Intrinsic value of Francesca's Holdings - FRAN

Previous Close

$7.46

  Intrinsic Value

$18.53

stock screener

  Rating & Target

str. buy

+148%

  Value-price divergence*

+7%

Previous close

$7.46

 
Intrinsic value

$18.53

 
Up/down potential

+148%

 
Rating

str. buy

 
Value-price divergence*

+7%

*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 0.3

 

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
  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
  487
  497
  508
  521
  536
  552
  570
  589
  610
  633
  657
  683
  711
  741
  772
  805
  841
  878
  917
  959
  1,003
  1,050
  1,099
  1,150
  1,205
  1,262
  1,323
  1,386
  1,453
  1,523
  1,597
Variable operating expenses, $m
 
  426
  436
  447
  460
  474
  489
  506
  524
  543
  564
  586
  610
  635
  662
  691
  721
  753
  787
  823
  861
  901
  943
  987
  1,034
  1,083
  1,135
  1,189
  1,247
  1,307
  1,371
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
  426
  436
  447
  460
  474
  489
  506
  524
  543
  564
  586
  610
  635
  662
  691
  721
  753
  787
  823
  861
  901
  943
  987
  1,034
  1,083
  1,135
  1,189
  1,247
  1,307
  1,371
Operating income, $m
  68
  71
  72
  74
  76
  78
  81
  84
  87
  90
  93
  97
  101
  105
  110
  114
  119
  125
  130
  136
  142
  149
  156
  163
  171
  179
  188
  197
  206
  216
  227
EBITDA, $m
  87
  87
  89
  91
  93
  96
  99
  103
  106
  110
  115
  119
  124
  129
  135
  140
  147
  153
  160
  167
  175
  183
  192
  201
  210
  220
  231
  242
  253
  266
  279
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
Earnings before tax, $m
  68
  71
  72
  74
  76
  78
  81
  83
  86
  89
  93
  96
  100
  104
  108
  113
  118
  123
  128
  134
  140
  146
  153
  160
  168
  175
  184
  192
  202
  211
  221
Tax expense, $m
  26
  19
  19
  20
  20
  21
  22
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  35
  36
  38
  40
  41
  43
  45
  47
  50
  52
  54
  57
  60
Net income, $m
  42
  51
  53
  54
  55
  57
  59
  61
  63
  65
  68
  70
  73
  76
  79
  82
  86
  90
  94
  98
  102
  107
  112
  117
  122
  128
  134
  140
  147
  154
  162

