Intrinsic value of Comfort Systems USA - FIX

Previous Close

$34.60

  Intrinsic Value

$54.86

stock screener

  Rating & Target

str. buy

+59%

  Value-price divergence*

-15%

Previous close

$34.60

 
Intrinsic value

$54.86

 
Up/down potential

+59%

 
Rating

str. buy

 
Value-price divergence*

-15%

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

We calculate the intrinsic value of FIX 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 1.3

 

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, %
  3.35
  8.60
  8.24
  7.92
  7.62
  7.36
  7.13
  6.91
  6.72
  6.55
  6.39
  6.26
  6.13
  6.02
  5.92
  5.82
  5.74
  5.67
  5.60
  5.54
  5.49
  5.44
  5.39
  5.35
  5.32
  5.29
  5.26
  5.23
  5.21
  5.19
  5.17
Revenue, $m
  1,634
  1,775
  1,921
  2,073
  2,231
  2,395
  2,566
  2,743
  2,927
  3,119
  3,319
  3,526
  3,742
  3,968
  4,202
  4,447
  4,702
  4,969
  5,247
  5,538
  5,842
  6,159
  6,491
  6,839
  7,203
  7,584
  7,982
  8,400
  8,838
  9,296
  9,777
Variable operating expenses, $m
 
  1,440
  1,557
  1,679
  1,806
  1,938
  2,075
  2,217
  2,365
  2,519
  2,679
  2,831
  3,005
  3,186
  3,374
  3,570
  3,775
  3,989
  4,213
  4,446
  4,690
  4,945
  5,212
  5,491
  5,783
  6,089
  6,409
  6,744
  7,096
  7,464
  7,850
Fixed operating expenses, $m
 
  217
  223
  228
  234
  240
  246
  252
  258
  265
  271
  278
  285
  292
  300
  307
  315
  323
  331
  339
  347
  356
  365
  374
  383
  393
  403
  413
  423
  434
  445
Total operating expenses, $m
  1,533
  1,657
  1,780
  1,907
  2,040
  2,178
  2,321
  2,469
  2,623
  2,784
  2,950
  3,109
  3,290
  3,478
  3,674
  3,877
  4,090
  4,312
  4,544
  4,785
  5,037
  5,301
  5,577
  5,865
  6,166
  6,482
  6,812
  7,157
  7,519
  7,898
  8,295
Operating income, $m
  102
  118
  141
  165
  191
  217
  245
  274
  304
  335
  368
  417
  453
  490
  529
  570
  612
  657
  704
  753
  804
  858
  915
  974
  1,036
  1,102
  1,171
  1,243
  1,319
  1,399
  1,483
EBITDA, $m
  128
  144
  169
  194
  221
  248
  277
  307
  338
  371
  405
  441
  478
  516
  557
  599
  644
  690
  739
  790
  843
  899
  958
  1,020
  1,085
  1,153
  1,224
  1,299
  1,378
  1,461
  1,548
Interest expense (income), $m
  2
  1
  8
  16
  24
  33
  42
  51
  61
  70
  81
  92
  103
  115
  127
  139
  153
  166
  181
  196
  212
  228
  245
  263
  282
  302
  322
  344
  366
  390
  415
Earnings before tax, $m
  101
  117
  133
  149
  167
  185
  203
  223
  243
  265
  287
  325
  350
  375
  402
  430
  460
  490
  523
  557
  592
  630
  669
  711
  754
  800
  848
  899
  952
  1,008
  1,068
Tax expense, $m
  36
  32
  36
  40
  45
  50
  55
  60
  66
  71
  77
  88
  94
  101
  109
  116
  124
  132
  141
  150
  160
  170
  181
  192
  204
  216
  229
  243
  257
  272
  288
Net income, $m
  65
  85
  97
  109
  122
  135
  148
  163
  178
  193
  210
  237
  255
  274
  293
  314
  335
  358
  382
  406
  432
  460
  489
  519
  551
  584
  619
  656
  695
  736
  779

