Intrinsic value of Lancaster Colony - LANC

Previous Close

$128.98

  Intrinsic Value

$72.78

stock screener

  Rating & Target

sell

-44%

Previous close

$128.98

 
Intrinsic value

$72.78

 
Up/down potential

-44%

 
Rating

sell

We calculate the intrinsic value of LANC 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 3.5

 

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, %
  0.92
  2.10
  2.39
  2.65
  2.89
  3.10
  3.29
  3.46
  3.61
  3.75
  3.88
  3.99
  4.09
  4.18
  4.26
  4.34
  4.40
  4.46
  4.52
  4.56
  4.61
  4.65
  4.68
  4.71
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
Revenue, $m
  1,202
  1,227
  1,257
  1,290
  1,327
  1,368
  1,413
  1,462
  1,515
  1,572
  1,633
  1,698
  1,767
  1,841
  1,920
  2,003
  2,091
  2,184
  2,283
  2,387
  2,497
  2,613
  2,736
  2,865
  3,000
  3,144
  3,294
  3,453
  3,620
  3,795
  3,980
Variable operating expenses, $m
 
  1,037
  1,061
  1,089
  1,120
  1,154
  1,191
  1,232
  1,276
  1,323
  1,374
  1,411
  1,469
  1,530
  1,595
  1,664
  1,738
  1,815
  1,897
  1,984
  2,075
  2,172
  2,273
  2,381
  2,493
  2,612
  2,738
  2,869
  3,008
  3,154
  3,307
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
  1,027
  1,037
  1,061
  1,089
  1,120
  1,154
  1,191
  1,232
  1,276
  1,323
  1,374
  1,411
  1,469
  1,530
  1,595
  1,664
  1,738
  1,815
  1,897
  1,984
  2,075
  2,172
  2,273
  2,381
  2,493
  2,612
  2,738
  2,869
  3,008
  3,154
  3,307
Operating income, $m
  175
  191
  196
  201
  207
  214
  222
  230
  239
  249
  259
  287
  299
  311
  324
  338
  353
  369
  386
  403
  422
  442
  462
  484
  507
  531
  557
  583
  612
  641
  672
EBITDA, $m
  200
  223
  228
  234
  241
  248
  256
  265
  275
  285
  296
  308
  320
  334
  348
  363
  379
  396
  414
  433
  453
  474
  496
  519
  544
  570
  597
  626
  656
  688
  722
Interest expense (income), $m
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
Earnings before tax, $m
  176
  191
  195
  201
  207
  214
  221
  229
  238
  248
  258
  285
  297
  309
  322
  336
  350
  365
  382
  399
  417
  436
  457
  478
  500
  524
  549
  575
  602
  631
  662
Tax expense, $m
  61
  51
  53
  54
  56
  58
  60
  62
  64
  67
  70
  77
  80
  83
  87
  91
  95
  99
  103
  108
  113
  118
  123
  129
  135
  141
  148
  155
  163
  170
  179
Net income, $m
  115
  139
  143
  147
  151
  156
  162
  167
  174
  181
  188
  208
  217
  225
  235
  245
  256
  267
  279
  291
  305
  319
  333
  349
  365
  382
  401
  420
  440
  461
  483

