Intrinsic value of Omega Protein - OME

Previous Close

$15.40

  Intrinsic Value

$18.99

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  Rating & Target

buy

+23%

  Value-price divergence*

+237%

Previous close

$15.40

 
Intrinsic value

$18.99

 
Up/down potential

+23%

 
Rating

buy

 
Value-price divergence*

+237%

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

We calculate the intrinsic value of OME 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 0.3

 

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, %
  8.91
  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
  391
  399
  408
  418
  430
  443
  458
  473
  490
  508
  528
  549
  571
  595
  620
  647
  675
  705
  737
  770
  805
  843
  882
  924
  967
  1,013
  1,062
  1,113
  1,167
  1,223
  1,283
Variable operating expenses, $m
 
  236
  242
  248
  255
  263
  271
  280
  290
  301
  312
  322
  335
  349
  363
  379
  396
  413
  432
  452
  472
  494
  517
  542
  567
  594
  623
  653
  684
  717
  752
Fixed operating expenses, $m
 
  111
  113
  116
  119
  122
  125
  128
  132
  135
  138
  142
  145
  149
  153
  156
  160
  164
  168
  173
  177
  181
  186
  191
  195
  200
  205
  210
  216
  221
  227
Total operating expenses, $m
  337
  347
  355
  364
  374
  385
  396
  408
  422
  436
  450
  464
  480
  498
  516
  535
  556
  577
  600
  625
  649
  675
  703
  733
  762
  794
  828
  863
  900
  938
  979
Operating income, $m
  54
  52
  53
  54
  56
  59
  61
  65
  69
  73
  77
  85
  91
  97
  104
  111
  119
  127
  136
  146
  156
  167
  179
  191
  205
  219
  234
  250
  267
  285
  304
EBITDA, $m
  80
  75
  76
  78
  81
  84
  88
  92
  97
  102
  107
  114
  120
  128
  136
  145
  154
  164
  174
  186
  198
  211
  225
  239
  255
  271
  289
  308
  327
  348
  370
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
Earnings before tax, $m
  51
  52
  53
  54
  56
  58
  61
  64
  68
  72
  77
  84
  90
  96
  102
  109
  117
  125
  134
  143
  153
  164
  175
  188
  201
  214
  229
  245
  261
  279
  297
Tax expense, $m
  18
  14
  14
  15
  15
  16
  16
  17
  18
  19
  21
  23
  24
  26
  28
  29
  32
  34
  36
  39
  41
  44
  47
  51
  54
  58
  62
  66
  71
  75
  80
Net income, $m
  33
  38
  38
  39
  41
  43
  45
  47
  50
  53
  56
  61
  65
  70
  75
  80
  85
  91
  98
  104
  112
  120
  128
  137
  146
  156
  167
  179
  191
  203
  217

