Intrinsic value of Franklin Electric - FELE

Previous Close

$38.55

  Intrinsic Value

$35.45

stock screener

  Rating & Target

hold

-8%

  Value-price divergence*

+33%

Previous close

$38.55

 
Intrinsic value

$35.45

 
Up/down potential

-8%

 
Rating

hold

 
Value-price divergence*

+33%

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

We calculate the intrinsic value of FELE 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 1.7

 

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, %
  2.70
  2.70
  2.93
  3.14
  3.32
  3.49
  3.64
  3.78
  3.90
  4.01
  4.11
  4.20
  4.28
  4.35
  4.42
  4.47
  4.53
  4.57
  4.62
  4.65
  4.69
  4.72
  4.75
  4.77
  4.80
  4.82
  4.83
  4.85
  4.87
  4.88
  4.89
Revenue, $m
  950
  976
  1,004
  1,036
  1,070
  1,108
  1,148
  1,191
  1,238
  1,287
  1,340
  1,396
  1,456
  1,520
  1,587
  1,658
  1,733
  1,812
  1,896
  1,984
  2,077
  2,175
  2,278
  2,387
  2,501
  2,622
  2,749
  2,882
  3,022
  3,170
  3,325
Variable operating expenses, $m
 
  176
  181
  186
  191
  197
  204
  211
  218
  226
  234
  223
  233
  243
  254
  265
  277
  290
  303
  317
  332
  348
  364
  382
  400
  419
  440
  461
  483
  507
  532
Fixed operating expenses, $m
 
  702
  720
  738
  756
  775
  794
  814
  835
  855
  877
  899
  921
  944
  968
  992
  1,017
  1,042
  1,068
  1,095
  1,122
  1,151
  1,179
  1,209
  1,239
  1,270
  1,302
  1,334
  1,368
  1,402
  1,437
Total operating expenses, $m
  839
  878
  901
  924
  947
  972
  998
  1,025
  1,053
  1,081
  1,111
  1,122
  1,154
  1,187
  1,222
  1,257
  1,294
  1,332
  1,371
  1,412
  1,454
  1,499
  1,543
  1,591
  1,639
  1,689
  1,742
  1,795
  1,851
  1,909
  1,969
Operating income, $m
  111
  97
  104
  112
  123
  135
  150
  166
  185
  206
  229
  274
  302
  332
  365
  400
  439
  480
  524
  571
  622
  676
  734
  796
  862
  933
  1,007
  1,087
  1,171
  1,261
  1,356
EBITDA, $m
  147
  140
  148
  157
  168
  181
  197
  214
  234
  256
  280
  307
  336
  368
  402
  439
  479
  522
  569
  618
  671
  728
  788
  852
  921
  994
  1,072
  1,154
  1,242
  1,335
  1,434
Interest expense (income), $m
  9
  7
  7
  8
  8
  9
  10
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  23
  24
  26
  27
  29
  31
  33
  35
  37
  40
  42
  45
  47
Earnings before tax, $m
  104
  91
  97
  105
  114
  126
  140
  156
  174
  194
  216
  260
  287
  316
  348
  382
  419
  459
  501
  547
  596
  649
  705
  765
  829
  897
  970
  1,047
  1,129
  1,216
  1,309
Tax expense, $m
  25
  24
  26
  28
  31
  34
  38
  42
  47
  52
  58
  70
  78
  85
  94
  103
  113
  124
  135
  148
  161
  175
  190
  207
  224
  242
  262
  283
  305
  328
  353
Net income, $m
  79
  66
  71
  76
  84
  92
  102
  114
  127
  141
  158
  190
  210
  231
  254
  279
  306
  335
  366
  400
  435
  474
  515
  559
  605
  655
  708
  764
  824
  888
  955

