Intrinsic value of Houston Wire&Cable - HWCC

Previous Close

$4.90

  Intrinsic Value

$11.86

stock screener

  Rating & Target

str. buy

+142%

  Value-price divergence*

-96%

Previous close

$4.90

 
Intrinsic value

$11.86

 
Up/down potential

+142%

 
Rating

str. buy

 
Value-price divergence*

-96%

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

We calculate the intrinsic value of HWCC 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 0.1

 

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, %
  -14.94
  21.50
  19.85
  18.37
  17.03
  15.83
  14.74
  13.77
  12.89
  12.10
  11.39
  10.75
  10.18
  9.66
  9.19
  8.77
  8.40
  8.06
  7.75
  7.48
  7.23
  7.01
  6.81
  6.62
  6.46
  6.32
  6.18
  6.07
  5.96
  5.86
  5.78
Revenue, $m
  262
  318
  382
  452
  528
  612
  702
  799
  902
  1,011
  1,126
  1,248
  1,375
  1,507
  1,646
  1,790
  1,941
  2,097
  2,260
  2,429
  2,604
  2,787
  2,976
  3,173
  3,379
  3,592
  3,814
  4,045
  4,286
  4,538
  4,800
Variable operating expenses, $m
 
  235
  281
  333
  389
  450
  516
  587
  662
  742
  826
  912
  1,005
  1,102
  1,204
  1,309
  1,419
  1,533
  1,652
  1,776
  1,904
  2,038
  2,176
  2,320
  2,470
  2,626
  2,789
  2,958
  3,134
  3,318
  3,510
Fixed operating expenses, $m
 
  78
  80
  82
  84
  86
  88
  90
  93
  95
  97
  100
  102
  105
  107
  110
  113
  116
  119
  121
  125
  128
  131
  134
  137
  141
  144
  148
  152
  156
  159
Total operating expenses, $m
  268
  313
  361
  415
  473
  536
  604
  677
  755
  837
  923
  1,012
  1,107
  1,207
  1,311
  1,419
  1,532
  1,649
  1,771
  1,897
  2,029
  2,166
  2,307
  2,454
  2,607
  2,767
  2,933
  3,106
  3,286
  3,474
  3,669
Operating income, $m
  -7
  5
  20
  37
  56
  76
  98
  122
  148
  175
  203
  236
  267
  300
  335
  371
  409
  448
  489
  531
  575
  621
  669
  719
  771
  825
  881
  939
  1,000
  1,064
  1,131
EBITDA, $m
  -4
  10
  25
  42
  61
  82
  105
  129
  155
  183
  212
  243
  276
  309
  345
  382
  420
  461
  502
  546
  591
  638
  687
  738
  791
  846
  904
  964
  1,026
  1,091
  1,160
Interest expense (income), $m
  1
  2
  3
  4
  4
  5
  6
  7
  8
  10
  11
  12
  14
  15
  17
  18
  20
  22
  23
  25
  27
  29
  31
  33
  36
  38
  41
  43
  46
  49
  51
Earnings before tax, $m
  -7
  3
  18
  34
  51
  71
  92
  115
  139
  165
  192
  223
  254
  285
  318
  353
  389
  426
  465
  506
  548
  592
  638
  685
  735
  786
  840
  896
  955
  1,016
  1,079
Tax expense, $m
  -1
  1
  5
  9
  14
  19
  25
  31
  38
  45
  52
  60
  68
  77
  86
  95
  105
  115
  126
  137
  148
  160
  172
  185
  198
  212
  227
  242
  258
  274
  291
Net income, $m
  -6
  2
  13
  25
  38
  52
  67
  84
  102
  120
  140
  163
  185
  208
  232
  258
  284
  311
  340
  369
  400
  432
  466
  500
  536
  574
  613
  654
  697
  741
  788

