Intrinsic value of Lancaster Colony - LANC

Previous Close

$124.41

  Intrinsic Value

$75.98

stock screener

  Rating & Target

sell

-39%

  Value-price divergence*

+40%

Previous close

$124.41

 
Intrinsic value

$75.98

 
Up/down potential

-39%

 
Rating

sell

 
Value-price divergence*

+40%

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

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 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 3.4

 

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, %
  7.78
  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
  1,191
  1,216
  1,245
  1,278
  1,315
  1,356
  1,400
  1,449
  1,501
  1,557
  1,618
  1,682
  1,751
  1,824
  1,902
  1,985
  2,072
  2,164
  2,262
  2,365
  2,474
  2,589
  2,711
  2,838
  2,973
  3,115
  3,264
  3,421
  3,586
  3,760
  3,943
Variable operating expenses, $m
 
  805
  824
  845
  869
  895
  924
  956
  990
  1,027
  1,066
  1,093
  1,138
  1,186
  1,236
  1,290
  1,347
  1,407
  1,470
  1,537
  1,608
  1,683
  1,762
  1,845
  1,932
  2,024
  2,121
  2,223
  2,331
  2,444
  2,563
Fixed operating expenses, $m
 
  229
  234
  240
  246
  252
  259
  265
  272
  278
  285
  293
  300
  307
  315
  323
  331
  339
  348
  356
  365
  375
  384
  394
  403
  413
  424
  434
  445
  456
  468
Total operating expenses, $m
  1,007
  1,034
  1,058
  1,085
  1,115
  1,147
  1,183
  1,221
  1,262
  1,305
  1,351
  1,386
  1,438
  1,493
  1,551
  1,613
  1,678
  1,746
  1,818
  1,893
  1,973
  2,058
  2,146
  2,239
  2,335
  2,437
  2,545
  2,657
  2,776
  2,900
  3,031
Operating income, $m
  185
  183
  187
  193
  200
  208
  217
  228
  239
  252
  266
  296
  313
  331
  351
  372
  394
  418
  444
  472
  501
  532
  565
  600
  637
  677
  719
  763
  810
  860
  913
EBITDA, $m
  209
  212
  217
  223
  230
  239
  249
  260
  272
  286
  301
  317
  334
  353
  374
  396
  419
  445
  472
  500
  531
  563
  598
  635
  674
  715
  759
  805
  854
  906
  961
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  9
  9
Earnings before tax, $m
  185
  183
  187
  193
  199
  207
  217
  227
  238
  251
  265
  295
  311
  329
  349
  369
  391
  415
  441
  468
  497
  527
  560
  595
  632
  671
  712
  756
  802
  852
  904
Tax expense, $m
  63
  49
  51
  52
  54
  56
  58
  61
  64
  68
  72
  80
  84
  89
  94
  100
  106
  112
  119
  126
  134
  142
  151
  161
  171
  181
  192
  204
  217
  230
  244
Net income, $m
  122
  133
  137
  141
  146
  151
  158
  166
  174
  183
  194
  215
  227
  240
  254
  270
  286
  303
  322
  341
  363
  385
  409
  434
  461
  490
  520
  552
  586
  622
  660

