Intrinsic value of National Presto Industries - NPK

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$95.85

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$95.85

 
Intrinsic value

$47.14

 
Up/down potential

-51%

 
Rating

str. sell

 
Value-price divergence* premium content

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

We calculate the intrinsic value of NPK 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 0.7

 

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, %
  -3.93
  2.20
  2.48
  2.73
  2.96
  3.16
  3.35
  3.51
  3.66
  3.79
  3.92
  4.02
  4.12
  4.21
  4.29
  4.36
  4.42
  4.48
  4.53
  4.58
  4.62
  4.66
  4.69
  4.72
  4.75
  4.78
  4.80
  4.82
  4.84
  4.85
  4.87
Revenue, $m
  342
  437
  448
  461
  474
  489
  506
  523
  542
  563
  585
  609
  634
  660
  689
  719
  750
  784
  820
  857
  897
  939
  983
  1,029
  1,078
  1,129
  1,184
  1,241
  1,301
  1,364
  1,430
Variable operating expenses, $m
 
  395
  404
  415
  428
  441
  456
  472
  489
  507
  527
  547
  570
  594
  619
  646
  675
  705
  737
  771
  807
  844
  884
  926
  970
  1,016
  1,065
  1,116
  1,170
  1,227
  1,286
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
  279
  395
  404
  415
  428
  441
  456
  472
  489
  507
  527
  547
  570
  594
  619
  646
  675
  705
  737
  771
  807
  844
  884
  926
  970
  1,016
  1,065
  1,116
  1,170
  1,227
  1,286
Operating income, $m
  63
  43
  44
  45
  47
  48
  50
  52
  53
  56
  58
  61
  64
  66
  69
  72
  75
  79
  82
  86
  90
  94
  99
  103
  108
  114
  119
  125
  131
  137
  144
EBITDA, $m
  78
  58
  59
  61
  63
  65
  67
  69
  72
  74
  77
  80
  84
  87
  91
  95
  99
  104
  108
  113
  119
  124
  130
  136
  142
  149
  156
  164
  172
  180
  189
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
Earnings before tax, $m
  63
  43
  44
  45
  46
  48
  49
  51
  53
  55
  57
  61
  63
  66
  68
  71
  74
  78
  81
  85
  88
  93
  97
  101
  106
  111
  116
  122
  128
  134
  140
Tax expense, $m
  21
  12
  12
  12
  13
  13
  13
  14
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
  38
Net income, $m
  45
  31
  32
  33
  34
  35
  36
  37
  39
  40
  42
  44
  46
  48
  50
  52
  54
  57
  59
  62
  65
  68
  71
  74
  77
  81
  85
  89
  93
  98
  102

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  111
  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
  418
  306
  313
  322
  331
  342
  353
  366
  379
  393
  409
  425
  443
  461
  481
  502
  524
  548
  573
  599
  627
  656
  687
  719
  753
  789
  827
  867
  909
  953
  999
Adjusted assets (=assets-cash), $m
  307
  306
  313
  322
  331
  342
  353
  366
  379
  393
  409
  425
  443
  461
  481
  502
  524
  548
  573
  599
  627
  656
  687
  719
  753
  789
  827
  867
  909
  953
  999
Revenue / Adjusted assets
  1.114
  1.428
  1.431
  1.432
  1.432
  1.430
  1.433
  1.429
  1.430
  1.433
  1.430
  1.433
  1.431
  1.432
  1.432
  1.432
  1.431
  1.431
  1.431
  1.431
  1.431
  1.431
  1.431
  1.431
  1.432
  1.431
  1.432
  1.431
  1.431
  1.431
  1.431
Average production assets, $m
  56
  104
  106
  109
  112
  116
  120
  124
  129
  133
  139
  144
  150
  156
  163
  170
  178
  186
  194
  203
  213
  222
  233
  244
  255
  268
  281
  294
  308
  323
  339
Working capital, $m
  277
  129
  132
  135
  139
  144
  149
  154
  159
  166
  172
  179
  186
  194
  202
  211
  221
  231
  241
  252
  264
  276
  289
  303
  317
  332
  348
  365
  382
  401
  420
Total debt, $m
  0
  1
  2
  4
  5
  7
  9
  11
  13
  15
  18
  20
  23
  26
  29
  33
  36
  40
  44
  48
  53
  58
  63
  68
  73
  79
  85
  92
  98
  105
  113
Total liabilities, $m
  67
  49
  50
  52
  53
  55
  57
  59
  61
  63
  66
  68
  71
  74
  77
  81
  84
  88
  92
  96
  101
  106
  111
  116
  121
  127
  133
  140
  146
  153
  161
Total equity, $m
  350
  256
  263
  270
  278
  287
  296
  307
  318
  330
  343
  357
  372
  387
  404
  421
  440
  460
  481
  503
  526
  550
  576
  603
  632
  662
  694
  727
  763
  800
  839
Total liabilities and equity, $m
  417
  305
  313
  322
  331
  342
  353
  366
  379
  393
  409
  425
  443
  461
  481
  502
  524
  548
  573
  599
  627
  656
  687
  719
  753
  789
  827
  867
  909
  953
  1,000
Debt-to-equity ratio
  0.000
  0.000
  0.010
  0.010
  0.020
  0.020
  0.030
  0.040
  0.040
  0.050
  0.050
  0.060
  0.060
  0.070
  0.070
  0.080
  0.080
  0.090
  0.090
  0.100
  0.100
  0.100
  0.110
  0.110
  0.120
  0.120
  0.120
  0.130
  0.130
  0.130
  0.130
Adjusted equity ratio
  0.779
  0.839
  0.839
  0.839
  0.839
  0.839
  0.839
  0.839
  0.839
  0.839
  0.839
  0.839
  0.839
  0.839
  0.839
  0.839
  0.839
  0.839
  0.839
  0.839
  0.839
  0.839
  0.839
  0.839
  0.839
  0.839
  0.839
  0.839
  0.839
  0.839
  0.839

