Intrinsic value of First Acceptance - FAC

Previous Close

$0.85

  Intrinsic Value

$0.58

stock screener

  Rating & Target

sell

-32%

  Value-price divergence*

-45%

Previous close

$0.85

 
Intrinsic value

$0.58

 
Up/down potential

-32%

 
Rating

sell

 
Value-price divergence*

-45%

Our model is not good at valuating stocks of financial companies, such as FAC.

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

We calculate the intrinsic value of FAC 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 0.0

 

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, %
  17.17
  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
  0
  397
  406
  416
  428
  441
  455
  471
  488
  506
  525
  546
  568
  592
  617
  643
  671
  701
  733
  766
  801
  838
  878
  919
  962
  1,008
  1,056
  1,107
  1,161
  1,217
  1,276
Variable operating expenses, $m
 
  397
  406
  416
  428
  441
  455
  470
  487
  505
  524
  542
  564
  587
  612
  638
  666
  696
  727
  760
  795
  832
  871
  912
  955
  1,001
  1,049
  1,099
  1,152
  1,208
  1,267
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
  431
  397
  406
  416
  428
  441
  455
  470
  487
  505
  524
  542
  564
  587
  612
  638
  666
  696
  727
  760
  795
  832
  871
  912
  955
  1,001
  1,049
  1,099
  1,152
  1,208
  1,267
Operating income, $m
  -42
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
EBITDA, $m
  -38
  4
  4
  4
  5
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
Interest expense (income), $m
  4
  4
  4
  5
  5
  6
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  18
  19
  20
  22
  24
  26
  27
  29
  32
  34
  36
  38
  41
  44
Earnings before tax, $m
  -45
  -4
  -4
  -5
  -5
  -5
  -6
  -7
  -7
  -8
  -9
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -14
  -15
  -16
  -18
  -19
  -21
  -22
  -24
  -26
  -28
  -30
  -32
  -34
Tax expense, $m
  -16
  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
  -29
  -4
  -4
  -5
  -5
  -5
  -6
  -7
  -7
  -8
  -9
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -14
  -15
  -16
  -18
  -19
  -21
  -22
  -24
  -26
  -28
  -30
  -32
  -34

