Intrinsic value of NCI Building Systems - NCS

Previous Close

$18.90

  Intrinsic Value

$12.92

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  Rating & Target

sell

-32%

Previous close

$18.90

 
Intrinsic value

$12.92

 
Up/down potential

-32%

 
Rating

sell

We calculate the intrinsic value of NCS 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 1.3

 

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, %
  7.74
  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
  1,685
  1,719
  1,758
  1,803
  1,854
  1,910
  1,972
  2,039
  2,112
  2,190
  2,274
  2,364
  2,460
  2,562
  2,671
  2,786
  2,908
  3,037
  3,174
  3,319
  3,471
  3,632
  3,802
  3,980
  4,169
  4,367
  4,576
  4,796
  5,028
  5,271
  5,527
Variable operating expenses, $m
 
  952
  973
  998
  1,026
  1,056
  1,090
  1,126
  1,166
  1,209
  1,255
  1,288
  1,340
  1,396
  1,455
  1,518
  1,585
  1,655
  1,729
  1,808
  1,891
  1,979
  2,071
  2,169
  2,271
  2,380
  2,493
  2,613
  2,739
  2,872
  3,012
Fixed operating expenses, $m
 
  673
  690
  708
  725
  743
  762
  781
  800
  821
  841
  862
  884
  906
  928
  952
  975
  1,000
  1,025
  1,050
  1,077
  1,103
  1,131
  1,159
  1,188
  1,218
  1,248
  1,280
  1,312
  1,344
  1,378
Total operating expenses, $m
  1,574
  1,625
  1,663
  1,706
  1,751
  1,799
  1,852
  1,907
  1,966
  2,030
  2,096
  2,150
  2,224
  2,302
  2,383
  2,470
  2,560
  2,655
  2,754
  2,858
  2,968
  3,082
  3,202
  3,328
  3,459
  3,598
  3,741
  3,893
  4,051
  4,216
  4,390
Operating income, $m
  111
  93
  95
  98
  103
  111
  120
  132
  145
  161
  179
  214
  236
  261
  287
  317
  348
  383
  420
  460
  503
  550
  599
  652
  709
  770
  834
  903
  977
  1,055
  1,138
EBITDA, $m
  153
  136
  138
  142
  148
  157
  167
  180
  194
  211
  230
  252
  275
  301
  330
  361
  395
  431
  471
  513
  559
  608
  660
  716
  776
  839
  907
  980
  1,057
  1,139
  1,226
Interest expense (income), $m
  28
  27
  28
  29
  30
  32
  33
  35
  37
  40
  42
  45
  47
  50
  53
  57
  60
  64
  68
  72
  76
  81
  86
  91
  97
  102
  109
  115
  122
  129
  136
Earnings before tax, $m
  79
  67
  67
  69
  73
  79
  87
  96
  108
  121
  137
  169
  189
  210
  234
  260
  288
  319
  352
  388
  427
  468
  513
  561
  612
  667
  726
  788
  855
  926
  1,001
Tax expense, $m
  28
  18
  18
  19
  20
  21
  23
  26
  29
  33
  37
  46
  51
  57
  63
  70
  78
  86
  95
  105
  115
  126
  139
  151
  165
  180
  196
  213
  231
  250
  270
Net income, $m
  51
  49
  49
  50
  53
  58
  63
  70
  79
  89
  100
  124
  138
  153
  171
  190
  210
  233
  257
  283
  312
  342
  375
  410
  447
  487
  530
  575
  624
  676
  731

