Intrinsic value of Hurco - HURC

Previous Close

$45.00

  Intrinsic Value

$12.69

stock screener

  Rating & Target

str. sell

-72%

  Value-price divergence*

-88%

Previous close

$45.00

 
Intrinsic value

$12.69

 
Up/down potential

-72%

 
Rating

str. sell

 
Value-price divergence*

-88%

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

We calculate the intrinsic value of HURC 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 0.3

 

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, %
  3.65
  11.50
  10.85
  10.27
  9.74
  9.26
  8.84
  8.45
  8.11
  7.80
  7.52
  7.27
  7.04
  6.84
  6.65
  6.49
  6.34
  6.20
  6.08
  5.98
  5.88
  5.79
  5.71
  5.64
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
Revenue, $m
  227
  253
  281
  309
  339
  371
  404
  438
  473
  510
  549
  589
  630
  673
  718
  764
  813
  863
  916
  970
  1,028
  1,087
  1,149
  1,214
  1,282
  1,352
  1,426
  1,504
  1,584
  1,669
  1,758
Variable operating expenses, $m
 
  226
  251
  277
  303
  332
  361
  391
  423
  456
  490
  526
  563
  601
  641
  683
  726
  771
  818
  867
  918
  971
  1,026
  1,084
  1,145
  1,208
  1,274
  1,343
  1,415
  1,491
  1,570
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
  208
  226
  251
  277
  303
  332
  361
  391
  423
  456
  490
  526
  563
  601
  641
  683
  726
  771
  818
  867
  918
  971
  1,026
  1,084
  1,145
  1,208
  1,274
  1,343
  1,415
  1,491
  1,570
Operating income, $m
  20
  27
  30
  33
  36
  39
  43
  47
  50
  54
  58
  63
  67
  72
  77
  82
  87
  92
  98
  104
  110
  116
  123
  130
  137
  145
  152
  161
  169
  178
  188
EBITDA, $m
  24
  31
  34
  38
  42
  46
  50
  54
  58
  63
  67
  72
  77
  83
  88
  94
  100
  106
  112
  119
  126
  133
  141
  149
  157
  166
  175
  185
  195
  205
  216
Interest expense (income), $m
  0
  0
  0
  1
  1
  1
  1
  2
  2
  3
  3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
Earnings before tax, $m
  19
  27
  30
  32
  35
  38
  41
  45
  48
  52
  56
  60
  64
  68
  72
  77
  81
  86
  91
  97
  102
  108
  114
  120
  127
  134
  141
  148
  156
  165
  173
Tax expense, $m
  6
  7
  8
  9
  10
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  21
  22
  23
  25
  26
  28
  29
  31
  32
  34
  36
  38
  40
  42
  44
  47
Net income, $m
  13
  20
  22
  24
  26
  28
  30
  33
  35
  38
  41
  44
  46
  50
  53
  56
  59
  63
  67
  71
  75
  79
  83
  88
  93
  98
  103
  108
  114
  120
  126

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  41
  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
  252
  235
  261
  288
  316
  345
  375
  407
  440
  474
  510
  547
  585
  625
  667
  710
  755
  802
  851
  902
  955
  1,010
  1,068
  1,128
  1,191
  1,257
  1,325
  1,397
  1,472
  1,551
  1,633
Adjusted assets (=assets-cash), $m
  211
  235
  261
  288
  316
  345
  375
  407
  440
  474
  510
  547
  585
  625
  667
  710
  755
  802
  851
  902
  955
  1,010
  1,068
  1,128
  1,191
  1,257
  1,325
  1,397
  1,472
  1,551
  1,633
Revenue / Adjusted assets
  1.076
  1.077
  1.077
  1.073
  1.073
  1.075
  1.077
  1.076
  1.075
  1.076
  1.076
  1.077
  1.077
  1.077
  1.076
  1.076
  1.077
  1.076
  1.076
  1.075
  1.076
  1.076
  1.076
  1.076
  1.076
  1.076
  1.076
  1.077
  1.076
  1.076
  1.077
Average production assets, $m
  19
  21
  23
  25
  27
  30
  33
  35
  38
  41
  44
  48
  51
  55
  58
  62
  66
  70
  74
  79
  83
  88
  93
  98
  104
  110
  116
  122
  128
  135
  142
Working capital, $m
  160
  127
  140
  155
  170
  185
  202
  219
  237
  255
  274
  294
  315
  337
  359
  382
  406
  432
  458
  485
  514
  543
  575
  607
  641
  676
  713
  752
  792
  834
  879
Total debt, $m
  1
  8
  16
  24
  33
  42
  51
  61
  72
  82
  94
  105
  117
  130
  143
  156
  170
  185
  200
  216
  233
  250
  268
  287
  307
  327
  349
  371
  395
  419
  445
Total liabilities, $m
  66
  74
  82
  90
  99
  108
  117
  127
  138
  148
  160
  171
  183
  196
  209
  222
  236
  251
  266
  282
  299
  316
  334
  353
  373
  393
  415
  437
  461
  485
  511
Total equity, $m
  185
  162
  179
  198
  217
  237
  258
  280
  302
  326
  350
  376
  402
  430
  458
  488
  519
  551
  585
  620
  656
  694
  734
  775
  818
  863
  911
  960
  1,012
  1,066
  1,122
Total liabilities and equity, $m
  251
  236
  261
  288
  316
  345
  375
  407
  440
  474
  510
  547
  585
  626
  667
  710
  755
  802
  851
  902
  955
  1,010
  1,068
  1,128
  1,191
  1,256
  1,326
  1,397
  1,473
  1,551
  1,633
Debt-to-equity ratio
  0.005
  0.050
  0.090
  0.120
  0.150
  0.180
  0.200
  0.220
  0.240
  0.250
  0.270
  0.280
  0.290
  0.300
  0.310
  0.320
  0.330
  0.340
  0.340
  0.350
  0.350
  0.360
  0.370
  0.370
  0.370
  0.380
  0.380
  0.390
  0.390
  0.390
  0.400
Adjusted equity ratio
  0.687
  0.687
  0.687
  0.687
  0.687
  0.687
  0.687
  0.687
  0.687
  0.687
  0.687
  0.687
  0.687
  0.687
  0.687
  0.687
  0.687
  0.687
  0.687
  0.687
  0.687
  0.687
  0.687
  0.687
  0.687
  0.687
  0.687
  0.687
  0.687
  0.687
  0.687

