Intrinsic value of Hubbell - HUB-B

Previous Close

$111.65

  Intrinsic Value

$113.70

stock screener

  Rating & Target

hold

+2%

  Value-price divergence*

+4%

Previous close

$111.65

 
Intrinsic value

$113.70

 
Up/down potential

+2%

 
Rating

hold

 
Value-price divergence*

+4%

*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 6.1

 

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
  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
  3,505
  3,575
  3,657
  3,751
  3,857
  3,974
  4,102
  4,242
  4,393
  4,556
  4,731
  4,918
  5,117
  5,330
  5,556
  5,795
  6,049
  6,318
  6,603
  6,903
  7,220
  7,555
  7,908
  8,280
  8,672
  9,085
  9,519
  9,977
  10,458
  10,965
  11,497
Variable operating expenses, $m
 
  3,051
  3,119
  3,197
  3,284
  3,380
  3,486
  3,602
  3,727
  3,861
  4,005
  4,061
  4,226
  4,401
  4,588
  4,785
  4,995
  5,217
  5,452
  5,700
  5,962
  6,238
  6,530
  6,837
  7,160
  7,501
  7,860
  8,238
  8,636
  9,054
  9,494
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
  3,051
  3,119
  3,197
  3,284
  3,380
  3,486
  3,602
  3,727
  3,861
  4,005
  4,061
  4,226
  4,401
  4,588
  4,785
  4,995
  5,217
  5,452
  5,700
  5,962
  6,238
  6,530
  6,837
  7,160
  7,501
  7,860
  8,238
  8,636
  9,054
  9,494
Operating income, $m
  478
  524
  538
  555
  573
  593
  616
  640
  666
  695
  725
  857
  892
  929
  968
  1,010
  1,054
  1,101
  1,151
  1,203
  1,258
  1,317
  1,378
  1,443
  1,511
  1,583
  1,659
  1,739
  1,823
  1,911
  2,004
EBITDA, $m
  570
  666
  682
  699
  719
  741
  765
  791
  819
  849
  882
  917
  954
  994
  1,036
  1,080
  1,128
  1,178
  1,231
  1,287
  1,346
  1,408
  1,474
  1,544
  1,617
  1,694
  1,775
  1,860
  1,950
  2,044
  2,143
Interest expense (income), $m
  37
  45
  46
  48
  51
  53
  56
  59
  63
  67
  71
  75
  80
  85
  90
  95
  101
  108
  114
  121
  129
  137
  145
  154
  163
  173
  183
  194
  205
  217
  229
Earnings before tax, $m
  430
  479
  492
  506
  522
  540
  560
  581
  604
  628
  655
  782
  812
  844
  878
  915
  953
  993
  1,036
  1,082
  1,129
  1,180
  1,233
  1,289
  1,348
  1,411
  1,476
  1,545
  1,618
  1,694
  1,774
Tax expense, $m
  132
  129
  133
  137
  141
  146
  151
  157
  163
  170
  177
  211
  219
  228
  237
  247
  257
  268
  280
  292
  305
  319
  333
  348
  364
  381
  399
  417
  437
  457
  479
Net income, $m
  293
  350
  359
  370
  381
  394
  408
  424
  441
  459
  478
  571
  593
  616
  641
  668
  696
  725
  757
  790
  825
  861
  900
  941
  984
  1,030
  1,078
  1,128
  1,181
  1,237
  1,295

