Intrinsic value of LMI Aerospace - LMIA

Previous Close

$13.99

  Intrinsic Value

$2.83

stock screener

  Rating & Target

str. sell

-80%

  Value-price divergence*

-139%

Previous close

$13.99

 
Intrinsic value

$2.83

 
Up/down potential

-80%

 
Rating

str. sell

 
Value-price divergence*

-139%

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

We calculate the intrinsic value of LMIA 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, %
  -7.73
  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
  346
  353
  361
  370
  381
  392
  405
  419
  434
  450
  467
  485
  505
  526
  548
  572
  597
  624
  652
  681
  713
  746
  781
  817
  856
  897
  940
  985
  1,032
  1,082
  1,135
Variable operating expenses, $m
 
  333
  341
  350
  359
  370
  382
  394
  408
  423
  439
  450
  468
  488
  508
  530
  554
  578
  604
  632
  661
  691
  724
  758
  794
  831
  871
  913
  957
  1,003
  1,052
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
  361
  333
  341
  350
  359
  370
  382
  394
  408
  423
  439
  450
  468
  488
  508
  530
  554
  578
  604
  632
  661
  691
  724
  758
  794
  831
  871
  913
  957
  1,003
  1,052
Operating income, $m
  -14
  20
  20
  21
  22
  22
  23
  24
  25
  27
  28
  35
  37
  38
  40
  42
  44
  45
  48
  50
  52
  54
  57
  60
  62
  65
  69
  72
  75
  79
  83
EBITDA, $m
  5
  39
  39
  40
  42
  43
  44
  46
  47
  49
  51
  53
  55
  57
  60
  62
  65
  68
  71
  74
  78
  81
  85
  89
  93
  98
  103
  107
  113
  118
  124
Interest expense (income), $m
  19
  19
  19
  20
  20
  21
  22
  22
  23
  24
  25
  27
  28
  29
  31
  32
  34
  35
  37
  39
  41
  43
  45
  48
  50
  53
  55
  58
  61
  64
  68
Earnings before tax, $m
  -36
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  9
  9
  9
  9
  10
  10
  10
  10
  11
  11
  11
  12
  12
  12
  13
  13
  14
  14
  15
  15
Tax expense, $m
  -1
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
Net income, $m
  -35
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  6
  7
  7
  7
  7
  7
  7
  8
  8
  8
  8
  9
  9
  9
  9
  10
  10
  10
  11
  11

