Intrinsic value of Installed Building Products - IBP

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$53.45

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$53.45

 
Intrinsic value

$60.99

 
Up/down potential

+14%

 
Rating

hold

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

We calculate the intrinsic value of IBP 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 1.7

 

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, %
  30.17
  21.90
  20.21
  18.69
  17.32
  16.09
  14.98
  13.98
  13.08
  12.27
  11.55
  10.89
  10.30
  9.77
  9.30
  8.87
  8.48
  8.13
  7.82
  7.54
  7.28
  7.05
  6.85
  6.66
  6.50
  6.35
  6.21
  6.09
  5.98
  5.88
  5.80
Revenue, $m
  863
  1,052
  1,265
  1,501
  1,761
  2,044
  2,350
  2,679
  3,030
  3,401
  3,794
  4,207
  4,641
  5,095
  5,568
  6,062
  6,576
  7,111
  7,666
  8,244
  8,845
  9,469
  10,117
  10,791
  11,493
  12,222
  12,982
  13,772
  14,596
  15,455
  16,351
Variable operating expenses, $m
 
  939
  1,127
  1,335
  1,565
  1,815
  2,085
  2,375
  2,685
  3,013
  3,359
  3,714
  4,096
  4,496
  4,914
  5,350
  5,804
  6,276
  6,766
  7,276
  7,806
  8,357
  8,929
  9,525
  10,143
  10,787
  11,458
  12,156
  12,883
  13,641
  14,432
Fixed operating expenses, $m
 
  27
  27
  28
  29
  29
  30
  31
  32
  32
  33
  34
  35
  36
  37
  38
  39
  40
  41
  42
  43
  44
  45
  46
  47
  48
  49
  51
  52
  53
  55
Total operating expenses, $m
  797
  966
  1,154
  1,363
  1,594
  1,844
  2,115
  2,406
  2,717
  3,045
  3,392
  3,748
  4,131
  4,532
  4,951
  5,388
  5,843
  6,316
  6,807
  7,318
  7,849
  8,401
  8,974
  9,571
  10,190
  10,835
  11,507
  12,207
  12,935
  13,694
  14,487
Operating income, $m
  66
  86
  110
  138
  167
  200
  235
  273
  313
  356
  401
  460
  510
  562
  617
  674
  733
  795
  859
  926
  996
  1,068
  1,143
  1,221
  1,302
  1,387
  1,475
  1,566
  1,662
  1,761
  1,865
EBITDA, $m
  101
  119
  148
  180
  216
  254
  296
  341
  389
  439
  493
  550
  609
  671
  736
  803
  874
  947
  1,023
  1,102
  1,184
  1,270
  1,359
  1,451
  1,547
  1,647
  1,752
  1,860
  1,973
  2,091
  2,214
Interest expense (income), $m
  5
  5
  8
  10
  13
  16
  19
  23
  27
  31
  36
  40
  45
  50
  56
  61
  67
  73
  80
  86
  93
  101
  108
  116
  124
  132
  141
  150
  159
  169
  179
Earnings before tax, $m
  60
  81
  103
  127
  154
  184
  216
  250
  286
  325
  366
  420
  465
  512
  561
  613
  666
  722
  780
  840
  902
  967
  1,035
  1,105
  1,178
  1,255
  1,334
  1,416
  1,502
  1,592
  1,686
Tax expense, $m
  22
  22
  28
  34
  42
  50
  58
  67
  77
  88
  99
  113
  125
  138
  152
  165
  180
  195
  211
  227
  244
  261
  279
  298
  318
  339
  360
  382
  406
  430
  455
Net income, $m
  38
  59
  75
  93
  113
  134
  157
  182
  209
  237
  267
  306
  339
  374
  410
  447
  486
  527
  569
  613
  659
  706
  756
  807
  860
  916
  974
  1,034
  1,097
  1,162
  1,231

