Intrinsic value of Lawson Products - LAWS

Previous Close

$24.70

  Intrinsic Value

$1.86

stock screener

  Rating & Target

str. sell

-92%

Previous close

$24.70

 
Intrinsic value

$1.86

 
Up/down potential

-92%

 
Rating

str. sell

We calculate the intrinsic value of LAWS 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  0.36
  8.60
  8.24
  7.92
  7.62
  7.36
  7.13
  6.91
  6.72
  6.55
  6.39
  6.26
  6.13
  6.02
  5.92
  5.82
  5.74
  5.67
  5.60
  5.54
  5.49
  5.44
  5.39
  5.35
  5.32
  5.29
  5.26
  5.23
  5.21
  5.19
  5.17
Revenue, $m
  277
  301
  326
  351
  378
  406
  435
  465
  496
  529
  563
  598
  634
  673
  712
  754
  797
  842
  890
  939
  990
  1,044
  1,100
  1,159
  1,221
  1,286
  1,353
  1,424
  1,498
  1,576
  1,657
Variable operating expenses, $m
 
  299
  323
  349
  375
  403
  432
  461
  492
  525
  558
  592
  629
  666
  706
  747
  790
  835
  881
  930
  981
  1,035
  1,090
  1,149
  1,210
  1,274
  1,341
  1,411
  1,484
  1,561
  1,642
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
  278
  299
  323
  349
  375
  403
  432
  461
  492
  525
  558
  592
  629
  666
  706
  747
  790
  835
  881
  930
  981
  1,035
  1,090
  1,149
  1,210
  1,274
  1,341
  1,411
  1,484
  1,561
  1,642
Operating income, $m
  -1
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
EBITDA, $m
  7
  10
  11
  12
  12
  13
  14
  15
  16
  17
  19
  20
  21
  22
  23
  25
  26
  28
  29
  31
  33
  34
  36
  38
  40
  42
  45
  47
  49
  52
  55
Interest expense (income), $m
  0
  0
  0
  1
  1
  1
  1
  2
  2
  2
  3
  3
  3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
Earnings before tax, $m
  -2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
Tax expense, $m
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
Net income, $m
  -2
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  10
  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
  135
  136
  147
  159
  171
  183
  196
  210
  224
  239
  254
  270
  286
  304
  321
  340
  360
  380
  401
  424
  447
  471
  497
  523
  551
  580
  611
  643
  676
  711
  748
Adjusted assets (=assets-cash), $m
  125
  136
  147
  159
  171
  183
  196
  210
  224
  239
  254
  270
  286
  304
  321
  340
  360
  380
  401
  424
  447
  471
  497
  523
  551
  580
  611
  643
  676
  711
  748
Revenue / Adjusted assets
  2.216
  2.213
  2.218
  2.208
  2.211
  2.219
  2.219
  2.214
  2.214
  2.213
  2.217
  2.215
  2.217
  2.214
  2.218
  2.218
  2.214
  2.216
  2.219
  2.215
  2.215
  2.217
  2.213
  2.216
  2.216
  2.217
  2.214
  2.215
  2.216
  2.217
  2.215
Average production assets, $m
  33
  36
  39
  42
  45
  48
  52
  55
  59
  63
  67
  71
  75
  80
  85
  90
  95
  100
  106
  112
  118
  124
  131
  138
  145
  153
  161
  169
  178
  188
  197
Working capital, $m
  49
  45
  48
  52
  56
  60
  64
  69
  73
  78
  83
  88
  94
  100
  105
  112
  118
  125
  132
  139
  147
  155
  163
  172
  181
  190
  200
  211
  222
  233
  245
Total debt, $m
  9
  13
  20
  26
  33
  41
  48
  56
  64
  72
  81
  90
  100
  110
  120
  131
  142
  154
  166
  179
  192
  206
  221
  236
  252
  269
  287
  305
  324
  345
  366
Total liabilities, $m
  74
  78
  85
  91
  98
  106
  113
  121
  129
  137
  146
  155
  165
  175
  185
  196
  207
  219
  231
  244
  257
  271
  286
  301
  317
  334
  352
  370
  389
  410
  431
Total equity, $m
  61
  58
  62
  67
  72
  78
  83
  89
  95
  101
  108
  114
  121
  129
  136
  144
  153
  161
  170
  180
  189
  200
  211
  222
  234
  246
  259
  272
  287
  302
  317
Total liabilities and equity, $m
  135
  136
  147
  158
  170
  184
  196
  210
  224
  238
  254
  269
  286
  304
  321
  340
  360
  380
  401
  424
  446
  471
  497
  523
  551
  580
  611
  642
  676
  712
  748
Debt-to-equity ratio
  0.148
  0.230
  0.320
  0.390
  0.460
  0.520
  0.580
  0.630
  0.670
  0.720
  0.750
  0.790
  0.820
  0.850
  0.880
  0.910
  0.930
  0.960
  0.980
  1.000
  1.020
  1.030
  1.050
  1.070
  1.080
  1.090
  1.110
  1.120
  1.130
  1.140
  1.150
Adjusted equity ratio
  0.416
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -2
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
Depreciation, amort., depletion, $m
  8
  8
  8
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  28
  29
  31
  32
  34
  36
  38
  39
Funds from operations, $m
  8
  9
  10
  10
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  30
  31
  33
  34
  36
  38
  40
  42
Change in working capital, $m
  0
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  10
  11
  12
  12
Cash from operations, $m
  8
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  30
Maintenance CAPEX, $m
  0
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -36
  -38
New CAPEX, $m
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
Cash from investing activities, $m
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -17
  -18
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -32
  -33
  -35
  -37
  -39
  -40
  -43
  -45
  -48
Free cash flow, $m
  -1
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
Issuance/(repayment) of debt, $m
  0
  6
  6
  7
  7
  7
  8
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
Issuance/(repurchase) of shares, $m
  0
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
Cash from financing (excl. dividends), $m  
  0
  9
  9
  11
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  19
  19
  20
  21
  22
  24
  24
  26
  27
  29
  29
  31
  33
  34
Total cash flow (excl. dividends), $m
  0
  6
  6
  6
  6
  6
  7
  7
  7
  7
  8
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
Retained Cash Flow (-), $m
  0
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
Prev. year cash balance distribution, $m
 
