Intrinsic value of Echo Global Logistics - ECHO

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$20.45

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$20.45

 
Intrinsic value

$19.21

 
Up/down potential

-6%

 
Rating

hold

 
Value-price divergence* premium content

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

We calculate the intrinsic value of ECHO 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 0.6

 

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, %
  13.49
  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
  1,716
  1,750
  1,791
  1,837
  1,888
  1,946
  2,008
  2,077
  2,151
  2,231
  2,316
  2,408
  2,505
  2,609
  2,720
  2,837
  2,962
  3,093
  3,233
  3,380
  3,535
  3,699
  3,872
  4,054
  4,246
  4,448
  4,660
  4,884
  5,120
  5,368
  5,629
Variable operating expenses, $m
 
  1,723
  1,762
  1,807
  1,857
  1,912
  1,973
  2,039
  2,111
  2,188
  2,271
  2,329
  2,423
  2,524
  2,631
  2,744
  2,864
  2,992
  3,126
  3,268
  3,419
  3,577
  3,744
  3,920
  4,106
  4,301
  4,507
  4,724
  4,952
  5,192
  5,444
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
  1,701
  1,723
  1,762
  1,807
  1,857
  1,912
  1,973
  2,039
  2,111
  2,188
  2,271
  2,329
  2,423
  2,524
  2,631
  2,744
  2,864
  2,992
  3,126
  3,268
  3,419
  3,577
  3,744
  3,920
  4,106
  4,301
  4,507
  4,724
  4,952
  5,192
  5,444
Operating income, $m
  16
  27
  28
  30
  31
  33
  35
  38
  40
  43
  45
  79
  82
  86
  89
  93
  97
  102
  106
  111
  116
  122
  127
  133
  140
  146
  153
  161
  168
  177
  185
EBITDA, $m
  48
  70
  71
  73
  75
  77
  80
  83
  86
  89
  92
  96
  100
  104
  108
  113
  118
  123
  129
  135
  141
  147
  154
  161
  169
  177
  186
  194
  204
  214
  224
Interest expense (income), $m
  7
  0
  0
  1
  1
  1
  2
  2
  3
  4
  4
  5
  6
  7
  7
  8
  9
  10
  11
  13
  14
  15
  17
  18
  19
  21
  23
  25
  26
  28
  30
Earnings before tax, $m
  1
  27
  28
  29
  30
  32
  33
  35
  37
  39
  41
  74
  77
  79
  82
  85
  88
  91
  95
  99
  102
  106
  111
  115
  120
  125
  131
  136
  142
  148
  155
Tax expense, $m
  -1
  7
  8
  8
  8
  9
  9
  9
  10
  11
  11
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  32
  34
  35
  37
  38
  40
  42
Net income, $m
  2
  20
  20
  21
  22
  23
  24
  26
  27
  29
  30
  54
  56
  58
  60
  62
  64
  67
  69
  72
  75
  78
  81
  84
  88
  91
  95
  99
  104
  108
  113

