Intrinsic value of Lawson Products - LAWS

Previous Close

$23.10

  Intrinsic Value

$1.56

stock screener

  Rating & Target

str. sell

-93%

  Value-price divergence*

-15%

Previous close

$23.10

 
Intrinsic value

$1.56

 
Up/down potential

-93%

 
Rating

str. sell

 
Value-price divergence*

-15%

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

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

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 0.2

 

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
  7.10
  6.89
  6.70
  6.53
  6.38
  6.24
  6.12
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.32
  5.28
  5.26
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
  5.11
  5.10
Revenue, $m
  277
  297
  317
  338
  360
  383
  407
  432
  458
  485
  514
  543
  574
  606
  639
  674
  711
  749
  789
  831
  875
  921
  969
  1,020
  1,073
  1,128
  1,186
  1,247
  1,311
  1,378
  1,448
Variable operating expenses, $m
 
  295
  315
  336
  358
  381
  404
  429
  455
  481
  509
  538
  568
  600
  633
  668
  704
  742
  782
  824
  867
  913
  961
  1,011
  1,063
  1,118
  1,175
  1,236
  1,299
  1,365
  1,435
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
  295
  315
  336
  358
  381
  404
  429
  455
  481
  509
  538
  568
  600
  633
  668
  704
  742
  782
  824
  867
  913
  961
  1,011
  1,063
  1,118
  1,175
  1,236
  1,299
  1,365
  1,435
Operating income, $m
  -1
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
EBITDA, $m
  7
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  18
  18
  19
  20
  21
  23
  24
  25
  26
  28
  29
  31
Interest expense (income), $m
  0
  0
  0
  1
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  9
  9
  10
  10
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
  134
  143
  153
  163
  173
  184
  195
  207
  219
  232
  245
  259
  273
  288
  304
  321
  338
  356
  375
  395
  416
  437
  460
  484
  509
  535
  563
  592
  622
  654
Adjusted assets (=assets-cash), $m
  125
  134
  143
  153
  163
  173
  184
  195
  207
  219
  232
  245
  259
  273
  288
  304
  321
  338
  356
  375
  395
  416
  437
  460
  484
  509
  535
  563
  592
  622
  654
Revenue / Adjusted assets
  2.216
  2.216
  2.217
  2.209
  2.209
  2.214
  2.212
  2.215
  2.213
  2.215
  2.216
  2.216
  2.216
  2.220
  2.219
  2.217
  2.215
  2.216
  2.216
  2.216
  2.215
  2.214
  2.217
  2.217
  2.217
  2.216
  2.217
  2.215
  2.215
  2.215
  2.214
Average production assets, $m
  33
  35
  38
  40
  43
  46
  48
  51
  55
  58
  61
  65
  68
  72
  76
  80
  85
  89
  94
  99
  104
  110
  115
  121
  128
  134
  141
  148
  156
  164
  172
Working capital, $m
  49
  44
  47
  50
  53
  57
  60
  64
  68
  72
  76
  80
  85
  90
  95
  100
  105
  111
  117
  123
  130
  136
  143
  151
  159
  167
  176
  185
  194
  204
  214
Total debt, $m
  9
  12
  17
  23
  29
  35
  41
  47
  54
  61
  68
  76
  84
  92
  101
  110
  120
  130
  140
  151
  162
  174
  187
  200
  214
  228
  243
  259
  276
  293
  311
Total liabilities, $m
  74
  77
  82
  88
  94
  100
  106
  112
  119
  126
  133
  141
  149
  157
  166
  175
  185
  195
  205
  216
  227
  239
  252
  265
  279
  293
  308
  324
  341
  358
  376
Total equity, $m
  61
  57
  61
  65
  69
  73
  78
  83
  88
  93
  98
  104
  110
  116
  122
  129
  136
  143
  151
  159
  167
  176
  185
  195
  205
  216
  227
  239
  251
  264
  277
Total liabilities and equity, $m
  135
  134
  143
  153
  163
  173
  184
  195
  207
  219
  231
  245
  259
  273
  288
  304
  321
  338
  356
  375
  394
  415
  437
  460
  484
  509
  535
  563
  592
  622
  653
Debt-to-equity ratio
  0.148
  0.210
  0.290
  0.350
  0.420
  0.470
  0.520
  0.570
  0.620
  0.660
  0.700
  0.730
  0.770
  0.800
  0.830
  0.850
  0.880
  0.910
  0.930
  0.950
  0.970
  0.990
  1.010
  1.030
  1.040
  1.060
  1.070
  1.090
  1.100
  1.110
  1.120
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
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  13
  14
  15
  16
  16
  17
Funds from operations, $m
  8
  5
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
  18
  19
  19
Change in working capital, $m
  0
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
Cash from operations, $m
  8
  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
Maintenance CAPEX, $m
  0
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -16
  -16
New CAPEX, $m
  -3
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
Cash from investing activities, $m
  -9
  -5
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -8
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -15
  -17
  -18
  -18
  -20
  -20
  -21
  -23
  -24
  -24
Free cash flow, $m
  -1
  -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
  -13
  -13
  -14
  -15
  -16
Issuance/(repayment) of debt, $m
  0
  5
  5
  6
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  13
  13
  14
  14
  15
  16
  17
  17
  18
Issuance/(repurchase) of shares, $m
  0
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
Cash from financing (excl. dividends), $m  
  0
  7
  8
  9
  9
  9
  9
  9
  11
  11
  11
  12
  12
  12
  13
  14
  15
  15
  16
  17
  17
  19
  20
  21
  22
  23
  24
  26
  27
  28
  29
Total cash flow (excl. dividends), $m
  0
  4
  5
  5
  5
  5
  5
  5
  6
  6
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
Retained Cash Flow (-), $m
  0
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
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
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
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
 
  8
  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
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  98.7
  97.4
  96.1
  94.8
  93.6
  92.4
  91.2
  90.1
  88.9
  87.8
  86.8
  85.8
  84.9
  83.9
  82.9
  82.0
  81.0
  80.0
  79.1
  78.2
  77.2
  76.3
  75.4
  74.4
  73.5
  72.6
  71.7
  70.8
  69.9
  69.0

Lawson Products, Inc. distributes products and services to the industrial, commercial, institutional, and government maintenance, repair, and operations marketplace in the United States, Puerto Rico, Canada, Mexico, and the Caribbean. The company’s products include fastening systems, specialty chemicals, fluid power products, cutting tools and abrasives, electrical products, aftermarket automotive supplies, safety products, welding and metal repair products, and other products. It serves customers in the automotive repair, commercial vehicle maintenance, government, manufacturing, food processing, distribution, construction, oil and gas, mining, wholesale, service, and other industries. The company sells its products through sales representatives, as well as directly from its Website or through fax or phone. Lawson Products, Inc. was founded in 1952 and is headquartered in Chicago, Illinois.

FINANCIAL RATIOS  of  Lawson Products (LAWS)

Valuation Ratios
P/E Ratio -102
Price to Sales 0.7
Price to Book 3.3
Price to Tangible Book
Price to Cash Flow 25.5
Price to Free Cash Flow 40.8
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 7.1% 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 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 10 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 8.817 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 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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