Intrinsic value of Francesca's Holdings - FRAN

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$15.53

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$15.53

 
Intrinsic value

$27.55

 
Up/down potential

+77%

 
Rating

str. buy

 
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 FRAN 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 2017), $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 0.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  10.93
  8.10
  7.79
  7.51
  7.26
  7.03
  6.83
  6.65
  6.48
  6.33
  6.20
  6.08
  5.97
  5.88
  5.79
  5.71
  5.64
  5.57
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
  5.27
  5.25
  5.22
  5.20
  5.18
  5.16
  5.15
Revenue, $m
  487
  526
  567
  610
  654
  700
  748
  798
  850
  904
  960
  1,018
  1,079
  1,142
  1,208
  1,277
  1,349
  1,424
  1,503
  1,585
  1,671
  1,761
  1,855
  1,953
  2,056
  2,164
  2,277
  2,396
  2,520
  2,650
  2,786
Variable operating expenses, $m
 
  452
  487
  523
  561
  601
  642
  685
  729
  775
  823
  873
  926
  980
  1,037
  1,096
  1,158
  1,222
  1,290
  1,360
  1,434
  1,511
  1,591
  1,676
  1,764
  1,857
  1,954
  2,055
  2,162
  2,274
  2,391
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
  419
  452
  487
  523
  561
  601
  642
  685
  729
  775
  823
  873
  926
  980
  1,037
  1,096
  1,158
  1,222
  1,290
  1,360
  1,434
  1,511
  1,591
  1,676
  1,764
  1,857
  1,954
  2,055
  2,162
  2,274
  2,391
Operating income, $m
  68
  75
  81
  87
  93
  99
  106
  113
  121
  128
  136
  145
  153
  162
  172
  181
  192
  202
  213
  225
  237
  250
  263
  277
  292
  307
  323
  340
  358
  376
  396
EBITDA, $m
  87
  92
  99
  106
  114
  122
  130
  139
  148
  158
  167
  178
  188
  199
  211
  223
  235
  248
  262
  276
  291
  307
  323
  341
  359
  377
  397
  418
  439
  462
  486
Interest expense (income), $m
  0
  0
  0
  0
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
Earnings before tax, $m
  68
  75
  80
  86
  92
  99
  105
  112
  119
  126
  134
  142
  150
  159
  168
  178
  187
  198
  209
  220
  232
  244
  257
  270
  284
  299
  315
  331
  348
  366
  384
Tax expense, $m
  26
  20
  22
  23
  25
  27
  28
  30
  32
  34
  36
  38
  41
  43
  45
  48
  51
  53
  56
  59
  63
  66
  69
  73
  77
  81
  85
  89
  94
  99
  104
Net income, $m
  42
  55
  59
  63
  67
  72
  77
  82
  87
  92
  98
  104
  110
  116
  123
  130
  137
  144
  152
  160
  169
  178
  187
  197
  208
  218
  230
  241
  254
  267
  281

