Intrinsic value of Hubbell - HUB-B

Previous Close

$120.16

  Intrinsic Value

$124.09

stock screener

  Rating & Target

hold

+3%

  Value-price divergence*

+8%

Previous close

$120.16

 
Intrinsic value

$124.09

 
Up/down potential

+3%

 
Rating

hold

 
Value-price divergence*

+8%

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

We calculate the intrinsic value of HUB-B 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 6.6

 

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, %
  3.39
  4.30
  4.37
  4.43
  4.49
  4.54
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.80
  4.82
  4.84
  4.86
  4.87
  4.88
  4.89
  4.91
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
  4.96
  4.97
Revenue, $m
  3,505
  3,656
  3,815
  3,985
  4,164
  4,353
  4,552
  4,763
  4,985
  5,219
  5,466
  5,726
  6,000
  6,288
  6,591
  6,910
  7,246
  7,599
  7,970
  8,360
  8,770
  9,201
  9,654
  10,130
  10,630
  11,156
  11,708
  12,288
  12,897
  13,537
  14,210
Variable operating expenses, $m
 
  3,118
  3,250
  3,389
  3,537
  3,693
  3,858
  4,032
  4,215
  4,409
  4,613
  4,728
  4,954
  5,192
  5,442
  5,706
  5,983
  6,274
  6,581
  6,903
  7,241
  7,597
  7,971
  8,365
  8,778
  9,212
  9,667
  10,146
  10,650
  11,178
  11,733
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
  3,027
  3,118
  3,250
  3,389
  3,537
  3,693
  3,858
  4,032
  4,215
  4,409
  4,613
  4,728
  4,954
  5,192
  5,442
  5,706
  5,983
  6,274
  6,581
  6,903
  7,241
  7,597
  7,971
  8,365
  8,778
  9,212
  9,667
  10,146
  10,650
  11,178
  11,733
Operating income, $m
  478
  538
  566
  595
  626
  659
  694
  731
  770
  810
  854
  998
  1,046
  1,096
  1,149
  1,204
  1,263
  1,324
  1,389
  1,457
  1,528
  1,603
  1,682
  1,765
  1,853
  1,944
  2,040
  2,141
  2,248
  2,359
  2,476
EBITDA, $m
  570
  682
  711
  743
  776
  811
  849
  888
  929
  973
  1,019
  1,067
  1,119
  1,172
  1,229
  1,288
  1,351
  1,417
  1,486
  1,558
  1,635
  1,715
  1,800
  1,888
  1,982
  2,080
  2,183
  2,291
  2,404
  2,524
  2,649
Interest expense (income), $m
  37
  45
  48
  52
  56
  61
  66
  71
  76
  81
  87
  93
  100
  106
  114
  121
  129
  137
  146
  155
  165
  175
  186
  197
  209
  221
  234
  248
  262
  277
  293
Earnings before tax, $m
  430
  493
  517
  543
  570
  599
  629
  660
  694
  729
  766
  905
  946
  989
  1,035
  1,083
  1,134
  1,187
  1,243
  1,302
  1,363
  1,428
  1,497
  1,568
  1,644
  1,723
  1,806
  1,894
  1,985
  2,082
  2,183
Tax expense, $m
  132
  133
  140
  147
  154
  162
  170
  178
  187
  197
  207
  244
  255
  267
  279
  292
  306
  320
  336
  351
  368
  386
  404
  423
  444
  465
  488
  511
  536
  562
  589
Net income, $m
  293
  360
  378
  396
  416
  437
  459
  482
  507
  532
  559
  660
  691
  722
  756
  791
  828
  866
  907
  950
  995
  1,043
  1,093
  1,145
  1,200
  1,258
  1,319
  1,382
  1,449
  1,520
  1,594

