Intrinsic value of Forward Air - FWRD

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$49.28

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$49.28

 
Intrinsic value

$22.91

 
Up/down potential

-54%

 
Rating

str. sell

 
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 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 1.5

 

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
  3.50
  3.65
  3.78
  3.91
  4.02
  4.11
  4.20
  4.28
  4.35
  4.42
  4.48
  4.53
  4.58
  4.62
  4.66
  4.69
  4.72
  4.75
  4.77
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
Revenue, $m
  983
  1,017
  1,055
  1,094
  1,137
  1,183
  1,232
  1,283
  1,338
  1,397
  1,458
  1,524
  1,593
  1,665
  1,742
  1,823
  1,909
  1,999
  2,094
  2,194
  2,299
  2,410
  2,527
  2,649
  2,778
  2,914
  3,056
  3,206
  3,364
  3,529
  3,703
Variable operating expenses, $m
 
  930
  964
  999
  1,038
  1,079
  1,122
  1,169
  1,218
  1,270
  1,325
  1,365
  1,427
  1,493
  1,561
  1,634
  1,711
  1,792
  1,877
  1,966
  2,061
  2,160
  2,264
  2,374
  2,490
  2,611
  2,739
  2,873
  3,015
  3,163
  3,319
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
  930
  964
  999
  1,038
  1,079
  1,122
  1,169
  1,218
  1,270
  1,325
  1,365
  1,427
  1,493
  1,561
  1,634
  1,711
  1,792
  1,877
  1,966
  2,061
  2,160
  2,264
  2,374
  2,490
  2,611
  2,739
  2,873
  3,015
  3,163
  3,319
Operating income, $m
  60
  87
  91
  95
  100
  104
  109
  115
  120
  126
  133
  158
  165
  173
  181
  189
  198
  208
  217
  228
  239
  250
  262
  275
  288
  303
  317
  333
  349
  366
  384
EBITDA, $m
  98
  130
  135
  140
  145
  151
  157
  164
  171
  178
  186
  194
  203
  212
  222
  233
  244
  255
  267
  280
  293
  307
  322
  338
  354
  372
  390
  409
  429
  450
  472
Interest expense (income), $m
  2
  1
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  10
  11
  12
  13
Earnings before tax, $m
  58
  86
  90
  94
  98
  103
  108
  113
  118
  124
  130
  155
  162
  169
  177
  185
  194
  202
  212
  222
  232
  243
  255
  267
  280
  293
  307
  322
  338
  354
  372
Tax expense, $m
  30
  23
  24
  25
  27
  28
  29
  30
  32
  34
  35
  42
  44
  46
  48
  50
  52
  55
  57
  60
  63
  66
  69
  72
  76
  79
  83
  87
  91
  96
  100
Net income, $m
  28
  63
  66
  69
  72
  75
  79
  82
  86
  91
  95
  113
  118
  124
  129
  135
  141
  148
  155
  162
  170
  178
  186
  195
  204
  214
  224
  235
  247
  259
  271

