Intrinsic value of Douglas Dynamics - PLOW

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$32.60

  Intrinsic Value

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  Value-price divergence*

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

We calculate the intrinsic value of PLOW 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, %
  4.00
  2.50
  2.75
  2.97
  3.18
  3.36
  3.52
  3.67
  3.80
  3.92
  4.03
  4.13
  4.22
  4.29
  4.36
  4.43
  4.49
  4.54
  4.58
  4.62
  4.66
  4.70
  4.73
  4.75
  4.78
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
Revenue, $m
  416
  410
  421
  434
  448
  463
  479
  497
  515
  536
  557
  580
  605
  631
  658
  687
  718
  751
  785
  821
  860
  900
  943
  987
  1,035
  1,084
  1,137
  1,192
  1,249
  1,310
  1,374
Variable operating expenses, $m
 
  314
  323
  332
  342
  353
  365
  377
  391
  406
  422
  422
  440
  459
  479
  500
  523
  546
  571
  598
  626
  655
  686
  719
  753
  789
  827
  867
  909
  954
  1,000
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
  337
  314
  323
  332
  342
  353
  365
  377
  391
  406
  422
  422
  440
  459
  479
  500
  523
  546
  571
  598
  626
  655
  686
  719
  753
  789
  827
  867
  909
  954
  1,000
Operating income, $m
  79
  96
  99
  102
  106
  110
  114
  119
  124
  130
  136
  158
  165
  172
  179
  187
  196
  204
  214
  224
  234
  245
  257
  269
  282
  295
  309
  324
  340
  357
  374
EBITDA, $m
  96
  118
  121
  125
  129
  133
  138
  143
  148
  154
  160
  167
  174
  181
  189
  198
  207
  216
  226
  236
  247
  259
  271
  284
  298
  312
  327
  343
  359
  377
  395
Interest expense (income), $m
  14
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  28
  29
  31
  33
  35
  37
  39
  41
  43
  46
  48
  51
Earnings before tax, $m
  64
  85
  87
  90
  94
  97
  101
  105
  109
  114
  119
  140
  146
  152
  158
  165
  172
  180
  187
  196
  205
  214
  224
  234
  245
  256
  268
  281
  294
  308
  323
Tax expense, $m
  25
  23
  24
  24
  25
  26
  27
  28
  29
  31
  32
  38
  39
  41
  43
  45
  46
  48
  51
  53
  55
  58
  60
  63
  66
  69
  72
  76
  79
  83
  87
Net income, $m
  39
  62
  64
  66
  68
  71
  74
  77
  80
  83
  87
  102
  107
  111
  116
  120
  126
  131
  137
  143
  149
  156
  163
  171
  179
  187
  196
  205
  215
  225
  236