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  32
  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
  709
  735
  796
  859
  924
  992
  1,063
  1,136
  1,213
  1,292
  1,375
  1,461
  1,550
  1,644
  1,741
  1,842
  1,948
  2,058
  2,174
  2,294
  2,420
  2,551
  2,689
  2,833
  2,984
  3,142
  3,307
  3,480
  3,661
  3,851
  4,050
Adjusted assets (=assets-cash), $m
  677
  735
  796
  859
  924
  992
  1,063
  1,136
  1,213
  1,292
  1,375
  1,461
  1,550
  1,644
  1,741
  1,842
  1,948
  2,058
  2,174
  2,294
  2,420
  2,551
  2,689
  2,833
  2,984
  3,142
  3,307
  3,480
  3,661
  3,851
  4,050
Revenue / Adjusted assets
  2.414
  2.415
  2.413
  2.413
  2.415
  2.414
  2.414
  2.415
  2.413
  2.414
  2.414
  2.413
  2.414
  2.414
  2.414
  2.414
  2.414
  2.414
  2.414
  2.414
  2.414
  2.414
  2.414
  2.414
  2.414
  2.414
  2.414
  2.414
  2.414
  2.414
  2.414
Average production assets, $m
  106
  115
  125
  135
  145
  156
  167
  178
  190
  203
  216
  229
  243
  258
  273
  289
  306
  323
  341
  360
  380
  400
  422
  445
  468
  493
  519
  546
  574
  604
  635
Working capital, $m
  98
  73
  79
  85
  91
  98
  105
  112
  120
  128
  136
  145
  153
  163
  172
  182
  193
  204
  215
  227
  240
  253
  266
  280
  295
  311
  327
  344
  362
  381
  401
Total debt, $m
  3
  30
  60
  91
  123
  156
  191
  227
  264
  303
  343
  385
  429
  475
  522
  572
  624
  678
  734
  793
  854
  919
  986
  1,056
  1,130
  1,207
  1,288
  1,373
  1,461
  1,554
  1,651
Total liabilities, $m
  332
  359
  389
  420
  452
  485
  520
  556
  593
  632
  672
  714
  758
  804
  851
  901
  953
  1,007
  1,063
  1,122
  1,183
  1,248
  1,315
  1,385
  1,459
  1,536
  1,617
  1,702
  1,790
  1,883
  1,980
Total equity, $m
  377
  376
  407
  439
  472
  507
  543
  581
  620
  660
  703
  746
  792
  840
  890
  941
  995
  1,052
  1,111
  1,172
  1,237
  1,304
  1,374
  1,448
  1,525
  1,605
  1,690
  1,778
  1,871
  1,968
  2,070
Total liabilities and equity, $m
  709
  735
  796
  859
  924
  992
  1,063
  1,137
  1,213
  1,292
  1,375
  1,460
  1,550
  1,644
  1,741
  1,842
  1,948
  2,059
  2,174
  2,294
  2,420
  2,552
  2,689
  2,833
  2,984
  3,141
  3,307
  3,480
  3,661
  3,851
  4,050
Debt-to-equity ratio
  0.008
  0.080
  0.150
  0.210
  0.260
  0.310
  0.350
  0.390
  0.430
  0.460
  0.490
  0.520
  0.540
  0.570
  0.590
  0.610
  0.630
  0.640
  0.660
  0.680
  0.690
  0.700
  0.720
  0.730
  0.740
  0.750
  0.760
  0.770
  0.780
  0.790
  0.800
Adjusted equity ratio
  0.510