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
  654
  678
  704
  731
  761
  792
  825
  861
  898
  938
  980
  1,024
  1,071
  1,120
  1,173
  1,228
  1,286
  1,347
  1,411
  1,479
  1,550
  1,625
  1,704
  1,787
  1,874
  1,966
  2,062
  2,163
  2,270
  2,382
Adjusted assets (=assets-cash), $m
  632
  654
  678
  704
  731
  761
  792
  825
  861
  898
  938
  980
  1,024
  1,071
  1,120
  1,173
  1,228
  1,286
  1,347
  1,411
  1,479
  1,550
  1,625
  1,704
  1,787
  1,874
  1,966
  2,062
  2,163
  2,270
  2,382
Revenue / Adjusted assets
  1.555
  1.555
  1.556
  1.554
  1.555
  1.555
  1.556
  1.555
  1.554
  1.556
  1.554
  1.555
  1.556
  1.555
  1.555
  1.554
  1.555
  1.554
  1.555
  1.555
  1.554
  1.555
  1.555
  1.555
  1.555
  1.555
  1.554
  1.555
  1.555
  1.555
  1.555
Average production assets, $m
  311
  321
  333
  346
  359
  374
  389
  406
  423
  441
  461
  481
  503
  526
  551
  576
  603
  632
  662
  693
  727
  762
  798
  837
  878
  921
  966
  1,013
  1,063
  1,115
  1,170
Working capital, $m
  58
  79
  82
  85
  89
  92
  96
  100
  104
  109
  114
  119
  124
  130
  136
  142
  149
  156
  163
  171
  179
  188
  197
  207
  217
  227
  238
  250
  262
  275
  289
Total debt, $m
  29
  24
  29
  35
  41
  47
  53
  60
  68
  76
  84
  93
  102
  112
  122
  133
  145
  157
  170
  183
  198
  212
  228
  245
  262
  281
  300
  320
  341
  364
  387
Total liabilities, $m
  142
  137
  142
  148
  154
  160
  166
  173
  181
  189
  197
  206
  215
  225
  235
  246
  258
  270
  283
  296
  311
  325
  341
  358
  375
  394
  413
  433
  454
  477
  500
Total equity, $m
  499
  517
  536
  556
  578
  601
  626
  652
  680
  709
  741
  774
  809
  846
  885
  926
  970
  1,016
  1,064
  1,115
  1,168
  1,224
  1,284
  1,346
  1,411
  1,480
  1,553
  1,629
  1,709
  1,793
  1,881
Total liabilities and equity, $m
  641
  654
  678
  704
  732
  761
  792
  825
  861
  898
  938
  980
  1,024
  1,071
  1,120
  1,172
  1,228
  1,286
  1,347
  1,411
  1,479
  1,549
  1,625
  1,704
  1,786
  1,874
  1,966
  2,062
  2,163
  2,270
  2,381
Debt-to-equity ratio
  0.058
  0.050
  0.050
  0.060
  0.070
  0.080
  0.090
  0.090
  0.100
  0.110
  0.110
  0.120
  0.130
  0.130
  0.140
  0.140
  0.150
  0.150
  0.160
  0.160
  0.170
  0.170
  0.180
  0.180
  0.190
  0.190
  0.190
  0.200
  0.200
  0.200
  0.210
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
  63
  66
  69
  72
  75
  79
  82
  86
  91
  95
  113
  118
  124
  129
  135
  141
  148
  155
  162
  170
  178
  186
  195
  204
  214
  224
  235
  247
  259
  271
Depreciation, amort., depletion, $m
  38
  43
  44
  45
  46
  47
  48
  49
  50
  52
  53
  36
  38
  40
  41
  43
  45
  47
  50
  52
  55
  57
  60
  63
  66
  69
  73
  76
  80
  84
  88
Funds from operations, $m
  139
  106
  109
  113
  117
  122
  126
  131
  137
  142
  148
  150
  156
  163
  171
  178
  187
  195
  204
  214
  224
  235
  246
  258
  270
  283
  297
  312
  327
  343
  359
Change in working capital, $m
  9
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
Cash from operations, $m
  130
  99
  106
  110
  114
  118
  123
  127
  132
  138
  143
  144
  151
  157
  165
  172
  180
  188
  197
  206
  216
  226
  237
  248
  260
  273
  286
  300
  314
  330
  346
Maintenance CAPEX, $m
  0
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -40
  -41
  -43
  -45
  -47
  -50
  -52
  -55
  -57
  -60
  -63
  -66
  -69
  -73
  -76
  -80
  -84
New CAPEX, $m
  -42
  -10
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -50
  -52
  -55
Cash from investing activities, $m
  -52
  -33
  -36
  -38
  -40
  -41
  -43
  -45
  -47
  -50
  -53
  -56
  -58
  -61
  -64
  -67
  -70
  -73
  -77
  -82
  -85
  -90
  -94
  -99
  -104
  -109
  -114
  -120
  -126
  -132
  -139
Free cash flow, $m
  78
  65
  71
  72
  74
  77
  79
  82
  85
  88
  91
  89
  93
  97
  101
  105
  110
  114
  120
  125
  131
  137
  143
  150
  157
  164
  172
  180
  188
  197
  207
Issuance/(repayment) of debt, $m
  -56
  4
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
Issuance/(repurchase) of shares, $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
  0
Cash from financing (excl. dividends), $m  
  -87
  4
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
Total cash flow (excl. dividends), $m
  -9
  70
  76
  78
  80
  83
  86
  89
  92
  95
  99
  98
  102
  106
  111
  116
  121
  127
  132
  138
  145
  152
  159
  166
  174
  182
  191
  200
  210
  220
  230
Retained Cash Flow (-), $m
  11
  -18
  -19
  -20
  -22
  -23
  -25
  -26
  -28
  -30
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -46
  -48
  -51
  -53
  -56
  -59
  -62
  -66
  -69
  -72
  -76
  -80
  -84
  -88
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
 
  52
  57
  58
  59
  60
  61
  62
  64
  66
  68
  65
  67
  69
  72
  75
  78
  81
  84
  88
  91
  95
  99
  104
  108
  113
  119
  124
  130
  136
  142
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
 
  50
  52
  50
  48
  46
  44
  42
  40
  38
  36
  31
  29
  26
  24
  22
  20
  18
  15
  13
  12
  10
  8
  7
  6
  4
  3
  3
  2
  1
  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 53
Price to Sales 1.5
Price to Book 3
Price to Tangible Book
Price to Cash Flow 11.4
Price to Free Cash Flow 16.9
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 3.5% 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 30.692 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 $1.5 billion.


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COMPANY NEWS

▶ 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]
▶ Forward Air meets 1Q profit forecasts   [Apr-21-16 04:18PM  AP]
Stock chart of FWRD Financial statements 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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