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  143
  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
  716
  585
  599
  615
  633
  652
  674
  697
  722
  749
  778
  809
  842
  878
  915
  955
  997
  1,041
  1,088
  1,138
  1,190
  1,246
  1,304
  1,365
  1,430
  1,498
  1,570
  1,646
  1,725
  1,809
  1,897
Adjusted assets (=assets-cash), $m
  573
  585
  599
  615
  633
  652
  674
  697
  722
  749
  778
  809
  842
  878
  915
  955
  997
  1,041
  1,088
  1,138
  1,190
  1,246
  1,304
  1,365
  1,430
  1,498
  1,570
  1,646
  1,725
  1,809
  1,897
Revenue / Adjusted assets
  2.098
  2.097
  2.098
  2.098
  2.096
  2.098
  2.096
  2.098
  2.098
  2.099
  2.099
  2.099
  2.099
  2.097
  2.098
  2.097
  2.097
  2.098
  2.098
  2.098
  2.098
  2.097
  2.098
  2.099
  2.098
  2.099
  2.098
  2.098
  2.099
  2.098
  2.098
Average production assets, $m
  227
  232
  237
  244
  251
  259
  267
  276
  286
  297
  309
  321
  334
  348
  363
  379
  395
  413
  431
  451
  472
  494
  517
  541
  567
  594
  623
  653
  684
  717
  752
Working capital, $m
  224
  82
  84
  86
  89
  92
  95
  98
  101
  105
  109
  114
  118
  123
  129
  134
  140
  146
  153
  160
  167
  175
  183
  192
  201
  211
  221
  231
  243
  254
  267
Total debt, $m
  0
  3
  6
  10
  14
  19
  24
  30
  36
  43
  50
  57
  66
  74
  83
  93
  103
  114
  126
  138
  150
  164
  178
  193
  209
  226
  243
  262
  281
  301
  323
Total liabilities, $m
  140
  143
  146
  150
  154
  159
  164
  170
  176
  183
  190
  197
  206
  214
  223
  233
  243
  254
  266
  278
  290
  304
  318
  333
  349
  366
  383
  402
  421
  441
  463
Total equity, $m
  576
  442
  453
  465
  478
  493
  509
  527
  546
  566
  588
  612
  637
  663
  692
  722
  753
  787
  823
  860
  900
  942
  986
  1,032
  1,081
  1,133
  1,187
  1,244
  1,304
  1,368
  1,434
Total liabilities and equity, $m
  716
  585
  599
  615
  632
  652
  673
  697
  722
  749
  778
  809
  843
  877
  915
  955
  996
  1,041
  1,089
  1,138
  1,190
  1,246
  1,304
  1,365
  1,430
  1,499
  1,570
  1,646
  1,725
  1,809
  1,897
Debt-to-equity ratio
  0.000
  0.010
  0.010
  0.020
  0.030
  0.040
  0.050
  0.060
  0.070
  0.080
  0.080
  0.090
  0.100
  0.110
  0.120
  0.130
  0.140
  0.140
  0.150
  0.160
  0.170
  0.170
  0.180
  0.190
  0.190
  0.200
  0.200
  0.210
  0.220
  0.220
  0.230
Adjusted equity ratio
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  115
  139
  143
  147
  151
  156
  162
  167
  174
  181
  188
  208
  217
  225
  235
  245
  256
  267
  279
  291
  305
  319
  333
  349
  365
  382
  401
  420
  440
  461
  483
Depreciation, amort., depletion, $m
  25
  32
  32
  33
  33
  34
  34
  35
  36
  36
  37
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  34
  35
  37
  39
  41
  43
  45
  47
  49
Funds from operations, $m
  142
  171
  175
  179
  184
  190
  196
  202
  209
  217
  225
  229
  238
  248
  259
  270
  281
  294
  307
  321
  335
  351
  367
  384
  402
  421
  441
  462
  485
  508
  532
Change in working capital, $m
  -2
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
Cash from operations, $m
  144
  169
  173
  177
  182
  187
  193
  199
  206
  213
  221
  225
  234
  243
  253
  264
  275
  288
  300
  314
  328
  343
  359
  376
  393
  412
  431
  452
  473
  496
  520
Maintenance CAPEX, $m
  0
  -15
  -15
  -16
  -16
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
  -47
New CAPEX, $m
  -27
  -5
  -6
  -6
  -7
  -8
  -9
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -32
  -33
  -35
Cash from investing activities, $m
  -61
  -20
  -21
  -22
  -23
  -24
  -26
  -26
  -28
  -30
  -31
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -53
  -55
  -58
  -61
  -64
  -67
  -71
  -75
  -78
  -82
Free cash flow, $m
  83
  150
  152
  155
  159
  163
  167
  172
  178
  184
  190
  192
  200
  207
  216
  225
  234
  244
  255
  266
  278
  290
  303
  317
  332
  348
  364
  381
  399
  418
  438
Issuance/(repayment) of debt, $m
  0
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  18
  18
  19
  20
  21
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  
  0
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  18
  18
  19
  20
  21
Total cash flow (excl. dividends), $m
  84
  152
  156
  159
  163
  168
  173
  178
  184
  190
  197
  200
  208
  216
  225
  234
  244
  255
  266
  278
  291
  304
  318
  332
  348
  364
  381
  400
  419
  439
  460
Retained Cash Flow (-), $m
  -62
  -9
  -11
  -12
  -13
  -15
  -16
  -18
  -19
  -20
  -22
  -23
  -25
  -27
  -28
  -30
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -49
  -52
  -54
  -57
  -60
  -63
  -67
Prev. year cash balance distribution, $m
 
  143
  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
 
  286
  145
  147
  150
  153
  156
  160
  165
  170
  175
  176
  183
  189
  197
  204
  213
  221
  231
  240
  251
  262
  274
  286
  299
  313
  327
  342
  358
  375
  393
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
 
  274
  133
  128
  123
  119
  114
  108
  103
  98
  92
  84
  78
  72
  66
  60
  54
  48
  42
  37
  32
  27
  23
  19
  15
  12
  10
  7
  6
  4
  3
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

