Intrinsic value of Powell Industries - POWL

Previous Close

$32.78

  Intrinsic Value

premium content

  Rating & Target

premium content

  Value-price divergence*

premium content

Previous close

$32.78

 
Intrinsic value

$9.02

 
Up/down potential

-72%

 
Rating

str. sell

 
Value-price divergence* premium content

Premium access subscription - $499/yr

please register and log in before paying

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

We calculate the intrinsic value of POWL 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 0.4

 

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, %
  -14.65
  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
  565
  576
  590
  605
  622
  641
  661
  684
  708
  734
  763
  793
  825
  859
  896
  934
  975
  1,018
  1,064
  1,113
  1,164
  1,218
  1,275
  1,335
  1,398
  1,464
  1,534
  1,608
  1,686
  1,767
  1,853
Variable operating expenses, $m
 
  547
  559
  574
  590
  608
  628
  649
  672
  697
  724
  752
  783
  815
  850
  886
  925
  966
  1,010
  1,056
  1,104
  1,155
  1,209
  1,266
  1,326
  1,389
  1,456
  1,526
  1,600
  1,677
  1,759
Fixed operating expenses, $m
 
  13
  14
  14
  14
  15
  15
  15
  16
  16
  17
  17
  17
  18
  18
  19
  19
  20
  20
  21
  21
  22
  22
  23
  24
  24
  25
  25
  26
  27
  27
Total operating expenses, $m
  549
  560
  573
  588
  604
  623
  643
  664
  688
  713
  741
  769
  800
  833
  868
  905
  944
  986
  1,030
  1,077
  1,125
  1,177
  1,231
  1,289
  1,350
  1,413
  1,481
  1,551
  1,626
  1,704
  1,786
Operating income, $m
  16
  16
  16
  17
  17
  18
  19
  19
  20
  21
  22
  24
  25
  26
  27
  29
  31
  32
  34
  36
  38
  40
  43
  45
  48
  51
  54
  57
  60
  64
  68
EBITDA, $m
  29
  29
  30
  31
  32
  33
  34
  35
  37
  38
  40
  42
  43
  46
  48
  50
  53
  55
  58
  61
  65
  68
  72
  76
  80
  84
  89
  94
  99
  104
  110
Interest expense (income), $m
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
Earnings before tax, $m
  18
  16
  16
  17
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  31
  32
  34
  36
  38
  40
  42
  44
  47
  49
  52
  55
  58
Tax expense, $m
  2
  4
  4
  4
  5
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
Net income, $m
  16
  12
  12
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  31
  32
  34
  36
  38
  40
  42