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  104
  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
  1,040
  961
  989
  1,020
  1,054
  1,091
  1,131
  1,174
  1,219
  1,268
  1,320
  1,376
  1,435
  1,497
  1,563
  1,633
  1,707
  1,785
  1,868
  1,954
  2,046
  2,143
  2,244
  2,352
  2,464
  2,583
  2,708
  2,839
  2,978
  3,123
  3,276
Adjusted assets (=assets-cash), $m
  936
  961
  989
  1,020
  1,054
  1,091
  1,131
  1,174
  1,219
  1,268
  1,320
  1,376
  1,435
  1,497
  1,563
  1,633
  1,707
  1,785
  1,868
  1,954
  2,046
  2,143
  2,244
  2,352
  2,464
  2,583
  2,708
  2,839
  2,978
  3,123
  3,276
Revenue / Adjusted assets
  1.015
  1.016
  1.015
  1.016
  1.015
  1.016
  1.015
  1.014
  1.016
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
  1.015
Average production assets, $m
  331
  340
  349
  360
  372
  385
  399
  415
  431
  448
  466
  486
  507
  529
  552
  577
  603
  631
  660
  690
  723
  757
  793
  831
  870
  912
  957
  1,003
  1,052
  1,103
  1,157
Working capital, $m
  326
  262
  270
  279
  288
  298
  309
  320
  333
  346
  361
  376
  392
  409
  427
  446
  466
  487
  510
  534
  559
  585
  613
  642
  673
  705
  739
  775
  813
  853
  894
Total debt, $m
  190
  167
  179
  192
  206
  221
  238
  256
  275
  296
  318
  341
  366
  392
  420
  449
  480
  513
  547
  584
  622
  663
  706
  751
  798
  848
  900
  956
  1,014
  1,075
  1,139
Total liabilities, $m
  426
  404
  416
  429
  443
  458
  475
  493
  512
  533
  555
  578
  603
  629
  657
  686
  717
  750
  784
  821
  859
  900
  943
  988
  1,035
  1,085
  1,137
  1,193
  1,251
  1,312
  1,376
Total equity, $m
  613
  558
  574
  592
  612
  633
  656
  681
  707
  736
  766
  798
  832
  868
  907
  947
  990
  1,035
  1,083
  1,134
  1,187
  1,243
  1,302
  1,364
  1,429
  1,498
  1,571
  1,647
  1,727
  1,811
  1,900
Total liabilities and equity, $m
  1,039
  962
  990
  1,021
  1,055
  1,091
  1,131
  1,174
  1,219
  1,269
  1,321
  1,376
  1,435
  1,497
  1,564
  1,633
  1,707
  1,785
  1,867
  1,955
  2,046
  2,143
  2,245
  2,352
  2,464
  2,583
  2,708
  2,840
  2,978
  3,123
  3,276
Debt-to-equity ratio
  0.310
  0.300
  0.310
  0.320
  0.340
  0.350
  0.360
  0.380
  0.390
  0.400
  0.410
  0.430
  0.440
  0.450
  0.460
  0.470
  0.480
  0.500
  0.510
  0.520
  0.520
  0.530
  0.540
  0.550
  0.560
  0.570
  0.570
  0.580
  0.590
  0.590
  0.600
Adjusted equity ratio
  0.544
  0.580
  0.580
  0.580
  0.580
  0.580
  0.580
  0.580
  0.580
  0.580
  0.580
  0.580
  0.580
  0.580
  0.580
  0.580
  0.580
  0.580
  0.580
  0.580
  0.580
  0.580
  0.580
  0.580
  0.580
  0.580
  0.580
  0.580
  0.580
  0.580
  0.580

