Intrinsic value of Powell Industries - POWL

Previous Close

$30.76

  Intrinsic Value

$6.88

stock screener

  Rating & Target

str. sell

-78%

Previous close

$30.76

 
Intrinsic value

$6.88

 
Up/down potential

-78%

 
Rating

str. sell

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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -29.91
  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
  396
  404
  413
  424
  436
  449
  463
  479
  496
  515
  534
  556
  578
  602
  628
  655
  683
  714
  746
  780
  816
  854
  893
  935
  980
  1,026
  1,075
  1,127
  1,182
  1,239
  1,299
Variable operating expenses, $m
 
  320
  328
  336
  346
  356
  368
  380
  394
  408
  424
  440
  458
  477
  498
  519
  542
  566
  591
  618
  647
  677
  708
  742
  777
  814
  853
  894
  937
  982
  1,030
Fixed operating expenses, $m
 
  107
  109
  112
  115
  118
  121
  124
  127
  130
  133
  136
  140
  143
  147
  151
  154
  158
  162
  166
  170
  175
  179
  184
  188
  193
  198
  203
  208
  213
  218
Total operating expenses, $m
  415
  427
  437
  448
  461
  474
  489
  504
  521
  538
  557
  576
  598
  620
  645
  670
  696
  724
  753
  784
  817
  852
  887
  926
  965
  1,007
  1,051
  1,097
  1,145
  1,195
  1,248
Operating income, $m
  -19
  -23
  -24
  -24
  -25
  -25
  -25
  -24
  -24
  -23
  -22
  -21
  -20
  -19
  -17
  -15
  -13
  -10
  -8
  -5
  -1
  2
  6
  10
  15
  20
  25
  31
  37
  44
  51
EBITDA, $m
  -7
  -11
  -11
  -11
  -11
  -11
  -11
  -10
  -9
  -8
  -6
  -5
  -3
  0
  2
  5
  8
  11
  15
  19
  23
  28
  33
  38
  44
  51
  58
  65
  73
  81
  90
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
Earnings before tax, $m
  -17
  -23
  -24
  -24
  -25
  -25
  -25
  -25
  -25
  -24
  -24
  -23
  -21
  -20
  -19
  -17
  -15
  -13
  -10
  -8
  -5
  -1
  2
  6
  10
  15
  20
  25
  31
  37
  44
Tax expense, $m
  -8
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  2
  3
  4
  5
  7
  8
  10
  12
Net income, $m
  -9
  -23
  -24
  -24
  -25
  -25
  -25
  -25
  -25
  -24
  -24
  -23
  -21
  -20
  -19
  -17
  -15
  -13
  -10
  -8
  -5
  -1
  2
  4
  8
  11
  15
  18
  23
  27
  32