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  45
  31
  32
  33
  34
  35
  36
  37
  39
  40
  42
  44
  46
  48
  50
  52
  54
  57
  59
  62
  65
  68
  71
  74
  77
  81
  85
  89
  93
  98
  102
Depreciation, amort., depletion, $m
  15
  15
  15
  16
  16
  17
  17
  18
  18
  19
  20
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
Funds from operations, $m
  66
  46
  47
  49
  50
  52
  53
  55
  57
  59
  61
  63
  66
  69
  72
  75
  78
  81
  85
  89
  93
  97
  102
  106
  111
  117
  122
  128
  134
  141
  148
Change in working capital, $m
  0
  3
  3
  4
  4
  4
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
Cash from operations, $m
  66
  39
  44
  45
  46
  47
  48
  50
  51
  53
  55
  57
  59
  61
  63
  66
  69
  72
  75
  78
  81
  85
  89
  93
  97
  102
  106
  111
  117
  122
  128
Maintenance CAPEX, $m
  0
  -14
  -14
  -14
  -15
  -15
  -15
  -16
  -17
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -37
  -39
  -41
  -43
New CAPEX, $m
  -7
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
Cash from investing activities, $m
  -61
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -22
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -33
  -35
  -36
  -38
  -40
  -42
  -45
  -46
  -49
  -51
  -53
  -56
  -59
Free cash flow, $m
  5
  23
  28
  28
  28
  29
  29
  30
  30
  31
  32
  32
  33
  35
  36
  37
  38
  40
  41
  43
  45
  47
  49
  51
  53
  55
  58
  60
  63
  66
  69
Issuance/(repayment) of debt, $m
  0
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
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  
  0
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
Total cash flow (excl. dividends), $m
  6
  24
  29
  29
  30
  30
  31
  32
  32
  33
  34
  35
  36
  38
  39
  40
  42
  44
  45
  47
  49
  51
  54
  56
  58
  61
  64
  67
  70
  73
  77
Retained Cash Flow (-), $m
  -11
  -5
  -6
  -7
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -37
  -39
Prev. year cash balance distribution, $m
 
  88
  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
 
  107
  23
  22
  22
  21
  21
  21
  21
  21
  21
  21
  22
  22
  22
  23
  23
  24
  25
  25
  26
  27
  28
  29
  30
  31
  32
  33
  35
  36
  38
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
 
