Intrinsic value of Herman Miller - MLHR

Previous Close

$35.15

  Intrinsic Value

$40.72

stock screener

  Rating & Target

hold

+16%

Previous close

$35.15

 
Intrinsic value

$40.72

 
Up/down potential

+16%

 
Rating

hold

We calculate the intrinsic value of MLHR 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 2017), $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 2.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  0.57
  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
  2,278
  2,324
  2,377
  2,438
  2,507
  2,583
  2,666
  2,757
  2,855
  2,961
  3,075
  3,196
  3,326
  3,464
  3,611
  3,767
  3,932
  4,106
  4,291
  4,486
  4,693
  4,910
  5,139
  5,381
  5,636
  5,904
  6,187
  6,484
  6,797
  7,126
  7,472
Variable operating expenses, $m
 
  2,105
  2,152
  2,207
  2,268
  2,336
  2,410
  2,491
  2,579
  2,674
  2,775
  2,853
  2,969
  3,092
  3,223
  3,362
  3,509
  3,665
  3,830
  4,005
  4,189
  4,383
  4,588
  4,803
  5,031
  5,270
  5,522
  5,788
  6,067
  6,361
  6,670
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
  2,087
  2,105
  2,152
  2,207
  2,268
  2,336
  2,410
  2,491
  2,579
  2,674
  2,775
  2,853
  2,969
  3,092
  3,223
  3,362
  3,509
  3,665
  3,830
  4,005
  4,189
  4,383
  4,588
  4,803
  5,031
  5,270
  5,522
  5,788
  6,067
  6,361
  6,670
Operating income, $m
  191
  219
  225
  231
  239
  247
  256
  266
  276
  287
  300
  343
  357
  372
  388
  404
  422
  441
  461
  482
  504
  527
  552
  578
  605
  634
  664
  696
  730
  765
  802
EBITDA, $m
  250
  285
  291
  299
  307
  317
  327
  338
  350
  363
  377
  392
  408
  425
  443
  462
  482
  503
  526
  550
  575
  602
  630
  659
  691
  724
  758
  795
  833
  873
  916
Interest expense (income), $m
  13
  12
  13
  14
  16
  17
  18
  20
  22
  24
  26
  28
  30
  33
  36
  38
  42
  45
  48
  52
  56
  60
  64
  68
  73
  78
  83
  89
  95
  101
  107
Earnings before tax, $m
  178
  207
  211
  217
  223
  230
  237
  246
  254
  264
  274
  315
  327
  339
  352
  366
  381
  396
  413
  430
  448
  468
  488
  510
  532
  556
  581
  608
  635
  665
  695
Tax expense, $m
  55
  56
  57
  59
  60
  62
  64
  66
  69
  71
  74
  85
  88
  92
  95
  99
  103
  107
  111
  116
  121
  126
  132
  138
  144
  150
  157
  164
  172
  179
  188
Net income, $m
  124
  151
  154
  158
  163
  168
  173
  179
  186
  193
  200
  230
  239
  248
  257
  267
  278
  289
  301
  314
  327
  341
  356
  372
  388
  406
  424
  443
  464
  485
  508

