Intrinsic value of Forward Air - FWRD

Previous Close

$53.73

  Intrinsic Value

$21.20

stock screener

  Rating & Target

str. sell

-61%

  Value-price divergence*

-18%

Previous close

$53.73

 
Intrinsic value

$21.20

 
Up/down potential

-61%

 
Rating

str. sell

 
Value-price divergence*

-18%

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

We calculate the intrinsic value of FWRD 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 1.6

 

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, %
  2.50
  7.40
  7.16
  6.94
  6.75
  6.57
  6.42
  6.28
  6.15
  6.03
  5.93
  5.84
  5.75
  5.68
  5.61
  5.55
  5.49
  5.44
  5.40
  5.36
  5.32
  5.29
  5.26
  5.24
  5.21
  5.19
  5.17
  5.16
  5.14
  5.13
  5.11
Revenue, $m
  983
  1,056
  1,131
  1,210
  1,292
  1,376
  1,465
  1,557
  1,652
  1,752
  1,856
  1,964
  2,077
  2,195
  2,318
  2,447
  2,582
  2,722
  2,869
  3,023
  3,184
  3,352
  3,529
  3,714
  3,907
  4,110
  4,323
  4,545
  4,779
  5,024
  5,281
Variable operating expenses, $m
 
  965
  1,032
  1,103
  1,176
  1,252
  1,331
  1,414
  1,499
  1,589
  1,682
  1,760
  1,862
  1,967
  2,078
  2,193
  2,314
  2,440
  2,571
  2,709
  2,853
  3,004
  3,162
  3,328
  3,501
  3,683
  3,874
  4,073
  4,283
  4,502
  4,733
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
  923
  965
  1,032
  1,103
  1,176
  1,252
  1,331
  1,414
  1,499
  1,589
  1,682
  1,760
  1,862
  1,967
  2,078
  2,193
  2,314
  2,440
  2,571
  2,709
  2,853
  3,004
  3,162
  3,328
  3,501
  3,683
  3,874
  4,073
  4,283
  4,502
  4,733
Operating income, $m
  60
  91
  99
  107
  116
  124
  134
  143
  153
  163
  174
  204
  216
  228
  241
  254
  268
  283
  298
  314
  331
  348
  366
  386
  406
  427
  449
  472
  496
  522
  548
EBITDA, $m
  98
  135
  144
  154
  165
  176
  187
  199
  211
  224
  237
  251
  265
  280
  296
  312
  329
  347
  366
  386
  406
  428
  450
  474
  498
  524
  551
  580
  610
  641
  674
Interest expense (income), $m
  2
  1
  1
  1
  2
  2
  3
  3
  3
  4
  4
  5
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  12
  13
  14
  15
  15
  16
  18
  19
  20
Earnings before tax, $m
  58
  90
  98
  106
  114
  122
  131
  140
  150
  160
  170
  199
  210
  222
  234
  247
  260
  274
  289
  304
  320
  337
  354
  373
  392
  412
  433
  455
  479
  503
  528
Tax expense, $m
  30
  24
  26
  29
  31
  33
  35
  38
  40
  43
  46
  54
  57
  60
  63
  67
  70
  74
  78
  82
  86
  91
  96
  101
  106
  111
  117
  123
  129
  136
  143
Net income, $m
  28
  66
  71
  77
  83
  89
  96
  102
  109
  116
  124
  145
  154
  162
  171
  180
  190
  200
  211
  222
  234
  246
  259
  272
  286
  301
  316
  332
  349
  367
  386

