Intrinsic value of Landec - LNDC

Previous Close

$13.10

  Intrinsic Value

$3.43

stock screener

  Rating & Target

str. sell

-74%

  Value-price divergence*

+60%

Previous close

$13.10

 
Intrinsic value

$3.43

 
Up/down potential

-74%

 
Rating

str. sell

 
Value-price divergence*

+60%

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

We calculate the intrinsic value of LNDC 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 0.4

 

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, %
  0.37
  5.40
  5.36
  5.32
  5.29
  5.26
  5.24
  5.21
  5.19
  5.17
  5.15
  5.14
  5.13
  5.11
  5.10
  5.09
  5.08
  5.07
  5.07
  5.06
  5.05
  5.05
  5.04
  5.04
  5.04
  5.03
  5.03
  5.03
  5.02
  5.02
  5.02
Revenue, $m
  541
  570
  601
  633
  666
  701
  738
  776
  817
  859
  903
  950
  998
  1,049
  1,103
  1,159
  1,218
  1,280
  1,345
  1,413
  1,484
  1,559
  1,638
  1,720
  1,807
  1,898
  1,993
  2,094
  2,199
  2,309
  2,425
Variable operating expenses, $m
 
  551
  580
  611
  643
  677
  712
  749
  787
  828
  870
  910
  956
  1,005
  1,056
  1,110
  1,167
  1,226
  1,288
  1,353
  1,422
  1,493
  1,569
  1,648
  1,731
  1,818
  1,909
  2,005
  2,106
  2,212
  2,323
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
  561
  551
  580
  611
  643
  677
  712
  749
  787
  828
  870
  910
  956
  1,005
  1,056
  1,110
  1,167
  1,226
  1,288
  1,353
  1,422
  1,493
  1,569
  1,648
  1,731
  1,818
  1,909
  2,005
  2,106
  2,212
  2,323
Operating income, $m
  -20
  19
  20
  22
  23
  25
  26
  28
  30
  31
  33
  40
  42
  44
  47
  49
  51
  54
  57
  60
  63
  66
  69
  73
  76
  80
  84
  88
  93
  98
  102
EBITDA, $m
  -11
  30
  32
  33
  35
  37
  39
  41
  43
  45
  47
  50
  52
  55
  58
  61
  64
  67
  71
  74
  78
  82
  86
  90
  95
  100
  105
  110
  115
  121
  127
Interest expense (income), $m
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  14
  14
  15
  16
  17
Earnings before tax, $m
  -19
  17
  18
  19
  20
  22
  23
  24
  26
  27
  29
  35
  37
  38
  40
  42
  44
  46
  49
  51
  53
  56
  59
  61
  64
  67
  71
  74
  78
  81
  85
Tax expense, $m
  -8
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  9
  10
  10
  11
  11
  12
  13
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
Net income, $m
  -12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  26
  27
  28
  29
  31
  32
  34
  35
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  59
  62