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2
  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
  384
  390
  398
  409
  420
  433
  447
  462
  479
  496
  515
  536
  558
  581
  605
  631
  659
  688
  719
  752
  787
  823
  862
  902
  945
  990
  1,037
  1,087
  1,140
  1,195
  1,253
Adjusted assets (=assets-cash), $m
  382
  390
  398
  409
  420
  433
  447
  462
  479
  496
  515
  536
  558
  581
  605
  631
  659
  688
  719
  752
  787
  823
  862
  902
  945
  990
  1,037
  1,087
  1,140
  1,195
  1,253
Revenue / Adjusted assets
  0.906
  0.905
  0.907
  0.905
  0.907
  0.905
  0.906
  0.907
  0.906
  0.907
  0.907
  0.905
  0.905
  0.905
  0.906
  0.906
  0.906
  0.907
  0.907
  0.906
  0.906
  0.906
  0.906
  0.906
  0.906
  0.906
  0.906
  0.906
  0.905
  0.905
  0.906
Average production assets, $m
  143
  146
  149
  153
  157
  162
  167
  173
  179
  186
  193
  200
  209
  217
  227
  236
  247
  258
  269
  281
  294
  308
  322
  338
  354
  370
  388
  407
  426
  447
  469
Working capital, $m
  122
  125
  128
  131
  135
  139
  144
  149
  154
  160
  166
  172
  179
  187
  195
  203
  212
  221
  231
  242
  253
  265
  277
  290
  304
  318
  334
  350
  366
  384
  403
Total debt, $m
  240
  244
  251
  259
  268
  278
  288
  300
  313
  327
  341
  357
  374
  392
  411
  431
  453
  476
  500
  525
  552
  580
  610
  641
  674
  709
  746
  784
  825
  868
  913
Total liabilities, $m
  298
  302
  309
  317
  326
  336
  346
  358
  371
  385
  399
  415
  432
  450
  469
  489
  511
  534
  558
  583
  610
  638
  668
  699
  732
  767
  804
  842
  883
  926
  971
Total equity, $m
  86
  88
  90
  92
  95
  97
  101
  104
  108
  112
  116
  121
  125
  131
  136
  142
  148
  155
  162
  169
  177
  185
  194
  203
  213
  223
  233
  245
  256
  269
  282
Total liabilities and equity, $m
  384
  390
  399
  409
  421
  433
  447
  462
  479
  497
  515
  536
  557
  581
  605
  631
  659
  689
  720
  752
  787
  823
  862
  902
  945
  990
  1,037
  1,087
  1,139
  1,195
  1,253
Debt-to-equity ratio
  2.791
  2.780
  2.800
  2.810
  2.830
  2.850
  2.870
  2.890
  2.910
  2.930
  2.940
  2.960
  2.980
  3.000
  3.020
  3.040
  3.050
  3.070
  3.090
  3.100
  3.120
  3.130
  3.150
  3.160
  3.170
  3.180
  3.200
  3.210
  3.220
  3.230
  3.240
Adjusted equity ratio
  0.220
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -35
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  6
  7
  7
  7
  7
  7
  7
  8
  8
  8
  8
  9
  9
  9
  9
  10
  10
  10
  11
  11
Depreciation, amort., depletion, $m
  19
  19
  19
  20
  20
  20
  21
  21
  22
  22
  23
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  36
  37
  39
  41
Funds from operations, $m
  15
  20
  20
  21
  21
  22
  22
  23
  23
  24
  25
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  52
Change in working capital, $m
  0
  2
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
Cash from operations, $m
  15
  17
  17
  17
  17
  17
  18
  18
  18
  18
  19
  17
  18
  18
  19
  19
  20
  21
  21
  22
  23
  24
  24
  25
  26
  27
  28
  30
  31
  32
  33
Maintenance CAPEX, $m
  0
  -13
  -13
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -32
  -34
  -36
  -37
  -39
New CAPEX, $m
  -12
  -3
  -3
  -4
  -4
  -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
  -22
Cash from investing activities, $m
  -11
  -16
  -16
  -17
  -17
  -19
  -19
  -21
  -21
  -23
  -23
  -25
  -26
  -27
  -28
  -30
  -31
  -33
  -35
  -36
  -38
  -40
  -41
  -43
  -46
  -48
  -50
  -53
  -56
  -58
  -61
Free cash flow, $m
  4
  2
  1
  0
  0
  -1
  -2
  -3
  -3
  -4
  -5
  -7
  -8
  -9
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -26
  -27
Issuance/(repayment) of debt, $m
  -11
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  23
  24
  25
  27
  28
  30
  31
  33
  35
  37
  39
  41
  43
  45
Issuance/(repurchase) of shares, $m
  0
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  2
  2
  2
Cash from financing (excl. dividends), $m  
  -11
  7
  8
  9
  11
  12
  13
  14
  15
  16
  18
  16
  17
  18
  19
  20
  21
  23
  24
  25
  27
  28
  30
  31
  34
  36
  38
  40
  43
  45
  47
Total cash flow (excl. dividends), $m
  -8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  9
  9
  9
  10
  10
  10
  11
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
Retained Cash Flow (-), $m
  32
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
Prev. year cash balance distribution, $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 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
 
  7
  7
  7
  7
  8
  8
  8
  8
  8
  8
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
Discount rate, %
 
  11.70
  12.29
  12.90
  13.54
  14.22
  14.93
  15.68
  16.46
  17.29
  18.15
  19.06
  20.01
  21.01
  22.06
  23.17
  24.32
  25.54
  26.82
  28.16
  29.57
  31.04
  32.60
  34.23
  35.94
  37.73
  39.62
  41.60
  43.68
  45.87
  48.16
PV of cash for distribution, $m
 