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
  3,139
  3,211
  3,294
  3,386
  3,489
  3,601
  3,724
  3,857
  4,000
  4,153
  4,318
  4,493
  4,679
  4,878
  5,088
  5,311
  5,547
  5,797
  6,061
  6,339
  6,633
  6,943
  7,269
  7,613
  7,976
  8,358
  8,759
  9,182
  9,627
  10,094
Adjusted assets (=assets-cash), $m
  3,076
  3,139
  3,211
  3,294
  3,386
  3,489
  3,601
  3,724
  3,857
  4,000
  4,153
  4,318
  4,493
  4,679
  4,878
  5,088
  5,311
  5,547
  5,797
  6,061
  6,339
  6,633
  6,943
  7,269
  7,613
  7,976
  8,358
  8,759
  9,182
  9,627
  10,094
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
  847
  867
  889
  914
  942
  972
  1,005
  1,041
  1,080
  1,121
  1,166
  1,213
  1,263
  1,317
  1,374
  1,434
  1,497
  1,565
  1,636
  1,711
  1,790
  1,874
  1,962
  2,055
  2,153
  2,256
  2,364
  2,479
  2,599
  2,725
Working capital, $m
  961
  526
  538
  551
  567
  584
  603
  624
  646
  670
  695
  723
  752
  783
  817
  852
  889
  929
  971
  1,015
  1,061
  1,111
  1,162
  1,217
  1,275
  1,335
  1,399
  1,467
  1,537
  1,612
  1,690
Total debt, $m
  994
  1,030
  1,075
  1,127
  1,185
  1,249
  1,320
  1,397
  1,480
  1,570
  1,666
  1,769
  1,879
  1,996
  2,120
  2,252
  2,392
  2,540
  2,697
  2,862
  3,037
  3,221
  3,415
  3,620
  3,836
  4,063
  4,302
  4,554
  4,819
  5,098
  5,391
Total liabilities, $m
  1,932
  1,968
  2,013
  2,065
  2,123
  2,187
  2,258
  2,335
  2,418
  2,508
  2,604
  2,707
  2,817
  2,934
  3,058
  3,190
  3,330
  3,478
  3,635
  3,800
  3,975
  4,159
  4,353
  4,558
  4,774
  5,001
  5,240
  5,492
  5,757
  6,036
  6,329
Total equity, $m
  1,593
  1,171
  1,198
  1,228
  1,263
  1,301
  1,343
  1,389
  1,439
  1,492
  1,549
  1,610
  1,676
  1,745
  1,819
  1,898
  1,981
  2,069
  2,162
  2,261
  2,364
  2,474
  2,590
  2,711
  2,840
  2,975
  3,117
  3,267
  3,425
  3,591
  3,765
Total liabilities and equity, $m
  3,525
  3,139
  3,211
  3,293
  3,386
  3,488
  3,601
  3,724
  3,857
  4,000
  4,153
  4,317
  4,493
  4,679
  4,877
  5,088
  5,311
  5,547
  5,797
  6,061
  6,339
  6,633
  6,943
  7,269
  7,614
  7,976
  8,357
  8,759
  9,182
  9,627
  10,094
Debt-to-equity ratio
  0.624
  0.880
  0.900
  0.920
  0.940
  0.960
  0.980
  1.010
  1.030
  1.050
  1.080
  1.100
  1.120
  1.140
  1.170
  1.190
  1.210
  1.230
  1.250
  1.270
  1.280
  1.300
  1.320
  1.340
  1.350
  1.370
  1.380
  1.390
  1.410
  1.420
  1.430
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
  350
  359
  370
  381
  394
  408
  424
  441
  459
  478
  571
  593
  616
  641
  668
  696
  725
  757
  790
  825
  861
  900
  941
  984
  1,030
  1,078
  1,128
  1,181
  1,237
  1,295
Depreciation, amort., depletion, $m
  92
  143
  144
  145
  146
  147
  149
  151
  152
  154
  157
  60
  62
  65
  68
  70
  74
  77
  80
  84
  88
  92
  96
  101
  105
  110
  116
  121
  127
  133
  140
Funds from operations, $m
  381
  492
  503
  514
  527
  542
  557
  575
  593
  613
  635
  631
  655
  681
  709
  738
  769
  802
  837
  874
  912
  953
  996
  1,042
  1,090
  1,140
  1,193
  1,249
  1,308
  1,370
  1,435
Change in working capital, $m
  -17
  10
  12
  14
  16
  17
  19