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
Total assets, $m
  176
  214
  256
  303
  355
  411
  472
  537
  606
  679
  757
  838
  923
  1,012
  1,105
  1,202
  1,303
  1,408
  1,518
  1,631
  1,749
  1,871
  1,999
  2,131
  2,269
  2,412
  2,561
  2,717
  2,879
  3,048
  3,224
Adjusted assets (=assets-cash), $m
  176
  214
  256
  303
  355
  411
  472
  537
  606
  679
  757
  838
  923
  1,012
  1,105
  1,202
  1,303
  1,408
  1,518
  1,631
  1,749
  1,871
  1,999
  2,131
  2,269
  2,412
  2,561
  2,717
  2,879
  3,048
  3,224
Revenue / Adjusted assets
  1.489
  1.486
  1.492
  1.492
  1.487
  1.489
  1.487
  1.488
  1.488
  1.489
  1.487
  1.489
  1.490
  1.489
  1.490
  1.489
  1.490
  1.489
  1.489
  1.489
  1.489
  1.490
  1.489
  1.489
  1.489
  1.489
  1.489
  1.489
  1.489
  1.489
  1.489
Average production assets, $m
  21
  25
  31
  36
  42
  49
  56
  64
  72
  81
  90
  100
  110
  121
  132
  143
  155
  168
  181
  194
  208
  223
  238
  254
  270
  287
  305
  324
  343
  363
  384
Working capital, $m
  102
  128
  153
  181
  212
  245
  282
  320
  362
  406
  452
  500
  551
  604
  660
  718
  778
  841
  906
  974
  1,044
  1,117
  1,193
  1,273
  1,355
  1,440
  1,529
  1,622
  1,719
  1,820
  1,925
Total debt, $m
  64
  83
  103
  126
  152
  179
  209
  240
  274
  310
  348
  388
  429
  473
  519
  566
  615
  667
  720
  776
  833
  893
  955
  1,020
  1,088
  1,158
  1,231
  1,307
  1,386
  1,468
  1,554
Total liabilities, $m
  86
  105
  125
  148
  174
  201
  231
  262
  296
  332
  370
  410
  451
  495
  541
  588
  637
  689
  742
  798
  855
  915
  977
  1,042
  1,110
  1,180
  1,253
  1,329
  1,408
  1,490
  1,576
Total equity, $m
  90
  109
  131
  155
  181
  210
  241
  274
  310
  347
  387
  428
  472
  517
  565
  614
  666
  720
  775
  833
  894
  956
  1,021
  1,089
  1,159
  1,233
  1,309
  1,388
  1,471
  1,557
  1,647
Total liabilities and equity, $m
  176
  214
  256
  303
  355
  411
  472
  536
  606
  679
  757
  838
  923
  1,012
  1,106
  1,202
  1,303
  1,409
  1,517
  1,631
  1,749
  1,871
  1,998
  2,131
  2,269
  2,413
  2,562
  2,717
  2,879
  3,047
  3,223
Debt-to-equity ratio
  0.711
  0.760
  0.790
  0.810
  0.840
  0.850
  0.870
  0.880
  0.890
  0.890
  0.900
  0.910
  0.910
  0.910
  0.920
  0.920
  0.920
  0.930
  0.930
  0.930
  0.930
  0.930
  0.940
  0.940
  0.940
  0.940
  0.940
  0.940
  0.940
  0.940
  0.940
Adjusted equity ratio
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -6
  2
  13
  25
  38
  52
  67
  84
  102
  120