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  118
  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
  635
  528
  540
  555
  571
  588
  608
  629
  651
  676
  702
  730
  760
  792
  826
  861
  899
  939
  982
  1,027
  1,074
  1,124
  1,176
  1,232
  1,290
  1,352
  1,417
  1,485
  1,557
  1,632
  1,711
Adjusted assets (=assets-cash), $m
  517
  528
  540
  555
  571
  588
  608
  629
  651
  676
  702
  730
  760
  792
  826
  861
  899
  939
  982
  1,027
  1,074
  1,124
  1,176
  1,232
  1,290
  1,352
  1,417
  1,485
  1,557
  1,632
  1,711
Revenue / Adjusted assets
  2.304
  2.303
  2.306
  2.303
  2.303
  2.306
  2.303
  2.304
  2.306
  2.303
  2.305
  2.304
  2.304
  2.303
  2.303
  2.305
  2.305
  2.305
  2.303
  2.303
  2.304
  2.303
  2.305
  2.304
  2.305
  2.304
  2.303
  2.304
  2.303
  2.304
  2.305
Average production assets, $m
  217
  221
  227
  233
  239
  247
  255
  264
  273
  283
  294
  306
  319
  332
  346
  361
  377
  394
  412
  430
  450
  471
  493
  517
  541
  567
  594
  623
  653
  684
  718
Working capital, $m
  195
  79
  81
  83
  85
  88
  91
  94
  98
  101
  105
  109
  114
  119
  124
  129
  135
  141
  147
  154
  161
  168
  176
  184
  193
  202
  212
  222
  233
  244
  256
Total debt, $m
  0
  3
  5
  9
  13
  17
  21
  26
  31
  37
  43
  50
  57
  64
  72
  81
  89
  99
  109
  119
  130
  142
  154
  167
  181
  195
  211
  226
  243
  261
  279
Total liabilities, $m
  121
  124
  126
  130
  134
  138
  142
  147
  152
  158
  164
  171
  178
  185
  193
  202
  210
  220
  230
  240
  251
  263
  275
  288
  302
  316
  332
  347
  364
  382
  400
Total equity, $m
  514
  404
  414
  425
  437
  451
  466
  482
  499
  518
  538
  559
  582
  607
  632
  660
  689
  720
  752
  786
  823
  861
  901
  944
  988
  1,036
  1,085
  1,137
  1,192
  1,250
  1,311
Total liabilities and equity, $m
  635
  528
  540
  555
  571
  589
  608
  629
  651
  676
  702
  730
  760
  792
  825
  862
  899
  940
  982
  1,026
  1,074
  1,124
  1,176
  1,232
  1,290
  1,352
  1,417
  1,484
  1,556
  1,632
  1,711
Debt-to-equity ratio
  0.000
  0.010
  0.010
  0.020
  0.030
  0.040
  0.050
  0.050
  0.060
  0.070
  0.080
  0.090
  0.100
  0.110
  0.110
  0.120
  0.130
  0.140
  0.140
  0.150
  0.160
  0.160
  0.170
  0.180
  0.180
  0.190
  0.190
  0.200
  0.200
  0.210
  0.210
Adjusted equity ratio
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766
  0.766

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  122
  133
  137
  141
  146
  151
  158
  166
  174
  183
  194
  215
  227
  240
  254
  270
  286
  303
  322
  341
  363
  385
  409
  434
  461
  490
  520
  552
  586
  622
  660
Depreciation, amort., depletion, $m
  24
  29
  30
  30
  30
  31
  31
  32
  33
  33
  34
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
  38
  40
  42
  44
  46
  48
Funds from operations, $m
  139
  163
  166
  171
  176
  182
  190
  198
  207
  217
  228
  236
  249
  262
  278
  294
  311
  329
  349
  370
  393
  416
  442
  469
  497
  527
  559
  593
  629
  667
  707
Change in working capital, $m
  -4
  2
  2
  2
  2
  3
  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
Cash from operations, $m
  143
  161
  164
  168
  174
  180
  187
  195
  203
  213
  224
  231
  244
  258
  272
  288
  305
  323
  343
  363
  386
  409
  434
  460
  488
  518
  550
  583
  619
  656
  696
Maintenance CAPEX, $m
  0
  -14
  -15
  -15
  -16
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -44
  -46
New CAPEX, $m
  -17
  -4
  -5
  -6
  -7
  -7
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -33
Cash from investing activities, $m
  -17
  -18
  -20
  -21
  -23
  -23
  -24
  -26
  -28
  -28
  -30
  -32
  -33
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -49
  -51
  -53
  -56
  -59
  -62
  -65
  -69
  -72
  -76
  -79
Free cash flow, $m
  126
  142
  144
  147
  151
  156
  162
  169
  176
  185
  194
  200
  211
  223
  236
  250
  265
  281
  299
  317
  337
  358
  380
  404
  429
  456
  485
  515
  547
  581
  617
Issuance/(repayment) of debt, $m
  0
  3
  3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
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  
  2
  3
  3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
Total cash flow (excl. dividends), $m
  127
  145
  147
  151
  155
  160
  167
  174
  182
  190
  200
  207
  218
  231
  244
  259
  274
  291
  309
  328
  348
  370
  393
  417
  443
  471
  500
  531
  564
  598
  635
Retained Cash Flow (-), $m
  67
  -8
  -10
  -11
  -12
  -14
  -15
  -16
  -17
  -19
  -20
  -21
  -23
  -24
  -26
  -27
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
  -45
  -47
  -50
  -52
  -55
  -58
  -61
Prev. year cash balance distribution, $m
 