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  95
  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
  415
  326
  334
  342
  352
  363
  374
  387
  401
  416
  432
  449
  467
  486
  507
  529
  552
  577
  603
  630
  659
  689
  722
  756
  791
  829
  869
  910
  954
  1,001
  1,049
Adjusted assets (=assets-cash), $m
  320
  326
  334
  342
  352
  363
  374
  387
  401
  416
  432
  449
  467
  486
  507
  529
  552
  577
  603
  630
  659
  689
  722
  756
  791
  829
  869
  910
  954
  1,001
  1,049
Revenue / Adjusted assets
  1.238
  1.239
  1.237
  1.240
  1.239
  1.237
  1.238
  1.238
  1.237
  1.238
  1.236
  1.238
  1.238
  1.239
  1.239
  1.238
  1.237
  1.237
  1.237
  1.238
  1.238
  1.239
  1.237
  1.237
  1.239
  1.238
  1.237
  1.238
  1.239
  1.238
  1.238
Average production assets, $m
  143
  146
  149
  153
  157
  162
  167
  173
  179
  186
  193
  201
  209
  217
  227
  236
  247
  258
  269
  282
  294
  308
  323
  338
  354
  371
  388
  407
  427
  447
  469
Working capital, $m
  164
  70
  72
  74
  76
  78
  81
  83
  86
  90
  93
  97
  101
  105
  109
  114
  119
  124
  130
  136
  142
  149
  155
  163
  170
  179
  187
  196
  206
  216
  226
Total debt, $m
  2
  4
  6
  9
  11
  15
  18
  22
  26
  30
  35
  40
  45
  51
  57
  63
  70
  78
  85
  93
  102
  111
  120
  130
  141
  152
  163
  176
  189
  202
  216
Total liabilities, $m
  94
  96
  98
  101
  103
  107
  110
  114
  118
  122
  127
  132
  137
  143
  149
  155
  162
  170
  177
  185
  194
  203
  212
  222
  233
  244
  255
  268
  281
  294
  308
Total equity, $m
  321
  230
  236
  242
  248
  256
  264
  273
  283
  294
  305
  317
  330
  343
  358
  373
  390
  407
  425
  445
  465
  487
  509
  533
  559
  585
  613
  643
  674
  706
  741
Total liabilities and equity, $m
  415
  326
  334
  343
  351
  363
  374
  387
  401
  416
  432
  449
  467
  486
  507
  528
  552
  577
  602
  630
  659
  690
  721
  755
  792
  829
  868
  911
  955
  1,000
  1,049
Debt-to-equity ratio
  0.006
  0.020
  0.030
  0.040
  0.050
  0.060
  0.070
  0.080
  0.090
  0.100
  0.110
  0.130
  0.140
  0.150
  0.160
  0.170
  0.180
  0.190
  0.200
  0.210
  0.220
  0.230
  0.240
  0.240
  0.250
  0.260
  0.270
  0.270
  0.280
  0.290
  0.290
Adjusted equity ratio
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -9
  -23
  -24
  -24
  -25
  -25
  -25
  -25
  -25
  -24
  -24
  -23
  -21
  -20
  -19
  -17
  -15
  -13
  -10
  -8
  -5
  -1
  2
  4
  8
  11
  15
  18
  23
  27
  32
Depreciation, amort., depletion, $m
  12
  12
  13
  13
  13
  14
  14
  15
  15
  16
  16
  17
  17
  18
  19
  20
  21
  21
  22
  23
  25
  26
  27
  28
  29
  31
  32
  34
  36
  37
  39
Funds from operations, $m
  68
  -11
  -11
  -12
  -12
  -12
  -11
  -11
  -10
  -9
  -7
  -6
  -4
  -2
  0
  3
  6
  9
  12
  16
  20
  24
  29
  33
  37
  42
  47
  52
  58
  65
  71
Change in working capital, $m
  31
  1
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
Cash from operations, $m
  37
  -12
  -13
  -13
  -14
  -14
  -14
  -13
  -13
  -12
  -11
  -9
  -8
  -6
  -4
  -2
  1
  3
  7
  10
  14
  18
  22
  25
  29
  34
  38
  43
  49
  55
  61
Maintenance CAPEX, $m
  0
  -12
  -12
  -12
  -13
  -13
  -14
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -34
  -36
  -37
New CAPEX, $m
  -4
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
Cash from investing activities, $m
  -55
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -20
  -22
  -22
  -24
  -25
  -26
  -27
  -29
  -30
  -32
  -33
  -34
  -36
  -39
  -40
  -42
  -44
  -46
  -49
  -51
  -54
  -57
  -59
Free cash flow, $m
  -18
  -27
  -28
  -30
  -31
  -32
  -32
  -33
  -33
  -33
  -33
  -33
  -33
  -32
  -32
  -31
  -29
  -28
  -27
  -25
  -23
  -20
  -18
  -17
  -15
  -13
  -10
  -8
  -5
  -2
  2
Issuance/(repayment) of debt, $m
  0
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  9
  10
  11
  11
  12
  12
  13
  14
  14
Issuance/(repurchase) of shares, $m
  0
  27
  29
  31
  32
  33
  33
  34
  34
  35
  35
  35
  34
  34
  33
  32
  31
  30
  29
  27
  25
  23
  21
  19
  18
  16
  13
  11
  8
  5
  2
Cash from financing (excl. dividends), $m  
  -1
  29
  31
  34
  35
  36
  36
  38
  38
  39
  40
  40
  39
  40
  39
  38
  38
  37
  37
  35
  34
  32
  30
  29
  29
  27
  25
  23
  21
  19
  16
Total cash flow (excl. dividends), $m
  -17
  2
  3
  3
  4
  4
  4
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
Retained Cash Flow (-), $m
  14
  -27
  -29
  -31
  -32
  -33
  -33
  -34
  -34
  -35
  -35
  -35
  -34
  -34
  -33
  -32
  -31
  -30
  -29
  -27
  -25
  -23
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -33
  -34
Prev. year cash balance distribution, $m
 