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
  0
Total assets, $m
  462
  546
  657
  779
  914
  1,061
  1,220
  1,391
  1,573
  1,766
  1,970
  2,185
  2,410
  2,645
  2,891
  3,147
  3,414
  3,692
  3,981
  4,281
  4,592
  4,916
  5,253
  5,603
  5,967
  6,346
  6,740
  7,151
  7,579
  8,025
  8,490
Adjusted assets (=assets-cash), $m
  448
  546
  657
  779
  914
  1,061
  1,220
  1,391
  1,573
  1,766
  1,970
  2,185
  2,410
  2,645
  2,891
  3,147
  3,414
  3,692
  3,981
  4,281
  4,592
  4,916
  5,253
  5,603
  5,967
  6,346
  6,740
  7,151
  7,579
  8,025
  8,490
Revenue / Adjusted assets
  1.926
  1.927
  1.925
  1.927
  1.927
  1.926
  1.926
  1.926
  1.926
  1.926
  1.926
  1.925
  1.926
  1.926
  1.926
  1.926
  1.926
  1.926
  1.926
  1.926
  1.926
  1.926
  1.926
  1.926
  1.926
  1.926
  1.926
  1.926
  1.926
  1.926
  1.926
Average production assets, $m
  111
  135
  162
  192
  225
  262
  301
  343
  388
  435
  486
  539
  594
  652
  713
  776
  842
  910
  981
  1,055
  1,132
  1,212
  1,295
  1,381
  1,471
  1,564
  1,662
  1,763
  1,868
  1,978
  2,093
Working capital, $m
  62
  87
  105
  125
  146
  170
  195
  222
  251
  282
  315
  349
  385
  423
  462
  503
  546
  590
  636
  684
  734
  786
  840
  896
  954
  1,014
  1,077
  1,143
  1,212
  1,283
  1,357
Total debt, $m
  167
  217
  290
  370
  459
  555
  660
  771
  891
  1,018
  1,151
  1,292
  1,440
  1,594
  1,756
  1,924
  2,099
  2,281
  2,470
  2,667
  2,872
  3,084
  3,305
  3,535
  3,773
  4,022
  4,281
  4,550
  4,831
  5,123
  5,428
Total liabilities, $m
  308
  358
  431
  511
  600
  696
  801
  912
  1,032
  1,159
  1,292
  1,433
  1,581
  1,735
  1,897
  2,065
  2,240
  2,422
  2,611
  2,808
  3,013
  3,225
  3,446
  3,676
  3,914
  4,163
  4,422
  4,691
  4,972
  5,264
  5,569
Total equity, $m
  154
  188
  226
  268
  315
  365
  420
  478
  541
  608
  678
  751
  829
  910
  995
  1,083
  1,175
  1,270
  1,369
  1,472
  1,580
  1,691
  1,807
  1,927
  2,053
  2,183
  2,319
  2,460
  2,607
  2,760
  2,920
Total liabilities and equity, $m
  462
  546
  657
  779
  915
  1,061
  1,221
  1,390
  1,573
  1,767
  1,970
  2,184
  2,410
  2,645
  2,892
  3,148
  3,415
  3,692
  3,980
  4,280
  4,593
  4,916
  5,253
  5,603
  5,967
  6,346
  6,741
  7,151
  7,579
  8,024
  8,489
Debt-to-equity ratio
  1.084
  1.160
  1.280
  1.380
  1.460
  1.520
  1.570
  1.610
  1.650
  1.670
  1.700
  1.720
  1.740
  1.750
  1.770
  1.780
  1.790
  1.800
  1.800
  1.810
  1.820
  1.820
  1.830
  1.830
  1.840
  1.840
  1.850
  1.850
  1.850
  1.860
  1.860
Adjusted equity ratio
  0.313
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  38
  59
  75
  93
  113
  134
  157
  182
  209
  237
  267
  306
  339
  374
  410
  447
  486
  527
  569
  613
  659