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  449
  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
  3,525
  3,210
  3,350
  3,498
  3,655
  3,821
  3,997
  4,182
  4,377
  4,582
  4,799
  5,027
  5,268
  5,521
  5,787
  6,067
  6,361
  6,671
  6,997
  7,340
  7,700
  8,078
  8,476
  8,894
  9,333
  9,794
  10,279
  10,788
  11,323
  11,885
  12,476
Adjusted assets (=assets-cash), $m
  3,076
  3,210
  3,350
  3,498
  3,655
  3,821
  3,997
  4,182
  4,377
  4,582
  4,799
  5,027
  5,268
  5,521
  5,787
  6,067
  6,361
  6,671
  6,997
  7,340
  7,700
  8,078
  8,476
  8,894
  9,333
  9,794
  10,279
  10,788
  11,323
  11,885
  12,476
Revenue / Adjusted assets
  1.139
  1.139
  1.139
  1.139
  1.139
  1.139
  1.139
  1.139
  1.139
  1.139
  1.139
  1.139
  1.139
  1.139
  1.139
  1.139
  1.139
  1.139
  1.139
  1.139
  1.139
  1.139
  1.139
  1.139
  1.139
  1.139
  1.139
  1.139
  1.139
  1.139
  1.139
Average production assets, $m
  832
  866
  904
  944
  987
  1,032
  1,079
  1,129
  1,181
  1,237
  1,295
  1,357
  1,422
  1,490
  1,562
  1,638
  1,717
  1,801
  1,889
  1,981
  2,078
  2,181
  2,288
  2,401
  2,519
  2,644
  2,775
  2,912
  3,057
  3,208
  3,368
Working capital, $m
  961
  537
  561
  586
  612
  640
  669
  700
  733
  767
  804
  842
  882
  924
  969
  1,016
  1,065
  1,117
  1,172
  1,229
  1,289
  1,353
  1,419
  1,489
  1,563
  1,640
  1,721
  1,806
  1,896
  1,990
  2,089
Total debt, $m
  994
  1,074
  1,162
  1,255
  1,354
  1,458
  1,568
  1,684
  1,806
  1,935
  2,071
  2,214
  2,365
  2,523
  2,690
  2,866
  3,051
  3,245
  3,449
  3,664
  3,890
  4,127
  4,376
  4,638
  4,914
  5,203
  5,507
  5,826
  6,162
  6,514
  6,884
Total liabilities, $m
  1,932
  2,012
  2,100
  2,193
  2,292
  2,396
  2,506
  2,622
  2,744
  2,873
  3,009
  3,152
  3,303
  3,461
  3,628
  3,804
  3,989
  4,183
  4,387
  4,602
  4,828
  5,065
  5,314
  5,576
  5,852
  6,141
  6,445
  6,764
  7,100
  7,452
  7,822
Total equity, $m
  1,593
  1,197
  1,249
  1,305
  1,363
  1,425
  1,491
  1,560
  1,633
  1,709
  1,790
  1,875
  1,965
  2,059
  2,158
  2,263
  2,373
  2,488
  2,610
  2,738
  2,872
  3,013
  3,161
  3,317
  3,481
  3,653
  3,834
  4,024
  4,224
  4,433
  4,653
Total liabilities and equity, $m
  3,525
  3,209
  3,349
  3,498
  3,655
  3,821
  3,997
  4,182
  4,377
  4,582
  4,799
  5,027
  5,268
  5,520
  5,786
  6,067
  6,362
  6,671
  6,997
  7,340
  7,700
  8,078
  8,475
  8,893
  9,333
  9,794
  10,279
  10,788
  11,324
  11,885
  12,475
Debt-to-equity ratio
  0.624
  0.900
  0.930
  0.960
  0.990
  1.020
  1.050
  1.080
  1.110
  1.130
  1.160
  1.180
  1.200
  1.230
  1.250
  1.270
  1.290
  1.300
  1.320
  1.340
  1.350
  1.370
  1.380
  1.400
  1.410
  1.420
  1.440
  1.450
  1.460
  1.470
  1.480
Adjusted equity ratio
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373
  0.373