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  19
  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
  666
  478
  491
  506
  522
  539
  558
  579
  601
  624
  649
  676
  705
  735
  767
  801
  837
  875
  915
  957
  1,002
  1,049
  1,099
  1,151
  1,206
  1,264
  1,325
  1,389
  1,456
  1,527
  1,602
Adjusted assets (=assets-cash), $m
  647
  478
  491
  506
  522
  539
  558
  579
  601
  624
  649
  676
  705
  735
  767
  801
  837
  875
  915
  957
  1,002
  1,049
  1,099
  1,151
  1,206
  1,264
  1,325
  1,389
  1,456
  1,527
  1,602
Revenue / Adjusted assets
  0.643
  0.858
  0.857
  0.858
  0.858
  0.859
  0.858
  0.858
  0.857
  0.859
  0.858
  0.858
  0.858
  0.859
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
Average production assets, $m
  210
  176
  181
  187
  192
  199
  206
  214
  222
  230
  240
  249
  260
  271
  283
  296
  309
  323
  338
  353
  370
  387
  405
  425
  445
  466
  489
  512
  537
  563
  591
Working capital, $m
  125
  94
  97
  100
  103
  106
  110
  114
  119
  123
  128
  133
  139
  145
  151
  158
  165
  173
  181
  189
  198
  207
  217
  227
  238
  249
  261
  274
  287
  301
  316
Total debt, $m
  310
  190
  198
  208
  218
  229
  241
  255
  269
  284
  300
  318
  336
  355
  376
  398
  421
  445
  471
  499
  527
  558
  590
  623
  659
  696
  735
  776
  820
  865
  913
Total liabilities, $m
  446
  308
  316
  326
  336
  347
  359
  373
  387
  402
  418
  436
  454
  473
  494
  516
  539
  563
  589
  617
  645
  676
  708
  741
  777
  814
  853
  894
  938
  983
  1,031
Total equity, $m
  220
  170
  175
  180
  186
  192
  199
  206
  214
  222
  231
  241
  251
  262
  273
  285
  298
  311
  326
  341
  357
  373
  391
  410
  429
  450
  472
  494
  518
  544
  570
Total liabilities and equity, $m
  666
  478
  491
  506
  522
  539
  558
  579
  601
  624
  649
  677
  705
  735
  767
  801
  837
  874
  915
  958
  1,002
  1,049
  1,099
  1,151
  1,206
  1,264
  1,325
  1,388
  1,456
  1,527
  1,601
Debt-to-equity ratio
  1.409
  1.120
  1.130
  1.150
  1.170
  1.190
  1.220
  1.240
  1.260
  1.280
  1.300
  1.320
  1.340
  1.360
  1.380
  1.400
  1.410
  1.430
  1.450
  1.460
  1.480
  1.490
  1.510
  1.520
  1.530
  1.550
  1.560
  1.570
  1.580
  1.590
  1.600
Adjusted equity ratio
  0.311
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  39
  62
  64
  66
  68
  71
  74
  77
  80
  83
  87
  102
  107
  111
  116
  120
  126
  131
  137
  143
  149
  156
  163
  171
  179
  187
  196
  205
  215
  225
  236
Depreciation, amort., depletion, $m
  17
  22
  23
  23
  23
  23
  24
  24
  24
  24
  25
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
Funds from operations, $m
  76
  84
  86
  89
  91
  94
  97
  100
  104
  108
  111
  111
  116
  121
  126
  131
  137
  143
  149
  156
  163
  170
  178
  186
  195
  204
  213
  224
  234
  245
  257
Change in working capital, $m
  6
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
Cash from operations, $m
  70
  81
  84
  86
  88
  91
  93
  96
  99
  103
  107
  106
  110
  115
  119
  124
  130
  135
  141
  147
  154
  161
  168
  176
  184
  192
  201
  211
  221
  231
  242
Maintenance CAPEX, $m
  0
  -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
  -19
  -20
New CAPEX, $m
  -10
  -4
  -5
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -28
Cash from investing activities, $m
  -191
  -10
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -17
  -19
  -20
  -20
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -30
  -32
  -34
  -35
  -37
  -39
  -42
  -43
  -45
  -48
Free cash flow, $m
  -121
  71
  73
  74
  75
  77
  79
  81
  84
  86
  89
  88
  91
  94
  98
  102
  106
  110
  115
  120
  125
  130
  136
  142
  148
  155
  162
  170
  178
  186
  195
Issuance/(repayment) of debt, $m
  127
  8
  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
  43
  46
  48
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  
  124
  8
  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
  43
  46
  48
Total cash flow (excl. dividends), $m
  3
  78
  81
  83
  86
  88
  91
  94
  98
  101
  105
  105
  109
  114
  118
  123
  129
  135
  141
  147
  153
  160
  168
  176
  184
  192
  201
  211
  221
  232
  243
Retained Cash Flow (-), $m
  -19
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
Prev. year cash balance distribution, $m
 
  35
  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
 
  109
  76
  78
  80
  82
  85
  87
  90
  93
  96
  95
  99
  103
  107
  111
  116
  121
  126
  132
  138
  144
  150
  157
  164
  172
  180
  188
  197
  206
  216
Discount rate, %
 
  5.50
  5.78
  6.06
  6.37
  6.69
  7.02
  7.37
  7.74
  8.13
  8.53
  8.96
  9.41
  9.88
  10.37
  10.89
  11.43
  12.01
  12.61
  13.24
  13.90
  14.59
  15.32
  16.09
  16.89
  17.74
  18.62
  19.56
  20.53
  21.56
  22.64
PV of cash for distribution, $m
 
  103
  68
  66
  63
  60
  56
  53
  50
  46
  42
  37
  34
  30
  27
  24
  21
  18
  15
  12
  10
  8
  7
  5
  4
  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
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Douglas Dynamics, Inc. manufactures and sells snow and ice control equipment in the United States and Canada. The company offers snowplows, sand and salt spreaders, dump bodies, muni-bodies, replacement parts, and related parts and accessories. It offers snow and ice management attachments under the BLIZZARD, FISHER, SNOWEX, and WESTERN brand names; turf care equipment under the TURFEX brand name; and industrial maintenance equipment under the SWEEPEX brand name. The company also provides customized turnkey solutions to governmental agencies, such as Departments of Transportation and municipalities. It sells its products through a distributor network primarily to professional snowplowers who are contracted to remove snow and ice from commercial, municipal, and residential areas. The company was founded in 2004 and is headquartered in Milwaukee, Wisconsin.