  140
  163
  185
  208
  232
  258
  284
  311
  340
  369
  400
  432
  466
  500
  536
  574
  613
  654
  697
  741
  788
Depreciation, amort., depletion, $m
  3
  4
  5
  5
  5
  6
  7
  7
  8
  8
  9
  8
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  22
  23
  24
  26
  27
  29
Funds from operations, $m
  34
  6
  17
  30
  43
  58
  74
  91
  109
  129
  149
  171
  193
  217
  242
  268
  296
  324
  353
  384
  416
  449
  484
  519
  557
  596
  636
  679
  723
  769
  817
Change in working capital, $m
  17
  23
  25
  28
  31
  34
  36
  39
  41
  44
  46
  49
  51
  53
  56
  58
  60
  63
  65
  68
  70
  73
  76
  79
  82
  86
  89
  93
  97
  101
  105
Cash from operations, $m
  17
  -16
  -8
  1
  12
  24
  38
  52
  68
  85
  103
  122
  143
  164
  187
  211
  235
  261
  288
  316
  345
  376
  407
  440
  475
  510
  547
  586
  626
  668
  712
Maintenance CAPEX, $m
  0
  -2
  -2
  -2
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -7
  -8
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -26
  -27
New CAPEX, $m
  -1
  -4
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -21
Cash from investing activities, $m
  -34
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -17
  -18
  -19
  -20
  -22
  -23
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -40
  -42
  -43
  -46
  -48
Free cash flow, $m
  -17
  -22
  -15
  -6
  3
  14
  27
  40
  55
  71
  88
  106
  125
  145
  167
  189
  213
  237
  263
  289
  317
  346
  376
  407
  439
  473
  508
  544
  582
  622
  663
Issuance/(repayment) of debt, $m
  21
  19
  21
  23
  25
  27
  30
  32
  34
  36
  38
  40
  42
  44
  46
  47
  49
  51
  53
  55
  58
  60
  62
  65
  67
  70
  73
  76
  79
  83
  86
Issuance/(repurchase) of shares, $m
  -2
  17
  9
  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  
  19
  36
  30
  23
  25
  27
  30
  32
  34
  36
  38
  40
  42
  44
  46
  47
  49
  51
  53
  55
  58
  60
  62
  65
  67
  70
  73
  76
  79
  83
  86
Total cash flow (excl. dividends), $m
  3
  13
  15
  17
  29
  42
  56
  72
  89
  107
  126
  145
  167
  189
  212
  237
  262
  288
  316
  345
  374
  406
  438
  471
  506
  543
  581
  620
  662
  705
  749
Retained Cash Flow (-), $m
  10
  -19
  -22
  -24
  -26
  -29
  -31
  -33
  -35
  -37
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -58
  -60
  -63
  -65
  -68
  -70
  -73
  -76
  -79
  -83
  -86
  -90
Prev. year cash balance distribution, $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 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
 