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  17
  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
  767
  765
  783
  803
  825
  850
  878
  908
  940
  975
  1,012
  1,052
  1,095
  1,140
  1,189
  1,240
  1,294
  1,352
  1,413
  1,477
  1,545
  1,617
  1,692
  1,772
  1,856
  1,944
  2,037
  2,135
  2,238
  2,346
  2,460
Adjusted assets (=assets-cash), $m
  750
  765
  783
  803
  825
  850
  878
  908
  940
  975
  1,012
  1,052
  1,095
  1,140
  1,189
  1,240
  1,294
  1,352
  1,413
  1,477
  1,545
  1,617
  1,692
  1,772
  1,856
  1,944
  2,037
  2,135
  2,238
  2,346
  2,460
Revenue / Adjusted assets
  2.288
  2.288
  2.287
  2.288
  2.288
  2.289
  2.287
  2.287
  2.288
  2.288
  2.289
  2.289
  2.288
  2.289
  2.288
  2.288
  2.289
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
Average production assets, $m
  183
  186
  190
  195
  200
  206
  213
  220
  228
  236
  246
  255
  266
  277
  288
  301
  314
  328
  343
  358
  375
  392
  410
  430
  450
  471
  494
  518
  543
  569
  597
Working capital, $m
  100
  84
  86
  88
  91
  93
  96
  100
  103
  107
  111
  116
  120
  125
  131
  136
  142
  148
  155
  162
  170
  178
  186
  195
  204
  213
  224
  234
  246
  258
  270
Total debt, $m
  0
  8
  18
  28
  41
  54
  69
  86
  103
  122
  143
  165
  188
  213
  239
  267
  296
  328
  361
  396
  433
  472
  513
  557
  602
  650
  701
  754
  811
  870
  932
Total liabilities, $m
  409
  417
  427
  437
  450
  463
  478
  495
  512
  531
  552
  574
  597
  622
  648
  676
  705
  737
  770
  805
  842
  881
  922
  966
  1,011
  1,059
  1,110
  1,163
  1,220
  1,279
  1,341
Total equity, $m
  358
  348
  356
  365
  376
  387
  399
  413
  428
  444
  461
  479
  498
  519
  541
  564
  589
  615
  643
  672
  703
  736
  770
  806
  844
  884
  927
  971
  1,018
  1,068
  1,119
Total liabilities and equity, $m
  767
  765
  783
  802
  826
  850
  877
  908
  940
  975
  1,013
  1,053
  1,095
  1,141
  1,189
  1,240
  1,294
  1,352
  1,413
  1,477
  1,545
  1,617
  1,692
  1,772
  1,855
  1,943
  2,037
  2,134
  2,238
  2,347
  2,460
Debt-to-equity ratio
  0.000
  0.020
  0.050
  0.080
  0.110
  0.140
  0.170
  0.210
  0.240
  0.280
  0.310
  0.340
  0.380
  0.410
  0.440
  0.470
  0.500
  0.530
  0.560
  0.590
  0.620
  0.640
  0.670
  0.690
  0.710
  0.740
  0.760
  0.780
  0.800
  0.810
  0.830
Adjusted equity ratio
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2
  20
  20
  21
  22
  23
  24
  26
  27
  29
  30
  54
  56
  58
  60
  62
  64
  67
  69
  72
  75
  78
  81
  84
  88
  91
  95
  99
  104
  108
  113
Depreciation, amort., depletion, $m
  32
  43
  43
  43
  44
  44
  45
  45
  46
  46
  47
  17
  17
  18
  19
  20
  21
  21
  22
  23
  24
  26
  27
  28
  29
  31
  32
  34
  35
  37
  39
Funds from operations, $m
  61
  62
  63
  65
  66
  67
  69
  71
  73
  75
  77
  71
  73
  76
  79
  82
  85
  88
  92
  95
  99
  103
  108
  112
  117
  122
  128
  133
  139
  145
  152
Change in working capital, $m
  1
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
Cash from operations, $m
  60
  68
  62
  62
  64
  65
  66
  67
  69
  71
  73
  66
  69
  71
  73
  76
  79
  82
  85
  88
  92
  96
  99
  104
  108
  113
  117
  122
  128
  133
  139
Maintenance CAPEX, $m
  0
  -12
  -12
  -12
  -13
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -29
  -31
  -32
  -34
  -35
  -37
New CAPEX, $m
  -47
  -3
  -4
  -5
  -5
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -26
  -28
Cash from investing activities, $m
  -47
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -31
  -33
  -35
  -36
  -38
  -39
  -41
  -44
  -46
  -48
  -50
  -54
  -56
  -59
  -61
  -65
Free cash flow, $m
  13
  53
  45
  45
  45
  46
  46
  46
  47
  47
  48
  41
  42
  43
  44
  45
  46
  47
  49
  50
  52
  54
  55
  57
  59
  62
  64
  66
  69
  72
  75
Issuance/(repayment) of debt, $m
  0
  8
  10
  11
  12
  14
  15
  16
  18
  19
  20
  22
  23
  25
  26
  28
  30
  31
  33
  35
  37
  39
  41
  43
  46
  48
  51
  53
  56
  59
  62
Issuance/(repurchase) of shares, $m
  -48
  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  
  -53
  8
  10
  11
  12
  14
  15
  16
  18
  19
  20
  22
  23
  25
  26
  28
  30
  31
  33
  35
  37
  39
  41
  43
  46
  48
  51
  53
  56
  59
  62
Total cash flow (excl. dividends), $m
  -40
  61
  55
  56
  58
  59
  61
  63
  64
  66
  69
  63
  65
  67
  70
  73
  76
  79
  82
  85
  89
  93
  97
  101
  105
  110
  115
  120
  125
  131
  137
Retained Cash Flow (-), $m
  37
  -7
  -8
  -9
  -10
  -11
  -12
  -14
  -15
  -16
  -17
  -18
  -19
  -21
  -22
  -23
  -25
  -26
  -28
  -29
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -45
  -47
  -49
  -52
Prev. year cash balance distribution, $m
 
  17
  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
 
  71
  47
  47
  47
  48
  48
  49
  50
  51
  52
  44
  45
  47
  48
  49
  51
  53
  54
  56
  58
  60
  62
  65
  67
  70
  72
  75
  78
  81
  85
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
 