FINANCIAL RATIOS  of  Douglas Dynamics (PLOW)

Valuation Ratios
P/E Ratio 18.8
Price to Sales 1.8
Price to Book 3.3
Price to Tangible Book
Price to Cash Flow 10.5
Price to Free Cash Flow 12.2
Growth Rates
Sales Growth Rate 4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 27.2%
Financial Strength
Quick Ratio 6
Current Ratio 0
LT Debt to Equity 139.5%
Total Debt to Equity 140.9%
Interest Coverage 6
Management Effectiveness
Return On Assets 8.1%
Ret/ On Assets - 3 Yr. Avg. 9.8%
Return On Total Capital 8.5%
Ret/ On T. Cap. - 3 Yr. Avg. 10.9%
Return On Equity 18.5%
Return On Equity - 3 Yr. Avg. 22.1%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 32.2%
Gross Margin - 3 Yr. Avg. 34.5%
EBITDA Margin 22.8%
EBITDA Margin - 3 Yr. Avg. 23.7%
Operating Margin 19%
Oper. Margin - 3 Yr. Avg. 20.5%
Pre-Tax Margin 15.4%
Pre-Tax Margin - 3 Yr. Avg. 17.4%
Net Profit Margin 9.4%
Net Profit Margin - 3 Yr. Avg. 11.2%
Effective Tax Rate 39.1%
Eff/ Tax Rate - 3 Yr. Avg. 36%
Payout Ratio 53.8%

PLOW stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PLOW stock intrinsic value calculation we used $400 million for the last fiscal year's total revenue generated by Douglas Dynamics. The default revenue input number comes from 2016 income statement of Douglas Dynamics. 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 PLOW stock valuation model: a) initial revenue growth rate of 2.5% 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 5.5%, whose default value for PLOW is calculated based on our internal credit rating of Douglas Dynamics, 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 Douglas Dynamics.
    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 PLOW stock the variable cost ratio is equal to 76.8%.

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 PLOW 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 5.9% for Douglas Dynamics.

Corporate tax rate of 27% is the nominal tax rate for Douglas Dynamics. 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 PLOW 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 PLOW are equal to 43%.

Life of production assets of 27.8 years is the average useful life of capital assets used in Douglas Dynamics 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 PLOW is equal to 23%. 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 - $201 million for Douglas Dynamics - 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 21.815 million for Douglas Dynamics 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 Douglas Dynamics at the current share price and the inputted number of shares is $0.7 billion.


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COMPANY NEWS

▶ Douglas Dynamics Declares Quarterly Cash Dividend   [Jun-08-17 04:15PM  GlobeNewswire]
▶ Tampa real estate lawyer facing insider charges vows to fight   [Jun-06-17 08:00AM  American City Business Journals]
▶ New Strong Sell Stocks for May 11th   [May-11-17 09:14AM  Zacks]
▶ Douglas Dynamics Looks Forward to Better Times Ahead   [May-08-17 09:39PM  Motley Fool]
▶ Douglas Dynamics reports 1Q loss   [06:32PM  Associated Press]
▶ Southeast Wisconsin stocks that could extend bull-market runs   [Apr-07-17 03:35PM  American City Business Journals]
▶ Douglas Dynamics meets 4Q expectations despite lower snowfall   [11:35AM  American City Business Journals]
▶ Douglas Dynamics Overcomes a Weak Winter   [Mar-06-17 09:49PM  Motley Fool]
▶ Douglas Dynamics misses 4Q revenue forecasts   [06:26PM  Associated Press]
▶ 3 Small-Cap Stocks to Buy in February   [Jan-28-17 07:27PM  at Motley Fool]
▶ Small Caps With Big Yields   [Dec-14-16 09:30AM  at Forbes]
▶ Is Douglas Dynamics Inc (PLOW) A Good Stock To Buy?   [Dec-11-16 09:54AM  at Insider Monkey]
▶ Douglas Dynamics Declares Quarterly Cash Dividend   [Dec-09-16 07:00AM  GlobeNewswire]
▶ Douglas Dynamics Declares Quarterly Cash Dividend   [Sep-09-16 07:00AM  GlobeNewswire]
▶ Douglas Dynamics Stock Trades Ex-Dividend Thursday (PLOW)   [Jun-16-16 11:15AM  at Investopedia]
▶ Douglas Dynamics Declares Quarterly Cash Dividend   [Jun-09-16 08:00AM  GlobeNewswire]
▶ Douglas Dynamics Plows Through a Tough Winter   [07:43AM  at Motley Fool]
Stock chart of PLOW Financial statements of PLOW Annual reports of PLOW
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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