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
Total assets, $m
  400
  408
  417
  428
  440
  453
  468
  484
  501
  520
  540
  561
  584
  608
  634
  661
  690
  721
  753
  787
  824
  862
  902
  944
  989
  1,036
  1,086
  1,138
  1,193
  1,251
  1,311
Adjusted assets (=assets-cash), $m
  400
  408
  417
  428
  440
  453
  468
  484
  501
  520
  540
  561
  584
  608
  634
  661
  690
  721
  753
  787
  824
  862
  902
  944
  989
  1,036
  1,086
  1,138
  1,193
  1,251
  1,311
Revenue / Adjusted assets
  0.000
  0.973
  0.974
  0.972
  0.973
  0.974
  0.972
  0.973
  0.974
  0.973
  0.972
  0.973
  0.973
  0.974
  0.973
  0.973
  0.972
  0.972
  0.973
  0.973
  0.972
  0.972
  0.973
  0.974
  0.973
  0.973
  0.972
  0.973
  0.973
  0.973
  0.973
Average production assets, $m
  13
  13
  13
  14
  14
  15
  15
  16
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  33
  35
  37
  38
  40
  42
Working capital, $m
  0
  31
  31
  32
  33
  34
  35
  36
  38
  39
  40
  42
  44
  46
  47
  50
  52
  54
  56
  59
  62
  65
  68
  71
  74
  78
  81
  85
  89
  94
  98
Total debt, $m
  70
  76
  84
  93
  103
  114
  126
  139
  153
  168
  184
  202
  221
  241
  262
  284
  308
  333
  360
  388
  417
  449
  482
  516
  553
  592
  632
  675
  720
  768
  817
Total liabilities, $m
  328
  334
  342
  351
  361
  372
  384
  397
  411
  426
  442
  460
  479
  499
  520
  542
  566
  591
  618
  646
  675
  707
  740
  774
  811
  850
  890
  933
  978
  1,026
  1,075
Total equity, $m
  72
  73
  75
  77
  79
  82
  84
  87
  90
  94
  97
  101
  105
  109
  114
  119
  124
  130
  136
  142
  148
  155
  162
  170
  178
  187
  195
  205
  215
  225
  236
Total liabilities and equity, $m
  400
  407
  417
  428
  440
  454
  468
  484
  501
  520
  539
  561
  584
  608
  634
  661
  690
  721
  754
  788
  823
  862
  902
  944
  989
  1,037
  1,085
  1,138
  1,193
  1,251
  1,311
Debt-to-equity ratio
  0.972
  1.040
  1.120
  1.210
  1.300
  1.390
  1.490
  1.590
  1.700
  1.800
  1.900
  2.000
  2.100
  2.200
  2.290
  2.390
  2.480
  2.570
  2.650
  2.740
  2.820
  2.890
  2.970
  3.040
  3.110
  3.170
  3.240
  3.300
  3.350
  3.410
  3.460
Adjusted equity ratio
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -29
  -4
  -4
  -5
  -5
  -5
  -6
  -7
  -7
  -8
  -9
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -14
  -15
  -16
  -18
  -19
  -21
  -22
  -24
  -26
  -28
  -30
  -32
  -34
Depreciation, amort., depletion, $m
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  5
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
Funds from operations, $m
  21
  0
  0
  0
  -1
  -1
  -2
  -2
  -3
  -3
  -4
  -5
  -5
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -14
  -15
  -16
  -18
  -19
  -21
  -23
  -24
  -26
  -28
  -30
Change in working capital, $m
  35
  1
  1
  1
  1
  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
Cash from operations, $m
  -14
  0
  -1
  -1
  -2
  -2
  -3
  -3
  -4
  -5
  -6
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -14
  -15
  -16
  -18
  -19
  -21
  -23
  -24
  -26
  -28
  -30
  -32
  -35
Maintenance CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
New CAPEX, $m
  -2
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
Cash from investing activities, $m
  17
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
Free cash flow, $m
  3
  -2
  -2
  -3
  -3
  -4
  -5
  -5
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -16
  -17
  -18
  -20
  -22
  -23
  -25
  -27
  -29
  -31
  -33
  -36
  -38
  -41
Issuance/(repayment) of debt, $m
  0
  6
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  19
  20
  21
  22
  24
  25
  27
  28
  30
  31
  33
  35
  37
  39
  41
  43
  45
  47
  50
Issuance/(repurchase) of shares, $m
  0
  5
  6
  7
  7
  8
  9
  9
  10
  11
  12
  10
  11
  13
  14
  15
  16
  18
  19
  21
  23
  24
  26
  28
  30
  32
  35
  37
  40
  42
  45
Cash from financing (excl. dividends), $m  
  0
  11
  14
  16
  17
  19
  21
  22
  24
  26
  28
  27
  30
  33
  35
  37
  40
  43
  46
  49
  53
  55
  59
  63
  67
  71
  76
  80
  85
  89
  95
Total cash flow (excl. dividends), $m
  3
  10
  11
  13
  14
  15
  16
  17
  18
  20
  21
  19
  20
  22
  23
  24
  26
  27
  29
  31
  32
  34
  36
  38
  40
  42
  44
  47
  49
  52
  54
Retained Cash Flow (-), $m
  32
  -5
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -11
  -12
  -10
  -11
  -13
  -14
  -15
  -16
  -18
  -19
  -21
  -23
  -24
  -26
  -28
  -30
  -32
  -35
  -37
  -40
  -42
  -45
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
 
  5
  5
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  9
  9
  9
  10
  10
  10
  10
  10
  10
  10
  10
  10
  10
  10
  10
  9
  9
  9
Discount rate, %
 
  9.80
  10.29
  10.80
  11.34
  11.91
  12.51
  13.13
  13.79
  14.48
  15.20
  15.96
  16.76
  17.60
  18.48
  19.40
  20.37
  21.39
  22.46
  23.58
  24.76
  26.00
  27.30
  28.67
  30.10
  31.61
  33.19
  34.85
  36.59
  38.42
  40.34
PV of cash for distribution, $m
 
  4
  4
  4
  4
  4
  4
  3
  3
  2
  2
  2
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  90.4
  81.1
  72.1
  63.7
  55.8
  48.4
  41.8
  35.7
  30.4
  25.6
  22.2
  19.2
  16.4
  13.9
  11.7
  9.8
  8.1
  6.7
  5.5
  4.5
  3.6
  2.9
  2.3
  1.9
  1.5
  1.2
  0.9
  0.7
  0.6
  0.4

First Acceptance Corporation, through its subsidiaries, operates as a retailer, servicer, and underwriter of non-standard personal automobile insurance and other ancillary products in the United States. The company operates in two segments, Insurance, and Real Estate and Corporate. It issues automobile insurance policies to individuals who are categorized as non-standard based primarily on their inability or unwillingness to obtain insurance coverage from standard carriers due to various factors, including their payment history or need for monthly payment plans, failure to maintain continuous insurance coverage, or driving record. The company also offers optional products that provide ancillary reimbursements and benefits in the event of an automobile accident, such as products that provide reimbursements for medical expenses and hospital stays as a result of injuries sustained in an automobile accident, automobile towing and rental, and ambulance services; and underwrites a tenant homeowner policy that provides contents and liability coverage to customers who are renters. In addition, it engages in the disposition of real estate held for sale. The company markets its products under the Acceptance Insurance brand name. It primarily distributes its products through its retail locations, as well as through call center and the Internet. As of December 31, 2015, the company leased and operated 440 retail locations. First Acceptance Corporation was founded in 1969 and is based in Nashville, Tennessee.