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  98
  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
  463
  372
  381
  391
  402
  414
  427
  442
  457
  474
  493
  512
  533
  555
  579
  603
  630
  658
  688
  719
  752
  787
  823
  862
  903
  946
  991
  1,039
  1,089
  1,142
  1,197
Adjusted assets (=assets-cash), $m
  365
  372
  381
  391
  402
  414
  427
  442
  457
  474
  493
  512
  533
  555
  579
  603
  630
  658
  688
  719
  752
  787
  823
  862
  903
  946
  991
  1,039
  1,089
  1,142
  1,197
Revenue / Adjusted assets
  1.548
  1.548
  1.549
  1.547
  1.547
  1.548
  1.548
  1.548
  1.549
  1.549
  1.548
  1.549
  1.548
  1.548
  1.547
  1.549
  1.548
  1.547
  1.547
  1.548
  1.548
  1.548
  1.549
  1.549
  1.548
  1.548
  1.548
  1.548
  1.548
  1.547
  1.548
Average production assets, $m
  151
  153
  157
  161
  165
  170
  176
  182
  188
  195
  203
  211
  219
  229
  238
  249
  259
  271
  283
  296
  310
  324
  339
  355
  372
  390
  408
  428
  448
  470
  493
Working capital, $m
  186
  90
  92
  94
  97
  100
  103
  107
  110
  115
  119
  124
  129
  134
  140
  146
  152
  159
  166
  174
  182
  190
  199
  208
  218
  228
  239
  251
  263
  276
  289
Total debt, $m
  2
  5
  8
  11
  15
  19
  24
  29
  35
  41
  47
  54
  61
  69
  77
  86
  95
  105
  115
  126
  138
  150
  163
  177
  191
  206
  222
  239
  256
  275
  294
Total liabilities, $m
  127
  131
  134
  137
  141
  145
  150
  155
  161
  167
  173
  180
  187
  195
  203
  212
  221
  231
  241
  252
  264
  276
  289
  303
  317
  332
  348
  365
  382
  401
  420
Total equity, $m
  335
  242
  247
  254
  261
  269
  277
  287
  297
  308
  320
  332
  346
  360
  375
  392
  409
  427
  446
  467
  488
  511
  534
  560
  586
  614
  643
  674
  707
  741
  777
Total liabilities and equity, $m
  462
  373
  381
  391
  402
  414
  427
  442
  458
  475
  493
  512
  533
  555
  578
  604
  630
  658
  687
  719
  752
  787
  823
  863
  903
  946
  991
  1,039
  1,089
  1,142
  1,197
Debt-to-equity ratio
  0.006
  0.020
  0.030
  0.040
  0.060
  0.070
  0.090
  0.100
  0.120
  0.130
  0.150
  0.160
  0.180
  0.190
  0.210
  0.220
  0.230
  0.250
  0.260
  0.270
  0.280
  0.290
  0.310
  0.320
  0.330
  0.340
  0.340
  0.350
  0.360
  0.370
  0.380
Adjusted equity ratio
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  16
  12
  12
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  31
  32
  34
  36
  38
  40
  42
Depreciation, amort., depletion, $m
  13
  13
  14
  14
  14
  15
  15
  16
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  33
  35
  37
  38
  40
  42
Funds from operations, $m
  113
  25
  25
  26
  27
  27
  28
  29
  30
  31
  33
  34
  35
  37
  39
  40
  42
  44
  46
  49
  51
  54
  56
  59
  62
  66
  69
  72
  76
  80
  84
Change in working capital, $m
  38
  2
  2
  2
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  13
Cash from operations, $m
  75
  19
  23
  24
  24
  24
  25
  26
  26
  27
  28
  29
  30
  32
  33
  34
  36
  38
  39
  41
  43
  45
  48
  50
  52
  55
  58
  61
  64
  68
  71
Maintenance CAPEX, $m
  0
  -13
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -16
  -17
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -35
  -37
  -38
  -40
New CAPEX, $m
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
Cash from investing activities, $m
  -3
  -16
  -17
  -17
  -19
  -19
  -21
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -30
  -30
  -32
  -34
  -35
  -37
  -39
  -40
  -43
  -45
  -47
  -50
  -52
  -55
  -58
  -60
  -63
Free cash flow, $m
  72
  3
  7
  6
  6
  5
  5
  5
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
Issuance/(repayment) of debt, $m
  0
  3
  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
  19
  19
Issuance/(repurchase) of shares, $m
  -4
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  2
  2
  3
  3
  4
  4
  4
  5
  5
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
Cash from financing (excl. dividends), $m  
  -5
  3
  3
  3
  4
  4
  5
  5
  6
  7
  7
  9
  9
  11
  11
  13
  13
  14
  15
  16
  18
  18
  19
  21
  21
  22
  23
  25
  26
  27
  28
Total cash flow (excl. dividends), $m
  66
  6
  10
  10
  10
  10
  10
  10
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
Retained Cash Flow (-), $m
  -2
  -5
  -6
  -6
  -7
  -8
  -9
  -9
  -10
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -26
  -28
  -29
  -31
  -33
  -34
  -36
Prev. year cash balance distribution, $m
 
  98
  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
 
  99
  4
  3
  2
  2
  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
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
 
  95
  4
  3
  2
  1
  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
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  99.9
  99.7
  99.3
  98.8
  98.2
  97.5
  96.7
  95.9
  95.1
  94.2
  93.2
  92.3
  91.4
  90.4
  89.5
  88.5
  87.6
  86.7
  85.8
  84.9
  84.0
  83.2
  82.3