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  65
  85
  97
  109
  122
  135
  148
  163
  178
  193
  210
  237
  255
  274
  293
  314
  335
  358
  382
  406
  432
  460
  489
  519
  551
  584
  619
  656
  695
  736
  779
Depreciation, amort., depletion, $m
  26
  27
  28
  29
  30
  31
  32
  33
  35
  36
  37
  24
  25
  27
  28
  30
  32
  33
  35
  37
  39
  41
  43
  46
  48
  51
  53
  56
  59
  62
  66
Funds from operations, $m
  88
  112
  125
  138
  151
  166
  181
  196
  212
  229
  247
  261
  280
  301
  322
  344
  367
  391
  417
  444
  472
  501
  532
  565
  599
  635
  673
  713
  754
  798
  845
Change in working capital, $m
  -3
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
Cash from operations, $m
  91
  106
  119
  132
  145
  159
  174
  189
  205
  221
  238
  253
  272
  291
  312
  334
  356
  380
  405
  432
  459
  488
  518
  550
  584
  619
  656
  695
  736
  780
  825
Maintenance CAPEX, $m
  0
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -20
  -21
  -22
  -24
  -25
  -27
  -28
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -43
  -46
  -48
  -51
  -53
  -56
  -59
  -62
New CAPEX, $m
  -23
  -10
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
Cash from investing activities, $m
  -79
  -21
  -22
  -23
  -24
  -26
  -27
  -29
  -30
  -32
  -34
  -35
  -38
  -40
  -42
  -44
  -47
  -49
  -51
  -54
  -57
  -60
  -63
  -66
  -70
  -73
  -77
  -80
  -84
  -89
  -93
Free cash flow, $m
  12
  86
  97
  109
  121
  133
  146
  160
  174
  189
  205
  217
  234
  252
  270
  290
  310
  332
  354
  378
  402
  428
  456
  484
  515
  546
  580
  615
  652
  691
  732
Issuance/(repayment) of debt, $m
  -11
  28
  30
  31
  32
  33
  35
  36
  37
  39
  40
  42
  44
  46
  48
  50
  52
  54
  56
  59
  62
  64
  67
  70
  74
  77
  81
  85
  89
  93
  97
Issuance/(repurchase) of shares, $m
  -12
  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  
  -26
  28
  30
  31
  32
  33
  35
  36
  37
  39
  40
  42
  44
  46
  48
  50
  52
  54
  56
  59
  62
  64
  67
  70
  74
  77
  81
  85
  89
  93
  97
Total cash flow (excl. dividends), $m
  -14
  114
  127
  140
  153
  167
  181
  196
  212
  228
  245
  259
  278
  297
  318
  339
  362
  385
  410
  436
  464
  493
  523
  555
  588
  623
  660
  699
  740
  784
  829
Retained Cash Flow (-), $m
  -30
  -30
  -31
  -32
  -33
  -35
  -36
  -38
  -39
  -41
  -42
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -59
  -62
  -64
  -67
  -70
  -74
  -77
  -81
  -84
  -88
  -93
  -97
  -102
Prev. year cash balance distribution, $m
 