  95
  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
 
  70
  -26
  -27
  -28
  -29
  -29
  -29
  -29
  -29
  -29
  -28
  -27
  -27
  -25
  -24
  -23
  -21
  -19
  -17
  -14
  -11
  -11
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
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
 
  67
  -24
  -24
  -23
  -22
  -21
  -20
  -18
  -17
  -15
  -13
  -12
  -10
  -9
  -7
  -6
  -5
  -3
  -3
  -2
  -1
  -1
  -1
  -1
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  90.2
  81.0
  72.6
  64.9
  58.1
  52.0
  46.6
  41.9
  37.7
  34.1
  31.0
  28.2
  25.8
  23.8
  22.0
  20.5
  19.1
  18.0
  17.0
  16.2
  15.5
  14.9
  14.4
  14.0
  13.7
  13.4
  13.2
  13.0
  13.0
  12.9

Powell Industries, Inc. develops design, manufactures and services custom-engineered equipment and systems for the distribution, control and monitoring of electrical energy designed to distribute, control and monitor the flow of electrical energy, and provide protection to motors, transformers and other electrically powered equipment. The Company's principal products include integrated power control room substations (PCRs), custom-engineered modules, electrical houses (E-Houses), traditional and arc-resistant distribution switchgear and control gear, medium-voltage circuit breakers, monitoring and control communications systems, motor control centers and bus duct systems. These products are designed for application 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.

FINANCIAL RATIOS  of  Powell Industries (POWL)

Valuation Ratios
P/E Ratio -39.1
Price to Sales 0.9
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow 9.5
Price to Free Cash Flow 10.7
Growth Rates
Sales Growth Rate -29.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 33.3%
Cap. Spend. - 3 Yr. Gr. Rate -25.1%
Financial Strength
Quick Ratio NaN
Current Ratio 0.2
LT Debt to Equity 0.6%
Total Debt to Equity 0.6%
Interest Coverage 0
Management Effectiveness
Return On Assets -2.1%
Ret/ On Assets - 3 Yr. Avg. 1.1%
Return On Total Capital -2.7%
Ret/ On T. Cap. - 3 Yr. Avg. 1.5%
Return On Equity -2.7%
Return On Equity - 3 Yr. Avg. 1.5%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 12.9%
Gross Margin - 3 Yr. Avg. 16%
EBITDA Margin -1.3%
EBITDA Margin - 3 Yr. Avg. 3.2%
Operating Margin -4.8%
Oper. Margin - 3 Yr. Avg. 0.4%
Pre-Tax Margin -4.3%
Pre-Tax Margin - 3 Yr. Avg. 0.8%
Net Profit Margin -2.3%
Net Profit Margin - 3 Yr. Avg. 0.6%
Effective Tax Rate 47.1%
Eff/ Tax Rate - 3 Yr. Avg. 39.7%
Payout Ratio -133.3%

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 $396 million for the last fiscal year's total revenue generated by Powell Industries. The default revenue input number comes from 2017 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 79.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $104 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 36.1%.

Life of production assets of 12 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 17.4%. 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 - $321 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 11.636 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.

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COMPANY NEWS

▶ Powell Industries reports 4Q loss   [Dec-05-17 04:35PM  Associated Press]
▶ Powell Industries Declares Quarterly Cash Dividend   [Nov-07-17 04:15PM  PR Newswire]
▶ Powell Industries reports 3Q loss   [Aug-08-17 04:46PM  Associated Press]
▶ 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]
Financial statements 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.

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