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  71
  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
  1,050
  999
  1,022
  1,048
  1,077
  1,110
  1,146
  1,185
  1,227
  1,273
  1,321
  1,374
  1,429
  1,489
  1,552
  1,619
  1,690
  1,765
  1,844
  1,928
  2,017
  2,110
  2,209
  2,313
  2,422
  2,538
  2,659
  2,787
  2,921
  3,063
  3,212
Adjusted assets (=assets-cash), $m
  979
  999
  1,022
  1,048
  1,077
  1,110
  1,146
  1,185
  1,227
  1,273
  1,321
  1,374
  1,429
  1,489
  1,552
  1,619
  1,690
  1,765
  1,844
  1,928
  2,017
  2,110
  2,209
  2,313
  2,422
  2,538
  2,659
  2,787
  2,921
  3,063
  3,212
Revenue / Adjusted assets
  1.721
  1.721
  1.720
  1.720
  1.721
  1.721
  1.721
  1.721
  1.721
  1.720
  1.721
  1.721
  1.721
  1.721
  1.721
  1.721
  1.721
  1.721
  1.721
  1.721
  1.721
  1.721
  1.721
  1.721
  1.721
  1.721
  1.721
  1.721
  1.721
  1.721
  1.721
Average production assets, $m
  281
  285
  292
  299
  308
  317
  327
  339
  351
  364
  378
  392
  408
  425
  443
  462
  483
  504
  527
  551
  576
  603
  631
  661
  692
  725
  760
  796
  835
  875
  918
Working capital, $m
  178
  110
  113
  115
  119
  122
  126
  131
  135
  140
  146
  151
  157
  164
  171
  178
  186
  194
  203
  212
  222
  232
  243
  255
  267
  280
  293
  307
  322
  337
  354
Total debt, $m
  397
  412
  430
  451
  474
  499
  528
  558
  591
  627
  665
  706
  750
  797
  846
  899
  955
  1,013
  1,076
  1,142
  1,211
  1,285
  1,362
  1,444
  1,530
  1,620
  1,715
  1,816
  1,921
  2,032
  2,149
Total liabilities, $m
  769
  784
  802
  823
  846
  871
  900
  930
  963
  999
  1,037
  1,078
  1,122
  1,169
  1,218
  1,271
  1,327
  1,385
  1,448
  1,514
  1,583
  1,657
  1,734
  1,816
  1,902
  1,992
  2,087
  2,188
  2,293
  2,404
  2,521
Total equity, $m
  281
  215
  220
  225
  232
  239
  246
  255
  264
  274
  284
  295
  307
  320
  334
  348
  363
  379
  397
  415
  434
  454
  475
  497
  521
  546
  572
  599
  628
  659
  691
Total liabilities and equity, $m
  1,050
  999
  1,022
  1,048
  1,078
  1,110
  1,146
  1,185
  1,227
  1,273
  1,321
  1,373
  1,429
  1,489
  1,552
  1,619
  1,690
  1,764
  1,845
  1,929
  2,017
  2,111
  2,209
  2,313
  2,423
  2,538
  2,659
  2,787
  2,921
  3,063
  3,212
Debt-to-equity ratio
  1.413
  1.920
  1.960
  2.000
  2.050
  2.090
  2.140
  2.190
  2.240
  2.290
  2.340
  2.390
  2.440
  2.490
  2.540
  2.580
  2.630
  2.670
  2.710
  2.750
  2.790
  2.830
  2.870
  2.900
  2.940
  2.970
  3.000
  3.030
  3.060
  3.090
  3.110
Adjusted equity ratio
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  51
  49
  49
  50
  53
  58
  63
  70
  79
  89
  100
  124
  138
  153
  171
  190
  210
  233
  257
  283
  312
  342
  375
  410
  447
  487
  530
  575
  624
  676
  731
Depreciation, amort., depletion, $m
  42
  43
  43
  44
  45
  46
  47
  48
  49
  50
  52
  38
  39
  41
  43
  44
  46
  48
  51
  53
  55
  58
  61
  64
  67
  70
  73
  77
  80
  84
  88
Funds from operations, $m
  32
  92
  92
  95
  98
  104
  110
  118
  128
  139
  151
  161
  177
  194
  213
  234
  257
  281
  308
  336
  367
  400
  435
  473
  514
  557
  603
  652
  704
  760
  819
Change in working capital, $m
  -37
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
Cash from operations, $m
  69
  89
  90
  92
  95
  100
  106
  114
  123
  134
  146
  156
  171
  188
  206
  227
  249
  273
  299
  327
  357
  390
  424
  462
  502
  544
  590
  638
  690
  744
  803
Maintenance CAPEX, $m
  0
  -27
  -27
  -28
  -29
  -30
  -30
  -31
  -33
  -34
  -35
  -36
  -38
  -39
  -41
  -43
  -44
  -46
  -48
  -51
  -53
  -55
  -58
  -61
  -64
  -67
  -70
  -73
  -77
  -80
  -84
New CAPEX, $m
  -21
  -5
  -7
  -8
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -35
  -37
  -38
  -40
  -43
Cash from investing activities, $m
  -10
  -32
  -34
  -36
  -37
  -39
  -40
  -42
  -45
  -47
  -49
  -51
  -54
  -56
  -59
  -62
  -64
  -67
  -71
  -75
  -78
  -82
  -86
  -91
  -95
  -100
  -105
  -110
  -115
  -120
  -127
Free cash flow, $m
  59
  58
  56
  56
  58
  61
  66
  71
  79
  87
  97
  104
  117
  132
  148
  165
  184
  205
  228
  252
  279
  307
  338
  371
  407
  445
  485
  528
  575
  624
  676
Issuance/(repayment) of debt, $m
  -41
  15
  18
  21
  23
  26
  28
  31
  33
  36
  38
  41
  44
  47
  50
  53
  56
  59
  62
  66
  70
  73
  77
  82
  86
  91
  95
  100
  106
  111
  117
Issuance/(repurchase) of shares, $m
  -51
  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  
  -93
  15
  18
  21
  23
  26
  28
  31
  33
  36
  38
  41
  44
  47
  50
  53
  56
  59
  62
  66
  70
  73
  77
  82
  86
  91
  95
  100
  106
  111
  117
Total cash flow (excl. dividends), $m
  -34
  73
  74
  77
  81
  87
  94
  102
  112
  123
  136
  145
  161
  178
  197
  218
  240
  264
  290
  318
  348
  381
  416
  453
  493
  535
  580
  629
  680
  735
  793
Retained Cash Flow (-), $m
  -9
  -5
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -27
  -29
  -30
  -32
Prev. year cash balance distribution, $m
 