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  105
  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
  1,306
  1,225
  1,253
  1,285
  1,321
  1,361
  1,405
  1,453
  1,505
  1,561
  1,621
  1,685
  1,753
  1,826
  1,903
  1,986
  2,073
  2,165
  2,262
  2,365
  2,474
  2,588
  2,709
  2,837
  2,971
  3,112
  3,261
  3,418
  3,583
  3,757
  3,939
Adjusted assets (=assets-cash), $m
  1,201
  1,225
  1,253
  1,285
  1,321
  1,361
  1,405
  1,453
  1,505
  1,561
  1,621
  1,685
  1,753
  1,826
  1,903
  1,986
  2,073
  2,165
  2,262
  2,365
  2,474
  2,588
  2,709
  2,837
  2,971
  3,112
  3,261
  3,418
  3,583
  3,757
  3,939
Revenue / Adjusted assets
  1.897
  1.897
  1.897
  1.897
  1.898
  1.898
  1.898
  1.897
  1.897
  1.897
  1.897
  1.897
  1.897
  1.897
  1.898
  1.897
  1.897
  1.897
  1.897
  1.897
  1.897
  1.897
  1.897
  1.897
  1.897
  1.897
  1.897
  1.897
  1.897
  1.897
  1.897
Average production assets, $m
  428
  437
  447
  458
  471
  486
  501
  518
  537
  557
  578
  601
  625
  651
  679
  708
  739
  772
  807
  843
  882
  923
  966
  1,012
  1,060
  1,110
  1,163
  1,219
  1,278
  1,340
  1,405
Working capital, $m
  106
  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 debt, $m
  200
  214
  231
  251
  272
  296
  322
  351
  382
  415
  451
  490
  530
  574
  620
  669
  721
  776
  835
  896
  961
  1,030
  1,102
  1,178
  1,259
  1,343
  1,432
  1,526
  1,625
  1,728
  1,838
Total liabilities, $m
  719
  732
  749
  769
  790
  814
  840
  869
  900
  933
  969
  1,008
  1,048
  1,092
  1,138
  1,187
  1,239
  1,294
  1,353
  1,414
  1,479
  1,548
  1,620
  1,696
  1,777
  1,861
  1,950
  2,044
  2,143
  2,246
  2,356
Total equity, $m
  588
  492
  504
  517
  531
  547
  565
  584
  605
  627
  652
  677
  705
  734
  765
  798
  833
  870
  909
  951
  994
  1,041
  1,089
  1,140
  1,194
  1,251
  1,311
  1,374
  1,440
  1,510
  1,584
Total liabilities and equity, $m
  1,307
  1,224
  1,253
  1,286
  1,321
  1,361
  1,405
  1,453
  1,505
  1,560
  1,621
  1,685
  1,753
  1,826
  1,903
  1,985
  2,072
  2,164
  2,262
  2,365
  2,473
  2,589
  2,709
  2,836
  2,971
  3,112
  3,261
  3,418
  3,583
  3,756
  3,940
Debt-to-equity ratio
  0.340
  0.440
  0.460
  0.480
  0.510
  0.540
  0.570
  0.600
  0.630
  0.660
  0.690
  0.720
  0.750
  0.780
  0.810
  0.840
  0.870
  0.890
  0.920
  0.940
  0.970
  0.990
  1.010
  1.030
  1.050
  1.070
  1.090
  1.110
  1.130
  1.140
  1.160
Adjusted equity ratio
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  124
  151
  154
  158
  163
  168
  173
  179
  186
  193
  200
  230
  239
  248
  257
  267
  278
  289
  301
  314
  327
  341
  356
  372
  388
  406
  424
  443
  464
  485
  508
Depreciation, amort., depletion, $m
  59
  66
  67
  67
  69
  70
  71
  72
  74
  75
  77
  48
  50
  53
  55
  57
  60
  62
  65
  68
  71
  74
  78
  82
  85
  90
  94
  98
  103
  108
  113
Funds from operations, $m
  185
  217
  221
  226
  231
  238
  244
  252
  259
  268
  277
  279
  289
  300
  312
  324
  338
  352
  366
  382
  398
  416
  434
  454
  474
  495
  518
  542
  567
  593
  621
Change in working capital, $m
  -17
  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 operations, $m
  202
  217
  221
  226
  231
  238
  244
  252
  259
  268
  277
  279
  289
  300
  312
  324
  338
  352
  366
  382
  398
  416
  434
  454
  474
  495
  518
  542
  567
  593
  621
Maintenance CAPEX, $m
  0
  -34
  -35
  -36
  -37
  -38
  -39
  -40
  -42
  -43
  -45
  -47
  -48
  -50
  -53
  -55
  -57
  -60
  -62
  -65
  -68
  -71
  -74
  -78
  -82
  -85
  -90
  -94
  -98
  -103
  -108
New CAPEX, $m
  -87
  -9
  -10
  -11
  -13
  -14
  -16
  -17
  -18
  -20
  -21
  -23
  -24
  -26
  -28
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -48
  -50
  -53
  -56
  -59
  -62
  -65
Cash from investing activities, $m
  -116
  -43
  -45
  -47
  -50
  -52
  -55
  -57
  -60
  -63
  -66
  -70
  -72
  -76
  -81
  -84
  -88
  -93
  -97
  -102
  -107
  -112
  -117
  -123
  -130
  -135
  -143
  -150
  -157
  -165
  -173
Free cash flow, $m
  86
  173
  176
  178
  182
  185
  189
  194
  199
  205
  211
  209
  216
  224
  232
  240
  249
  259
  269
  280
  292
  304
  317
  330
  344
  360
  375
  392
  410
  428
  448
Issuance/(repayment) of debt, $m
  -22
  14
  17
  19
  22
  24
  26
  29
  31
  33
  36
  38
  41
  44
  46
  49
  52
  55
  58
  62
  65
  69
  72
  76
  80
  85
  89
  94
  99
  104
  109
Issuance/(repurchase) of shares, $m
  -12
  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  
  -36
  14
  17
  19
  22
  24
  26
  29
  31
  33
  36
  38
  41
  44
  46
  49
  52
  55
  58
  62
  65
  69
  72
  76
  80
  85
  89
  94
  99
  104
  109
Total cash flow (excl. dividends), $m
  50
  187
  192
  198
  203
  209
  216
  223
  230
  238
  247
  247
  257
  267
  278
  289
  301
  314
  328
  342
  357
  372
  389
  406
  425
  444
  464
  486
  508
  532
  557
Retained Cash Flow (-), $m
  -64
  -9
  -11
  -13
  -15
  -16
  -18
  -19
  -21
  -22
  -24
  -26
  -27
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -44
  -46
  -49
  -51
  -54
  -57
  -60
  -63
  -66
  -70
  -73
Prev. year cash balance distribution, $m
 
