews that supply seismic data primarily to companies engaged in the exploration and development of oil and natural gas on land and in land-to-water transition areas. The company also serves the potash mining industry. As of December 31, 2015, it operated 10 seismic crews, consisting of 8 crews in the United States and 2 crews in Canada. Dawson Geophysical Company was founded in 1952 and is headquartered in Midland, Texas with three additional offices in Denison, Houston, and Plano, Texas, as well as two additional offices in Oklahoma City, Oklahoma and Denver, Colorado.

FINANCIAL RATIOS  of  Dawson Geophysical (DWSN)

Valuation Ratios
P/E Ratio -2.1
Price to Sales 0.6
Price to Book 0.5
Price to Tangible Book
Price to Cash Flow 9.3
Price to Free Cash Flow 84
Growth Rates
Sales Growth Rate -43.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 14.3%
Cap. Spend. - 3 Yr. Gr. Rate 32%
Financial Strength
Quick Ratio 28
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 1.2%
Interest Coverage 0
Management Effectiveness
Return On Assets -18.3%
Ret/ On Assets - 3 Yr. Avg. -11.3%
Return On Total Capital -20.3%
Ret/ On T. Cap. - 3 Yr. Avg. -13.1%
Return On Equity -21%
Return On Equity - 3 Yr. Avg. -13.8%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 4.8%
EBITDA Margin -1.5%
EBITDA Margin - 3 Yr. Avg. 2.3%
Operating Margin -37.6%
Oper. Margin - 3 Yr. Avg. -21.8%
Pre-Tax Margin -34.6%
Pre-Tax Margin - 3 Yr. Avg. -21.1%
Net Profit Margin -30.1%
Net Profit Margin - 3 Yr. Avg. -16.5%
Effective Tax Rate 13%
Eff/ Tax Rate - 3 Yr. Avg. 25.5%
Payout Ratio 0%

DWSN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DWSN stock intrinsic value calculation we used $133 million for the last fiscal year's total revenue generated by Dawson Geophysical. The default revenue input number comes from 2016 income statement of Dawson Geophysical. 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 DWSN 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 4.3%, whose default value for DWSN is calculated based on our internal credit rating of Dawson Geophysical, 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 Dawson Geophysical.
    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 DWSN stock the variable cost ratio is equal to 90.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $65 million in the base year in the intrinsic value calculation for DWSN 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 Dawson Geophysical.

Corporate tax rate of 27% is the nominal tax rate for Dawson Geophysical. 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 DWSN 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 DWSN are equal to 97.4%.

Life of production assets of 10 years is the average useful life of capital assets used in Dawson Geophysical 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 DWSN is equal to 6%. 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 - $171 million for Dawson Geophysical - 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 21.275 million for Dawson Geophysical 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 Dawson Geophysical at the current share price and the inputted number of shares is $0.1 billion.

RELATED COMPANIES Price Int.Val. Rating
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COMPANY NEWS

▶ Dawson Geophysical reports 2Q loss   [Aug-04-17 02:29AM  Associated Press]
▶ Dawson Geophysical reports 2Q loss   [06:22AM  Associated Press]
▶ 3 Energy Stocks to Buy at the Bottom of the Cycle   [Aug-01-17 07:32AM  Motley Fool]
▶ Dawson Geophysical Hopes for Better Times Ahead   [May-06-17 06:31PM  Motley Fool]
▶ Dawson Geophysical reports 1Q loss   [06:14AM  Associated Press]
▶ Dawson Geophysical reports 4Q loss   [06:15AM  Associated Press]
▶ Dawson Geophysical Narrows Loss, Looks for 2016 Oil Recovery   [Mar-11-16 05:05PM  at Motley Fool]
▶ Dawson Geophysical Makes the Most of a Tough Situation   [Nov-06  07:00PM  at Motley Fool]
Stock chart of DWSN Financial statements of DWSN
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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