  706
  756
  807
  860
  916
  974
  1,034
  1,097
  1,162
  1,231
Depreciation, amort., depletion, $m
  35
  33
  38
  43
  48
  54
  61
  68
  75
  83
  92
  90
  99
  109
  119
  129
  140
  152
  164
  176
  189
  202
  216
  230
  245
  261
  277
  294
  311
  330
  349
Funds from operations, $m
  68
  92
  113
  136
  161
  188
  218
  250
  284
  320
  359
  396
  438
  482
  528
  576
  627
  679
  733
  789
  847
  908
  971
  1,037
  1,105
  1,177
  1,251
  1,328
  1,408
  1,492
  1,579
Change in working capital, $m
  -5
  16
  18
  20
  22
  24
  25
  27
  29
  31
  33
  34
  36
  38
  39
  41
  43
  44
  46
  48
  50
  52
  54
  56
  58
  61
  63
  66
  68
  71
  74
Cash from operations, $m
  73
  120
  95
  116
  139
  165
  193
  223
  255
  290
  326
  362
  402
  445
  489
  536
  584
  634
  687
  741
  798
  856
  918
  981
  1,047
  1,116
  1,188
  1,262
  1,340
  1,421
  1,505
Maintenance CAPEX, $m
  0
  -18
  -22
  -27
  -32
  -38
  -44
  -50
  -57
  -65
  -73
  -81
  -90
  -99
  -109
  -119
  -129
  -140
  -152
  -164
  -176
  -189
  -202
  -216
  -230
  -245
  -261
  -277
  -294
  -311
  -330
New CAPEX, $m
  -27
  -24
  -27
  -30
  -33
  -36
  -39
  -42
  -45
  -48
  -50
  -53
  -55
  -58
  -61
  -63
  -66
  -68
  -71
  -74
  -77
  -80
  -83
  -86
  -90
  -93
  -97
  -101
  -105
  -110
  -115
Cash from investing activities, $m
  -80
  -42
  -49
  -57
  -65
  -74
  -83
  -92
  -102
  -113
  -123
  -134
  -145
  -157
  -170
  -182
  -195
  -208
  -223
  -238
  -253
  -269
  -285
  -302
  -320
  -338
  -358
  -378
  -399
  -421
  -445
Free cash flow, $m
  -7
  77
  45
  59
  74
  91
  110
  131
  153
  177
  203
  228
  257
  288
  320
  354
  389
  425
  464
  503
  545
  588
  633
  679
  727
  777
  830
  884
  941
  999
  1,061
Issuance/(repayment) of debt, $m
  19
  64
  72
  80
  89
  96
  104
  112
  119
  127
  134
  141
  148
  154
  161
  168
  175
  182
  189
  197
  205
  213
  221
  230
  239
  248
  259
  269
  281
  293
  305
Issuance/(repurchase) of shares, $m
  -1
  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  
  14
  64
  72
  80
  89
  96
  104
  112
  119
  127
  134
  141
  148
  154
  161
  168
  175
  182
  189
  197
  205
  213
  221
  230
  239
  248
  259
  269
  281
  293
  305
Total cash flow (excl. dividends), $m
  8
  142
  118
  139
  163
  188
  214
  243
  273
  304
  337
  369
  405
  442
  481
  522
  564
  608
  653
  700
  749
  800
  853
  909
  966
  1,026
  1,088
  1,153
  1,221
  1,292
  1,366
Retained Cash Flow (-), $m
  -40
  -34
  -38
  -42
  -46
  -51
  -55
  -59
  -63
  -66
  -70
  -74
  -77
  -81
  -85
  -88
  -92
  -96
  -99
  -103
  -107
  -111
  -116
  -120
  -125
  -130
  -136
  -141
  -147
  -153
  -160
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
 
