Intrinsic value of Flotek Industries - FTK

Previous Close

$11.75

  Intrinsic Value

$0.97

stock screener

  Rating & Target

str. sell

-92%

  Value-price divergence*

-250%

Previous close

$11.75

 
Intrinsic value

$0.97

 
Up/down potential

-92%

 
Rating

str. sell

 
Value-price divergence*

-250%

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

We calculate the intrinsic value of FTK 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 0.7

 

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, %
  -2.59
  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
  263
  268
  274
  281
  289
  298
  308
  318
  330
  342
  355
  369
  384
  400
  417
  435
  454
  474
  495
  518
  542
  567
  593
  621
  651
  682
  714
  749
  785
  823
  863
Variable operating expenses, $m
 
  51
  52
  53
  54
  56
  58
  59
  61
  63
  65
  62
  65
  67
  70
  73
  76
  80
  83
  87
  91
  95
  100
  105
  110
  115
  120
  126
  132
  138
  145
Fixed operating expenses, $m
 
  216
  222
  227
  233
  239
  245
  251
  257
  264
  270
  277
  284
  291
  298
  306
  313
  321
  329
  337
  346
  354
  363
  372
  382
  391
  401
  411
  421
  432
  443
Total operating expenses, $m
  257
  267
  274
  280
  287
  295
  303
  310
  318
  327
  335
  339
  349
  358
  368
  379
  389
  401
  412
  424
  437
  449
  463
  477
  492
  506
  521
  537
  553
  570
  588
Operating income, $m
  5
  1
  1
  1
  2
  4
  6
  8
  11
  15
  19
  30
  36
  42
  49
  56
  64
  73
  83
  93
  105
  117
  130
  144
  160
  176
  193
  212
  231
  252
  275
EBITDA, $m
  15
  14
  14
  14
  15
  17
  19
  22
  25
  30
  34
  39
  45
  52
  59
  67
  76
  85
  96
  107
  119
  132
  145
  160
  176
  193
  211
  231
  251
  273
  297
Interest expense (income), $m
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
Earnings before tax, $m
  3
  -1
  -1
  -1
  0
  1
  3
  6
  9
  12
  17
  27
  32
  38
  45
  52
  60
  69
  78
  88
  99
  111
  124
  138
  153
  168
  185
  203
  223
  243
  265
Tax expense, $m
  1
  0
  0
  0
  0
  0
  1
  2
  2
  3
  4
  7
  9
  10
  12
  14
  16
  19
  21
  24
  27
  30
  34
  37
  41
  45
  50
  55
  60
  66
  72
Net income, $m
  -49
  -1
  -1
  -1
  0
  1
  2
  4
  6
  9
  12
  20
  24
  28
  33
  38
  44
  50
  57
  65
  73
  81
  91
  101
  111
  123
  135
  148
  163
  178
  194

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  5
  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
  387
  390
  399
  409
  421
  433
  447
  463
  479
  497
  516
  536
  558
  581
  606
  632
  660
  689
  720
  753
  787
  824
  862
  903
  946
  991
  1,038
  1,088
  1,141
  1,196
  1,254
Adjusted assets (=assets-cash), $m
  382
  390
  399
  409
  421
  433
  447
  463
  479
  497
  516
  536
  558
  581
  606
  632
  660
  689
  720
  753
  787
  824
  862
  903
  946
  991
  1,038
  1,088
  1,141
  1,196
  1,254
Revenue / Adjusted assets
  0.688
  0.687
  0.687
  0.687
  0.686
  0.688
  0.689
  0.687
  0.689
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.689
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
Average production assets, $m
  117
  119
  122
  125
  129
  133
  137
  142
  147
  152
  158
  164
  171
  178
  186
  194
  202
  211
  220
  230
  241
  252
  264
  276
  290
  303
  318
  333
  349
  366
  384
Working capital, $m
  98
  134
  137
  141
  145
  149
  154
  159
  165
  171
  177
  185
  192
  200
  208
  217
  227
  237
  248
  259
  271
  283
  297
  311
  325
  341
  357
  374
  392
  411
  431
Total debt, $m
  48
  45
  47
  50
  53
  56
  59
  63
  67
  72
  76
  82
  87
  93
  99
  105
  112
  120
  127
  135
  144
  153
  163
  173
  183
  195
  207
  219
  232
  246
  260
Total liabilities, $m
  99
  97
  99
  102
  105
  108
  111
  115
  119
  124
  128
  134
  139
  145
  151
  157
  164
  172
  179
  187
  196
  205
  215
  225
  235
  247
  259
  271
  284
  298
  312
Total equity, $m
  287
  293
  300
  307
  316
  325
  336
  347
  360
  373
  387
  403
  419
  437
  455
  475
  495
  518
  541
  565
  591
  619
  648
  678
  710
  744
  780
  817
  857
  898
  942
Total liabilities and equity, $m
  386
  390
  399
  409
  421
  433
  447
  462
  479
  497
  515
  537
  558
  582
  606
  632
  659
  690
  720
  752
  787
  824
  863
  903
  945
  991
  1,039
  1,088
  1,141
  1,196
  1,254
Debt-to-equity ratio
  0.167
  0.150
  0.160
  0.160
  0.170
  0.170
  0.180
  0.180
  0.190
  0.190
  0.200
  0.200
  0.210
  0.210
  0.220
  0.220
  0.230
  0.230
  0.240
  0.240
  0.240
  0.250
  0.250
  0.250
  0.260
  0.260
  0.260
  0.270
  0.270
  0.270
  0.280
Adjusted equity ratio
  0.738
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751
  0.751

