Intrinsic value of PCM - PCMI

Previous Close

$13.70

  Intrinsic Value

$27.20

stock screener

  Rating & Target

str. buy

+99%

  Value-price divergence*

-53%

Previous close

$13.70

 
Intrinsic value

$27.20

 
Up/down potential

+99%

 
Rating

str. buy

 
Value-price divergence*

-53%

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

We calculate the intrinsic value of PCMI 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 0.2

 

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, %
  35.44
  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
  2,251
  2,296
  2,349
  2,409
  2,477
  2,552
  2,634
  2,724
  2,821
  2,926
  3,038
  3,158
  3,287
  3,423
  3,568
  3,722
  3,885
  4,058
  4,240
  4,433
  4,637
  4,852
  5,079
  5,317
  5,569
  5,834
  6,113
  6,407
  6,716
  7,042
  7,384
Variable operating expenses, $m
 
  2,062
  2,109
  2,163
  2,223
  2,291
  2,364
  2,445
  2,531
  2,625
  2,725
  2,825
  2,939
  3,061
  3,191
  3,329
  3,474
  3,629
  3,792
  3,965
  4,147
  4,339
  4,542
  4,755
  4,981
  5,218
  5,467
  5,730
  6,007
  6,298
  6,604
Fixed operating expenses, $m
 
  204
  209
  214
  220
  225
  231
  237
  242
  249
  255
  261
  268
  274
  281
  288
  295
  303
  310
  318
  326
  334
  343
  351
  360
  369
  378
  388
  397
  407
  417
Total operating expenses, $m
  2,216
  2,266
  2,318
  2,377
  2,443
  2,516
  2,595
  2,682
  2,773
  2,874
  2,980
  3,086
  3,207
  3,335
  3,472
  3,617
  3,769
  3,932
  4,102
  4,283
  4,473
  4,673
  4,885
  5,106
  5,341
  5,587
  5,845
  6,118
  6,404
  6,705
  7,021
Operating income, $m
  35
  30
  31
  32
  34
  36
  39
  43
  47
  52
  58
  73
  80
  87
  96
  105
  115
  126
  138
  150
  164
  179
  194
  211
  229
  248
  268
  290
  313
  337
  363
EBITDA, $m
  51
  45
  45
  47
  49
  51
  55
  59
  63
  68
  74
  81
  88
  96
  105
  115
  125
  137
  149
  162
  176
  191
  207
  225
  243
  263
  284
  306
  330
  355
  382
Interest expense (income), $m
  5
  5
  5
  5
  6
  6
  7
  8
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  23
  25
  26
  28
  30
  32
  34
  37
  39
  41
Earnings before tax, $m
  29
  26
  26
  27
  28
  30
  32
  36
  39
  43
  48
  62
  68
  75
  82
  90
  99
  109
  119
  131
  143
  156
  170
  184
  200
  218
  236
  255
  276
  298
  322
Tax expense, $m
  11
  7
  7
  7
  8
  8
  9
  10
  11
  12
  13
  17
  18
  20
  22
  24
  27
  29
  32
  35
  39
  42
  46
  50
  54
  59
  64
  69
  75
  80
  87
Net income, $m
  18
  19
  19
  19
  20
  22
  24
  26
  29
  32
  35
  45
  50
  55
  60
  66
  72
  79
  87
  95
  104
  114
  124
  135
  146
  159
  172
  186
  201
  218
  235