  105
  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
 
  283
  181
  185
  189
  193
  198
  203
  209
  216
  223
  222
  230
  238
  247
  256
  266
  277
  288
  300
  313
  326
  340
  355
  371
  387
  405
  423
  442
  462
  483
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
 
  271
  166
  161
  155
  150
  144
  137
  131
  124
  117
  105
  98
  90
  83
  75
  68
  60
  53
  46
  40
  34
  28
  23
  19
  15
  12
  9
  7
  5
  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

Herman Miller, Inc. is engaged in the research, design, manufacture, sale and distribution of office furniture systems, seating products, home furnishings and related services, among others. The Company's segments include North American Furniture Solutions, which includes the design, manufacture and sale of furniture products for work-related settings, including office, education and healthcare environments, across the United States and Canada; EMEA, Latin America, and Asia Pacific (ELA) Furniture Solutions, which includes the operations associated with the design, manufacture, and sale of furniture products, primarily for work-related settings, in the Europe, Middle East and Africa (EMEA), Latin America and Asia-Pacific geographic regions, among others; Specialty segment, which includes the design, manufacture and sale of furniture products and textiles, and Consumer segment, which includes the sale of modern design furnishings and accessories to third-party retail distributors.

FINANCIAL RATIOS  of  Herman Miller (MLHR)

Valuation Ratios
P/E Ratio 16.9
Price to Sales 0.9
Price to Book 3.6
Price to Tangible Book
Price to Cash Flow 10.4
Price to Free Cash Flow 18.3
Growth Rates
Sales Growth Rate 0.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 2.4%
Cap. Spend. - 3 Yr. Gr. Rate 16.2%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 34%
Total Debt to Equity 34%
Interest Coverage 15
Management Effectiveness
Return On Assets 10.5%
Ret/ On Assets - 3 Yr. Avg. 10.8%
Return On Total Capital 16.2%
Ret/ On T. Cap. - 3 Yr. Avg. 16.6%
Return On Equity 22.3%
Return On Equity - 3 Yr. Avg. 25.4%
Asset Turnover 1.8
Profitability Ratios
Gross Margin 37.9%
Gross Margin - 3 Yr. Avg. 37.8%
EBITDA Margin 11%
EBITDA Margin - 3 Yr. Avg. 10%
Operating Margin 8.4%
Oper. Margin - 3 Yr. Avg. 8.5%
Pre-Tax Margin 7.8%
Pre-Tax Margin - 3 Yr. Avg. 7.8%
Net Profit Margin 5.4%
Net Profit Margin - 3 Yr. Avg. 5.4%
Effective Tax Rate 30.9%
Eff/ Tax Rate - 3 Yr. Avg. 31.3%
Payout Ratio 31.5%

MLHR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MLHR stock intrinsic value calculation we used $2278 million for the last fiscal year's total revenue generated by Herman Miller. The default revenue input number comes from 2017 income statement of Herman Miller. 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 MLHR 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 4.3%, whose default value for MLHR is calculated based on our internal credit rating of Herman Miller, 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 Herman Miller.
    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 MLHR stock the variable cost ratio is equal to 90.6%.

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 MLHR 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 6.2% for Herman Miller.

Corporate tax rate of 27% is the nominal tax rate for Herman Miller. 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 MLHR 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 MLHR are equal to 18.8%.

Life of production assets of 12.4 years is the average useful life of capital assets used in Herman Miller 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 MLHR is equal to 0%. 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 - $588 million for Herman Miller - 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 59.86 million for Herman Miller 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 Herman Miller at the current share price and the inputted number of shares is $2.1 billion.

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COMPANY NEWS

▶ Herman Miller posts 1Q profit   [Sep-20-17 09:16PM  Associated Press]
▶ [$$] Max De Pree, Author and Executive, Sought Deeper Bonds With Employees   [Aug-18-17 11:52PM  The Wall Street Journal]
▶ DWR Contract Opens Showroom in the Boston Design Center   [Jul-25-17 08:00AM  PR Newswire]
▶ Steelcase: Cramer's Top Takeaways   [07:37PM  TheStreet.com]
▶ Herman Miller: Cramer's Top Takeaways   [06:38AM  TheStreet.com]
▶ Cramer Remix: This stock is just too sexy to ignore   [Jul-12-17 07:14PM  CNBC Videos]
▶ Company News for July 07, 2017   [Jul-07-17 10:18AM  Zacks]
▶ Why HSN, Herman Miller, and BeiGene Jumped Today   [Jul-06-17 04:28PM  Motley Fool]
▶ Herman Miller posts 4Q profit   [Jul-05-17 09:18PM  Associated Press]
▶ 3 Things to Watch in the Stock Market This Week   [Jul-02-17 02:41PM  Motley Fool]
Financial statements of MLHR
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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