Powell Industries, Inc., together with its subsidiaries, designs, develops, manufactures, sells, and services custom-engineered equipment and systems for the distribution, control, and monitoring of electrical energy. The company’s principal products include integrated power control room substations, custom-engineered modules, electrical houses, medium-voltage circuit breakers, monitoring and control communications systems, motor control centers, and bus duct systems, as well as traditional and arc-resistant distribution switchgears and control gears. Its products have application in voltages ranging from 480 volts to 38,000 volts; and are used in oil and gas refining, offshore oil and gas production, petrochemical, pipeline, terminal, mining and metals, light rail traction power, electric utility, pulp and paper, and other heavy industrial markets. In addition, the company offers value-added services, such as spare parts, field service inspection, installation, commissioning, modification, and repair services; retrofit and retrofill components for existing systems; and replacement circuit breakers for switchgears. It has operations in the United States, Canada, the Middle East, Africa, Europe, the Far East, Mexico, and Central and South America. The company principally sells its products and services directly to the end user or to an engineering, procurement, and construction firm on behalf of the end user. Powell Industries, Inc. was founded in 1947 and is headquartered in Houston, Texas.

FINANCIAL RATIOS  of  Powell Industries (POWL)

Valuation Ratios
P/E Ratio 23.3
Price to Sales 0.7
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow 5
Price to Free Cash Flow 5.2
Growth Rates
Sales Growth Rate -14.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -91.4%
Cap. Spend. - 3 Yr. Gr. Rate -47.3%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 0.6%
Total Debt to Equity 0.6%
Interest Coverage 0
Management Effectiveness
Return On Assets 3.4%
Ret/ On Assets - 3 Yr. Avg. 3.5%
Return On Total Capital 4.8%
Ret/ On T. Cap. - 3 Yr. Avg. 5.1%
Return On Equity 4.8%
Return On Equity - 3 Yr. Avg. 5.1%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 18.8%
Gross Margin - 3 Yr. Avg. 18.1%
EBITDA Margin 5.5%
EBITDA Margin - 3 Yr. Avg. 5.9%
Operating Margin 2.8%
Oper. Margin - 3 Yr. Avg. 3.5%
Pre-Tax Margin 3.2%
Pre-Tax Margin - 3 Yr. Avg. 3.8%
Net Profit Margin 2.8%
Net Profit Margin - 3 Yr. Avg. 2.9%
Effective Tax Rate 11.1%
Eff/ Tax Rate - 3 Yr. Avg. 35.8%
Payout Ratio 75%

POWL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the POWL stock intrinsic value calculation we used $565 million for the last fiscal year's total revenue generated by Powell Industries. The default revenue input number comes from 2016 income statement of Powell 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 POWL 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 POWL is calculated based on our internal credit rating of Powell 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 Powell 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 POWL stock the variable cost ratio is equal to 94.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $13 million in the base year in the intrinsic value calculation for POWL 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 Powell Industries.

Corporate tax rate of 27% is the nominal tax rate for Powell 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 POWL 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 POWL are equal to 26.6%.

Life of production assets of 11.7 years is the average useful life of capital assets used in Powell 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 POWL is equal to 15.6%. 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 - $335 million for Powell 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 11.731 million for Powell 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 Powell Industries at the current share price and the inputted number of shares is $0.4 billion.


Premium access subscription - $499/yr

please register and log in before paying
RELATED COMPANIES Price Int.Val. Rating
AETI American Elect 1.71 prem.  prem.
LFUS Littelfuse 162.58 prem.  prem.
ABB ABB ADR 25.00 prem.  prem.
GE General Electr 27.45 prem.  prem.
AZZ AZZ 54.80 prem.  prem.

COMPANY NEWS

▶ Powell Industries reports 2Q loss   [May-02-17 04:56PM  Associated Press]
▶ /C O R R E C T I O N -- Powell Industries, Inc./   [Feb-07-17 05:44PM  PR Newswire]
▶ Powell Industries reports 1Q loss   [04:24PM  Associated Press]
▶ Arnold Van Den Berg Exits Powell Industries   [Jan-25-17 06:00PM  GuruFocus.com]
▶ 5 Houstonians to know, and then some   [Oct-03-16 09:35AM  at bizjournals.com]
▶ My 'Buying Ugly' Portfolio Still Looks Fairly Pretty   [May-16-16 03:00PM  at TheStreet]
▶ Powell Industries CEO steps down, replacement named   [Dec-30  05:32PM  at bizjournals.com]
▶ Perfect Stocks Based on Book Value   [Dec-23  11:03PM  at Investopedia]
Stock chart of POWL Financial statements of POWL Annual reports of POWL
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.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.