  -6
  -7
  -7
  2
  13
  25
  39
  53
  69
  86
  104
  123
  143
  165
  187
  210
  235
  260
  287
  314
  343
  373
  404
  436
  470
  505
  541
  579
  618
  660
Discount rate, %
 
  9.00
  9.45
  9.92
  10.42
  10.94
  11.49
  12.06
  12.66
  13.30
  13.96
  14.66
  15.39
  16.16
  16.97
  17.82
  18.71
  19.65
  20.63
  21.66
  22.74
  23.88
  25.07
  26.33
  27.64
  29.03
  30.48
  32.00
  33.60
  35.28
  37.05
PV of cash for distribution, $m
 
  -5
  -6
  -6
  1
  8
  13
  17
  21
  23
  23
  23
  22
  20
  18
  16
  14
  11
  9
  7
  5
  4
  3
  2
  1
  1
  1
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  81.7
  74.5
  74.5
  74.5
  74.5
  74.5
  74.5
  74.5
  74.5
  74.5
  74.5
  74.5
  74.5
  74.5
  74.5
  74.5
  74.5
  74.5
  74.5
  74.5
  74.5
  74.5
  74.5
  74.5
  74.5
  74.5
  74.5
  74.5
  74.5
  74.5

Houston Wire & Cable Company, through its subsidiaries, sells electrical and mechanical wire and cable, hardware, and related services in the United States. It offers wire and cable products, including continuous and interlocked armor cables; control and power cables; electronic wires and cables; flexible and portable cords; instrumentation and thermocouple cables; lead and high temperature cables; medium voltage cables; and premise and category wires and cables, primary and secondary aluminum distribution cables, and steel wire ropes and wire rope slings, as well as synthetic fiber rope slings, chains, shackles, and other related hardware. The company also provides private branded products comprising its proprietary brand LifeGuard, a low-smoke zero-halogen cable. Its products are used in maintenance, repair, and operations activities, and related projects; larger-scale projects in the utility, industrial, and infrastructure markets; and a range of industrial applications, such as communications, energy, engineering and construction, general manufacturing, marine construction and marine transportation, mining, construction, infrastructure, oilfield services, petrochemical, transportation, utility, and wastewater treatment. Houston Wire & Cable Company was founded in 1975 and is based in Houston, Texas.

FINANCIAL RATIOS  of  Houston Wire&Cable (HWCC)

Valuation Ratios
P/E Ratio -13.4
Price to Sales 0.3
Price to Book 0.9
Price to Tangible Book
Price to Cash Flow 4.7
Price to Free Cash Flow 5
Growth Rates
Sales Growth Rate -14.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -66.7%
Cap. Spend. - 3 Yr. Gr. Rate -19.7%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 67.8%
Total Debt to Equity 71.1%
Interest Coverage -6
Management Effectiveness
Return On Assets -3.1%
Ret/ On Assets - 3 Yr. Avg. 2.1%
Return On Total Capital -4%
Ret/ On T. Cap. - 3 Yr. Avg. 2.1%
Return On Equity -6.3%
Return On Equity - 3 Yr. Avg. 3%
Asset Turnover 1.6
Profitability Ratios
Gross Margin 20.2%
Gross Margin - 3 Yr. Avg. 21.2%
EBITDA Margin -1.1%
EBITDA Margin - 3 Yr. Avg. 3%
Operating Margin -2.3%
Oper. Margin - 3 Yr. Avg. 2%
Pre-Tax Margin -2.7%
Pre-Tax Margin - 3 Yr. Avg. 1.7%
Net Profit Margin -2.3%
Net Profit Margin - 3 Yr. Avg. 0.7%
Effective Tax Rate 14.3%
Eff/ Tax Rate - 3 Yr. Avg. 37.3%
Payout Ratio -50%

HWCC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HWCC stock intrinsic value calculation we used $262 million for the last fiscal year's total revenue generated by Houston Wire&Cable. The default revenue input number comes from 2016 income statement of Houston Wire&Cable. 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 HWCC stock valuation model: a) initial revenue growth rate of 21.5% 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 9%, whose default value for HWCC is calculated based on our internal credit rating of Houston Wire&Cable, 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 Houston Wire&Cable.
    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 HWCC stock the variable cost ratio is equal to 74%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $76 million in the base year in the intrinsic value calculation for HWCC 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 Houston Wire&Cable.

Corporate tax rate of 27% is the nominal tax rate for Houston Wire&Cable. 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 HWCC 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 HWCC are equal to 8%.

Life of production assets of 13.3 years is the average useful life of capital assets used in Houston Wire&Cable 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 HWCC is equal to 40.1%. 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 - $90 million for Houston Wire&Cable - 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 15.458 million for Houston Wire&Cable 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 Houston Wire&Cable at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ Houston Wire posts 2Q loss   [Aug-09-17 10:31PM  Associated Press]
▶ Jacob Boyd Joins HWC as the New Chicago Regional Manager   [Jun-22-17 12:00PM  GlobeNewswire]
▶ Houston Wire reports 1Q loss   [07:54AM  Associated Press]
▶ Houston Wire reports 4Q loss   [07:44AM  Associated Press]
▶ Hedge Funds Are Dumping Olympic Steel, Inc. (ZEUS)   [Nov-25  02:21PM  at Insider Monkey]
Stock chart of HWCC Financial statements of HWCC
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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