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  79
  66
  71
  76
  84
  92
  102
  114
  127
  141
  158
  190
  210
  231
  254
  279
  306
  335
  366
  400
  435
  474
  515
  559
  605
  655
  708
  764
  824
  888
  955
Depreciation, amort., depletion, $m
  36
  43
  44
  44
  45
  46
  47
  48
  49
  50
  52
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
  71
  75
  78
Funds from operations, $m
  106
  109
  114
  121
  129
  138
  149
  162
  176
  192
  209
  223
  244
  267
  291
  318
  347
  377
  411
  446
  484
  525
  568
  615
  664
  717
  773
  832
  895
  962
  1,034
Change in working capital, $m
  -9
  7
  8
  8
  9
  10
  11
  12
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  23
  24
  25
  26
  28
  29
  31
  32
  34
  36
  38
  40
  42
Cash from operations, $m
  115
  102
  106
  112
  119
  128
  138
  150
  164
  178
  195
  208
  228
  249
  273
  299
  326
  356
  388
  422
  459
  499
  541
  586
  633
  684
  739
  796
  858
  923
  992
Maintenance CAPEX, $m
  0
  -22
  -23
  -24
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -54
  -56
  -59
  -62
  -65
  -68
  -71
  -75
New CAPEX, $m
  -39
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -20
  -21
  -22
  -23
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -49
  -51
  -54
Cash from investing activities, $m
  -34
  -31
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -52
  -54
  -56
  -59
  -62
  -65
  -69
  -72
  -76
  -79
  -83
  -87
  -92
  -96
  -101
  -106
  -111
  -117
  -122
  -129
Free cash flow, $m
  81
  71
  74
  78
  83
  90
  98
  108
  119
  132
  146
  157
  174
  193
  214
  237
  261
  288
  316
  347
  380
  416
  454
  494
  537
  584
  633
  685
  741
  800
  863
Issuance/(repayment) of debt, $m
  -30
  11
  12
  13
  14
  15
  17
  18
  19
  21
  22
  23
  25
  26
  28
  29
  31
  33
  35
  37
  38
  41
  43
  45
  47
  50
  52
  55
  58
  61
  64
Issuance/(repurchase) of shares, $m
  -2
  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  
  -33
  11
  12
  13
  14
  15
  17
  18
  19
  21
  22
  23
  25
  26
  28
  29
  31
  33
  35
  37
  38
  41
  43
  45
  47
  50
  52
  55
  58
  61
  64
Total cash flow (excl. dividends), $m
  42
  82
  85
  91
  97
  105
  115
  126
  139
  153
  168
  180
  199
  219
  242
  266
  292
  321
  351
  384
  419
  456
  496
  539
  585
  633
  685
  740
  799
  861
  928
Retained Cash Flow (-), $m
  -55
  -15
  -16
  -18
  -20
  -21
  -23
  -25
  -27
  -28
  -30
  -32
  -34
  -36
  -38
  -41
  -43
  -45
  -48
  -50
  -53
  -56
  -59
  -62
  -65
  -69
  -72
  -76
  -80
  -84
  -89
Prev. year cash balance distribution, $m
 
  70
  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
 
  137
  69
  73
  78
  84
  92
  101
  112
  124
  138
  148
  165
  183
  203
  226
  249
  275
  303
  333
  366
  400
  437
  477
  519
  565
  613
  664
  719
  777
  839
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
 
  132
  63
  63
  64
  65
  67
  68
  70
  71
  72
  70
  70
  70
  68
  66
  63
  60
  56
  51
  46
  41
  36
  31
  26
  22
  18
  14
  11
  8
  6
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

Franklin Electric Co., Inc., together with its subsidiaries, designs, manufactures, and distributes water and fuel pumping systems worldwide. It operates in two segments, Water Systems and Fueling Systems. The Water Systems segment offers motors, pumps, electronic controls, and related parts and equipment. Its motors and pumps are used principally for pumping clean water and wastewater in various residential, agricultural, and industrial applications; and electronic drives and controls are used in motors, which control functionality and provide protection from various hazards, such as electric surges, over-heating, or dry wells or tanks. The Fueling Systems segment provides pumps, pipes, sumps, fittings, vapor recovery components, electronic controls, monitoring devices, and related parts and equipment primarily for use in submersible fueling system applications. It integrates and sells motors and electronic controls produced by the Water Systems segment. The company sells its products to specialty distributors, original equipment manufacturers, industrial and petroleum equipment distributors, and oil and utility companies. Franklin Electric Co., Inc. was founded in 1944 and is headquartered in Fort Wayne, Indiana.