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -49
  -1
  -1
  -1
  0
  1
  2
  4
  6
  9
  12
  20
  24
  28
  33
  38
  44
  50
  57
  65
  73
  81
  91
  101
  111
  123
  135
  148
  163
  178
  194
Depreciation, amort., depletion, $m
  10
  13
  13
  13
  13
  13
  14
  14
  14
  14
  15
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
  21
  22
Funds from operations, $m
  -4
  12
  12
  12
  13
  14
  16
  18
  21
  24
  27
  29
  33
  38
  43
  49
  55
  62
  70
  78
  86
  96
  106
  117
  128
  140
  154
  168
  183
  199
  216
Change in working capital, $m
  -6
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
Cash from operations, $m
  2
  16
  9
  9
  9
  10
  11
  13
  15
  17
  20
  22
  26
  30
  35
  40
  46
  52
  59
  66
  75
  83
  93
  103
  113
  125
  137
  150
  165
  180
  196
Maintenance CAPEX, $m
  0
  -7
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
New CAPEX, $m
  -14
  -2
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
Cash from investing activities, $m
  -22
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -13
  -15
  -15
  -16
  -17
  -18
  -19
  -19
  -21
  -21
  -23
  -24
  -25
  -26
  -27
  -29
  -31
  -32
  -33
  -35
  -37
  -39
Free cash flow, $m
  -20
  7
  -1
  -1
  -2
  -1
  -1
  0
  2
  4
  6
  7
  10
  13
  17
  22
  26
  32
  37
  44
  51
  58
  66
  75
  84
  94
  105
  117
  129
  143
  157
Issuance/(repayment) of debt, $m
  -2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
Issuance/(repurchase) of shares, $m
  29
  0
  5
  7
  7
  8
  8
  7
  7
  5
  4
  3
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  23
  2
  7
  10
  10
  11
  11
  11
  11
  9
  9
  8
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
Total cash flow (excl. dividends), $m
  3
  9
  1
  1
  1
  2
  3
  4
  6
  8
  10
  12
  15
  19
  23
  28
  33
  39
  45
  52
  59
  67
  76
  85
  95
  106
  117
  129
  142
  156
  171
Retained Cash Flow (-), $m
  7
  -6
  -7
  -8
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -34
  -36
  -37
  -39
  -41
  -44
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
 
  4
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  2
  5
  8
  12
  17
  22
  27
  33
  40
  47
  55
  63
  72
  81
  92
  103
  115
  128
Discount rate, %
 
  5.60
  5.88
  6.17
  6.48
  6.81
  7.15
  7.50
  7.88
  8.27
  8.69
  9.12
  9.58
  10.06
  10.56
  11.09
  11.64
  12.22
  12.84
  13.48
  14.15
  14.86
  15.60
  16.38
  17.20
  18.06
  18.96
  19.91
  20.91
  21.95
  23.05
PV of cash for distribution, $m
 
  3
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  1
  1
  1
  1
  1
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  99.2
  98.3
  97.4
  96.4
  95.5
  94.6
  93.9
  93.3
  92.9
  92.6
  92.5
  92.5
  92.5
  92.5
  92.5
  92.5
  92.5
  92.5
  92.5
  92.5
  92.5
  92.5
  92.5
  92.5
  92.5
  92.5
  92.5
  92.5
  92.5

