Intrinsic value of Kirkland's - KIRK

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$12.25

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$12.25

 
Intrinsic value

$17.34

 
Up/down potential

+42%

 
Rating

buy

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

We calculate the intrinsic value of KIRK 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 2017), $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 0.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  5.69
  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
  594
  606
  620
  636
  654
  673
  695
  719
  744
  772
  802
  833
  867
  903
  942
  982
  1,025
  1,071
  1,119
  1,170
  1,224
  1,280
  1,340
  1,403
  1,470
  1,540
  1,613
  1,691
  1,772
  1,858
  1,948
Variable operating expenses, $m
 
  579
  592
  607
  624
  643
  664
  687
  711
  737
  766
  796
  828
  863
  899
  938
  979
  1,023
  1,069
  1,117
  1,169
  1,223
  1,280
  1,340
  1,403
  1,470
  1,541
  1,615
  1,693
  1,775
  1,861
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
  577
  579
  592
  607
  624
  643
  664
  687
  711
  737
  766
  796
  828
  863
  899
  938
  979
  1,023
  1,069
  1,117
  1,169
  1,223
  1,280
  1,340
  1,403
  1,470
  1,541
  1,615
  1,693
  1,775
  1,861
Operating income, $m
  17
  27
  28
  29
  29
  30
  31
  32
  34
  35
  36
  38
  39
  41
  42
  44
  46
  48
  50
  53
  55
  58
  60
  63
  66
  69
  73
  76
  80
  84
  88
EBITDA, $m
  17
  33
  33
  34
  35
  36
  37
  39
  40
  42
  43
  45
  47
  49
  51
  53
  55
  58
  60
  63
  66
  69
  72
  76
  79
  83
  87
  91
  96
  100
  105
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  8
  8
  9
  9
  10
Earnings before tax, $m
  17
  27
  28
  28
  29
  30
  31
  32
  33
  34
  35
  36
  37
  38
  40
  41
  43
  45
  47
  48
  50
  53
  55
  57
  60
  62
  65
  68
  71
  74
  78
Tax expense, $m
  6
  7
  8
  8
  8
  8
  8
  9
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
Net income, $m
  11
  20
  20
  21
  21
  22
  22
  23
  24
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  42
  44
  45
  47
  50
  52
  54
  57

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  64
  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
  270
  210
  215
  221
  227
  234
  241
  249
  258
  268
  278
  289
  301
  313
  327
  341
  356
  371
  388
  406
  424
  444
  465
  487
  510
  534
  560
  586
  615
  645
  676
Adjusted assets (=assets-cash), $m
  206
  210
  215
  221
  227
  234
  241
  249
  258
  268
  278
  289
  301
  313
  327
  341
  356
  371
  388
  406
  424
  444
  465
  487
  510
  534
  560
  586
  615
  645
  676
Revenue / Adjusted assets
  2.883
  2.886
  2.884
  2.878
  2.881
  2.876
  2.884
  2.888
  2.884
  2.881
  2.885
  2.882
  2.880
  2.885
  2.881
  2.880
  2.879
  2.887
  2.884
  2.882
  2.887
  2.883
  2.882
  2.881
  2.882
  2.884
  2.880
  2.886
  2.881
  2.881
  2.882
Average production assets, $m
  53
  54
  55
  57
  58
  60
  62
  64
  66
  69
  71
  74
  77
  80
  84
  87
  91
  95
  100
  104
  109
  114
  119
  125
  131
  137
  144
  150
  158
  165
  173
Working capital, $m
  79
  15
  15
  16
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  34
  35
  37
  38
  40
  42
  44
  46
  49
Total debt, $m
  0
  3
  6
  10
  14
  18
  23
  29
  34
  41
  48
  55
  63
  71
  80
  89
  99
  109
  120
  132
  144
  157
  171
  185
  200
  216
  233
  251
  270
  289
  310
Total liabilities, $m
  136
  139
  142
  146
  150
  154
  159
  165
  170
  177
  184
  191
  199
  207
  216
  225
  235
  245
  256
  268
  280
  293
  307
  321
  336
  352
  369
  387
  406
  425
  446
Total equity, $m
  134
  71
  73
  75
  77
  79
  82
  85
  88
  91
  95
  98
  102
  107
  111
  116
  121
  126
  132
  138
  144
  151
  158
  165
  173
  182
  190
  199
  209
  219
  230
Total liabilities and equity, $m
  270
  210
  215
  221
  227
  233
  241
  250
  258
  268
  279
  289
  301
  314
  327
  341
  356
  371
  388
  406
  424
  444
  465
  486
  509
  534
  559
  586
  615
  644
  676
Debt-to-equity ratio
  0.000
  0.040
  0.080
  0.130
  0.180
  0.230
  0.280
  0.340
  0.390
  0.450
  0.500
  0.560
  0.610
  0.660
  0.720
  0.770
  0.820
  0.860
  0.910
  0.960
  1.000
  1.040
  1.080
  1.120
  1.160
  1.190
  1.230
  1.260
  1.290
  1.320
  1.350
Adjusted equity ratio
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  11
  20
  20
  21
  21
  22
  22
  23
  24
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  42
  44
  45
  47
  50
  52
  54
  57
Depreciation, amort., depletion, $m
  0
  5
  6
  6
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  17
Funds from operations, $m
  104
  25
  26
  26
  27
  28
  29
  29
  30
  31
  32
  34
  35
  36
  38
  39
  41
  42
  44
  46
  48
  50
  52
  54
  57
  59
  62
  65
  68
  71
  74
Change in working capital, $m
  52
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
Cash from operations, $m
  52
  -28
  25
  26
  27
  27
  28
  29
  30
  31
  32
  33
  34
  35
  37
  38
  39
  41
  43
  44
  46
  48
  50
  53
  55
  57
  60
  63
  66
  69
  72
Maintenance CAPEX, $m
  0
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
New CAPEX, $m
  0
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
Cash from investing activities, $m
  -32
  -6
  -6
  -7
  -8
  -8
  -8
  -8
  -8
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -16
  -18
  -18
  -19
  -21
  -21
  -22
  -24
  -25
Free cash flow, $m
  20
  -34
  19
  19
  19
  20
  20
  21
  21
  22
  22
  23
  24
  24
  25
  26
  27
  28
  29
  30
  31
  32
  34
  35
  37
  38
  40
  41
  43
  45
  47
Issuance/(repayment) of debt, $m
  0
  3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
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
  3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
Total cash flow (excl. dividends), $m
  20
  -32
  22
  23
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  42
  43
  45
  47
  50
  52
  54
  57
  59
  62
  65
  68
Retained Cash Flow (-), $m
  -14
  -1
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
Prev. year cash balance distribution, $m
 
