Intrinsic value of Gorman-Rupp - GRC

Previous Close

$26.99

  Intrinsic Value

$9.55

stock screener

  Rating & Target

str. sell

-65%

  Value-price divergence*

-32%

Previous close

$26.99

 
Intrinsic value

$9.55

 
Up/down potential

-65%

 
Rating

str. sell

 
Value-price divergence*

-32%

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

We calculate the intrinsic value of GRC 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, %
  -5.91
  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
  382
  390
  399
  409
  420
  433
  447
  462
  479
  497
  516
  536
  558
  581
  606
  632
  659
  689
  720
  752
  787
  823
  862
  902
  945
  990
  1,037
  1,087
  1,140
  1,195
  1,253
Variable operating expenses, $m
 
  355
  363
  372
  383
  394
  407
  421
  435
  452
  469
  484
  504
  525
  547
  571
  596
  622
  650
  680
  711
  744
  779
  815
  854
  895
  938
  983
  1,030
  1,080
  1,132
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
  346
  355
  363
  372
  383
  394
  407
  421
  435
  452
  469
  484
  504
  525
  547
  571
  596
  622
  650
  680
  711
  744
  779
  815
  854
  895
  938
  983
  1,030
  1,080
  1,132
Operating income, $m
  36
  35
  36
  37
  38
  39
  40
  42
  43
  45
  47
  52
  54
  56
  58
  61
  64
  66
  69
  72
  76
  79
  83
  87
  91
  95
  100
  105
  110
  115
  121
EBITDA, $m
  52
  51
  53
  54
  55
  57
  59
  61
  63
  65
  68
  71
  73
  77
  80
  83
  87
  91
  95
  99
  104
  108
  114
  119
  125
  130
  137
  143
  150
  157
  165
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  4
  5
  5
  6
  6
Earnings before tax, $m
  36
  35
  36
  36
  37
  39
  40
  41
  43
  44
  46
  51
  53
  55
  57
  59
  62
  64
  67
  70
  73
  76
  80
  83
  87
  91
  95
  100
  105
  110
  115
Tax expense, $m
  11
  9
  10
  10
  10
  10
  11
  11
  12
  12
  12
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
Net income, $m
  25
  25
  26
  27
  27
  28
  29
  30
  31
  32
  34
  37
  38
  40
  42
  43
  45
  47
  49
  51
  53
  56
  58
  61
  64
  67
  70
  73
  76
  80
  84

