Intrinsic value of Quanex Building Products - NX

Previous Close

$22.65

  Intrinsic Value

$5.87

stock screener

  Rating & Target

str. sell

-74%

  Value-price divergence*

+447%

Previous close

$22.65

 
Intrinsic value

$5.87

 
Up/down potential

-74%

 
Rating

str. sell

 
Value-price divergence*

+447%

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

We calculate the intrinsic value of NX 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 0.8

 

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, %
  43.65
  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
  928
  947
  968
  993
  1,021
  1,052
  1,086
  1,123
  1,163
  1,206
  1,253
  1,302
  1,355
  1,411
  1,471
  1,534
  1,602
  1,673
  1,748
  1,828
  1,912
  2,000
  2,094
  2,192
  2,296
  2,405
  2,520
  2,641
  2,769
  2,903
  3,044
Variable operating expenses, $m
 
  909
  930
  953
  979
  1,008
  1,040
  1,075
  1,112
  1,153
  1,196
  1,221
  1,270
  1,323
  1,379
  1,439
  1,502
  1,568
  1,639
  1,714
  1,792
  1,875
  1,963
  2,055
  2,153
  2,255
  2,363
  2,477
  2,596
  2,722
  2,854
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
  892
  909
  930
  953
  979
  1,008
  1,040
  1,075
  1,112
  1,153
  1,196
  1,221
  1,270
  1,323
  1,379
  1,439
  1,502
  1,568
  1,639
  1,714
  1,792
  1,875
  1,963
  2,055
  2,153
  2,255
  2,363
  2,477
  2,596
  2,722
  2,854
Operating income, $m
  36
  37
  39
  40
  42
  44
  46
  48
  51
  54
  56
  81
  85
  88
  92
  96
  100
  104
  109
  114
  119
  125
  131
  137
  143
  150
  157
  165
  173
  181
  190
EBITDA, $m
  89
  93
  96
  98
  101
  104
  107
  111
  115
  119
  124
  129
  134
  139
  145
  152
  158
  165
  173
  180
  189
  198
  207
  216
  227
  238
  249
  261
  273
  287
  301
Interest expense (income), $m
  15
  24
  25
  25
  26
  28
  29
  30
  32
  33
  35
  37
  39
  41
  43
  45
  48
  51
  53
  56
  60
  63
  66
  70
  74
  78
  83
  87
  92
  97
  102
Earnings before tax, $m
  -6
  14
  14
  15
  16
  16
  17
  18
  19
  20
  22
  44
  46
  47
  49
  50
  52
  54
  56
  58
  60
  62
  64
  67
  69
  72
  75
  78
  81
  84
  88
Tax expense, $m
  -4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  12
  12
  13
  13
  14
  14
  15
  15
  16
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
Net income, $m
  -2
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  32
  33
  34
  36
  37
  38
  39
  41
  42
  44
  45
  47
  49
  50
  52
  55
  57
  59
  61
  64