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  7
  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
  630
  635
  650
  667
  686
  706
  729
  754
  781
  810
  841
  874
  910
  947
  988
  1,030
  1,075
  1,123
  1,174
  1,227
  1,283
  1,343
  1,406
  1,472
  1,541
  1,615
  1,692
  1,773
  1,859
  1,949
  2,044
Adjusted assets (=assets-cash), $m
  623
  635
  650
  667
  686
  706
  729
  754
  781
  810
  841
  874
  910
  947
  988
  1,030
  1,075
  1,123
  1,174
  1,227
  1,283
  1,343
  1,406
  1,472
  1,541
  1,615
  1,692
  1,773
  1,859
  1,949
  2,044
Revenue / Adjusted assets
  3.613
  3.616
  3.614
  3.612
  3.611
  3.615
  3.613
  3.613
  3.612
  3.612
  3.612
  3.613
  3.612
  3.615
  3.611
  3.614
  3.614
  3.614
  3.612
  3.613
  3.614
  3.613
  3.612
  3.612
  3.614
  3.612
  3.613
  3.614
  3.613
  3.613
  3.613
Average production assets, $m
  47
  48
  49
  51
  52
  54
  55
  57
  59
  61
  64
  66
  69
  72
  75
  78
  82
  85
  89
  93
  97
  102
  107
  112
  117
  123
  128
  135
  141
  148
  155
Working capital, $m
  -5
  108
  110
  113
  116
  120
  124
  128
  133
  138
  143
  148
  154
  161
  168
  175
  183
  191
  199
  208
  218
  228
  239
  250
  262
  274
  287
  301
  316
  331
  347
Total debt, $m
  137
  140
  152
  165
  180
  197
  215
  234
  256
  279
  304
  330
  358
  388
  420
  454
  490
  528
  568
  610
  655
  703
  752
  805
  860
  919
  980
  1,045
  1,113
  1,184
  1,260
Total liabilities, $m
  501
  505
  517
  530
  545
  562
  580
  599
  621
  644
  669
  695
  723
  753
  785
  819
  855
  893
  933
  975
  1,020
  1,068
  1,117
  1,170
  1,225
  1,284
  1,345
  1,410
  1,478
  1,549
  1,625
Total equity, $m
  128
  130
  133
  137
  141
  145
  149
  155
  160
  166
  172
  179
  186
  194
  202
  211
  220
  230
  241
  252
  263
  275
  288
  302
  316
  331
  347
  364
  381
  400
  419
Total liabilities and equity, $m
  629
  635
  650
  667
  686
  707
  729
  754
  781
  810
  841
  874
  909
  947
  987
  1,030
  1,075
  1,123
  1,174
  1,227
  1,283
  1,343
  1,405
  1,472
  1,541
  1,615
  1,692
  1,774
  1,859
  1,949
  2,044
Debt-to-equity ratio
  1.070
  1.080
  1.140
  1.210
  1.280
  1.360
  1.440
  1.520
  1.600
  1.680
  1.760
  1.840
  1.920
  2.000
  2.080
  2.150
  2.220
  2.290
  2.360
  2.430
  2.490
  2.550
  2.610
  2.670
  2.720
  2.780
  2.830
  2.870
  2.920
  2.960
  3.010
Adjusted equity ratio
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  18
  19
  19
  19
  20
  22
  24
  26
  29
  32
  35
  45
  50
  55
  60
  66
  72
  79
  87
  95
  104
  114
  124
  135
  146
  159
  172
  186
  201
  218
  235
Depreciation, amort., depletion, $m
  16
  14
  14
  15
  15
  15
  15
  15
  16
  16
  16
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  18
  19
Funds from operations, $m
  156
  33
  33
  34
  35
  37
  39
  41
  44
  48
  52
  54
  58
  64
  69
  76
  83
  90
  98
  107
  116
  126
  137
  149
  161
  174
  188
  203
  219
  236
  254
Change in working capital, $m
  60
  2
  2
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  15
  15
  16
Cash from operations, $m
  96
  31
  31
  31
  32
  33
  35
  37
  40
  43
  46
  48
  52
  57
  63
  69
  75
  82
  90
  98
  107
  116
  126
  137
  149
  162
  175
  189
  205
  221
  238
Maintenance CAPEX, $m
  0
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -18
New CAPEX, $m
  -9
  -2
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
Cash from investing activities, $m
  -11
  -8
  -7
  -7
  -7
  -9
  -9
  -9
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -18
  -19
  -21
  -21
  -22
  -23
  -25
  -25
Free cash flow, $m
  85
  24
  24
  24
  24
  25
  27
  28
  31
  33
  36
  37
  41
  46
  51
  56
  62
  68
  75
  83
  91
  100
  109
  119
  130
  141
  154
  167
  181
  196
  212
Issuance/(repayment) of debt, $m
  -75
  10
  12
  13
  15
  17
  18
  20
  21
  23
  25
  26
  28
  30
  32
  34
  36
  38
  40
  42
  45
  47
  50
  53
  55
  58
  61
  65
  68
  72
  75
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  
  -89
  10
  12
  13
  15
  17
  18
  20
  21
  23
  25
  26
  28
  30
  32
  34
  36
  38
  40
  42
  45
  47
  50
  53
  55
  58
  61
  65
  68
  72
  75
Total cash flow (excl. dividends), $m
  -4
  34
  35
  37
  39
  42
  45
  48
  52
  56
  61
  64
  70
  76
  83
  90
  98
  106
  115
  125
  136
  147
  159
  172
  185
  200
  215
  232
  249
  268
  288
Retained Cash Flow (-), $m
  -18
  -2
  -3
  -3
  -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
  -18
  -19
Prev. year cash balance distribution, $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 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
 
  31
  32
  34
  35
  38
  40
  43
  46
  50
  55
  57
  62
  68
  74
  81
  88
  96
  105
  114
  124
  135
  146
  158
  171
  185
  199
  215
  232
  249
  268
Discount rate, %
 