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  58
  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
  383
  332
  339
  348
  358
  369
  380
  393
  407
  423
  439
  456
  475
  494
  515
  538
  561
  586
  612
  640
  670
  701
  733
  768
  804
  843
  883
  925
  970
  1,017
  1,066
Adjusted assets (=assets-cash), $m
  325
  332
  339
  348
  358
  369
  380
  393
  407
  423
  439
  456
  475
  494
  515
  538
  561
  586
  612
  640
  670
  701
  733
  768
  804
  843
  883
  925
  970
  1,017
  1,066
Revenue / Adjusted assets
  1.175
  1.175
  1.177
  1.175
  1.173
  1.173
  1.176
  1.176
  1.177
  1.175
  1.175
  1.175
  1.175
  1.176
  1.177
  1.175
  1.175
  1.176
  1.176
  1.175
  1.175
  1.174
  1.176
  1.174
  1.175
  1.174
  1.174
  1.175
  1.175
  1.175
  1.175
Average production assets, $m
  142
  145
  148
  152
  156
  161
  166
  172
  178
  185
  192
  199
  207
  216
  225
  235
  245
  256
  268
  280
  293
  306
  321
  336
  352
  368
  386
  404
  424
  445
  466
Working capital, $m
  155
  99
  101
  104
  107
  110
  114
  117
  122
  126
  131
  136
  142
  148
  154
  160
  167
  175
  183
  191
  200
  209
  219
  229
  240
  251
  264
  276
  290
  304
  318
Total debt, $m
  0
  2
  3
  6
  8
  11
  14
  17
  20
  24
  28
  32
  37
  42
  47
  52
  58
  64
  71
  78
  85
  92
  100
  109
  118
  127
  137
  148
  159
  170
  182
Total liabilities, $m
  80
  82
  83
  86
  88
  91
  94
  97
  100
  104
  108
  112
  117
  122
  127
  132
  138
  144
  151
  158
  165
  172
  180
  189
  198
  207
  217
  228
  239
  250
  262
Total equity, $m
  303
  250
  256
  262
  270
  278
  287
  297
  307
  319
  331
  344
  358
  373
  389
  405
  423
  442
  462
  483
  505
  528
  553
  579
  606
  635
  666
  698
  731
  767
  804
Total liabilities and equity, $m
  383
  332
  339
  348
  358
  369
  381
  394
  407
  423
  439
  456
  475
  495
  516
  537
  561
  586
  613
  641
  670
  700
  733
  768
  804
  842
  883
  926
  970
  1,017
  1,066
Debt-to-equity ratio
  0.000
  0.010
  0.010
  0.020
  0.030
  0.040
  0.050
  0.060
  0.070
  0.080
  0.080
  0.090
  0.100
  0.110
  0.120
  0.130
  0.140
  0.150
  0.150
  0.160
  0.170
  0.170
  0.180
  0.190
  0.190
  0.200
  0.210
  0.210
  0.220
  0.220
  0.230
Adjusted equity ratio
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  25
  25
  26
  27
  27
  28
  29
  30
  31
  32
  34
  37
  38
  40
  42
  43
  45
  47
  49
  51
  53
  56
  58
  61
  64
  67
  70
  73
  76
  80
  84
Depreciation, amort., depletion, $m
  16
  17
  17
  17
  18
  18
  19
  19
  20
  20
  21
  19
  20
  21
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
  33
  35
  37
  39
  40
  42
  44
Funds from operations, $m
  74
  42
  43
  44
  45
  46
  48
  49
  51
  53
  55
  56
  58
  60
  63
  66
  68
  71
  74
  78
  81
  85
  89
  93
  97
  102
  106
  111
  117
  122
  128
Change in working capital, $m
  21
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
Cash from operations, $m
  53
  40
  41
  41
  42
  43
  44
  45
  47
  48
  50
  51
  53
  55
  57
  59
  61
  64
  67
  69
  72
  76
  79
  83
  86
  90
  94
  99
  103
  108
  113
Maintenance CAPEX, $m
  0
  -14
  -14
  -14
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -32
  -33
  -35
  -37
  -39
  -40
  -42
New CAPEX, $m
  -7
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
Cash from investing activities, $m
  -8
  -17
  -17
  -18
  -18
  -20
  -20
  -22
  -22
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -32
  -34
  -36
  -37
  -40
  -42
  -43
  -46
  -48
  -50
  -53
  -56
  -59
  -61
  -64
Free cash flow, $m
  45
  24
  23
  23
  23
  23
  24
  24
  24
  25
  25
  25
  26
  26
  27
  28
  29
  30
  31
  32
  33
  34
  36
  37
  38
  40
  42
  44
  45
  47
  49
Issuance/(repayment) of debt, $m
  0
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  12
  12
Issuance/(repurchase) of shares, $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
  0
Cash from financing (excl. dividends), $m  
  0
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  12
  12
Total cash flow (excl. dividends), $m
  45
  25
  25
  26
  26
  26
  27
  27
  28
  28
  29
  29
  30
  31
  32
  33
  34
  36
  37
  39
  40
  42
  44
  45
  47
  49
  52
  54
  56
  59
  62
Retained Cash Flow (-), $m
  -16
  -5
  -6
  -7
  -7
  -8
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -34
  -35
  -37
Prev. year cash balance distribution, $m
 
  58
  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
 
  78
  20
  19
  18
  18
  18
  17
  17
  17
  17
  16
  16
  16
  16
  17
  17
  17
  17
  18
  18
  18
  19
  19
  20
  21
  21
  22
  23
  24
  24
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
 
  75
  18
  16
  15
  14
  13
  12
  11
  10
  9
  8
  7
  6
  5
  5
  4
  4
  3
  3
  2
  2
  2
  1
  1
  1
  1
  0
  0
  0
  0
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
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The Gorman-Rupp Company designs, manufactures, and sells pumps and pump systems worldwide. Its products include self-priming centrifugal, standard centrifugal, magnetic drive centrifugal, axial and mixed flow, vertical turbine line shaft, submersible, high pressure booster, rotary gear, diaphragm, bellow, and oscillating pumps. The companyÂ’s products are used in water, wastewater, construction, dewatering, industrial, petroleum, original equipment, agriculture, fire protection, military, and other liquid-handling applications, as well as in heating, ventilating, and air conditioning applications. It markets its products through a network of distributors, manufacturersÂ’ representatives, third-party distributor catalogs, and direct sales. The Gorman-Rupp Company was founded in 1933 and is headquartered in Mansfield, Ohio.