FINANCIAL RATIOS  of  First Acceptance (FAC)

Valuation Ratios
P/E Ratio -1.2
Price to Sales 0.1
Price to Book 0.5
Price to Tangible Book
Price to Cash Flow -2.5
Price to Free Cash Flow -2.2
Growth Rates
Sales Growth Rate 17.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -94.6%
Cap. Spend. - 3 Yr. Gr. Rate 14.9%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 55.6%
Total Debt to Equity 97.2%
Interest Coverage -10
Management Effectiveness
Return On Assets -6.6%
Ret/ On Assets - 3 Yr. Avg. 1.5%
Return On Total Capital -18.4%
Ret/ On T. Cap. - 3 Yr. Avg. 0.5%
Return On Equity -33%
Return On Equity - 3 Yr. Avg. -1.5%
Asset Turnover 1
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin -9.5%
EBITDA Margin - 3 Yr. Avg. -1.2%
Operating Margin -10.8%
Oper. Margin - 3 Yr. Avg. -2.2%
Pre-Tax Margin -11.6%
Pre-Tax Margin - 3 Yr. Avg. -2.9%
Net Profit Margin -7.5%
Net Profit Margin - 3 Yr. Avg. 0.9%
Effective Tax Rate 35.6%
Eff/ Tax Rate - 3 Yr. Avg. -37%
Payout Ratio 0%

FAC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FAC stock intrinsic value calculation we used $389 million for the last fiscal year's total revenue generated by First Acceptance. The default revenue input number comes from 2016 income statement of First Acceptance. 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 FAC 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 9.8%, whose default value for FAC is calculated based on our internal credit rating of First Acceptance, 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 First Acceptance.
    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 FAC stock the variable cost ratio is equal to 100%.

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 FAC 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 5.7% for First Acceptance.

Corporate tax rate of 27% is the nominal tax rate for First Acceptance. 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 FAC 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 FAC are equal to 3.3%.

Life of production assets of 10.5 years is the average useful life of capital assets used in First Acceptance 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 FAC is equal to 7.7%. 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 - $72 million for First Acceptance - 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 38.317 million for First Acceptance 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 First Acceptance at the current share price and the inputted number of shares is $0.0 billion.

RELATED COMPANIES Price Int.Val. Rating
IPCC Infinity Prope 91.40 82.75  hold
KFS Kingsway Finan 5.95 11.73  str.buy
ALL Allstate 93.33 215.93  str.buy
KMPR Kemper Corp 48.45 76.74  str.buy
PGR Progressive Co 48.51 116.32  str.buy
SAFT Safety Insuran 71.50 11.22  str.sell
MCY Mercury Genera 58.20 27.48  sell

COMPANY NEWS

▶ First Acceptance reports 2Q loss   [Aug-09-17 10:25PM  Associated Press]
▶ First Acceptance posts 1Q profit   [May-09-17 05:08PM  Associated Press]
▶ First Acceptance reports 4Q loss   [Mar-14-17 04:30PM  Associated Press]
▶ Insider Buys Shares of First Acceptance   [Nov-17-16 04:42PM  GuruFocus.com]
▶ 10-Q for First Acceptance Corp.   [Aug-13  08:10PM  at Company Spotlight]
▶ 10-Q for First Acceptance Corp.   [May-14  08:11PM  at Company Spotlight]
▶ 10-K for First Acceptance Corp.   [May-07  08:09PM  at Company Spotlight]
▶ 10-Q for First Acceptance Corp.   [Nov-06  07:08PM  Company Spotlight]
▶ First Acceptance names President Joe Borbely as CEO   [Sep-25  04:05PM  Thomson Reuters ONE]
▶ First Acceptance Corp Stock Upgraded (FAC)   [Jul-18  11:10AM  at TheStreet]
▶ First Acceptance Corp Stock Downgraded (FAC)   [Jun-03  11:11AM  at TheStreet]
Stock chart of FAC Financial statements of FAC
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.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.