Intrinsic value of Harte-Hanks - HHS

Previous Close

$0.86

  Intrinsic Value

$6.29

stock screener

  Rating & Target

str. buy

+632%

  Value-price divergence*

-89%

Previous close

$0.86

 
Intrinsic value

$6.29

 
Up/down potential

+632%

 
Rating

str. buy

 
Value-price divergence*

-89%

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

We calculate the intrinsic value of HHS 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 2015), $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 0.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2015(a)
   2016
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -10.65
  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
  495
  505
  517
  530
  545
  561
  579
  599
  620
  643
  668
  695
  723
  753
  785
  818
  854
  892
  932
  975
  1,020
  1,067
  1,117
  1,169
  1,225
  1,283
  1,344
  1,409
  1,477
  1,549
  1,624
Variable operating expenses, $m
 
  467
  477
  490
  503
  518
  535
  553
  572
  593
  616
  633
  658
  686
  715
  746
  778
  813
  849
  888
  929
  972
  1,017
  1,065
  1,116
  1,169
  1,225
  1,283
  1,345
  1,410
  1,479
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
  692
  467
  477
  490
  503
  518
  535
  553
  572
  593
  616
  633
  658
  686
  715
  746
  778
  813
  849
  888
  929
  972
  1,017
  1,065
  1,116
  1,169
  1,225
  1,283
  1,345
  1,410
  1,479
Operating income, $m
  -197
  38
  39
  40
  42
  43
  45
  46
  48
  50
  53
  62
  64
  67
  70
  73
  76
  80
  83
  87
  91
  95
  100
  104
  109
  114
  120
  126
  132
  138
  145
EBITDA, $m
  -182
  47
  48
  49
  51
  52
  54
  56
  58
  60
  62
  65
  67
  70
  73
  76
  80
  83
  87
  91
  95
  99
  104
  109
  114
  119
  125
  131
  138
  144
  151
Interest expense (income), $m
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  8
  8
  9
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  23
Earnings before tax, $m
  -203
  35
  36
  37
  38
  39
  41
  42
  44
  45
  47
  56
  58
  60
  62
  65
  67
  70
  73
  76
  79
  82
  86
  90
  94
  98
  102
  107
  112
  117
  122
Tax expense, $m
  -32
  10
  10
  10
  10
  11
  11
  11
  12
  12
  13
  15
  16
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  31
  33
Net income, $m
  -171
  26
  26
  27
  28
  29
  30
  31
  32
  33
  34
  41
  42
  44
  46
  47
  49
  51
  53
  55
  58
  60
  63
  65
  68
  71
  75
  78
  81
  85
  89