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
  343
  351
  370
  389
  410
  432
  454
  478
  503
  529
  556
  584
  614
  646
  679
  713
  750
  788
  828
  869
  913
  959
  1,008
  1,059
  1,112
  1,168
  1,227
  1,288
  1,353
  1,421
  1,492
Adjusted assets (=assets-cash), $m
  333
  351
  370
  389
  410
  432
  454
  478
  503
  529
  556
  584
  614
  646
  679
  713
  750
  788
  828
  869
  913
  959
  1,008
  1,059
  1,112
  1,168
  1,227
  1,288
  1,353
  1,421
  1,492
Revenue / Adjusted assets
  1.625
  1.624
  1.624
  1.627
  1.624
  1.623
  1.626
  1.623
  1.624
  1.624
  1.624
  1.627
  1.625
  1.624
  1.624
  1.626
  1.624
  1.624
  1.624
  1.626
  1.625
  1.626
  1.625
  1.624
  1.625
  1.625
  1.624
  1.626
  1.625
  1.625
  1.625
Average production assets, $m
  81
  86
  90
  95
  100
  105
  111
  116
  123
  129
  136
  142
  150
  157
  165
  174
  183
  192
  202
  212
  223
  234
  246
  258
  271
  285
  299
  314
  330
  346
  364
Working capital, $m
  30
  34
  35
  37
  39
  41
  44
  46
  48
  51
  53
  56
  59
  62
  65
  68
  72
  76
  79
  83
  88
  92
  97
  101
  107
  112
  118
  124
  130
  136
  143
Total debt, $m
  61
  57
  64
  72
  79
  87
  95
  104
  113
  122
  132
  143
  154
  165
  177
  190
  203
  217
  232
  247
  263
  280
  298
  316
  336
  356
  378
  401
  424
  449
  475
Total liabilities, $m
  132
  128
  135
  143
  150
  158
  166
  175
  184
  193
  203
  214
  225
  236
  248
  261
  274
  288
  303
  318
  334
  351
  369
  387
  407
  427
  449
  472
  495
  520
  546
Total equity, $m
  211
  222
  234
  247
  260
  274
  288
  303
  319
  335
  352
  371
  390
  409
  430
  452
  475
  499
  525
  551
  579
  608
  639
  671
  705
  740
  778
  817
  858
  901
  946
Total liabilities and equity, $m
  343
  350
  369
  390
  410
  432
  454
  478
  503
  528
  555
  585
  615
  645
  678
  713
  749
  787
  828
  869
  913
  959
  1,008
  1,058
  1,112
  1,167
  1,227
  1,289
  1,353
  1,421
  1,492
Debt-to-equity ratio
  0.289
  0.260
  0.270
  0.290
  0.300
  0.320
  0.330
  0.340
  0.350
  0.370
  0.380
  0.390
  0.400
  0.400
  0.410
  0.420
  0.430
  0.440
  0.440
  0.450
  0.450
  0.460
  0.470
  0.470
  0.480
  0.480
  0.490
  0.490
  0.490
  0.500
  0.500
Adjusted equity ratio
  0.616
  0.634
  0.634
  0.634
  0.634
  0.634
  0.634
  0.634
  0.634
  0.634
  0.634
  0.634
  0.634
  0.634
  0.634
  0.634
  0.634
  0.634
  0.634
  0.634
  0.634
  0.634
  0.634
  0.634
  0.634
  0.634
  0.634
  0.634
  0.634
  0.634
  0.634

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  26
  27
  28
  29
  31
  32
  34
  35
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  59
  62
Depreciation, amort., depletion, $m
  9
  11
  11
  12
  12
  12
  13
  13
  13
  14
  14
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  19
  20
  22
  23
  24
  25
Funds from operations, $m
  19
  23
  24
  26
  27
  28
  29
  31
  32
  34
  35
  35
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
  62
  66
  69
  72
  76
  79
  83
  87
Change in working capital, $m
  -3
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
Cash from operations, $m
  22
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  33
  34
  36
  38
  39
  41
  43
  45
  48
  50
  52
  55
  58
  60
  63
  66
  70
  73
  77
  80
Maintenance CAPEX, $m
  0
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -19
  -20
  -22
  -23
  -24
New CAPEX, $m
  -42
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -17
Cash from investing activities, $m
  -42
  -11
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -14
  -16
  -16
  -17
  -18
  -19
  -19
  -21
  -22
  -23
  -24
  -26
  -26
  -28
  -29
  -31
  -33
  -33
  -35
  -38
  -40
  -41
Free cash flow, $m
  -20
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  33
  34
  36
  37
  39
Issuance/(repayment) of debt, $m
  16
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  20
  21
  23
  24
  25
  26
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  
  16
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  20
  21
  23
  24
  25
  26
Total cash flow (excl. dividends), $m
  -4
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  27
  28
  29
  31
  32
  34
  35
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  59
  62
  65
Retained Cash Flow (-), $m
  7
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
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
  8
  8
  8
  9
  9
  9
  10
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  15
  16
  17
  18
  18
  19
  20
Discount rate, %
 
  4.50
  4.73
  4.96
  5.21
  5.47
  5.74
  6.03
  6.33
  6.65
  6.98
  7.33
  7.70
  8.08
  8.49
  8.91
  9.36
  9.82
  10.31
  10.83
  11.37
  11.94
  12.54
  13.16
  13.82
  14.51
  15.24
  16.00
  16.80
  17.64
  18.52
PV of cash for distribution, $m
 