  118
  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
 
  254
  137
  140
  143
  147
  152
  158
  164
  172
  180
  185
  195
  206
  218
  231
  245
  260
  276
  293
  312
  331
  352
  375
  398
  424
  450
  479
  509
  541
  574
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
 
  244
  126
  122
  118
  114
  110
  106
  103
  99
  94
  88
  83
  78
  73
  68
  62
  57
  51
  45
  40
  34
  29
  25
  20
  16
  13
  10
  8
  6
  4
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 manufactures and markets specialty food products for the retail and foodservice markets in the United States. It offers salad dressings and sauces under the Marzetti, Marzetti Simply Dressed, Cardini’s, Girard’s, and Katherine’s Kitchen brands; vegetable dips and fruit dips under the Marzetti brand; frozen garlic breads under the New York BRAND Bakery, Mamma Bella, ad Mamma Bella’s brands; and frozen Parkerhouse style yeast and dinner rolls under the Sister Schubert’s and Mary B’s brands. The company also provides dry egg noodles under the Inn Maid and Amish Kitchen brands; frozen specialty noodles under the Reames and Aunt Vi’s brands; croutons and salad toppings under the New York BRAND Bakery, New York BRAND Bakery Texas Toast, Chatham Village, Cardini’s, Marzetti Simply Dressed, and Marzetti brands; flatbread wraps and pizza crusts under the Flatout brand; and caviar under the Romanoff brand. In addition, it manufactures and sells other products to brand license agreements, including Olive Garden’s dressing, Jack Daniel's mustards, and Hungry Girl flatbreads. The company’s products are sold through sales personnel, food brokers, and distributors to retailers and restaurants, as well as for industrial customers. Lancaster Colony Corporation was founded in 1961 and is based in Columbus, Ohio.

FINANCIAL RATIOS  of  Lancaster Colony (LANC)

Valuation Ratios
P/E Ratio 28
Price to Sales 2.9
Price to Book 6.6
Price to Tangible Book
Price to Cash Flow 23.9
Price to Free Cash Flow 27.1
Growth Rates
Sales Growth Rate 7.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -5.6%
Cap. Spend. - 3 Yr. Gr. Rate -6.7%
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 18.2%
Ret/ On Assets - 3 Yr. Avg. 15.1%
Return On Total Capital 22.3%
Ret/ On T. Cap. - 3 Yr. Avg. 18.4%
Return On Equity 22.3%
Return On Equity - 3 Yr. Avg. 18.4%
Asset Turnover 1.8
Profitability Ratios
Gross Margin 25.2%
Gross Margin - 3 Yr. Avg. 24.2%
EBITDA Margin 17.5%
EBITDA Margin - 3 Yr. Avg. 16.7%
Operating Margin 15.4%
Oper. Margin - 3 Yr. Avg. 14.8%
Pre-Tax Margin 15.5%
Pre-Tax Margin - 3 Yr. Avg. 14.8%
Net Profit Margin 10.2%
Net Profit Margin - 3 Yr. Avg. 8.9%
Effective Tax Rate 34.1%
Eff/ Tax Rate - 3 Yr. Avg. 34.1%
Payout Ratio 156.6%

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 $1191 million for the last fiscal year's total revenue generated by Lancaster Colony. The default revenue input number comes from 2016 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 66.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $223 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 18.2%.

Life of production assets of 15 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 6.5%. 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 - $514 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 27.057 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 $3.4 billion.

RELATED COMPANIES Price Int.Val. Rating
THS TreeHouse Food 71.08 102.49  buy
BGS B&G Foods 31.65 27.64  hold
SENEA Seneca Foods C 29.35 10.31  str.sell
CAG Conagra Brands 35.14 32.21  hold
POST Post Holdings 86.20 71.67  hold
JMBA Jamba 9.11 0.07  str.sell
JJSF J&J Snack Food 129.04 62.28  str.sell
SJM J.M. Smucker 123.18 81.45  sell

COMPANY NEWS

▶ Lancaster Colony posts 4Q profit   [Aug-17-17 12:46PM  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]
Stock chart of LANC 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.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.