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  293
  360
  378
  396
  416
  437
  459
  482
  507
  532
  559
  660
  691
  722
  756
  791
  828
  866
  907
  950
  995
  1,043
  1,093
  1,145
  1,200
  1,258
  1,319
  1,382
  1,449
  1,520
  1,594
Depreciation, amort., depletion, $m
  92
  144
  145
  148
  150
  152
  154
  157
  160
  163
  166
  70
  73
  76
  80
  84
  88
  92
  97
  102
  107
  112
  117
  123
  129
  136
  142
  149
  157
  165
  173
Funds from operations, $m
  381
  504
  523
  544
  566
  589
  613
  639
  666
  695
  725
  730
  763
  799
  836
  875
  916
  959
  1,004
  1,052
  1,102
  1,155
  1,210
  1,268
  1,329
  1,393
  1,461
  1,532
  1,606
  1,684
  1,766
Change in working capital, $m
  -17
  22
  23
  25
  26
  28
  29
  31
  33
  34
  36
  38
  40
  42
  45
  47
  49
  52
  55
  57
  60
  63
  67
  70
  74
  77
  81
  85
  90
  94
  99
Cash from operations, $m
  398
  482
  500
  519
  540
  561
  584
  608
  634
  660
  689
  692
  723
  756
  791
  828
  866
  907
  950
  994
  1,042
  1,091
  1,143
  1,198
  1,256
  1,316
  1,380
  1,446
  1,517
  1,590
  1,668
Maintenance CAPEX, $m
  0
  -43
  -44
  -46
  -48
  -51
  -53
  -55
  -58
  -61
  -63
  -66
  -70
  -73
  -76
  -80
  -84
  -88
  -92
  -97
  -102
  -107
  -112
  -117
  -123
  -129
  -136
  -142
  -149
  -157
  -165
New CAPEX, $m
  -67
  -35
  -38
  -40
  -42
  -45
  -47
  -50
  -53
  -56
  -58
  -62
  -65
  -68
  -72
  -76
  -80
  -84
  -88
  -92
  -97
  -102
  -107
  -113
  -119
  -125
  -131
  -137
  -144
  -152
  -159
Cash from investing activities, $m
  -230
  -78
  -82
  -86
  -90
  -96
  -100
  -105
  -111
  -117
  -121
  -128
  -135
  -141
  -148
  -156
  -164
  -172
  -180
  -189
  -199
  -209
  -219
  -230
  -242
  -254
  -267
  -279
  -293
  -309
  -324
Free cash flow, $m
  168
  404
  417
  433
  449
  466
  484
  503
  523
  544
  567
  564
  589
  615
  643
  672
  703
  735
  769
  805
  843
  882
  924
  968
  1,014
  1,062
  1,113
  1,167
  1,223
  1,282
  1,344
Issuance/(repayment) of debt, $m
  347
  83
  88
  93
  98
  104
  110
  116
  122
  129
  136
  143
  151
  159
  167
  176
  185
  194
  204
  215
  226
  237
  249
  262
  275
  289
  304
  319
  335
  352
  370
Issuance/(repurchase) of shares, $m
  -247
  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  
  97
  83
  88
  93
  98
  104
  110
  116
  122
  129
  136
  143
  151
  159
  167
  176
  185
  194
  204
  215
  226
  237
  249
  262
  275
  289
  304
  319
  335
  352
  370
Total cash flow (excl. dividends), $m
  238
  487
  505
  526
  547
  570
  594
  619
  645
  673
  703
  707
  739
  774
  810
  848
  888
  930
  974
  1,020
  1,069
  1,120
  1,174
  1,230
  1,289
  1,352
  1,417
  1,486
  1,558
  1,634
  1,714
Retained Cash Flow (-), $m
  148
  -50
  -52
  -55
  -59
  -62
  -65
  -69
  -73
  -77
  -81
  -85
  -90
  -94
  -99
  -104
  -110
  -116
  -122
  -128
  -134
  -141
  -148
  -156
  -164
  -172
  -181
  -190
  -200
  -210
  -220
Prev. year cash balance distribution, $m
 