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  26
  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
  780
  769
  787
  807
  830
  855
  882
  912
  945
  980
  1,017
  1,058
  1,101
  1,146
  1,195
  1,246
  1,301
  1,359
  1,420
  1,485
  1,553
  1,625
  1,701
  1,781
  1,865
  1,954
  2,047
  2,146
  2,249
  2,358
  2,473
Adjusted assets (=assets-cash), $m
  754
  769
  787
  807
  830
  855
  882
  912
  945
  980
  1,017
  1,058
  1,101
  1,146
  1,195
  1,246
  1,301
  1,359
  1,420
  1,485
  1,553
  1,625
  1,701
  1,781
  1,865
  1,954
  2,047
  2,146
  2,249
  2,358
  2,473
Revenue / Adjusted assets
  1.231
  1.231
  1.230
  1.230
  1.230
  1.230
  1.231
  1.231
  1.231
  1.231
  1.232
  1.231
  1.231
  1.231
  1.231
  1.231
  1.231
  1.231
  1.231
  1.231
  1.231
  1.231
  1.231
  1.231
  1.231
  1.231
  1.231
  1.231
  1.231
  1.231
  1.231
Average production assets, $m
  307
  313
  321
  329
  338
  348
  359
  372
  385
  399
  415
  431
  448
  467
  487
  508
  530
  554
  579
  605
  633
  662
  693
  726
  760
  796
  834
  874
  917
  961
  1,008
Working capital, $m
  90
  77
  78
  80
  83
  85
  88
  91
  94
  98
  101
  105
  110
  114
  119
  124
  130
  136
  142
  148
  155
  162
  170
  178
  186
  195
  204
  214
  224
  235
  247
Total debt, $m
  270
  267
  276
  287
  299
  313
  327
  343
  361
  379
  399
  421
  444
  468
  494
  521
  550
  581
  613
  648
  684
  722
  763
  805
  850
  897
  947
  1,000
  1,055
  1,113
  1,174
Total liabilities, $m
  413
  409
  418
  429
  441
  455
  469
  485
  503
  521
  541
  563
  586
  610
  636
  663
  692
  723
  755
  790
  826
  864
  905
  947
  992
  1,039
  1,089
  1,142
  1,197
  1,255
  1,316
Total equity, $m
  368
  360
  368
  378
  388
  400
  413
  427
  442
  459
  476
  495
  515
  536
  559
  583
  609
  636
  665
  695
  727
  760
  796
  833
  873
  914
  958
  1,004
  1,053
  1,104
  1,157
Total liabilities and equity, $m
  781
  769
  786
  807
  829
  855
  882
  912
  945
  980
  1,017
  1,058
  1,101
  1,146
  1,195
  1,246
  1,301
  1,359
  1,420
  1,485
  1,553
  1,624
  1,701
  1,780
  1,865
  1,953
  2,047
  2,146
  2,250
  2,359
  2,473
Debt-to-equity ratio
  0.734
  0.740
  0.750
  0.760
  0.770
  0.780
  0.790
  0.800
  0.820
  0.830
  0.840
  0.850
  0.860
  0.870
  0.880
  0.890
  0.900
  0.910
  0.920
  0.930
  0.940
  0.950
  0.960
  0.970
  0.970
  0.980
  0.990
  1.000
  1.000
  1.010
  1.010
Adjusted equity ratio
  0.454
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -2
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  32
  33
  34
  36
  37
  38
  39
  41
  42
  44
  45
  47
  49
  50
  52
  55
  57
  59
  61
  64
Depreciation, amort., depletion, $m
  53
  56
  57
  58
  59
  60
  61
  63
  64
  66
  67
  47
  49
  51
  54
  56
  58
  61
  64
  66
  70
  73
  76
  80
  84
  87
  92
  96
  101
  106
  111
Funds from operations, $m
  95
  66
  67
  69
  70
  72
  74
  76
  78
  80
  83
  80
  83
  86
  89
  93
  96
  100
  104
  109
  113
  118
  123
  128
  134
  140
  146
  153
  160
  167
  175
Change in working capital, $m
  9
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
Cash from operations, $m
  86
  64
  65
  67
  68
  69
  71
  73
  75
  77
  79
  76
  78
  81
  84
  87
  91
  94
  98
  102
  106
  111
  115
  120
  126
  131
  137
  143
  149
  156
  163
Maintenance CAPEX, $m
  0
  -34
  -34
  -35
  -36
  -37
  -38
  -40
  -41
  -42
  -44
  -46
  -47
  -49
  -51
  -54
  -56
  -58
  -61
  -64
  -66
  -70
  -73
  -76
  -80
  -84
  -87
  -92
  -96
  -101
  -106
New CAPEX, $m
  -37
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -28
  -29
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -44
  -47
Cash from investing activities, $m
  -282
  -40
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -56
  -59
  -62
  -64
  -68
  -71
  -75
  -78
  -82
  -86
  -90
  -94
  -99
  -104
  -109
  -114
  -120
  -125
  -132
  -138
  -145
  -153
Free cash flow, $m
  -196
  24
  24
  23
  23
  22
  22
  21
  21
  20
  20
  14
  14
  13
  13
  13
  13
  12
  12
  12
  12
  12
  12
  12
  11
  11
  11
  11
  11
  11
  11
Issuance/(repayment) of debt, $m
  210
  8
  9
  11
  12
  13
  15
  16
  17
  19
  20
  21
  23
  24
  26
  27
  29
  31
  33
  34
  36
  38
  40
  43
  45
  47
  50
  52
  55
  58
  61
Issuance/(repurchase) of shares, $m
  3
  0
  0
  0
  0
  0
  0
  1
  1
  2
  2
  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  
  201
  8
  9
  11
  12
  13
  15
  17
  18
  21
  22
  21
  23
  24
  26
  27
  29
  31
  33
  34
  36
  38
  40
  43
  45
  47
  50
  52
  55
  58
  61
Total cash flow (excl. dividends), $m
  7
  33
  33
  34
  35
  35
  37
  38
  39
  41
  42
  35
  36
  38
  39
  40
  42
  43
  45
  47
  48
  50
  52
  54
  56
  59
  61
  64
  66
  69
  72
Retained Cash Flow (-), $m
  27
  -7
  -8
  -9
  -11
  -12
  -13
  -14
  -15
  -16
  -18
  -19
  -20
  -21
  -23
  -24
  -26
  -27
  -29
  -30
  -32
  -34
  -36
  -37
  -39
  -42
  -44
  -46
  -48
  -51
  -54
Prev. year cash balance distribution, $m
 