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  37
  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
  428
  399
  408
  418
  430
  443
  458
  473
  490
  508
  528
  549
  571
  595
  620
  647
  675
  705
  737
  770
  805
  843
  882
  924
  967
  1,013
  1,062
  1,113
  1,167
  1,223
  1,283
Adjusted assets (=assets-cash), $m
  391
  399
  408
  418
  430
  443
  458
  473
  490
  508
  528
  549
  571
  595
  620
  647
  675
  705
  737
  770
  805
  843
  882
  924
  967
  1,013
  1,062
  1,113
  1,167
  1,223
  1,283
Revenue / Adjusted assets
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
Average production assets, $m
  203
  207
  211
  217
  223
  230
  237
  245
  254
  263
  273
  284
  296
  308
  321
  335
  350
  365
  382
  399
  417
  437
  457
  478
  501
  525
  550
  577
  604
  634
  664
Working capital, $m
  134
  100
  102
  105
  108
  111
  115
  119
  123
  128
  132
  138
  143
  149
  156
  162
  169
  177
  185
  193
  202
  212
  221
  232
  243
  254
  267
  279
  293
  307
  322
Total debt, $m
  1
  2
  4
  6
  9
  12
  15
  19
  23
  27
  31
  36
  41
  47
  53
  59
  65
  72
  79
  87
  95
  104
  113
  122
  132
  143
  154
  166
  178
  191
  205
Total liabilities, $m
  91
  92
  94
  96
  99
  102
  105
  109
  113
  117
  121
  126
  131
  137
  143
  149
  155
  162
  169
  177
  185
  194
  203
  212
  222
  233
  244
  256
  268
  281
  295
Total equity, $m
  337
  307
  314
  322
  331
  341
  352
  364
  377
  391
  406
  422
  440
  458
  477
  498
  520
  543
  567
  593
  620
  649
  679
  711
  745
  780
  818
  857
  898
  942
  988
Total liabilities and equity, $m
  428
  399
  408
  418
  430
  443
  457
  473
  490
  508
  527
  548
  571
  595
  620
  647
  675
  705
  736
  770
  805
  843
  882
  923
  967
  1,013
  1,062
  1,113
  1,166
  1,223
  1,283
Debt-to-equity ratio
  0.003
  0.010
  0.010
  0.020
  0.030
  0.040
  0.040
  0.050
  0.060
  0.070
  0.080
  0.090
  0.090
  0.100
  0.110
  0.120
  0.130
  0.130
  0.140
  0.150
  0.150
  0.160
  0.170
  0.170
  0.180
  0.180
  0.190
  0.190
  0.200
  0.200
  0.210
Adjusted equity ratio
  0.767
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  33
  38
  38
  39
  41
  43
  45
  47
  50
  53
  56
  61
  65
  70
  75
  80
  85
  91
  98
  104
  112
  120
  128
  137
  146
  156
  167
  179
  191
  203
  217
Depreciation, amort., depletion, $m
  26
  23
  24
  24
  25
  26
  26
  27
  28
  29
  30
  28
  30
  31
  32
  33
  35
  37
  38
  40
  42
  44
  46
  48
  50
  52
  55
  58
  60
  63
  66
Funds from operations, $m
  112
  61
  62
  64
  66
  68
  71
  74
  78
  81
  86
  90
  95
  101
  107
  113
  120
  128
  136
  144
  154
  163
  174
  185
  196
  209
  222
  236
  251
  267
  283
Change in working capital, $m
  18
  2
  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
  13
  14
  15
Cash from operations, $m
  94
  59
  60
  61
  63
  65
  67
  70
  73
  77
  81
  85
  89
  95
  100
  106
  113
  120
  128
  136
  145
  154
  164
  174
  186
  197
  210
  223
  238
  253
  269
Maintenance CAPEX, $m
  0
  -20
  -21
  -21
  -22
  -22
  -23
  -24
  -25
  -25
  -26
  -27
  -28
  -30
  -31
  -32
  -33
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -55
  -58
  -60
  -63
New CAPEX, $m
  -36
  -4
  -5
  -5
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -26
  -28
  -29
  -31
Cash from investing activities, $m
  -36
  -24
  -26
  -26
  -28
  -29
  -30
  -32
  -34
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -53
  -55
  -58
  -61
  -64
  -67
  -71
  -74
  -77
  -81
  -86
  -89
  -94
Free cash flow, $m
  58
  35
  34
  35
  35
  36
  37
  38
  40
  42
  44
  46
  49
  53
  56
  61
  65
  70
  75
  80
  86
  93
  100
  107
  115
  123
  132
  142
  152
  163
  174
Issuance/(repayment) of debt, $m
  -23
  2
  2
  2
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
Issuance/(repurchase) of shares, $m
  1
  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  
  -21
  2
  2
  2
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
Total cash flow (excl. dividends), $m
  37
  36
  37
  37
  38
  39
  40
  42
  44
  46
  49
  51
  55
  58
  62
  67
  71
  77
  82
  88
  95
  101
  109
  117
  125
  134
  144
  154
  164
  176
  188
Retained Cash Flow (-), $m
  -42
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -21
  -22
  -23
  -24
  -26
  -27
  -29
  -30
  -32
  -34
  -35
  -37
  -39
  -41
  -44
  -46
Prev. year cash balance distribution, $m
 
  36
  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
 
  66
  29
  29
  29
  29
  29
  30
  31
  32
  34
  35
  37
  40
  43
  46
  50
  53
  58
  62
  67
  73
  78
  85
  91
  99
  106
  114
  123
  132
  142
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
 