  8
  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
 
  9
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
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
 
  9
  1
  1
  1
  1
  1
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  98.4
  96.9
  95.4
  94.0
  92.6
  91.3
  90.0
  88.8
  87.6
  86.5
  85.4
  84.4
  83.4
  82.4
  81.4
  80.5
  79.5
  78.6
  77.7
  76.8
  75.9
  75.0
  74.1
  73.3
  72.4
  71.5
  70.7
  69.9
  69.0
  68.2

Lawson Products, Inc. is a distributor of products and services the industrial, commercial, institutional and government maintenance, repair and operations (MRO) market. The Company's product categories include fastening systems, fluid power, specialty chemicals, cutting tools and abrasives, electrical, aftermarket automotive supplies, safety, welding and metal repair, and other. The Company supplies a range of automotive products, including body hardware, body shop, brake/wheel, fleet/truck, repair harness assembly and other parts. The Company offers approximately 200,000 different core products for sale of which approximately 50,000 products are maintained in its distribution centers. The Company's customers operate in a range of industries, including automotive repair, commercial vehicle maintenance, government, manufacturing, food processing, distribution, construction, oil and gas, mining, wholesale and service.


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FINANCIAL RATIOS  of  Lawson Products (LAWS)

Valuation Ratios
P/E Ratio -109.1
Price to Sales 0.8
Price to Book 3.6
Price to Tangible Book
Price to Cash Flow 27.3
Price to Free Cash Flow 43.6
Growth Rates
Sales Growth Rate 0.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 50%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio 5
Current Ratio 0
LT Debt to Equity 11.5%
Total Debt to Equity 14.8%
Interest Coverage 0
Management Effectiveness
Return On Assets -1.5%
Ret/ On Assets - 3 Yr. Avg. -1.4%
Return On Total Capital -2.8%
Ret/ On T. Cap. - 3 Yr. Avg. -2.6%
Return On Equity -3.3%
Return On Equity - 3 Yr. Avg. -3.2%
Asset Turnover 2.1
Profitability Ratios
Gross Margin 60.6%
Gross Margin - 3 Yr. Avg. 60.8%
EBITDA Margin 2.2%
EBITDA Margin - 3 Yr. Avg. 2.3%
Operating Margin -0.4%
Oper. Margin - 3 Yr. Avg. -0.5%
Pre-Tax Margin -0.7%
Pre-Tax Margin - 3 Yr. Avg. -0.8%
Net Profit Margin -0.7%
Net Profit Margin - 3 Yr. Avg. -0.7%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 33.3%
Payout Ratio 0%

LAWS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LAWS stock intrinsic value calculation we used $277 million for the last fiscal year's total revenue generated by Lawson Products. The default revenue input number comes from 2016 income statement of Lawson 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 LAWS stock valuation model: a) initial revenue growth rate of 8.6% 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 LAWS is calculated based on our internal credit rating of Lawson 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 Lawson 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 LAWS stock the variable cost ratio is equal to 99.3%.

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 LAWS 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 Lawson Products.

Corporate tax rate of 27% is the nominal tax rate for Lawson 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 LAWS 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 LAWS are equal to 11.9%.

Life of production assets of 4.5 years is the average useful life of capital assets used in Lawson 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 LAWS is equal to 14.8%. 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 - $61 million for Lawson 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 9.067 million for Lawson 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 Lawson Products at the current share price and the inputted number of shares is $0.2 billion.

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COMPANY NEWS

▶ Lawson Products posts 3Q profit   [Oct-26-17 08:33AM  Associated Press]
▶ Lawson Products posts 2Q profit   [Jul-27-17 10:36PM  Associated Press]
▶ Lawson Products posts 1Q profit   [07:38AM  Associated Press]
▶ Lawson Products reports 4Q loss   [Feb-23-17 08:11AM  Associated Press]
▶ How ProQR Therapeutics NV (PRQR) Stacks Up Against Its Peers   [Dec-16-16 08:51PM  at Insider Monkey]
▶ Lawson Products Acquires Mattic Industries   [Nov-15-16 04:35PM  Business Wire]
▶ Term Sheet Tuesday, May 10   [May-10-16 10:05AM  at Fortune]
▶ Lawson Products Acquires F.B. Feeney Hardware   [May-09-16 02:25PM  Business Wire]
Financial statements of LAWS
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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