  71
  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
 
  139
  69
  71
  75
  80
  86
  94
  103
  113
  125
  134
  149
  165
  183
  203
  225
  248
  273
  300
  329
  361
  394
  431
  469
  510
  554
  601
  651
  704
  761
Discount rate, %
 
  6.90
  7.25
  7.61
  7.99
  8.39
  8.81
  9.25
  9.71
  10.19
  10.70
  11.24
  11.80
  12.39
  13.01
  13.66
  14.34
  15.06
  15.81
  16.61
  17.44
  18.31
  19.22
  20.18
  21.19
  22.25
  23.37
  24.53
  25.76
  27.05
  28.40
PV of cash for distribution, $m
 
  130
  60
  57
  55
  53
  52
  50
  49
  47
  45
  42
  39
  36
  33
  30
  26
  23
  19
  16
  13
  11
  8
  6
  5
  3
  2
  2
  1
  1
  0
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

NCI Building Systems, Inc. is a manufacturer and marketer of metal products in North America. The Company's operating segments include Engineered building systems, Metal components and Metal coil coating. The Engineered building systems segment is engaged in the manufacturing of main frames and long bay systems, and engineering and drafting. The Metal components segment's products include metal roof and wall panels, doors, metal partitions, metal trim, insulated metal panel (IMP) products and other related accessories. The Company manufactures and distributes a range of metal products for the non-residential construction market. It operates in the United States, Mexico, Canada and China. The Company provides metal coil coating services, and designs, engineers, manufactures and markets metal components and engineered building systems. It also provides metal coil coating services for commercial and construction applications, servicing both internal and external customers.

FINANCIAL RATIOS  of  NCI Building Systems (NCS)

Valuation Ratios
P/E Ratio 26.2
Price to Sales 0.8
Price to Book 4.8
Price to Tangible Book
Price to Cash Flow 19.4
Price to Free Cash Flow 27.9
Growth Rates
Sales Growth Rate 7.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate -2.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 141.3%
Total Debt to Equity 141.3%
Interest Coverage 4
Management Effectiveness
Return On Assets 6.5%
Ret/ On Assets - 3 Yr. Avg. 4.3%
Return On Total Capital 7.3%
Ret/ On T. Cap. - 3 Yr. Avg. 4.2%
Return On Equity 18.4%
Return On Equity - 3 Yr. Avg. 9.9%
Asset Turnover 1.6
Profitability Ratios
Gross Margin 25.3%
Gross Margin - 3 Yr. Avg. 23.5%
EBITDA Margin 8.8%
EBITDA Margin - 3 Yr. Avg. 6.6%
Operating Margin 6.6%
Oper. Margin - 3 Yr. Avg. 4%
Pre-Tax Margin 4.7%
Pre-Tax Margin - 3 Yr. Avg. 2.5%
Net Profit Margin 3%
Net Profit Margin - 3 Yr. Avg. 1.7%
Effective Tax Rate 35.4%
Eff/ Tax Rate - 3 Yr. Avg. 28.1%
Payout Ratio 0%

NCS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NCS stock intrinsic value calculation we used $1685 million for the last fiscal year's total revenue generated by NCI Building Systems. The default revenue input number comes from 2016 income statement of NCI Building Systems. 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 NCS 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 6.9%, whose default value for NCS is calculated based on our internal credit rating of NCI Building Systems, 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 NCI Building Systems.
    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 NCS stock the variable cost ratio is equal to 55.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $657 million in the base year in the intrinsic value calculation for NCS 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 6.7% for NCI Building Systems.

Corporate tax rate of 27% is the nominal tax rate for NCI Building Systems. 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 NCS 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 NCS are equal to 16.6%.

Life of production assets of 10.4 years is the average useful life of capital assets used in NCI Building Systems 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 NCS is equal to 6.4%. 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 - $281 million for NCI Building Systems - 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 70.927 million for NCI Building Systems 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 NCI Building Systems at the current share price and the inputted number of shares is $1.3 billion.

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COMPANY NEWS

▶ 3 Stocks Gain on Thursday   [04:06PM  GuruFocus.com]
▶ NCI Building beats 4Q profit forecasts   [Dec-06-17 04:45PM  Associated Press]
▶ NCI Building Systems Announces Board Succession Plan   [Sep-29-17 12:38PM  PR Newswire]
▶ NCI Building Systems to Attend Two Investor Conferences   [Sep-11-17 04:36PM  PR Newswire]
▶ Why NCI Building Systems Inc's Shares Plunged 22% Today   [Sep-07-17 02:37PM  Motley Fool]
▶ NCI Building posts 3Q profit   [Sep-06-17 11:57PM  Associated Press]
▶ NCI Building posts 2Q profit   [04:37PM  Associated Press]
▶ 5 Stocks Set to Pop on New Analyst Coverage   [Apr-28-17 09:09AM  Zacks]
▶ NCI Building posts 1Q profit   [04:29PM  Associated Press]
Financial statements of NCS
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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