  64
  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
 
  31
  20
  21
  21
  22
  23
  23
  24
  25
  25
  26
  27
  28
  29
  30
  32
  33
  34
  36
  37
  39
  40
  42
  44
  46
  48
  50
  52
  55
  57
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
 
  30
  19
  18
  18
  17
  16
  16
  15
  14
  13
  13
  12
  11
  10
  9
  8
  7
  6
  5
  5
  4
  3
  3
  2
  2
  1
  1
  1
  1
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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Kirkland’s, Inc. operates as a specialty retailer of home décor and gifts in the United States. The company’s stores provide various merchandise, including framed arts, mirrors, wall décors, candles and related items, lamps, decorative accessories, accent furniture, textiles, garden-related accessories, and artificial floral products. Its stores also offer an assortment of holiday merchandise in seasonal periods, as well as items that are suitable for gift-giving. The company operates its stores under the Kirkland’s, Kirkland’s Home, Kirkland’s Home Outlet, Kirkland’s Outlet, and The Kirkland Collection names in various off-mall venues comprising lifestyle centers, power strip centers, outlet centers, and freestanding locations, as well as enclosed malls. As of March 11, 2016, it operated 374 stores in 35 states, as well as an e-commerce enabled Website. The company also sells its products through its kirklands.com Website. Kirkland’s, Inc. was founded in 1966 and is based in Brentwood, Tennessee.

FINANCIAL RATIOS  of  Kirkland's (KIRK)

Valuation Ratios
P/E Ratio 17.7
Price to Sales 0.3
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 3.7
Price to Free Cash Flow 3.7
Growth Rates
Sales Growth Rate 5.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -100%
Cap. Spend. - 3 Yr. Gr. Rate -100%
Financial Strength
Quick Ratio NaN
Current Ratio 0.2
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 4.4%
Ret/ On Assets - 3 Yr. Avg. 6.2%
Return On Total Capital 8.7%
Ret/ On T. Cap. - 3 Yr. Avg. 11.3%
Return On Equity 8.7%
Return On Equity - 3 Yr. Avg. 11.3%
Asset Turnover 2.4
Profitability Ratios
Gross Margin 37.2%
Gross Margin - 3 Yr. Avg. 38.7%
EBITDA Margin 2.9%
EBITDA Margin - 3 Yr. Avg. 7%
Operating Margin 2.9%
Oper. Margin - 3 Yr. Avg. 4.4%
Pre-Tax Margin 2.9%
Pre-Tax Margin - 3 Yr. Avg. 4.4%
Net Profit Margin 1.9%
Net Profit Margin - 3 Yr. Avg. 2.8%
Effective Tax Rate 35.3%
Eff/ Tax Rate - 3 Yr. Avg. 35.9%
Payout Ratio 0%

KIRK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KIRK stock intrinsic value calculation we used $594 million for the last fiscal year's total revenue generated by Kirkland's. The default revenue input number comes from 2017 income statement of Kirkland's. 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 KIRK 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 KIRK is calculated based on our internal credit rating of Kirkland's, 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 Kirkland's.
    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 KIRK stock the variable cost ratio is equal to 95.5%.

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 KIRK 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 Kirkland's.

Corporate tax rate of 27% is the nominal tax rate for Kirkland's. 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 KIRK 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 KIRK are equal to 8.9%.

Life of production assets of 10 years is the average useful life of capital assets used in Kirkland's 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 KIRK is equal to 2.5%. 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 - $134 million for Kirkland's - 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 16.16 million for Kirkland's 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 Kirkland's at the current share price and the inputted number of shares is $0.2 billion.


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COMPANY NEWS

▶ ETFs with exposure to Kirklands, Inc. : April 5, 2017   [Apr-05-17 04:59PM  Capital Cube]
▶ Kirkland's beats 4Q profit forecasts   [06:58AM  Associated Press]
▶ LD Micro Index Reconstitution as of February 1, 2017   [Feb-01-17 09:45AM  Accesswire]
▶ Kirkland's Announces Passing of Robert Alderson   [Nov-28-16 05:17PM  PR Newswire]
▶ Kirkland's Strengthens Executive Team   [06:31AM  PR Newswire]
▶ Kirkland's Announces Two New Board Members   [Jun-08-16 04:05PM  PR Newswire]
▶ Kirkland's Home Décor Store Is Hiring In Asheville   [Mar-25-16 04:12PM  at noodls]
▶ Kirkland's Reports Fourth Quarter Sales   [Feb-04-16 05:45PM  PR Newswire]
▶ The Top 5 Micro Cap Retail Stocks for 2016 (KIRK,TCS)   [Jan-28-16 08:36AM  at Investopedia]
Stock chart of KIRK Financial statements of KIRK
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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