  64
  27
  25
  24
  22
  21
  20
  19
  19
  18
  17
  16
  15
  14
  14
  13
  12
  11
  10
  9
  8
  7
  6
  5
  4
  3
  2
  2
  1
  1
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
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Omega Protein Corporation develops, produces, and delivers products to enhance the nutritional integrity of foods, dietary supplements, and animal feeds worldwide. It operates in two segments, Animal Nutrition and Human Nutrition. The Animal Nutrition segment produces animal nutrition products, including fish meal products that are primarily used as a protein ingredient in animal feed for swine, aquaculture, and household pets. This segment also offers fish oil for animal and aquaculture feeds, as well as additives to human food products and dietary supplements; and fish solubles to livestock and aquaculture feed manufacturers, and for use as an organic fertilizer. The Human Nutrition segment produces plant and marine based specialty oils, Omega-3 fish oils, and specialty dairy proteins and other related products. The company sells its products in the United States, Mexico, Europe, Canada, Asia, South and Central America, and others. Omega Protein Corporation was founded in 1913 and is headquartered in Houston, Texas.

FINANCIAL RATIOS  of  Omega Protein (OME)

Valuation Ratios
P/E Ratio 10.5
Price to Sales 0.9
Price to Book 1
Price to Tangible Book
Price to Cash Flow 3.7
Price to Free Cash Flow 6
Growth Rates
Sales Growth Rate 8.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 2.9%
Cap. Spend. - 3 Yr. Gr. Rate 3.7%
Financial Strength
Quick Ratio 37
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0.3%
Interest Coverage 0
Management Effectiveness
Return On Assets 7.9%
Ret/ On Assets - 3 Yr. Avg. 6.6%
Return On Total Capital 10%
Ret/ On T. Cap. - 3 Yr. Avg. 8%
Return On Equity 10.4%
Return On Equity - 3 Yr. Avg. 8.7%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 29.2%
Gross Margin - 3 Yr. Avg. 27.3%
EBITDA Margin 19.7%
EBITDA Margin - 3 Yr. Avg. 18.5%
Operating Margin 13.8%
Oper. Margin - 3 Yr. Avg. 11.9%
Pre-Tax Margin 13%
Pre-Tax Margin - 3 Yr. Avg. 11.2%
Net Profit Margin 8.4%
Net Profit Margin - 3 Yr. Avg. 7%
Effective Tax Rate 35.3%
Eff/ Tax Rate - 3 Yr. Avg. 37.9%
Payout Ratio 0%

OME stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the OME stock intrinsic value calculation we used $391 million for the last fiscal year's total revenue generated by Omega Protein. The default revenue input number comes from 2016 income statement of Omega Protein. 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 OME 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 OME is calculated based on our internal credit rating of Omega Protein, 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 Omega Protein.
    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 OME stock the variable cost ratio is equal to 59.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $108 million in the base year in the intrinsic value calculation for OME 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 Omega Protein.

Corporate tax rate of 27% is the nominal tax rate for Omega Protein. 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 OME 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 OME are equal to 51.8%.

Life of production assets of 10 years is the average useful life of capital assets used in Omega Protein 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 OME is equal to 25.1%. 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 - $337 million for Omega Protein - 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 22.526 million for Omega Protein 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 Omega Protein at the current share price and the inputted number of shares is $0.3 billion.

RELATED COMPANIES Price Int.Val. Rating
ADM Archer Daniels 41.67 7.26  str.sell
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COMPANY NEWS

▶ Omega Protein posts 2Q profit   [Aug-02-17 11:13PM  Associated Press]
▶ Omega Protein Declares Quarterly Dividend   [Aug-01-17 08:00AM  PR Newswire]
▶ ETFs with exposure to Omega Protein Corp. : July 12, 2017   [Jul-12-17 02:51PM  Capital Cube]
▶ Biotech Movers: Exelixis, Omeros, Inovio   [Jul-10-17 09:40AM  TheStreet.com]
▶ ETFs with exposure to Omega Protein Corp. : June 13, 2017   [Jun-13-17 12:48PM  Capital Cube]
▶ ETFs with exposure to Omega Protein Corp. : June 2, 2017   [Jun-02-17 02:22PM  Capital Cube]
▶ Omega Protein posts 1Q profit   [May-08-17 04:22PM  Associated Press]
▶ Omega Protein Declares Quarterly Dividend   [08:00AM  PR Newswire]
▶ Grain traders prep fish oil substitutes   [Mar-19-17 10:01PM  AAP]
Stock chart of OME Financial statements of OME
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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