FINANCIAL RATIOS  of  Gorman-Rupp (GRC)

Valuation Ratios
P/E Ratio 28.2
Price to Sales 1.8
Price to Book 2.3
Price to Tangible Book
Price to Cash Flow 13.3
Price to Free Cash Flow 15.3
Growth Rates
Sales Growth Rate -5.9%
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 -19.7%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 6.7%
Ret/ On Assets - 3 Yr. Avg. 7.7%
Return On Total Capital 8.5%
Ret/ On T. Cap. - 3 Yr. Avg. 9.9%
Return On Equity 8.5%
Return On Equity - 3 Yr. Avg. 10.1%
Asset Turnover 1
Profitability Ratios
Gross Margin 24.1%
Gross Margin - 3 Yr. Avg. 23.9%
EBITDA Margin 13.6%
EBITDA Margin - 3 Yr. Avg. 14.1%
Operating Margin 9.4%
Oper. Margin - 3 Yr. Avg. 10.2%
Pre-Tax Margin 9.4%
Pre-Tax Margin - 3 Yr. Avg. 10.3%
Net Profit Margin 6.5%
Net Profit Margin - 3 Yr. Avg. 7%
Effective Tax Rate 30.6%
Eff/ Tax Rate - 3 Yr. Avg. 32.1%
Payout Ratio 44%

GRC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GRC stock intrinsic value calculation we used $382 million for the last fiscal year's total revenue generated by Gorman-Rupp. The default revenue input number comes from 2016 income statement of Gorman-Rupp. 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 GRC 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 GRC is calculated based on our internal credit rating of Gorman-Rupp, 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 Gorman-Rupp.
    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 GRC stock the variable cost ratio is equal to 91.1%.

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 GRC 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 Gorman-Rupp.

Corporate tax rate of 27% is the nominal tax rate for Gorman-Rupp. 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 GRC 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 GRC are equal to 37.2%.

Life of production assets of 10.5 years is the average useful life of capital assets used in Gorman-Rupp 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 GRC is equal to 25.4%. 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 - $303 million for Gorman-Rupp - 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 25.983 million for Gorman-Rupp 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 Gorman-Rupp at the current share price and the inputted number of shares is $0.7 billion.

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COMPANY NEWS

▶ Gorman-Rupp posts 2Q profit   [Jul-28-17 09:59PM  Associated Press]
▶ Gorman-Rupp Company Declares Cash Dividend   [06:45AM  Business Wire]
▶ ETFs with exposure to The Gorman-Rupp Co. : July 24, 2017   [Jul-24-17 04:15PM  Capital Cube]
▶ ETFs with exposure to The Gorman-Rupp Co. : July 14, 2017   [Jul-14-17 02:41PM  Capital Cube]
▶ ETFs with exposure to The Gorman-Rupp Co. : June 22, 2017   [Jun-22-17 03:46PM  Capital Cube]
▶ Should You Get Rid of Gorman-Rupp (GRC) Now?   [May-26-17 08:48AM  Zacks]
▶ Gorman-Rupp Announces Transfer to NYSE   [May-03-17 06:50AM  Business Wire]
▶ Gorman-Rupp Company Declares Cash Dividend   [Apr-28-17 06:50AM  Business Wire]
▶ Gorman-Rupp posts 1Q profit   [Apr-27-17 08:12AM  Associated Press]
▶ How ePlus Inc. (PLUS) Stacks Up Against Its Peers   [Dec-12-16 05:17PM  at Insider Monkey]
▶ Gorman-Rupp Announces Subsidiary's Completed Acquisition   [Nov-30-16 05:00PM  Business Wire]
▶ Gorman-Rupp Announces Subsidiary's Planned Acquisition   [Aug-29-16 04:30PM  Business Wire]
▶ Gorman-Rupp Company Declares Cash Dividend   [Jul-29-16 04:05PM  Business Wire]
▶ CFO Moves: Western Digital, Gorman-Rupp   [07:13AM  at The Wall Street Journal]
Stock chart of GRC Financial statements of GRC
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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