  446
  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
 
  883
  453
  470
  489
  508
  528
  550
  573
  597
  622
  622
  650
  679
  711
  743
  778
  814
  852
  892
  934
  979
  1,025
  1,074
  1,126
  1,180
  1,236
  1,296
  1,359
  1,425
  1,494
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
 
  847
  415
  409
  402
  394
  383
  371
  358
  343
  326
  295
  277
  258
  239
  218
  198
  177
  157
  137
  119
  101
  85
  70
  57
  46
  36
  28
  21
  16
  11
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

Hubbell Incorporated is engaged in the design, manufacture and sale of electrical and electronic products for a range of non-residential and residential construction, industrial and utility applications. The Company's segments include Electrical and the Power. The Electrical segment consists of businesses that sell stock and custom products, including standard and special application wiring device products, rough-in electrical products, lighting fixtures and controls, components and assemblies for the natural gas distribution market, as well as other electrical equipment. In addition, certain businesses design and manufacture a range of high voltage test and measurement equipment, industrial controls and communication systems used in the non-residential and industrial markets. The Power segment consists of operations that design and manufacture various distribution, transmission, substation and telecommunications products primarily used by the electrical utility industry.

FINANCIAL RATIOS  of  Hubbell (HUB-B)

Valuation Ratios
P/E Ratio 22.8
Price to Sales 1.9
Price to Book 4.2
Price to Tangible Book
Price to Cash Flow 16.8
Price to Free Cash Flow 20.2
Growth Rates
Sales Growth Rate 3.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -13%
Cap. Spend. - 3 Yr. Gr. Rate 2.6%
Financial Strength
Quick Ratio 150
Current Ratio 0.1
LT Debt to Equity 62.2%
Total Debt to Equity 62.4%
Interest Coverage 13
Management Effectiveness
Return On Assets 9.5%
Ret/ On Assets - 3 Yr. Avg. 9.7%
Return On Total Capital 11.8%
Ret/ On T. Cap. - 3 Yr. Avg. 12%
Return On Equity 17.6%
Return On Equity - 3 Yr. Avg. 16.5%
Asset Turnover 1
Profitability Ratios
Gross Margin 32.3%
Gross Margin - 3 Yr. Avg. 32.7%
EBITDA Margin 15.9%
EBITDA Margin - 3 Yr. Avg. 16.5%
Operating Margin 13.6%
Oper. Margin - 3 Yr. Avg. 14.5%
Pre-Tax Margin 12.3%
Pre-Tax Margin - 3 Yr. Avg. 13%
Net Profit Margin 8.4%
Net Profit Margin - 3 Yr. Avg. 8.7%
Effective Tax Rate 30.7%
Eff/ Tax Rate - 3 Yr. Avg. 32%
Payout Ratio 49.1%

HUB-B stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HUB-B stock intrinsic value calculation we used $3505 million for the last fiscal year's total revenue generated by Hubbell. The default revenue input number comes from 2016 income statement of Hubbell. 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 HUB-B stock valuation model: a) initial revenue growth rate of 4.3% 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 HUB-B is calculated based on our internal credit rating of Hubbell, 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 Hubbell.
    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 HUB-B stock the variable cost ratio is equal to 85.4%.

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 HUB-B 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 4.5% for Hubbell.

Corporate tax rate of 27% is the nominal tax rate for Hubbell. 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 HUB-B 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 HUB-B are equal to 23.7%.

Life of production assets of 19.5 years is the average useful life of capital assets used in Hubbell 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 HUB-B is equal to 14.7%. 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 - $1593 million for Hubbell - 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 54.947 million for Hubbell 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 Hubbell at the current share price and the inputted number of shares is $6.6 billion.

Financial statements of HUB-B
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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