Lancaster Colony Corporation is a manufacturer and marketer of specialty food products for the retail and foodservice channels. The Company's food products include Salad dressings and sauces, Vegetable dips and fruit dips, Frozen garlic breads, Frozen Parkerhouse style yeast rolls and dinner rolls, Premium dry egg noodles, Frozen specialty noodles, Croutons and salad toppings, Flatbread wraps and pizza crusts, and Caviar. Its brands include Marzetti, Marzetti Simply Dressed, Cardini's, Girard's, Katherine's Kitchen, New York BRAND Bakery, Mamma Bella's, Sister Schubert's, Mary B's, Inn Maid, Amish Kitchen, Reames, Aunt Vi's, Flatout and Romanoff. It manufactures and sells other products pursuant to brand license agreements, including Olive Garden dressing, Jack Daniel's mustards and Hungry Girl flatbreads. A portion of its sales are dressing packets, frozen specialty noodles, pasta and flatbreads sold to industrial customers for use as ingredients or components in their products.

FINANCIAL RATIOS  of  Lancaster Colony (LANC)

Valuation Ratios
P/E Ratio 30.8
Price to Sales 2.9
Price to Book 6.1
Price to Tangible Book
Price to Cash Flow 24.6
Price to Free Cash Flow 30.3
Growth Rates
Sales Growth Rate 0.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 58.8%
Cap. Spend. - 3 Yr. Gr. Rate 11%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 17%
Ret/ On Assets - 3 Yr. Avg. 16.8%
Return On Total Capital 21.1%
Ret/ On T. Cap. - 3 Yr. Avg. 20.6%
Return On Equity 21.1%
Return On Equity - 3 Yr. Avg. 20.6%
Asset Turnover 1.8
Profitability Ratios
Gross Margin 26.5%
Gross Margin - 3 Yr. Avg. 25%
EBITDA Margin 16.7%
EBITDA Margin - 3 Yr. Avg. 16.7%
Operating Margin 14.6%
Oper. Margin - 3 Yr. Avg. 14.7%
Pre-Tax Margin 14.6%
Pre-Tax Margin - 3 Yr. Avg. 14.7%
Net Profit Margin 9.6%
Net Profit Margin - 3 Yr. Avg. 9.7%
Effective Tax Rate 34.7%
Eff/ Tax Rate - 3 Yr. Avg. 34.3%
Payout Ratio 51.3%

LANC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LANC stock intrinsic value calculation we used $1202 million for the last fiscal year's total revenue generated by Lancaster Colony. The default revenue input number comes from 2017 income statement of Lancaster Colony. 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 LANC stock valuation model: a) initial revenue growth rate of 2.1% 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 LANC is calculated based on our internal credit rating of Lancaster Colony, 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 Lancaster Colony.
    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 LANC stock the variable cost ratio is equal to 84.5%.

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 LANC 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 Lancaster Colony.

Corporate tax rate of 27% is the nominal tax rate for Lancaster Colony. 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 LANC 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 LANC are equal to 18.9%.

Life of production assets of 15.3 years is the average useful life of capital assets used in Lancaster Colony 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 LANC is equal to 6.7%. 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 - $576 million for Lancaster Colony - 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 27.429 million for Lancaster Colony 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 Lancaster Colony at the current share price and the inputted number of shares is $3.5 billion.

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COMPANY NEWS

▶ Nike Inc Leads 5 Dividend Stocks Boosting Payouts   [Nov-17-17 01:38PM  InvestorPlace]
▶ Lancaster Colony posts 1Q profit   [Oct-26-17 08:30AM  Associated Press]
▶ New Strong Sell Stocks for October 2nd   [Oct-02-17 08:15AM  Zacks]
▶ New Strong Sell Stocks for September 21st   [Sep-21-17 08:07AM  Zacks]
▶ New Strong Sell Stocks for September 15th   [Sep-15-17 08:16AM  Zacks]
▶ Lancaster Colony posts 4Q profit   [Aug-17-17 10:48PM  Associated Press]
▶ Lancaster Colony CEO on what Amazon's purchase of Whole Foods means for the industry   [Jul-06-17 01:35PM  American City Business Journals]
▶ Lancaster Colony posts 3Q profit   [Apr-27-17 07:28AM  Associated Press]
▶ United Natural (UNFI) Downgraded to Sell on Dismal Trends   [Mar-29-17 05:12PM  Investopedia]
▶ Lancaster Colony Continues Higher Cash Dividend   [Feb-22-17 01:30PM  PR Newswire]
▶ Yacktman Asset Management Comments on Lancaster Colony   [Feb-08-17 12:22PM  GuruFocus.com]
Financial statements of LANC
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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