  21
  22
  24
  26
  27
  29
  31
  33
  35
  37
  40
  42
  44
  47
  49
  52
  55
  58
  61
  64
  67
  71
  74
  78
Cash from operations, $m
  398
  482
  491
  500
  512
  524
  539
  554
  571
  589
  609
  603
  626
  650
  676
  703
  732
  762
  795
  829
  866
  904
  944
  987
  1,032
  1,079
  1,129
  1,182
  1,237
  1,295
  1,357
Maintenance CAPEX, $m
  0
  -43
  -43
  -44
  -46
  -47
  -48
  -50
  -52
  -53
  -55
  -57
  -60
  -62
  -65
  -68
  -70
  -74
  -77
  -80
  -84
  -88
  -92
  -96
  -101
  -105
  -110
  -116
  -121
  -127
  -133
New CAPEX, $m
  -67
  -16
  -19
  -22
  -25
  -28
  -30
  -33
  -36
  -39
  -41
  -44
  -47
  -50
  -54
  -57
  -60
  -64
  -67
  -71
  -75
  -79
  -84
  -88
  -93
  -98
  -103
  -108
  -114
  -120
  -126
Cash from investing activities, $m
  -230
  -59
  -62
  -66
  -71
  -75
  -78
  -83
  -88
  -92
  -96
  -101
  -107
  -112
  -119
  -125
  -130
  -138
  -144
  -151
  -159
  -167
  -176
  -184
  -194
  -203
  -213
  -224
  -235
  -247
  -259
Free cash flow, $m
  168
  424
  428
  434
  441
  450
  460
  471
  484
  497
  512
  501
  519
  537
  557
  579
  601
  625
  651
  678
  707
  737
  769
  803
  839
  876
  916
  958
  1,002
  1,048
  1,097
Issuance/(repayment) of debt, $m
  347
  39
  45
  52
  58
  64
  71
  77
  83
  90
  96
  103
  110
  117
  124
  132
  140
  148
  157
  165
  175
  184
  194
  205
  216
  227
  239
  252
  265
  279
  293
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
  39
  45
  52
  58
  64
  71
  77
  83
  90
  96
  103
  110
  117
  124
  132
  140
  148
  157
  165
  175
  184
  194
  205
  216
  227
  239
  252
  265
  279
  293
Total cash flow (excl. dividends), $m
  238
  463
  473
  485
  499
  514
  530
  548
  567
  587
  608
  604
  629
  654
  682
  710
  741
  773
  807
  843
  881
  921
  963
  1,008
  1,054
  1,103
  1,155
  1,210
  1,267
  1,327
  1,390
Retained Cash Flow (-), $m
  148
  -24
  -27
  -31
  -35
  -38
  -42
  -46
  -50
  -53
  -57
  -61
  -65
  -70
  -74
  -78
  -83
  -88
  -93
  -98
  -104
  -110
  -116
  -122
  -128
  -135
  -142
  -150
  -158
  -166
  -174
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
 
  885
  446
  455
  465
  476
  488
  502
  517
  533
  551
  543
  563
  585
  608
  632
  658
  685
  714
  745
  777
  812
  848
  886
  926
  968
  1,013
  1,060
  1,109
  1,161
  1,216
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
 
  849
  408
  396
  383
  369
  355
  339
  323
  306
  289
  258
  240
  222
  204
  186
  167
  149
  132
  115
  99
  84
  70
  58
  47
  38
  30
  23
  17
  13
  9
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

FINANCIAL RATIOS  of  Hubbell (HUB-B)

Valuation Ratios
P/E Ratio 21.2
Price to Sales 1.8
Price to Book 3.9
Price to Tangible Book
Price to Cash Flow 15.6
Price to Free Cash Flow 18.7
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 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 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 54.487 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 $6.1 billion.

Stock chart of HUB-B 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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