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
  0
Total assets, $m
  190
  148
  160
  172
  184
  197
  210
  224
  239
  254
  270
  286
  303
  321
  340
  359
  380
  401
  423
  446
  470
  495
  522
  549
  578
  609
  641
  674
  709
  745
  784
Adjusted assets (=assets-cash), $m
  137
  148
  160
  172
  184
  197
  210
  224
  239
  254
  270
  286
  303
  321
  340
  359
  380
  401
  423
  446
  470
  495
  522
  549
  578
  609
  641
  674
  709
  745
  784
Revenue / Adjusted assets
  3.555
  3.554
  3.544
  3.547
  3.554
  3.553
  3.562
  3.563
  3.556
  3.559
  3.556
  3.559
  3.561
  3.558
  3.553
  3.557
  3.550
  3.551
  3.553
  3.554
  3.555
  3.558
  3.554
  3.557
  3.557
  3.553
  3.552
  3.555
  3.554
  3.557
  3.554
Average production assets, $m
  79
  85
  92
  99
  106
  113
  121
  129
  138
  146
  155
  165
  175
  185
  196
  207
  219
  231
  243
  257
  271
  285
  300
  316
  333
  351
  369
  388
  408
  429
  451
Working capital, $m
  65
  13
  14
  15
  16
  18
  19
  20
  21
  23
  24
  25
  27
  29
  30
  32
  34
  36
  38
  40
  42
  44
  46
  49
  51
  54
  57
  60
  63
  66
  70
Total debt, $m
  0
  6
  12
  18
  25
  32
  39
  47
  54
  62
  71
  80
  89
  98
  108
  118
  129
  141
  152
  165
  178
  191
  205
  220
  235
  251
  268
  286
  305
  324
  345
Total liabilities, $m
  73
  79
  85
  91
  98
  105
  112
  120
  127
  135
  144
  153
  162
  171
  181
  191
  202
  214
  225
  238
  251
  264
  278
  293
  308
  324
  341
  359
  378
  397
  418
Total equity, $m
  117
  69
  75
  80
  86
  92
  98
  105
  112
  119
  126
  134
  142
  150
  159
  168
  177
  187
  197
  208
  220
  231
  244
  257
  270
  284
  299
  315
  331
  348
  366
Total liabilities and equity, $m
  190
  148
  160
  171
  184
  197
  210
  225
  239
  254
  270
  287
  304
  321
  340
  359
  379
  401
  422
  446
  471
  495
  522
  550
  578
  608
  640
  674
  709
  745
  784
Debt-to-equity ratio
  0.000
  0.090
  0.160
  0.230
  0.290
  0.350
  0.400
  0.440
  0.490
  0.530
  0.560
  0.600
  0.630
  0.650
  0.680
  0.710
  0.730
  0.750
  0.770
  0.790
  0.810
  0.830
  0.840
  0.860
  0.870
  0.880
  0.900
  0.910
  0.920
  0.930
  0.940
Adjusted equity ratio
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  42
  55
  59
  63
  67
  72
  77
  82
  87
  92
  98
  104
  110
  116
  123
  130
  137
  144
  152
  160
  169
  178
  187
  197
  208
  218
  230
  241
  254
  267
  281
Depreciation, amort., depletion, $m
  19
  17
  18
  20
  21
  23
  24
  26
  28
  29
  31
  33
  35
  37
  39
  41
  44
  46
  49
  51
  54
  57
  60
  63
  67
  70
  74
  78
  82
  86
  90
Funds from operations, $m
  86
  72
  77
  83
  89
  95
  101
  108
  114
  122
  129
  137
  145
  153
  162
  171
  181
  190
  201
  212
  223
  235
  247
  261
  274
  288
  303
  319
  336
  353
  371
Change in working capital, $m
  14
  1
  1
  1
  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
Cash from operations, $m
  72
  72
  76
  82
  87
  94
  100
  106
  113
  120
  128
  135
  143
  152
  160
  169
  179
  189
  199
  210
  221
  233
  245
  258
  272
  286
  301
  316
  332
  349
  367
Maintenance CAPEX, $m
  0
  -16
  -17
  -18
  -20
  -21
  -23
  -24
  -26
  -28
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -44
  -46
  -49
  -51
  -54
  -57
  -60
  -63
  -67
  -70
  -74
  -78
  -82
  -86
New CAPEX, $m
  -22
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
Cash from investing activities, $m
  -22
  -22
  -24
  -25
  -27
  -28
  -31
  -32
  -34
  -37
  -38
  -40
  -43
  -45
  -48
  -50
  -53
  -56
  -59
  -62
  -65
  -69
  -72
  -76
  -80
  -84
  -88
  -93
  -98
  -103
  -108
Free cash flow, $m
  50
  50
  52
  56
  61
  65
  69
  74
  79
  84
  89
  95
  100
  106
  113
  119
  126
  133
  140
  148
  156
  164
  173
  182
  192
  202
  212
  223
  235
  247
  259
Issuance/(repayment) of debt, $m
  0
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  20
Issuance/(repurchase) of shares, $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
  0
Cash from financing (excl. dividends), $m  
  -53
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  20
Total cash flow (excl. dividends), $m
  -3
  55
  58
  63
  67
  72
  77
  81
  87
  92
  98
  103
  110
  116
  122
  129
  136
  144
  152
  160
  169
  178
  187
  197
  207
  218
  229
  241
  253
  266
  280
Retained Cash Flow (-), $m
  9
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
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
 