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  13
  20
  22
  24
  26
  28
  30
  33
  35
  38
  41
  44
  46
  50
  53
  56
  59
  63
  67
  71
  75
  79
  83
  88
  93
  98
  103
  108
  114
  120
  126
Depreciation, amort., depletion, $m
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  23
  24
  25
  27
  28
Funds from operations, $m
  -34
  24
  26
  29
  31
  34
  37
  40
  43
  46
  49
  53
  56
  60
  64
  68
  72
  77
  81
  86
  91
  96
  102
  107
  113
  119
  126
  132
  139
  147
  154
Change in working capital, $m
  -27
  13
  14
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  22
  23
  24
  25
  26
  27
  29
  30
  31
  32
  34
  35
  37
  39
  40
  42
  44
Cash from operations, $m
  -7
  11
  12
  14
  16
  18
  21
  23
  25
  28
  30
  33
  36
  39
  42
  45
  48
  51
  55
  59
  62
  66
  70
  75
  79
  84
  89
  94
  99
  104
  110
Maintenance CAPEX, $m
  0
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -27
New CAPEX, $m
  -4
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
Cash from investing activities, $m
  -4
  -6
  -6
  -6
  -7
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -29
  -31
  -32
  -34
Free cash flow, $m
  -11
  5
  6
  8
  9
  10
  12
  14
  15
  17
  19
  21
  23
  25
  27
  30
  32
  34
  37
  40
  42
  45
  48
  51
  54
  58
  61
  65
  68
  72
  76
Issuance/(repayment) of debt, $m
  0
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  22
  24
  25
  26
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
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  22
  24
  25
  26
Total cash flow (excl. dividends), $m
  -12
  13
  14
  16
  18
  20
  21
  24
  26
  28
  30
  33
  35
  38
  40
  43
  46
  49
  52
  56
  59
  63
  66
  70
  74
  78
  83
  87
  92
  97
  102
Retained Cash Flow (-), $m
  -10
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -32
  -34
  -35
  -36
  -38
  -40
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
Prev. year cash balance distribution, $m
 
  40
  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
 
  36
  -3
  -2
  -2
  -1
  1
  2
  3
  4
  6
  7
  9
  10
  12
  13
  15
  17
  19
  21
  23
  25
  27
  29
  31
  33
  35
  38
  40
  43
  46
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
 
  35
  -3
  -2
  -1
  0
  0
  1
  2
  2
  3
  3
  4
  4
  4
  4
  4
  4
  3
  3
  3
  3
  2
  2
  2
  1
  1
  1
  1
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
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Hurco Companies, Inc. is an industrial technology company. The Company designs, manufactures and sells computerized (Computer Numeric Control (CNC)) machine tools, consisting primarily of vertical machining centers (mills) and turning centers (lathes), to companies in the metal cutting industry. It operates in the industrial automation equipment segment. It provides software options, control upgrades, accessories and replacement parts for its products, as well as customer service and training support, and applications support. Its computerized machine tools are equipped with an integrated interactive computer control system that features its WinMax software. Its control systems are available in versions, including the Series 8200-B for tool room products and the Series 9000 offered on its vertical machining centers and bridge mills. Its Takumi machine tools models include drill and tap machines and three-axis vertical machining centers with linear guides.