FINANCIAL RATIOS  of  Franklin Electric (FELE)

Valuation Ratios
P/E Ratio 22.6
Price to Sales 1.9
Price to Book 2.9
Price to Tangible Book
Price to Cash Flow 15.5
Price to Free Cash Flow 23.5
Growth Rates
Sales Growth Rate 2.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 50%
Cap. Spend. - 3 Yr. Gr. Rate -10.5%
Financial Strength
Quick Ratio 3
Current Ratio 0.2
LT Debt to Equity 25.4%
Total Debt to Equity 31%
Interest Coverage 13
Management Effectiveness
Return On Assets 8.4%
Ret/ On Assets - 3 Yr. Avg. 7.9%
Return On Total Capital 10%
Ret/ On T. Cap. - 3 Yr. Avg. 9.5%
Return On Equity 13.5%
Return On Equity - 3 Yr. Avg. 12.6%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 34.8%
Gross Margin - 3 Yr. Avg. 33.3%
EBITDA Margin 15.7%
EBITDA Margin - 3 Yr. Avg. 14.3%
Operating Margin 11.7%
Oper. Margin - 3 Yr. Avg. 10.3%
Pre-Tax Margin 10.9%
Pre-Tax Margin - 3 Yr. Avg. 9.6%
Net Profit Margin 8.3%
Net Profit Margin - 3 Yr. Avg. 7.6%
Effective Tax Rate 24%
Eff/ Tax Rate - 3 Yr. Avg. 19.7%
Payout Ratio 24.1%

FELE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FELE stock intrinsic value calculation we used $950 million for the last fiscal year's total revenue generated by Franklin Electric. The default revenue input number comes from 2016 income statement of Franklin Electric. 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 FELE stock valuation model: a) initial revenue growth rate of 2.7% 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 FELE is calculated based on our internal credit rating of Franklin Electric, 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 Franklin Electric.
    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 FELE stock the variable cost ratio is equal to 18.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $685 million in the base year in the intrinsic value calculation for FELE 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 4.4% for Franklin Electric.

Corporate tax rate of 27% is the nominal tax rate for Franklin Electric. 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 FELE 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 FELE are equal to 34.8%.

Life of production assets of 14.8 years is the average useful life of capital assets used in Franklin Electric 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 FELE is equal to 26.9%. 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 - $613 million for Franklin Electric - 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 44.776 million for Franklin Electric 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 Franklin Electric at the current share price and the inputted number of shares is $1.7 billion.

RELATED COMPANIES Price Int.Val. Rating
XYL Xylem 59.03 79.67  buy
DOV Dover 83.86 176.49  str.buy
RBC Regal Beloit 76.05 57.95  sell
FTV Fortive 65.03 43.03  sell
GNRC Generac Holdin 36.41 55.83  str.buy
AOS A.O. Smith 53.93 113.66  str.buy
FLS Flowserve 38.12 25.50  sell
AMOT Allied Motion 24.95 16.09  sell
AME Ametek 62.94 77.18  buy

COMPANY NEWS

▶ Franklin Electric beats 2Q profit forecasts   [Jul-25-17 09:57PM  Associated Press]
▶ Franklin Electric beats 2Q profit forecasts   [08:08AM  Associated Press]
▶ Franklin Electric misses Street 1Q forecasts   [Apr-27-17 08:58AM  Associated Press]
▶ Franklin Electric meets 4Q profit forecasts   [09:05AM  Associated Press]
▶ INCON Wins First R&D 100 Award   [Nov-17-16 09:00AM  GlobeNewswire]
▶ Franklin Electric Wins First R&D 100 Award   [09:00AM  GlobeNewswire]
Stock chart of FELE Financial statements of FELE
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.