  6
  6
  5
  5
  4
  3
  3
  2
  2
  2
  1
  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
  99.5
  98.9
  98.2
  97.4
  96.6
  95.8
  94.9
  94.0
  93.1
  92.1
  92.1
  92.1
  92.1
  92.1
  92.1
  92.1
  92.1
  92.1
  92.1
  92.1
  92.1
  92.1
  92.0
  91.9
  91.7
  91.6
  91.3
  91.1
  90.8
  90.5

LMI Aerospace, Inc. provides structural assemblies, kits and components, and design engineering services to the aerospace and defense markets in the United States. The company’s Aerostructures segment fabricates, machines, finishes, integrates, assembles, and kits machined and formed close-tolerance aluminum, specialty alloy and composite components, and assemblies. Its products include wing slats and flap skins/components, ailerons, and verticals; winglet edges and modification kits; fuselage and wing skins; helicopter cabin and aft section components and assemblies; wing panels; tail cone assemblies; thrust reversers and engine nacelles/cowlings; door components, assemblies, and floor beams; cockpit window frames and landing light lens assemblies; and cockpit crew floor and bulkhead structure assemblies. This segment also provides wheel well and electronic rack assemblies; interior components; structural sheet metal, machined, milled, and extruded components; housings and assemblies for gun turrets; auxiliary power unit components; fans and heat exchangers; and assemblies and components for rail yard switching equipment. Its Engineering Services segment offers engineering design, analysis, repair, certification, and program management services. This segment provides structural design and analysis services; systems design and integration; tool design and fabrication; after-market engineering and support; aviation training system; and aviation maintenance engineering services. In addition, the company offers components and assemblies for laser equipment used by semiconductor equipment manufacturers; and electronic and electrical wire harnesses, cable assemblies, and mechanical sub-assemblies for the air and rail traffic control, medical equipment, telecommunications, and heavy equipment industries. The company was founded in 1948 and is headquartered in St. Charles, Missouri.

FINANCIAL RATIOS  of  LMI Aerospace (LMIA)

Valuation Ratios
P/E Ratio -5.4
Price to Sales 0.6
Price to Book 2.2
Price to Tangible Book
Price to Cash Flow 12.7
Price to Free Cash Flow 63.6
Growth Rates
Sales Growth Rate -7.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -29.4%
Cap. Spend. - 3 Yr. Gr. Rate -12.9%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 275.6%
Total Debt to Equity 279.1%
Interest Coverage -1
Management Effectiveness
Return On Assets -4.1%
Ret/ On Assets - 3 Yr. Avg. -1.6%
Return On Total Capital -10.1%
Ret/ On T. Cap. - 3 Yr. Avg. -5.9%
Return On Equity -34.3%
Return On Equity - 3 Yr. Avg. -19.4%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 17.3%
Gross Margin - 3 Yr. Avg. 18.4%
EBITDA Margin 0.6%
EBITDA Margin - 3 Yr. Avg. 2.9%
Operating Margin -4.3%
Oper. Margin - 3 Yr. Avg. -0.4%
Pre-Tax Margin -10.4%
Pre-Tax Margin - 3 Yr. Avg. -6.9%
Net Profit Margin -10.1%
Net Profit Margin - 3 Yr. Avg. -6%
Effective Tax Rate 2.8%
Eff/ Tax Rate - 3 Yr. Avg. 8.8%
Payout Ratio 0%

LMIA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LMIA stock intrinsic value calculation we used $346 million for the last fiscal year's total revenue generated by LMI Aerospace. The default revenue input number comes from 2016 income statement of LMI Aerospace. 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 LMIA 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 11.7%, whose default value for LMIA is calculated based on our internal credit rating of LMI Aerospace, 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 LMI Aerospace.
    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 LMIA stock the variable cost ratio is equal to 94.5%.

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 LMIA 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 7.8% for LMI Aerospace.

Corporate tax rate of 27% is the nominal tax rate for LMI Aerospace. 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 LMIA 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 LMIA are equal to 41.3%.

Life of production assets of 11.4 years is the average useful life of capital assets used in LMI Aerospace 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 LMIA is equal to 35.5%. 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 - $86 million for LMI Aerospace - 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 13.642 million for LMI Aerospace 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 LMI Aerospace at the current share price and the inputted number of shares is $0.2 billion.

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Stock chart of LMIA Financial statements of LMIA
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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