  15
  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
 
  41
  25
  24
  24
  24
  24
  24
  24
  24
  24
  16
  16
  16
  16
  16
  16
  16
  16
  16
  16
  16
  17
  17
  17
  17
  17
  17
  18
  18
  18
Discount rate, %
 
  6.30
  6.62
  6.95
  7.29
  7.66
  8.04
  8.44
  8.86
  9.31
  9.77
  10.26
  10.78
  11.31
  11.88
  12.47
  13.10
  13.75
  14.44
  15.16
  15.92
  16.72
  17.55
  18.43
  19.35
  20.32
  21.33
  22.40
  23.52
  24.70
  25.93
PV of cash for distribution, $m
 
  38
  22
  20
  18
  16
  15
  13
  12
  11
  10
  6
  5
  4
  3
  3
  2
  2
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  99.9
  99.8
  99.6
  99.4
  99.4
  99.4
  99.4
  99.4
  99.4
  99.4
  99.4
  99.4
  99.4
  99.4
  99.4
  99.4
  99.4
  99.4
  99.4
  99.4
  99.4
  99.4
  99.4
  99.4

Quanex Building Products Corporation manufactures components for original equipment manufacturers (OEM) in the building products industry. The Company's components can be categorized as window and door (fenestration) components, and kitchen and bath cabinet components. The Company operates through three segments: North American Engineered Components (NA Engineered Components), which consists of four operating segments primarily focused on the fenestration market in North America manufacturing vinyl profiles, insulating glass (IG) spacers, screens and other fenestration components; European Engineered Components (EU Engineered Components), which consists of the United Kingdom-based vinyl extrusion business, manufacturing vinyl profiles and conservatories, and the European insulating glass business manufacturing IG spacers, and North American Cabinet Components (NA Cabinet Components), which consists of the North American cabinet door and components business.

FINANCIAL RATIOS  of  Quanex Building Products (NX)

Valuation Ratios
P/E Ratio -387.5
Price to Sales 0.8
Price to Book 2.1
Price to Tangible Book
Price to Cash Flow 9
Price to Free Cash Flow 15.8
Growth Rates
Sales Growth Rate 43.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 23.3%
Cap. Spend. - 3 Yr. Gr. Rate -0.5%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 70.4%
Total Debt to Equity 73.4%
Interest Coverage 1
Management Effectiveness
Return On Assets 0.4%
Ret/ On Assets - 3 Yr. Avg. 3%
Return On Total Capital -0.4%
Ret/ On T. Cap. - 3 Yr. Avg. 3.4%
Return On Equity -0.5%
Return On Equity - 3 Yr. Avg. 3.4%
Asset Turnover 1.4
Profitability Ratios
Gross Margin 23.5%
Gross Margin - 3 Yr. Avg. 22.7%
EBITDA Margin 6.7%
EBITDA Margin - 3 Yr. Avg. 8.1%
Operating Margin 3.9%
Oper. Margin - 3 Yr. Avg. 3.4%
Pre-Tax Margin -0.6%
Pre-Tax Margin - 3 Yr. Avg. 1.8%
Net Profit Margin -0.2%
Net Profit Margin - 3 Yr. Avg. 2.4%
Effective Tax Rate 66.7%
Eff/ Tax Rate - 3 Yr. Avg. 46.7%
Payout Ratio -250%

NX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NX stock intrinsic value calculation we used $928 million for the last fiscal year's total revenue generated by Quanex Building Products. The default revenue input number comes from 2016 income statement of Quanex Building Products. 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 NX 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 6.3%, whose default value for NX is calculated based on our internal credit rating of Quanex Building Products, 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 Quanex Building Products.
    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 NX stock the variable cost ratio is equal to 96.1%.

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 NX 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 9.2% for Quanex Building Products.

Corporate tax rate of 27% is the nominal tax rate for Quanex Building Products. 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 NX 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 NX are equal to 33.1%.

Life of production assets of 9.1 years is the average useful life of capital assets used in Quanex Building Products 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 NX is equal to 8.1%. 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 - $368 million for Quanex Building Products - 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 34.998 million for Quanex Building Products 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 Quanex Building Products at the current share price and the inputted number of shares is $0.8 billion.

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COMPANY NEWS

▶ Quanex posts 3Q profit   [Sep-06-17 10:41PM  Associated Press]
▶ Quanex posts 2Q profit   [May-30-17 04:23PM  Associated Press]
▶ Quanex reports 1Q loss   [Mar-06-17 05:20PM  Associated Press]
▶ Quanex Building Products Declares Quarterly Dividend   [Dec-05-16 04:15PM  GlobeNewswire]
▶ [$$] Picks to Play Better Housing Sales   [Aug-31-16 02:59PM  at Barrons.com]
Financial statements of NX
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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