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  9
  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
  641
  679
  728
  778
  831
  885
  942
  1,001
  1,063
  1,127
  1,194
  1,263
  1,336
  1,412
  1,491
  1,574
  1,660
  1,751
  1,845
  1,944
  2,048
  2,156
  2,269
  2,388
  2,513
  2,643
  2,780
  2,923
  3,073
  3,231
  3,396
Adjusted assets (=assets-cash), $m
  632
  679
  728
  778
  831
  885
  942
  1,001
  1,063
  1,127
  1,194
  1,263
  1,336
  1,412
  1,491
  1,574
  1,660
  1,751
  1,845
  1,944
  2,048
  2,156
  2,269
  2,388
  2,513
  2,643
  2,780
  2,923
  3,073
  3,231
  3,396
Revenue / Adjusted assets
  1.555
  1.555
  1.554
  1.555
  1.555
  1.555
  1.555
  1.555
  1.554
  1.555
  1.554
  1.555
  1.555
  1.555
  1.555
  1.555
  1.555
  1.555
  1.555
  1.555
  1.555
  1.555
  1.555
  1.555
  1.555
  1.555
  1.555
  1.555
  1.555
  1.555
  1.555
Average production assets, $m
  311
  334
  358
  382
  408
  435
  463
  492
  522
  554
  587
  621
  656
  694
  733
  773
  816
  860
  907
  955
  1,006
  1,059
  1,115
  1,173
  1,235
  1,299
  1,366
  1,436
  1,510
  1,588
  1,669
Working capital, $m
  58
  82
  88
  94
  101
  107
  114
  121
  129
  137
  145
  153
  162
  171
  181
  191
  201
  212
  224
  236
  248
  261
  275
  290
  305
  321
  337
  355
  373
  392
  412
Total debt, $m
  29
  30
  40
  50
  61
  73
  85
  97
  110
  124
  138
  152
  168
  183
  200
  217
  236
  255
  274
  295
  317
  340
  364
  389
  415
  442
  471
  501
  532
  565
  600
Total liabilities, $m
  142
  143
  153
  163
  174
  186
  198
  210
  223
  237
  251
  265
  281
  296
  313
  330
  349
  368
  387
  408
  430
  453
  477
  502
  528
  555
  584
  614
  645
  678
  713
Total equity, $m
  499
  536
  575
  615
  656
  699
  744
  791
  839
  890
  943
  998
  1,055
  1,115
  1,178
  1,243
  1,312
  1,383
  1,458
  1,536
  1,618
  1,703
  1,793
  1,887
  1,985
  2,088
  2,196
  2,309
  2,428
  2,552
  2,683
Total liabilities and equity, $m
  641
  679
  728
  778
  830
  885
  942
  1,001
  1,062
  1,127
  1,194
  1,263
  1,336
  1,411
  1,491
  1,573
  1,661
  1,751
  1,845
  1,944
  2,048
  2,156
  2,270
  2,389
  2,513
  2,643
  2,780
  2,923
  3,073
  3,230
  3,396
Debt-to-equity ratio
  0.058
  0.060
  0.070
  0.080
  0.090
  0.100
  0.110
  0.120
  0.130
  0.140
  0.150
  0.150
  0.160
  0.160
  0.170
  0.170
  0.180
  0.180
  0.190
  0.190
  0.200
  0.200
  0.200
  0.210
  0.210
  0.210
  0.210
  0.220
  0.220
  0.220
  0.220
Adjusted equity ratio
  0.775
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  28
  66
  71
  77
  83
  89
  96
  102
  109
  116
  124
  145
  154
  162
  171
  180
  190
  200
  211
  222
  234
  246
  259
  272
  286
  301
  316
  332
  349
  367
  386
Depreciation, amort., depletion, $m
  38
  44
  45
  47
  49
  51
  53
  55
  58
  60
  63
  47
  49
  52
  55
  58
  61
  65
  68
  72
  76
  80
  84
  88
  93
  98
  103
  108
  114
  119
  125
Funds from operations, $m
  139
  110
  117
  124
  132
  140
  149
  158
  167
  177
  187
  192
  203
  214
  226
  238
  251
  265
  279
  294
  309
  326
  343
  360
  379
  399
  419
  440
  463
  487
  511
Change in working capital, $m
  9
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  13
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
Cash from operations, $m
  130
  104
  111
  118
  126
  134
  142
  151
  160
  169
  178
  184
  194
  205
  217
  228
  241
  254
  268
  282
  297
  312
  329
  346
  364
  383
  402
  423
  445
  467
  491
Maintenance CAPEX, $m
  0
  -23
  -25
  -27
  -29
  -31
  -33
  -35
  -37
  -39
  -42
  -44
  -47
  -49
  -52
  -55
  -58
  -61
  -65
  -68
  -72
  -76
  -80
  -84
  -88
  -93
  -98
  -103
  -108
  -114
  -119
New CAPEX, $m
  -42
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -37
  -39
  -41
  -42
  -44
  -46
  -49
  -51
  -53
  -56
  -58
  -61
  -64
  -67
  -70
  -74
  -77
  -81
Cash from investing activities, $m
  -52
  -46
  -49
  -52
  -55
  -58
  -61
  -64
  -67
  -71
  -75
  -78
  -83
  -86
  -91
  -96
  -100
  -105
  -111
  -117
  -123
  -129
  -136
  -142
  -149
  -157
  -165
  -173
  -182
  -191
  -200
Free cash flow, $m
  78
  58
  62
  67
  71
  76
  81
  87
  92
  98
  104
  105
  112
  118
  125
  133
  140
  148
  157
  165
  174
  184
  193
  204
  215
  226
  238
  250
  263
  276
  291
Issuance/(repayment) of debt, $m
  -56
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  32
  33
  35
Issuance/(repurchase) of shares, $m
  -30
  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  
  -87
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  32
  33
  35
Total cash flow (excl. dividends), $m
  -9
  67
  72
  77
  82
  88
  93
  99
  105
  112
  118
  120
  127
  134
  142
  150
  158
  167
  176
  186
  196
  206
  217
  229
  241
  253
  266
  280
  294
  310
  325
Retained Cash Flow (-), $m
  11
  -37
  -38
  -40
  -41
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -60
  -63
  -65
  -68
  -71
  -75
  -78
  -82
  -86
  -90
  -94
  -98
  -103
  -108
  -113
  -119
  -124
  -131
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
 