  7.30
  7.67
  8.05
  8.45
  8.87
  9.32
  9.78
  10.27
  10.79
  11.32
  11.89
  12.49
  13.11
  13.77
  14.45
  15.18
  15.93
  16.73
  17.57
  18.45
  19.37
  20.34
  21.35
  22.42
  23.54
  24.72
  25.96
  27.25
  28.62
  30.05
PV of cash for distribution, $m
 
  29
  28
  27
  26
  25
  23
  22
  21
  20
  19
  17
  15
  14
  12
  11
  9
  8
  6
  5
  4
  3
  2
  2
  1
  1
  1
  0
  0
  0
  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

PCM, Inc. is a multi-vendor provider of technology solutions, including hardware products, software and services, offered through its dedicated sales force, field and internal service teams, direct marketing channels, and owned and operated data centers. The Company's segments include Commercial, Public Sector and Canada. The Commercial segment sells complex technology solutions to commercial businesses in the United States. It sells its products using multiple sales channels, including a field relationship-based selling model, an outbound phone-based sales force, a field services organization and an online extranet. The Public Sector segment consists of sales made to federal, state and local governments, as well as educational institutions. The Public Sector segment utilizes a phone and field relationship-based selling model, as well as contract and bid business development teams and an online extranet. The Canada segment consists of sales made to customers in the Canadian market.

FINANCIAL RATIOS  of  PCM (PCMI)

Valuation Ratios
P/E Ratio 9.1
Price to Sales 0.1
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 1.7
Price to Free Cash Flow 1.9
Growth Rates
Sales Growth Rate 35.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -83%
Cap. Spend. - 3 Yr. Gr. Rate -11.9%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 14.8%
Total Debt to Equity 107%
Interest Coverage 7
Management Effectiveness
Return On Assets 3.4%
Ret/ On Assets - 3 Yr. Avg. 0.6%
Return On Total Capital 6.3%
Ret/ On T. Cap. - 3 Yr. Avg. 0.5%
Return On Equity 15.1%
Return On Equity - 3 Yr. Avg. 1.4%
Asset Turnover 3.7
Profitability Ratios
Gross Margin 14.2%
Gross Margin - 3 Yr. Avg. 13.9%
EBITDA Margin 2.2%
EBITDA Margin - 3 Yr. Avg. 1.2%
Operating Margin 1.6%
Oper. Margin - 3 Yr. Avg. 0.4%
Pre-Tax Margin 1.3%
Pre-Tax Margin - 3 Yr. Avg. 0.2%
Net Profit Margin 0.8%
Net Profit Margin - 3 Yr. Avg. 0%
Effective Tax Rate 37.9%
Eff/ Tax Rate - 3 Yr. Avg. 40.7%
Payout Ratio 0%

PCMI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PCMI stock intrinsic value calculation we used $2251 million for the last fiscal year's total revenue generated by PCM. The default revenue input number comes from 2016 income statement of PCM. 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 PCMI 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 7.3%, whose default value for PCMI is calculated based on our internal credit rating of PCM, 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 PCM.
    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 PCMI stock the variable cost ratio is equal to 89.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $199 million in the base year in the intrinsic value calculation for PCMI 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 PCM.

Corporate tax rate of 27% is the nominal tax rate for PCM. 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 PCMI 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 PCMI are equal to 2.1%.

Life of production assets of 8 years is the average useful life of capital assets used in PCM 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 PCMI is equal to 4.7%. 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 - $128 million for PCM - 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 12.977 million for PCM 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 PCM at the current share price and the inputted number of shares is $0.2 billion.

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COMPANY NEWS

▶ PCM Named CRN® Triple Crown Award Winner   [Oct-10-17 09:00AM  GlobeNewswire]
▶ PCM to Present at Two Upcoming Conferences   [Sep-22-17 03:27PM  GlobeNewswire]
▶ PCM Named to 2017 CRN Fast Growth 150 List   [Aug-30-17 09:00AM  GlobeNewswire]
▶ PCM Announces Increase to Share Repurchase Program   [Aug-09-17 05:23PM  GlobeNewswire]
▶ PCM Ranked #2 on MSP 501   [Jul-31-17 09:00AM  GlobeNewswire]
▶ PCM posts 2Q profit   [Jul-26-17 11:08PM  Associated Press]
▶ PCM Reports Second Quarter Results   [04:02PM  GlobeNewswire]
▶ PCM to Release Q2 2017 Results July 26, 2017   [Jul-21-17 10:07PM  GlobeNewswire]
▶ PCM Announces FORTUNE 1000 Debut   [Jul-06-17 09:00AM  GlobeNewswire]
▶ ETFs with exposure to PCM, Inc. : June 26, 2017   [Jun-26-17 04:39PM  Capital Cube]
▶ PCM Added to Russell 3000® Index   [09:00AM  GlobeNewswire]
▶ Top Ranked Value Stocks to Buy for June 14th   [Jun-14-17 10:25AM  Zacks]
Financial statements of PCMI
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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