  68
  43
  41
  39
  37
  35
  33
  31
  29
  27
  21
  19
  18
  16
  14
  13
  11
  10
  9
  7
  6
  5
  4
  3
  3
  2
  2
  1
  1
  1
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

Echo Global Logistics, Inc. provides technology-enabled transportation and supply chain management solutions in the United States. It uses a proprietary technology platform to compile and analyze data from its multi-modal network of transportation providers for the transportation and logistics needs. The company offers services in various transportation modes, such as truckload, less-than truckload, small parcel, inter-modal, domestic air, and expedited and international. Its principal transportation management and logistics services include rate negotiation; procurement of transportation; shipment execution and tracking; carrier management, selection, reporting, and compliance; executive dashboard presentations and detailed shipment reports; freight bill payment and audit; claims processing and service refund management; design and management of inbound client freight programs; individually configured Web portals and self-service data warehouses; enterprise resource planning integration with transactional shipment data; and integration of shipping applications into client e-commerce sites, as well as back-end reports customized to the internal reporting needs of the business. The company serves clients operating in various industries, such as manufacturing, construction, food and beverage, consumer products, and retail. Echo Global Logistics, Inc. was founded in 2005 and is headquartered in Chicago, Illinois.

FINANCIAL RATIOS  of  Echo Global Logistics (ECHO)

Valuation Ratios
P/E Ratio 287.6
Price to Sales 0.3
Price to Book 1.6
Price to Tangible Book
Price to Cash Flow 9.6
Price to Free Cash Flow 44.3
Growth Rates
Sales Growth Rate 13.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 213.3%
Cap. Spend. - 3 Yr. Gr. Rate 39.2%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 1
Management Effectiveness
Return On Assets 2.1%
Ret/ On Assets - 3 Yr. Avg. 3.4%
Return On Total Capital 0.5%
Ret/ On T. Cap. - 3 Yr. Avg. 4.4%
Return On Equity 0.5%
Return On Equity - 3 Yr. Avg. 4.4%
Asset Turnover 2.3
Profitability Ratios
Gross Margin 18.6%
Gross Margin - 3 Yr. Avg. 18.5%
EBITDA Margin 2.3%
EBITDA Margin - 3 Yr. Avg. 2.8%
Operating Margin 0.9%
Oper. Margin - 3 Yr. Avg. 1.6%
Pre-Tax Margin 0.1%
Pre-Tax Margin - 3 Yr. Avg. 1.1%
Net Profit Margin 0.1%
Net Profit Margin - 3 Yr. Avg. 0.7%
Effective Tax Rate -100%
Eff/ Tax Rate - 3 Yr. Avg. -9.9%
Payout Ratio 0%

ECHO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ECHO stock intrinsic value calculation we used $1716 million for the last fiscal year's total revenue generated by Echo Global Logistics. The default revenue input number comes from 2016 income statement of Echo Global Logistics. 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 ECHO 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 ECHO is calculated based on our internal credit rating of Echo Global Logistics, 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 Echo Global Logistics.
    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 ECHO stock the variable cost ratio is equal to 98.5%.

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 ECHO 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 Echo Global Logistics.

Corporate tax rate of 27% is the nominal tax rate for Echo Global Logistics. 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 ECHO 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 ECHO are equal to 10.6%.

Life of production assets of 15.3 years is the average useful life of capital assets used in Echo Global Logistics 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 ECHO is equal to 4.8%. 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 - $358 million for Echo Global Logistics - 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 28.74 million for Echo Global Logistics 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 Echo Global Logistics at the current share price and the inputted number of shares is $0.6 billion.


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COMPANY NEWS

▶ AT&T Spends $1.6B to Upgrade Its 5G Wireless Plan   [Apr-10-17 04:54PM  TheStreet.com]
▶ Echo Global Logistics reports 4Q loss   [05:08PM  Associated Press]
▶ What Smart Money Thinks about Echo Global Logistics, Inc. (ECHO)?   [Dec-20-16 03:19PM  at Insider Monkey]
▶ [$$] Sharing the Wealth   [Sep-10-16 12:01AM  at Barrons.com]
▶ Echo Logistics Back on the Acquisition Hunt   [01:44PM  at The Wall Street Journal]
▶ A. Duie Pyle Receives Northeast Regional Platinum Award   [May-18-16 09:41AM  Marketwired]
▶ Echo Global Logistics Signs 225k SF Lease in Chicago   [Mar-30-16 03:47PM  Marketwired]
▶ Transportation Insight Buys Parcel Delivery Software Platform   [Nov-18  11:14AM  at The Wall Street Journal]
Stock chart of ECHO Financial statements of ECHO
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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