  30
  34
  37
  41
  45
  48
  52
  57
  61
  65
  65
  70
  74
  79
  85
  90
  96
  102
  108
  114
  121
  128
  135
  142
  150
  158
  167
  176
  185
  195
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
 
  29
  31
  32
  34
  35
  35
  35
  35
  35
  34
  31
  30
  28
  27
  25
  23
  21
  19
  17
  15
  12
  11
  9
  7
  6
  5
  4
  3
  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
  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

Forward Air Corporation, together with its subsidiaries, operates as an asset-light freight and logistics company in the United State and Canada. The company operates through four segments: Expedited LTL, Truckload Premium Services (TLS), Intermodal, and Pool Distribution. The Expedited LTL segment provides expedited regional, inter-regional, and national less-than-truckload services, as well as local pick-up and delivery services. It also offers shipment consolidation and deconsolidation, warehousing, customs brokerage, and other handling services. This segment provides its transportation services through a network of terminals located at or near airports. The TLS segment offers expedited truckload brokerage, dedicated fleet, and high security and temperature-controlled logistics services. The Intermodal segment provides intermodal container drayage services, as well as contract, and container freight station warehouse and handling services. The Pool Distribution segment offers high-frequency handling and distribution of time-sensitive product to various destinations in geographic regions. Forward Air Corporation was founded in 1981 and is headquartered in Greeneville, Tennessee.

FINANCIAL RATIOS  of  Forward Air (FWRD)

Valuation Ratios
P/E Ratio 57.7
Price to Sales 1.6
Price to Book 3.2
Price to Tangible Book
Price to Cash Flow 12.4
Price to Free Cash Flow 18.4
Growth Rates
Sales Growth Rate 2.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 5%
Cap. Spend. - 3 Yr. Gr. Rate 3.7%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 0.2%
Total Debt to Equity 5.8%
Interest Coverage 30
Management Effectiveness
Return On Assets 4.3%
Ret/ On Assets - 3 Yr. Avg. 8.4%
Return On Total Capital 5%
Ret/ On T. Cap. - 3 Yr. Avg. 9.7%
Return On Equity 5.6%
Return On Equity - 3 Yr. Avg. 10.2%
Asset Turnover 1.5
Profitability Ratios
Gross Margin 50.4%
Gross Margin - 3 Yr. Avg. 49.8%
EBITDA Margin 10%
EBITDA Margin - 3 Yr. Avg. 12.9%
Operating Margin 6.1%
Oper. Margin - 3 Yr. Avg. 9%
Pre-Tax Margin 5.9%
Pre-Tax Margin - 3 Yr. Avg. 8.8%
Net Profit Margin 2.8%
Net Profit Margin - 3 Yr. Avg. 5.5%
Effective Tax Rate 51.7%
Eff/ Tax Rate - 3 Yr. Avg. 39.4%
Payout Ratio 57.1%

FWRD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FWRD stock intrinsic value calculation we used $983 million for the last fiscal year's total revenue generated by Forward Air. The default revenue input number comes from 2016 income statement of Forward Air. 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 FWRD stock valuation model: a) initial revenue growth rate of 7.4% 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 FWRD is calculated based on our internal credit rating of Forward Air, 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 Forward Air.
    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 FWRD stock the variable cost ratio is equal to 91.5%.

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 FWRD 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 Forward Air.

Corporate tax rate of 27% is the nominal tax rate for Forward Air. 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 FWRD 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 FWRD are equal to 31.6%.

Life of production assets of 13.3 years is the average useful life of capital assets used in Forward Air 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 FWRD is equal to 7.8%. 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 - $499 million for Forward Air - 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 29.821 million for Forward Air 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 Forward Air at the current share price and the inputted number of shares is $1.6 billion.

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COMPANY NEWS

▶ ETFs with exposure to Forward Air Corp. : July 10, 2017   [Jul-10-17 02:32PM  Capital Cube]
▶ ETFs with exposure to Forward Air Corp. : June 22, 2017   [Jun-22-17 03:44PM  Capital Cube]
▶ Top Ranked Momentum Stocks to Buy for June 13th   [Jun-13-17 10:14AM  Zacks]
▶ Forward Air Corporation Closes Acquisition of Atlantic   [May-18-17 05:00PM  Business Wire]
▶ Forward Air tops Street 1Q forecasts   [Apr-26-17 05:24PM  Associated Press]
▶ Forward Air Corporation Announces Acquisition of Atlantic   [Apr-10-17 05:00PM  Business Wire]
▶ Forward Air tops Street 4Q forecasts   [Feb-08-17 04:46PM  Associated Press]
▶ Is Forward Air Corporation (FWRD) a Good Stock to Invest in?   [Dec-05-16 03:37PM  at Insider Monkey]
▶ Forward Air Corporation Announces 25% Dividend Increase   [Oct-26-16 04:00PM  Business Wire]
▶ Forward Air Corporation Revises Third Quarter 2016 Guidance   [Sep-19-16 08:15PM  Business Wire]
Stock chart of FWRD Financial statements of FWRD Annual reports of FWRD
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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