  108
  80
  97
  116
  137
  160
  184
  210
  238
  267
  295
  327
  361
  397
  434
  472
  512
  554
  597
  642
  689
  738
  788
  841
  896
  953
  1,012
  1,074
  1,139
  1,206
Discount rate, %
 
  5.70
  5.99
  6.28
  6.60
  6.93
  7.27
  7.64
  8.02
  8.42
  8.84
  9.28
  9.75
  10.24
  10.75
  11.29
  11.85
  12.44
  13.06
  13.72
  14.40
  15.12
  15.88
  16.67
  17.51
  18.38
  19.30
  20.27
  21.28
  22.34
  23.46
PV of cash for distribution, $m
 
  102
  71
  81
  90
  98
  105
  110
  113
  115
  114
  111
  107
  102
  95
  87
  79
  70
  61
  52
  44
  36
  29
  23
  18
  13
  10
  7
  5
  3
  2
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

Installed Building Products, Inc., together with its subsidiaries, engages in the installation of insulation, garage doors, rain gutters, shower doors, closet shelving and mirrors, and other products in the continental United States. It offers a range of insulation materials, such as fiberglass insulation, spray foam insulation, and cellulose insulation materials. The company is also involved in the installation of insulation and sealant materials in various areas of a structure, which includes basement and crawl spaces, building envelopes, attics, and acoustical insulations. It serves homebuilders, multi-family and commercial builders, individual homeowners, and repair and remodeling contractors. The company was formerly known as CCIB Holdco, Inc. Installed Building Products, Inc. was founded in 1977 and is headquartered in Columbus, Ohio.

FINANCIAL RATIOS  of  Installed Building Products (IBP)

Valuation Ratios
P/E Ratio 44.3
Price to Sales 1.9
Price to Book 10.9
Price to Tangible Book
Price to Cash Flow 23
Price to Free Cash Flow 36.6
Growth Rates
Sales Growth Rate 30.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 55.2%
Financial Strength
Quick Ratio 1
Current Ratio 0.1
LT Debt to Equity 92.9%
Total Debt to Equity 108.4%
Interest Coverage 13
Management Effectiveness
Return On Assets 9.8%
Ret/ On Assets - 3 Yr. Avg. 8.9%
Return On Total Capital 13.1%
Ret/ On T. Cap. - 3 Yr. Avg. 12.4%
Return On Equity 28.4%
Return On Equity - 3 Yr. Avg. 24.1%
Asset Turnover 2.1
Profitability Ratios
Gross Margin 29.2%
Gross Margin - 3 Yr. Avg. 28.2%
EBITDA Margin 11.6%
EBITDA Margin - 3 Yr. Avg. 9.9%
Operating Margin 7.6%
Oper. Margin - 3 Yr. Avg. 6.5%
Pre-Tax Margin 7%
Pre-Tax Margin - 3 Yr. Avg. 5.9%
Net Profit Margin 4.4%
Net Profit Margin - 3 Yr. Avg. 3.7%
Effective Tax Rate 36.7%
Eff/ Tax Rate - 3 Yr. Avg. 37.2%
Payout Ratio 0%

IBP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the IBP stock intrinsic value calculation we used $863 million for the last fiscal year's total revenue generated by Installed Building Products. The default revenue input number comes from 2016 income statement of Installed Building Products. 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 IBP stock valuation model: a) initial revenue growth rate of 21.9% 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 5.7%, whose default value for IBP is calculated based on our internal credit rating of Installed Building Products, 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 Installed Building Products.
    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 IBP stock the variable cost ratio is equal to 89.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $26 million in the base year in the intrinsic value calculation for IBP 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 Installed Building Products.

Corporate tax rate of 27% is the nominal tax rate for Installed Building Products. 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 IBP 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 IBP are equal to 12.8%.

Life of production assets of 6 years is the average useful life of capital assets used in Installed Building Products 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 IBP is equal to 8.3%. 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 - $154 million for Installed Building Products - 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 32.038 million for Installed Building Products 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 Installed Building Products at the current share price and the inputted number of shares is $1.7 billion.


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COMPANY NEWS

▶ Installed Building Products posts 4Q profit   [07:17AM  Associated Press]
▶ Homebuilders see worst day in three years   [Sep-09-16 04:52PM  at CNBC]
▶ S&P 500 Retakes 50-Day Line; Apple Injects Fuel Into Rally   [May-16-16 04:12PM  at Investor's Business Daily]
▶ Why LGI Homes, Trex Stocks Reversed Despite Strong Earnings   [10:28AM  at Investor's Business Daily]
▶ LGI Homes Nears Buy Point As Growth Picks Up; Installers Break Out   [04:45PM  at Investor's Business Daily]
Stock chart of IBP Financial statements of IBP
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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