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  17
  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
  414
  405
  414
  425
  437
  450
  465
  480
  498
  516
  536
  557
  580
  604
  629
  656
  685
  716
  748
  782
  818
  856
  896
  938
  982
  1,029
  1,078
  1,130
  1,184
  1,242
  1,302
Adjusted assets (=assets-cash), $m
  397
  405
  414
  425
  437
  450
  465
  480
  498
  516
  536
  557
  580
  604
  629
  656
  685
  716
  748
  782
  818
  856
  896
  938
  982
  1,029
  1,078
  1,130
  1,184
  1,242
  1,302
Revenue / Adjusted assets
  1.247
  1.247
  1.249
  1.247
  1.247
  1.247
  1.245
  1.248
  1.245
  1.246
  1.246
  1.248
  1.247
  1.247
  1.248
  1.247
  1.247
  1.246
  1.246
  1.247
  1.247
  1.246
  1.247
  1.246
  1.247
  1.247
  1.247
  1.247
  1.247
  1.247
  1.247
Average production assets, $m
  36
  36
  37
  38
  39
  40
  42
  43
  45
  46
  48
  50
  52
  54
  56
  59
  62
  64
  67
  70
  73
  77
  80
  84
  88
  92
  97
  101
  106
  111
  117
Working capital, $m
  209
  199
  204
  209
  215
  221
  228
  236
  244
  254
  263
  274
  285
  297
  309
  322
  337
  352
  367
  384
  402
  420
  440
  461
  483
  505
  530
  555
  582
  610
  640
Total debt, $m
  77
  80
  86
  93
  101
  110
  120
  131
  143
  155
  169
  183
  199
  215
  233
  251
  271
  292
  314
  337
  361
  387
  415
  443
  474
  506
  539
  575
  612
  651
  692
Total liabilities, $m
  274
  277
  283
  290
  298
  307
  317
  328
  340
  352
  366
  380
  396
  412
  430
  448
  468
  489
  511
  534
  558
  584
  612
  640
  671
  703
  736
  772
  809
  848
  889
Total equity, $m
  140
  128
  131
  135
  138
  143
  147
  152
  158
  164
  170
  177
  184
  191
  199
  208
  217
  227
  237
  248
  259
  271
  284
  297
  311
  326
  342
  358
  375
  394
  413
Total liabilities and equity, $m
  414
  405
  414
  425
  436
  450
  464
  480
  498
  516
  536
  557
  580
  603
  629
  656
  685
  716
  748
  782
  817
  855
  896
  937
  982
  1,029
  1,078
  1,130
  1,184
  1,242
  1,302
Debt-to-equity ratio
  0.550
  0.620
  0.650
  0.690
  0.730
  0.770
  0.820
  0.860
  0.910
  0.950
  0.990
  1.040
  1.080
  1.130
  1.170
  1.210
  1.250
  1.290
  1.320
  1.360
  1.390
  1.430
  1.460
  1.490
  1.520
  1.550
  1.580
  1.600
  1.630
  1.650
  1.680
Adjusted equity ratio
  0.310
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -171
  26
  26
  27
  28
  29
  30
  31
  32
  33
  34
  41
  42
  44
  46
  47
  49
  51
  53
  55
  58
  60
  63
  65
  68
  71
  75
  78
  81
  85
  89
Depreciation, amort., depletion, $m
  15
  9
  9
  9
  9
  9
  9
  9
  9
  10
  10
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
Funds from operations, $m
  32
  35
  36
  36
  37
  38
  39
  40
  41
  43
  44
  44
  45
  47
  49
  51
  53
  55
  57
  59
  62
  64
  67
  70
  73
  77
  80
  84
  87
  91
  96
Change in working capital, $m
  1
  4
  5
  5
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  30
Cash from operations, $m
  31
  31
  31
  31
  31
  32
  32
  32
  33
  34
  34
  33
  34
  35
  36
  37
  38
  40
  41
  43
  44
  46
  48
  49
  51
  54
  56
  58
  61
  63
  66
Maintenance CAPEX, $m
  0
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
New CAPEX, $m
  -12
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
Cash from investing activities, $m
  -36
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -11
  -11
  -11
Free cash flow, $m
  -5
  28
  28
  28
  28
  28
  28
  29
  29
  29
  30
  29
  29
  30
  31
  32
  33
  34
  35
  36
  37
  38
  40
  41
  43
  44
  46
  48
  50
  52
  54
Issuance/(repayment) of debt, $m
  -5
  6
  6
  7
  8
  9
  10
  11
  12
  13
  14
  14
  15
  16
  17
  19
  20
  21
  22
  23
  25
  26
  27
  29
  30
  32
  34
  35
  37
  39
  41
Issuance/(repurchase) of shares, $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
Cash from financing (excl. dividends), $m  
  -11
  6
  6
  7
  8
  9
  10
  11
  12
  13
  14
  14
  15
  16
  17
  19
  20
  21
  22
  23
  25
  26
  27
  29
  30
  32
  34
  35
  37
  39
  41
Total cash flow (excl. dividends), $m
  -18
  34
  34
  35
  36
  37
  38
  39
  41
  42
  44
  43
  45
  46
  48
  50
  52
  54
  57
  59
  62
  64
  67
  70
  73
  76
  80
  83
  87
  91
  95
Retained Cash Flow (-), $m
  187
  -2
  -3
  -3
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
Prev. year cash balance distribution, $m
 
  14
  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
 
  45
  32
  32
  32
  33
  34
  34
  35
  36
  37
  36
  38
  39
  40
  42
  43
  45
  46
  48
  50
  52
  54
  57
  59
  62
  64
  67
  70
  73
  76
Discount rate, %
 
  4.80
  5.04
  5.29
  5.56
  5.83
  6.13
  6.43
  6.75
  7.09
  7.45
  7.82
  8.21
  8.62
  9.05
  9.50
  9.98
  10.48
  11.00
  11.55
  12.13
  12.74
  13.37
  14.04
  14.74
  15.48
  16.25
  17.07
  17.92
  18.82
  19.76
PV of cash for distribution, $m
 