Flotek Industries, Inc. develops and supplies chemistry and services to the oil and gas industries in the United States and internationally. It operates through two segments, Energy Chemistry Technologies and Consumer and Industrial Chemistry Technologies. The Energy Chemistry Technologies segment is involved in the design, development, manufacture, packaging, and marketing of chemistries under the Complex nano-Fluid brand name for use in oil and gas well drilling, cementing, completion, stimulation, and production activities, as well as for use in enhanced and improved oil recovery markets. This segment also constructs and manages automated material handling facilities; and manages loading facilities and blending operations for oilfield service companies. The Consumer and Industrial Chemistry Technologies segment designs, develops, and manufactures citrus oils for food and beverage companies, fragrance companies, and companies providing household and industrial cleaning products. The company also provides reservoir engineering and modeling services for various hydrocarbon applications. It serves pressure pumping service, international supply chain management, and cosmetic companies. Flotek Industries, Inc. is headquartered in Houston, Texas.

FINANCIAL RATIOS  of  Flotek Industries (FTK)

Valuation Ratios
P/E Ratio -13.5
Price to Sales 2.5
Price to Book 2.3
Price to Tangible Book
Price to Cash Flow 330.3
Price to Free Cash Flow -55
Growth Rates
Sales Growth Rate -2.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -12.5%
Cap. Spend. - 3 Yr. Gr. Rate -1.4%
Financial Strength
Quick Ratio 0
Current Ratio 0.7
LT Debt to Equity 2.4%
Total Debt to Equity 16.7%
Interest Coverage 3
Management Effectiveness
Return On Assets -12.1%
Ret/ On Assets - 3 Yr. Avg. -0.5%
Return On Total Capital -14.4%
Ret/ On T. Cap. - 3 Yr. Avg. -0.6%
Return On Equity -16.9%
Return On Equity - 3 Yr. Avg. -0.6%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 34.6%
Gross Margin - 3 Yr. Avg. 37%
EBITDA Margin 5.7%
EBITDA Margin - 3 Yr. Avg. 11.3%
Operating Margin 2.3%
Oper. Margin - 3 Yr. Avg. 8.4%
Pre-Tax Margin 1.1%
Pre-Tax Margin - 3 Yr. Avg. 7.7%
Net Profit Margin -18.6%
Net Profit Margin - 3 Yr. Avg. -2.2%
Effective Tax Rate 33.3%
Eff/ Tax Rate - 3 Yr. Avg. 33.2%
Payout Ratio 0%

FTK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FTK stock intrinsic value calculation we used $263 million for the last fiscal year's total revenue generated by Flotek Industries. The default revenue input number comes from 2016 income statement of Flotek Industries. 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 FTK 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 5.6%, whose default value for FTK is calculated based on our internal credit rating of Flotek Industries, 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 Flotek Industries.
    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 FTK stock the variable cost ratio is equal to 19%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $211 million in the base year in the intrinsic value calculation for FTK 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% for Flotek Industries.

Corporate tax rate of 27% is the nominal tax rate for Flotek Industries. 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 FTK 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 FTK are equal to 44.5%.

Life of production assets of 17.4 years is the average useful life of capital assets used in Flotek Industries 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 FTK is equal to 50%. 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 - $287 million for Flotek Industries - 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 59.378 million for Flotek Industries 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 Flotek Industries at the current share price and the inputted number of shares is $0.7 billion.

RELATED COMPANIES Price Int.Val. Rating
BHI Baker Hughes 57.68 5.00  str.sell
SLB Schlumberger 74.84 8.49  str.sell
NOV National Oilwe 34.65 5.20  str.sell
OIS Oil States Int 31.10 4.46  str.sell
DRQ Dril-Quip 51.60 26.79  str.sell
TESO Tesco 6.50 1.64  str.sell

COMPANY NEWS

▶ Where Superior Energy Stands amid the US Rig Count in 1Q17   [Apr-13-17 09:07AM  Market Realist]
▶ Federal Court Dismisses Lawsuit Against Flotek   [Apr-04-17 08:00AM  PR Newswire]
▶ Short Interest: OFS Stocks with the Highest Returns in 1Q17   [Apr-03-17 03:07PM  Market Realist]
▶ The Top OFS Companies and Their Correlations with Crude Oil   [Mar-27-17 10:36AM  Market Realist]
▶ Conference-OGIS New York for Flotek Industries, Inc.   [Mar-08-17 05:56PM  at Company Spotlight]
▶ Houston energy tech co. to divest business segments   [Feb-10-17 02:15PM  at bizjournals.com]
▶ 3 Energy Stocks With Massive Upside   [Jan-04-17 11:58AM  at Forbes]
Stock chart of FTK Financial statements of FTK
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.