  103
  53
  57
  61
  66
  70
  75
  80
  85
  90
  96
  102
  107
  114
  120
  127
  134
  142
  149
  157
  166
  175
  184
  194
  204
  214
  225
  237
  249
  262
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
 
  99
  49
  50
  51
  51
  51
  51
  50
  49
  47
  45
  43
  41
  38
  35
  32
  29
  26
  23
  20
  17
  14
  12
  10
  8
  6
  5
  4
  3
  2
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
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Francesca's Holdings Corporation, through its subsidiaries, operates a chain of retail boutiques. It offers fashion apparel, jewelry, accessories, and gifts primarily for women between the ages of 18 and 35. The company’s apparel products comprise dresses, fashion tops, sweaters, cardigans and wraps, bottoms, outerwear and jackets, tees and tanks, and intimates; and jewelry includes necklaces, earrings, bracelets, and rings. Its accessories consist of handbags, clutches, wallets, shoes, belts, hats, scarves, sunglasses, watches, and hair accessories; and gifts include fragrances, candles, bath and body, home accessories, books, wall art, nail polish, and miscellaneous items. As of March 23, 2016, the company operated 626 boutiques in 48 states and the District of Columbia. The company also sells its products through its Website at francescas.com. Francesca's Holdings Corporation was founded in 1999 and is headquartered in Houston, Texas.

FINANCIAL RATIOS  of  Francesca's Holdings (FRAN)

Valuation Ratios
P/E Ratio 13.9
Price to Sales 1.2
Price to Book 5
Price to Tangible Book
Price to Cash Flow 8.1
Price to Free Cash Flow 11.7
Growth Rates
Sales Growth Rate 10.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -8.3%
Cap. Spend. - 3 Yr. Gr. Rate -2.5%
Financial Strength
Quick Ratio NaN
Current Ratio 0.2
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 21.9%
Ret/ On Assets - 3 Yr. Avg. 21.1%
Return On Total Capital 34.6%
Ret/ On T. Cap. - 3 Yr. Avg. 32.4%
Return On Equity 34.6%
Return On Equity - 3 Yr. Avg. 33.7%
Asset Turnover 2.5
Profitability Ratios
Gross Margin 47%
Gross Margin - 3 Yr. Avg. 47.3%
EBITDA Margin 17.9%
EBITDA Margin - 3 Yr. Avg. 17.7%
Operating Margin 14%
Oper. Margin - 3 Yr. Avg. 14%
Pre-Tax Margin 14%
Pre-Tax Margin - 3 Yr. Avg. 13.9%
Net Profit Margin 8.6%
Net Profit Margin - 3 Yr. Avg. 8.6%
Effective Tax Rate 38.2%
Eff/ Tax Rate - 3 Yr. Avg. 38.5%
Payout Ratio 0%

FRAN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FRAN stock intrinsic value calculation we used $487 million for the last fiscal year's total revenue generated by Francesca's Holdings. The default revenue input number comes from 2017 income statement of Francesca's Holdings. 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 FRAN stock valuation model: a) initial revenue growth rate of 8.1% 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 FRAN is calculated based on our internal credit rating of Francesca's Holdings, 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 Francesca's Holdings.
    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 FRAN stock the variable cost ratio is equal to 85.8%.

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 FRAN 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 Francesca's Holdings.

Corporate tax rate of 27% is the nominal tax rate for Francesca's Holdings. 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 FRAN 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 FRAN are equal to 16.2%.

Life of production assets of 4.2 years is the average useful life of capital assets used in Francesca's Holdings 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 FRAN is equal to 2.5%. 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 - $117 million for Francesca's Holdings - 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 35.031 million for Francesca's Holdings 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 Francesca's Holdings at the current share price and the inputted number of shares is $0.5 billion.


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COMPANY NEWS

▶ Francesca's Holdings tops Street 4Q forecasts   [07:46AM  Associated Press]
▶ Is William Lyon Homes (WLH) A Good Stock To Buy?   [05:50AM  at Insider Monkey]
▶ Can Francesca's Keep Going After Last Week's 36% Pop?   [Dec-12-16 09:06AM  at Motley Fool]
Stock chart of FRAN Financial statements of FRAN
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