  43
  29
  27
  26
  25
  24
  22
  21
  20
  18
  16
  15
  13
  12
  11
  9
  8
  7
  6
  5
  4
  3
  3
  2
  2
  1
  1
  1
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
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Harte Hanks, Inc. provides various multichannel marketing services in the United States and internationally. The company operates in two segments, Customer Interaction and Trillium Software. The Customer Interaction segment provides agency and digital services, including search engine management, display, digital analytics, Website development and design, digital strategy, social media, email, e-commerce, and interactive relationship management services; database marketing solutions and business-to-business lead generations that offer insight and analytics, customer data integration, and marketing communications tools. This segment offers direct marketing services, including digital printing, print on demand, advanced mail optimization, logistics and transportation optimization, tracking, commingling, shrink wrapping, and specialized mailing services, as well as custom kitting, print on demand, product recalls, and freight optimization services through its fulfillment centers; and operates teleservice workstations that offer contact center solutions comprising speech, voice and video chat, integrated voice response, analytics, social cloud monitoring, and Web self-services. The Trillium Software segment offers data quality solutions comprising data profiling, data cleansing, enrichment, and data linking for e-business, Big Data customer relationship management, data governance, enterprise resource planning, supply chain management, data warehouse, and other enterprise applications. It serves retail, technology, financial services, automotive and consumer brands, and pharmaceutical/healthcare vertical markets. Harte Hanks, Inc. was founded in 1970 and is based in San Antonio, Texas.

FINANCIAL RATIOS  of  Harte-Hanks (HHS)

Valuation Ratios
P/E Ratio -0.3
Price to Sales 0.1
Price to Book 0.4
Price to Tangible Book
Price to Cash Flow 1.7
Price to Free Cash Flow 2.8
Growth Rates
Sales Growth Rate -10.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 9.1%
Cap. Spend. - 3 Yr. Gr. Rate -1.6%
Financial Strength
Quick Ratio 6
Current Ratio 1.8
LT Debt to Equity 52.9%
Total Debt to Equity 55%
Interest Coverage -101
Management Effectiveness
Return On Assets -31.9%
Ret/ On Assets - 3 Yr. Avg. -8.6%
Return On Total Capital -54.5%
Ret/ On T. Cap. - 3 Yr. Avg. -15.3%
Return On Equity -73.2%
Return On Equity - 3 Yr. Avg. -20.8%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 18.4%
Gross Margin - 3 Yr. Avg. 19.5%
EBITDA Margin -37.6%
EBITDA Margin - 3 Yr. Avg. -5.7%
Operating Margin -39.8%
Oper. Margin - 3 Yr. Avg. -8.2%
Pre-Tax Margin -41%
Pre-Tax Margin - 3 Yr. Avg. -9.1%
Net Profit Margin -34.5%
Net Profit Margin - 3 Yr. Avg. -9.3%
Effective Tax Rate 15.8%
Eff/ Tax Rate - 3 Yr. Avg. 30.3%
Payout Ratio -12.3%

HHS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HHS stock intrinsic value calculation we used $495 million for the last fiscal year's total revenue generated by Harte-Hanks. The default revenue input number comes from 2015 income statement of Harte-Hanks. 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 HHS 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 4.8%, whose default value for HHS is calculated based on our internal credit rating of Harte-Hanks, 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 Harte-Hanks.
    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 HHS stock the variable cost ratio is equal to 92.5%.

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 HHS 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 Harte-Hanks.

Corporate tax rate of 27% is the nominal tax rate for Harte-Hanks. 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 HHS 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 HHS are equal to 7.2%.

Life of production assets of 18 years is the average useful life of capital assets used in Harte-Hanks 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 HHS is equal to 39.4%. 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 - $140 million for Harte-Hanks - 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 59.677 million for Harte-Hanks 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 Harte-Hanks at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ Harte Hanks Reports First Quarter 2017 Results   [Aug-16-17 04:15PM  Marketwired]
▶ Hi Ho Silver - ITOCO Major Venture Agreement Signed   [Jul-25-17 06:31PM  Newsfile]
▶ Harte-Hanks reports 4Q loss   [Jun-09-17 10:15AM  Associated Press]
▶ ETFs with exposure to Harte-Hanks, Inc. : January 9, 2017   [Jan-09-17 01:28PM  Capital Cube]
▶ Harte Hanks gets $112 million and a lawsuit dismissed for the holidays   [04:29PM  American City Business Journals]
▶ Harte Hanks Completes Sale of Trillium Business   [Dec-23-16 09:42AM  Marketwired]
▶ Harte Hanks Announces CFO Transition   [Dec-13-16 05:15PM  Marketwired]
▶ Is Harte Hanks Inc (HHS) A Good Stock To Buy?   [08:08AM  at Insider Monkey]
▶ Harte Hanks Reports Third Quarter Results   [07:00AM  Marketwired]
▶ Scott Elser Joins Harte Hanks   [Sep-22-16 03:11PM  Marketwired]
▶ IIROC Trade Resumption - HHS   [08:09AM  PR Newswire]
▶ Harte Hanks Reports First Quarter Results   [07:00AM  Marketwired]
▶ Dr. Ashish Garg Joins Harte Hanks Consulting   [Apr-14-16 02:05PM  Marketwired]
Stock chart of HHS Financial statements of HHS
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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