  6
  7
  6
  6
  6
  6
  6
  6
  5
  5
  4
  4
  3
  3
  3
  3
  2
  2
  2
  2
  1
  1
  1
  1
  1
  0
  0
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Current shareholders' claim on cash, %
  100
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  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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  100.0
  100.0
  100.0
  100.0
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  100.0
  100.0
  100.0
  100.0
  100.0
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Landec Corporation, together with its subsidiaries, designs, develops, manufactures, and markets differentiated health and wellness products in food and biomaterials markets. It operates through three segments: Packaged Fresh Vegetables, Food Export, and Biomaterials. The Packaged Fresh Vegetables segment markets and packs specialty packaged whole and fresh-cut fruits, and vegetables utilizing the BreatheWay specialty packaging technology for the retail grocery, club store, and food services industry under the Eat Smart and GreenLine brand names, as well as sells BreatheWay packaging to partners for fruit and vegetable products. The Food Export segment purchases and sells whole commodity fruit and vegetable products primarily to Asian markets. The Biomaterials segment sells products utilizing hyaluronan (HA), a naturally occurring polysaccharide that is distributed in the extracellar matrix of connective tissues in animals and humans, and non-HA products for medical use primarily in the ophthalmic, orthopedic, and veterinary markets, as well as supplies sodium hyaluronate to customers pursuing other medical applications, including aesthetic surgery, medical device coatings, tissue engineering, and pharmaceuticals. This segment also operates as a contract development and manufacturing organization, which specializes in fermentation and aseptic filling services. The company also licenses LandecÂ’s Intelimer polymers for agricultural, personal care, and other industrial products; and Intelimer polymers for personal care products and other industrial products. Landec Corporation sells its products in the United States, Canada, Taiwan, Indonesia, China, Japan, Belgium, and other countries. The company was founded in 1986 and is headquartered in Menlo Park, California.

FINANCIAL RATIOS  of  Landec (LNDC)

Valuation Ratios
P/E Ratio -29.6
Price to Sales 0.7
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 16.2
Price to Free Cash Flow -17.8
Growth Rates
Sales Growth Rate 0.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 133.3%
Cap. Spend. - 3 Yr. Gr. Rate 36.1%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 23.2%
Total Debt to Equity 28.9%
Interest Coverage -9
Management Effectiveness
Return On Assets -3.1%
Ret/ On Assets - 3 Yr. Avg. 2.7%
Return On Total Capital -4.5%
Ret/ On T. Cap. - 3 Yr. Avg. 3.1%
Return On Equity -5.6%
Return On Equity - 3 Yr. Avg. 3.7%
Asset Turnover 1.6
Profitability Ratios
Gross Margin 13.1%
Gross Margin - 3 Yr. Avg. 12.8%
EBITDA Margin -1.5%
EBITDA Margin - 3 Yr. Avg. 4.1%
Operating Margin -3.7%
Oper. Margin - 3 Yr. Avg. 1.3%
Pre-Tax Margin -3.5%
Pre-Tax Margin - 3 Yr. Avg. 2.2%
Net Profit Margin -2.2%
Net Profit Margin - 3 Yr. Avg. 1.5%
Effective Tax Rate 42.1%
Eff/ Tax Rate - 3 Yr. Avg. 37.4%
Payout Ratio 0%

LNDC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LNDC stock intrinsic value calculation we used $541 million for the last fiscal year's total revenue generated by Landec. The default revenue input number comes from 2016 income statement of Landec. 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 LNDC stock valuation model: a) initial revenue growth rate of 5.4% 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 4.5%, whose default value for LNDC is calculated based on our internal credit rating of Landec, 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 Landec.
    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 LNDC stock the variable cost ratio is equal to 96.7%.

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 LNDC 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 3.8% for Landec.

Corporate tax rate of 27% is the nominal tax rate for Landec. 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 LNDC 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 LNDC are equal to 15%.

Life of production assets of 14.6 years is the average useful life of capital assets used in Landec 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 LNDC is equal to 5.9%. 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 - $211 million for Landec - 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 26.95 million for Landec 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 Landec at the current share price and the inputted number of shares is $0.4 billion.

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COMPANY NEWS

▶ Landec meets 4Q profit forecasts   [Jul-25-17 10:33PM  Associated Press]
▶ Landec Corp. Value Analysis (NASDAQ:LNDC) : May 25, 2017   [May-25-17 12:53PM  Capital Cube]
▶ ETFs with exposure to Landec Corp. : April 28, 2017   [Apr-28-17 04:03PM  Capital Cube]
▶ ETFs with exposure to Landec Corp. : April 11, 2017   [Apr-11-17 02:21PM  Capital Cube]
▶ Landec Corp.: Strong price momentum but will it sustain?   [Apr-06-17 11:29AM  Capital Cube]
▶ Landec tops Street 3Q forecasts   [Apr-04-17 04:12PM  Associated Press]
▶ Is Landec Corporation (LNDC) Going To Burn Investors?   [Dec-15-16 11:54PM  at Insider Monkey]
Stock chart of LNDC Financial statements of LNDC
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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