  103
  21
  19
  18
  17
  15
  14
  13
  12
  11
  10
  9
  8
  7
  7
  6
  5
  5
  4
  3
  3
  2
  2
  2
  1
  1
  1
  1
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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National Presto Industries, Inc. provides housewares and small appliances, defense, and absorbent products primarily in North America. The company operates through three segments: Housewares/Small Appliance, Defense, and Absorbent Products. The Housewares/Small Appliance segment designs, markets, and distributes housewares and small electrical appliances, including pressure cookers and canners; heat control single thermostatic control line of skillets, griddles, woks, and multi-purpose cookers; deep fryers; waffle makers; pizza ovens; slicer/shredders; electric heaters; hot air, oil, and microwave corn poppers; dehydrators; rice cookers; microwave bacon cookers; coffeemakers and coffeemaker accessories; electric tea kettles; electric knife sharpeners; kitchen gadgets; and timers. This segment sells its products directly to retailers, as well as through independent distributors. The Defense segment manufactures and sells 40mm ammunition, precision mechanical and electro-mechanical assemblies, and medium caliber cartridge cases; less lethal products and support accessories; and detonators, booster pellets, release cartridges, lead azide, and other military energetic devices and materials. This segment also performs load, assemble, and pack operations on ordnance-related products primarily for the United States Department of Defense (DOD) and DOD prime contractors; and provides training for the use of less lethal products. The Absorbent Products segment manufactures and sells private label and branded adult incontinence products. This segment sells its products to distributors and other absorbent product manufacturers. The company was founded in 1905 and is based in Eau Claire, Wisconsin.

FINANCIAL RATIOS  of  National Presto Industries (NPK)

Valuation Ratios
P/E Ratio 14.8
Price to Sales 1.9
Price to Book 1.9
Price to Tangible Book
Price to Cash Flow 10.1
Price to Free Cash Flow 11.3
Growth Rates
Sales Growth Rate -3.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 16.7%
Cap. Spend. - 3 Yr. Gr. Rate -34.5%
Financial Strength
Quick Ratio NaN
Current Ratio 1
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 11.2%
Ret/ On Assets - 3 Yr. Avg. 9.6%
Return On Total Capital 13.1%
Ret/ On T. Cap. - 3 Yr. Avg. 11.1%
Return On Equity 13.1%
Return On Equity - 3 Yr. Avg. 11.1%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 25.1%
Gross Margin - 3 Yr. Avg. 24.5%
EBITDA Margin 22.8%
EBITDA Margin - 3 Yr. Avg. 21.4%
Operating Margin 18.4%
Oper. Margin - 3 Yr. Avg. 16.5%
Pre-Tax Margin 18.4%
Pre-Tax Margin - 3 Yr. Avg. 16.5%
Net Profit Margin 13.2%
Net Profit Margin - 3 Yr. Avg. 10.7%
Effective Tax Rate 33.3%
Eff/ Tax Rate - 3 Yr. Avg. 33.1%
Payout Ratio 77.8%

NPK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NPK stock intrinsic value calculation we used $428 million for the last fiscal year's total revenue generated by National Presto Industries. The default revenue input number comes from 2016 income statement of National Presto Industries. 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 NPK stock valuation model: a) initial revenue growth rate of 2.2% 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 NPK is calculated based on our internal credit rating of National Presto Industries, 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 National Presto Industries.
    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 NPK stock the variable cost ratio is equal to 90.2%.

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 NPK 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 National Presto Industries.

Corporate tax rate of 27% is the nominal tax rate for National Presto Industries. 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 NPK 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 NPK are equal to 23.7%.

Life of production assets of 7.5 years is the average useful life of capital assets used in National Presto Industries 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 NPK is equal to 29.4%. 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 - $339 million for National Presto Industries - 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 6.819 million for National Presto Industries 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 National Presto Industries at the current share price and the inputted number of shares is $0.7 billion.


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COMPANY NEWS

▶ National Presto posts 1Q profit   [Apr-28-17 04:30PM  Associated Press]
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▶ 10-Q for National Presto Industries, Inc.   [Aug-16  08:12PM  at Company Spotlight]
▶ 10-Q for National Presto Industries, Inc.   [May-17  08:11PM  at Company Spotlight]
▶ 10-K for National Presto Industries, Inc.   [May-04  08:12PM  at Company Spotlight]
▶ First Quarter 2015 Sales and Earnings   [May-01  04:19PM  at noodls]
▶ 2014 Sales and Earnings and 2015 Dividend   [Feb-13  04:13PM  at noodls]
▶ 10-Q for National Presto Industries, Inc.   [Nov-09  07:09PM  Company Spotlight]
▶ Lamperd Less Lethal Expands into Asia   [Sep-10  08:00AM  Accesswire]
▶ 5 Low PEmg Companies For The Defensive Investor - March 2014   [Mar-30  04:00AM  at Seeking Alpha]
Stock chart of NPK Financial statements of NPK Annual reports of NPK
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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