  31
  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
 
  116
  96
  107
  119
  132
  145
  158
  173
  187
  203
  215
  232
  250
  268
  287
  308
  329
  351
  375
  400
  425
  453
  481
  511
  543
  576
  611
  648
  686
  727
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
 
  111
  88
  93
  98
  102
  105
  107
  108
  108
  106
  102
  99
  95
  90
  84
  78
  72
  65
  58
  51
  44
  38
  32
  26
  21
  17
  13
  10
  7
  5
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

Comfort Systems USA, Inc. is a provider of mechanical contracting services, which principally includes heating, ventilation and air conditioning (HVAC), plumbing, piping and controls, as well as off-site construction, electrical, monitoring and fire protection. As of December 31, 2016, the Company installed, maintained, repaired and replaced products and systems throughout its 35 operating units in 84 cities and 91 locations throughout the United States. The Company operates primarily in the commercial, industrial and institutional HVAC markets and offers services in the industrial, healthcare, education, office, technology, retail and government facilities. The Company provides a range of construction, renovation, expansion, maintenance, repair and replacement services for mechanical and related systems in commercial, industrial and institutional properties. The Company also provides remote monitoring of temperature, pressure, humidity and air flow for HVAC systems.

FINANCIAL RATIOS  of  Comfort Systems USA (FIX)

Valuation Ratios
P/E Ratio 19.8
Price to Sales 0.8
Price to Book 3.4
Price to Tangible Book
Price to Cash Flow 14.1
Price to Free Cash Flow 18.9
Growth Rates
Sales Growth Rate 3.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 9.5%
Cap. Spend. - 3 Yr. Gr. Rate 6.2%
Financial Strength
Quick Ratio 32
Current Ratio 0
LT Debt to Equity 0.5%
Total Debt to Equity 0.8%
Interest Coverage 52
Management Effectiveness
Return On Assets 9.5%
Ret/ On Assets - 3 Yr. Avg. 6.9%
Return On Total Capital 17.6%
Ret/ On T. Cap. - 3 Yr. Avg. 12.9%
Return On Equity 18%
Return On Equity - 3 Yr. Avg. 13.5%
Asset Turnover 2.3
Profitability Ratios
Gross Margin 21.1%
Gross Margin - 3 Yr. Avg. 19.6%
EBITDA Margin 7.9%
EBITDA Margin - 3 Yr. Avg. 6.5%
Operating Margin 6.2%
Oper. Margin - 3 Yr. Avg. 5%
Pre-Tax Margin 6.2%
Pre-Tax Margin - 3 Yr. Avg. 4.9%
Net Profit Margin 4%
Net Profit Margin - 3 Yr. Avg. 2.9%
Effective Tax Rate 35.6%
Eff/ Tax Rate - 3 Yr. Avg. 33%
Payout Ratio 15.4%

FIX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FIX stock intrinsic value calculation we used $1634 million for the last fiscal year's total revenue generated by Comfort Systems USA. The default revenue input number comes from 2016 income statement of Comfort Systems USA. 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 FIX stock valuation model: a) initial revenue growth rate of 8.6% 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 FIX is calculated based on our internal credit rating of Comfort Systems USA, 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 Comfort Systems USA.
    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 FIX stock the variable cost ratio is equal to 81.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $212 million in the base year in the intrinsic value calculation for FIX 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 26.7% for Comfort Systems USA.

Corporate tax rate of 27% is the nominal tax rate for Comfort Systems USA. 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 FIX 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 FIX are equal to 6.5%.

Life of production assets of 9.7 years is the average useful life of capital assets used in Comfort Systems USA 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 FIX is equal to 4.1%. 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 - $377 million for Comfort Systems USA - 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 37.273 million for Comfort Systems USA 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 Comfort Systems USA at the current share price and the inputted number of shares is $1.3 billion.

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COMPANY NEWS

▶ Comfort Systems posts 2Q profit   [12:12AM  Associated Press]
▶ Comfort Systems USA Reports Second Quarter 2017 Results   [Jul-27-17 04:10PM  Business Wire]
▶ Is There Life for Alibaba outside e-Commerce?   [May-02-17 09:10AM  Market Realist]
▶ Comfort Systems posts 1Q profit   [Apr-26-17 05:38PM  Associated Press]
▶ Texas HVAC firm closes $100M deal for Tampa mechanical contractor   [Apr-03-17 05:55PM  at bizjournals.com]
▶ Texas HVAC firm closes $100M deal for Tampa mechanical contractor   [05:55PM  American City Business Journals]
▶ Comfort Systems USA Announces Acquisition   [04:07PM  Business Wire]
▶ Comfort Systems USA Announces Acquisition   [04:23PM  Business Wire]
▶ How McEwen Mining Inc (MUX) Stacks Up Against Its Peers   [Dec-13-16 01:27AM  at Insider Monkey]
▶ Is Wix.Com Ltd (WIX) A Good Stock to Buy?   [Nov-28-16 10:15AM  at Insider Monkey]
Financial statements of FIX
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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