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
  140
  143
  147
  151
  155
  160
  166
  172
  178
  185
  192
  200
  208
  217
  227
  236
  247
  258
  270
  282
  295
  309
  324
  339
  355
  372
  390
  409
  429
  449
Adjusted assets (=assets-cash), $m
  137
  140
  143
  147
  151
  155
  160
  166
  172
  178
  185
  192
  200
  208
  217
  227
  236
  247
  258
  270
  282
  295
  309
  324
  339
  355
  372
  390
  409
  429
  449
Revenue / Adjusted assets
  3.555
  3.550
  3.552
  3.544
  3.550
  3.561
  3.563
  3.548
  3.547
  3.556
  3.551
  3.557
  3.555
  3.563
  3.558
  3.546
  3.564
  3.555
  3.554
  3.552
  3.557
  3.559
  3.557
  3.549
  3.555
  3.555
  3.556
  3.554
  3.553
  3.550
  3.557
Average production assets, $m
  79
  80
  82
  84
  87
  89
  92
  95
  99
  103
  106
  111
  115
  120
  125
  130
  136
  142
  149
  155
  163
  170
  178
  186
  195
  204
  214
  225
  235
  247
  259
Working capital, $m
  65
  12
  13
  13
  13
  14
  14
  15
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  32
  33
  35
  36
  38
  40
Total debt, $m
  0
  1
  3
  5
  7
  10
  12
  15
  19
  22
  26
  29
  34
  38
  43
  48
  53
  59
  65
  71
  77
  84
  92
  99
  108
  116
  125
  135
  145
  155
  167
Total liabilities, $m
  73
  74
  76
  78
  80
  83
  85
  88
  92
  95
  99
  102
  107
  111
  116
  121
  126
  132
  138
  144
  150
  157
  165
  172
  181
  189
  198
  208
  218
  228
  240
Total equity, $m
  117
  65
  67
  68
  70
  73
  75
  77
  80
  83
  86
  90
  93
  97
  101
  106
  110
  115
  121
  126
  132
  138
  144
  151
  158
  166
  174
  182
  191
  200
  210
Total liabilities and equity, $m
  190
  139
  143
  146
  150
  156
  160
  165
  172
  178
  185
  192
  200
  208
  217
  227
  236
  247
  259
  270
  282
  295
  309
  323
  339
  355
  372
  390
  409
  428
  450
Debt-to-equity ratio
  0.000
  0.020
  0.050
  0.080
  0.100
  0.130
  0.170
  0.200
  0.230
  0.260
  0.300
  0.330
  0.360
  0.390
  0.420
  0.450
  0.480
  0.510
  0.540
  0.560
  0.590
  0.610
  0.640
  0.660
  0.680
  0.700
  0.720
  0.740
  0.760
  0.780
  0.790
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
  51
  53
  54
  55
  57
  59
  61
  63
  65
  68
  70
  73
  76
  79
  82
  86
  90
  94
  98
  102
  107
  112
  117
  122
  128
  134
  140
  147
  154
  162
Depreciation, amort., depletion, $m
  19
  16
  16
  17
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  52
Funds from operations, $m
  86
  68
  69
  71
  73
  75
  77
  80
  83
  86
  89
  92
  96
  100
  104
  108
  113
  118
  123
  129
  135
  141
  147
  154
  161
  169
  177
  185
  194
  204
  213
Change in working capital, $m
  14
  0
  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
Cash from operations, $m
  72
  67
  69
  71
  72
  75
  77
  79
  82
  85
  88
  92
  95
  99
  103
  108
  112
  117
  122
  128
  134
  140
  146
  153
  160
  168
  175
  184
  193
  202
  212
Maintenance CAPEX, $m
  0
  -16
  -16
  -16
  -17
  -17
  -18
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -49
New CAPEX, $m
  -22
  -1
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
Cash from investing activities, $m
  -22
  -17
  -18
  -18
  -19
  -20
  -21
  -21
  -22
  -24
  -25
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -34
  -37
  -38
  -41
  -42
  -44
  -46
  -48
  -51
  -53
  -56
  -58
  -61
Free cash flow, $m
  50
  50
  51
  52
  53
  55
  56
  58
  60
  62
  64
  66
  69
  71
  74
  77
  80
  84
  87
  91
  95
  100
  104
  109
  114
  119
  125
  131
  137
  143
  150
Issuance/(repayment) of debt, $m
  0
  1
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
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
  1
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
Total cash flow (excl. dividends), $m
  -3
  52
  53
  54
  55
  57
  59
  61
  63
  65
  67
  70
  73
  76
  79
  82
  86
  89
  93
  98
  102
  107
  112
  117
  122
  128
  134
  140
  147
  154
  161
Retained Cash Flow (-), $m
  9
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
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
  51
  52
  53
  55
  56
  58
  60
  62
  64
  67
  69
  72
  75
  78
  81
  85
  88
  92
  96
  101
  105
  110
  115
  120
  126
  132
  138
  145
  152
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
  47
  45
  44
  43
  41
  39
  38
  36
  34
  32
  30
  27
  25
  23
  21
  18
  16
  14
  12
  10
  9
  7
  6
  5
  4
  3
  2
  2
  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
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Francesca's Holdings Corporation is a holding company. The Company is a specialty retailer, which operates a chain of boutiques across the United States. The Company offers a mix of apparel, jewelry, accessories and gifts. As of January 28, 2017, the Company operated 671 boutiques in 48 states and the District of Columbia, and also served its customers through www.francescas.com, its e-commerce Website. The Company offers apparel, such as dresses, fashion tops, sweaters, cardigans and wraps, bottoms, outerwear and jackets, tees and tanks, and intimates. The Company provides jewelry, such as necklaces, earrings, bracelets and rings. The Company offers accessories, such as handbags, clutches, wallets, shoes, belts, hats, scarves, sunglasses, watches and hair accessories. The Company provides gifts, such as fragrance, candles, bath and body, home accessories, books, wall art, nail polish and miscellaneous items. The Company operates its boutiques under the francesca's brand.

FINANCIAL RATIOS  of  Francesca's Holdings (FRAN)

Valuation Ratios
P/E Ratio 6.7
Price to Sales 0.6
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 3.9
Price to Free Cash Flow 5.6
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 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 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 39.589 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 $0.3 billion.

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COMPANY NEWS

▶ Francesca's, Conn's expect a drop in sales after Harvey's devastation   [Sep-07-17 02:15PM  American City Business Journals]
▶ Francesca's Holdings beats Street 2Q forecasts   [Sep-06-17 10:25PM  Associated Press]
▶ C-suite exec leaves Francesca's after less than 2 years   [02:10PM  American City Business Journals]
▶ New Strong Sell Stocks for June 27th   [Jun-27-17 10:09AM  Zacks]
▶ Why Francesca's Holdings Corp. Stock Plunged Today   [Jun-06-17 01:48PM  Motley Fool]
▶ Why Macy's is Getting Walloped   [11:40AM  Barrons.com]
▶ Francesca's Holdings misses Street 1Q forecasts   [07:36AM  Associated Press]
▶ Francesca's Holdings tops Street 4Q forecasts   [07:46AM  Associated Press]
Financial statements of FRAN
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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