FINANCIAL RATIOS  of  Hurco (HURC)

Valuation Ratios
P/E Ratio 22.7
Price to Sales 1.3
Price to Book 1.6
Price to Tangible Book
Price to Cash Flow -42.2
Price to Free Cash Flow -26.9
Growth Rates
Sales Growth Rate 3.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -20%
Cap. Spend. - 3 Yr. Gr. Rate 14.9%
Financial Strength
Quick Ratio 41
Current Ratio 0.1
LT Debt to Equity 0%
Total Debt to Equity 0.5%
Interest Coverage 0
Management Effectiveness
Return On Assets 5.2%
Ret/ On Assets - 3 Yr. Avg. 6.2%
Return On Total Capital 7.2%
Ret/ On T. Cap. - 3 Yr. Avg. 8.6%
Return On Equity 7.2%
Return On Equity - 3 Yr. Avg. 8.7%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 30.8%
Gross Margin - 3 Yr. Avg. 31.1%
EBITDA Margin 10.1%
EBITDA Margin - 3 Yr. Avg. 11.1%
Operating Margin 8.4%
Oper. Margin - 3 Yr. Avg. 9.6%
Pre-Tax Margin 8.4%
Pre-Tax Margin - 3 Yr. Avg. 9.6%
Net Profit Margin 5.7%
Net Profit Margin - 3 Yr. Avg. 6.6%
Effective Tax Rate 31.6%
Eff/ Tax Rate - 3 Yr. Avg. 31.2%
Payout Ratio 15.4%

HURC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HURC stock intrinsic value calculation we used $227 million for the last fiscal year's total revenue generated by Hurco. The default revenue input number comes from 2016 income statement of Hurco. 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 HURC stock valuation model: a) initial revenue growth rate of 11.5% 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 HURC is calculated based on our internal credit rating of Hurco, 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 Hurco.
    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 HURC stock the variable cost ratio is equal to 89.4%.

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 HURC 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 Hurco.

Corporate tax rate of 27% is the nominal tax rate for Hurco. 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 HURC 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 HURC are equal to 8.1%.

Life of production assets of 5.1 years is the average useful life of capital assets used in Hurco 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 HURC is equal to 50%. 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 - $185 million for Hurco - 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 6.794 million for Hurco 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 Hurco at the current share price and the inputted number of shares is $0.3 billion.

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COMPANY NEWS

▶ ETFs with exposure to Hurco Cos., Inc. : October 2, 2017   [Oct-02-17 10:53AM  Capital Cube]
▶ Hurco Reports Fiscal 2017 Third Quarter Results   [Sep-08-17 08:00AM  GlobeNewswire]
▶ Hurco Companies, Inc. Announces Quarterly Cash Dividend   [Jun-09-17 08:00AM  GlobeNewswire]
▶ ETFs with exposure to Hurco Cos., Inc. : June 8, 2017   [Jun-08-17 01:39PM  Capital Cube]
▶ Hurco Reports Fiscal 2017 Second Quarter Results   [Jun-02-17 08:00AM  GlobeNewswire]
▶ ETFs with exposure to Hurco Cos., Inc. : January 24, 2017   [Jan-24-17 12:34PM  Capital Cube]
▶ Is Inventure Foods Inc (SNAK) A Good Stock To Buy?   [Dec-20-16 03:28PM  Insider Monkey]
▶ Is Inventure Foods Inc (SNAK) A Good Stock To Buy?   [03:28PM  at Insider Monkey]
▶ Hurco Companies, Inc. Announces Quarterly Cash Dividend   [Nov-11-16 08:00AM  GlobeNewswire]
▶ [$$] Metal-Cutting Machine Manufacturers Shearing Prices to Generate Sales   [Sep-22-16 12:38AM  at The Wall Street Journal]
▶ The Top 5 Micro Cap Technology Stocks for 2016 (IGLD,NCIT)   [Jan-26-16 07:24AM  at Investopedia]
▶ Is Maxwell Technologies Inc. (MXWL) A Good Stock To Buy?   [Dec-07  01:36PM  at Insider Monkey]
▶ Hedge Funds Are Crazy About Aspen Aerogels Inc (ASPN)   [Nov-30  02:08AM  at Insider Monkey]
▶ Do Hedge Funds Love Hurco Companies, Inc. (HURC)?   [Nov-21  03:17PM  at Insider Monkey]
▶ Hurco Reports First Quarter Results   [08:11AM  at noodls]
▶ Hurco Reports First Quarter Results   [08:00AM  GlobeNewswire]
Financial statements of HURC
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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