Intrinsic value of RBC Bearings - ROLL

Previous Close

$121.44

  Intrinsic Value

$58.08

stock screener

  Rating & Target

str. sell

-52%

Previous close

$121.44

 
Intrinsic value

$58.08

 
Up/down potential

-52%

 
Rating

str. sell

We calculate the intrinsic value of ROLL 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 2017), $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 2.9

 

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, %
  3.02
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
  5.43
  5.38
  5.34
  5.31
  5.28
  5.25
  5.23
  5.20
  5.18
  5.16
  5.15
  5.13
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.06
  5.06
  5.05
  5.05
  5.04
  5.04
Revenue, $m
  615
  651
  688
  727
  767
  810
  854
  900
  949
  1,000
  1,053
  1,108
  1,166
  1,227
  1,291
  1,358
  1,428
  1,502
  1,579
  1,660
  1,744
  1,833
  1,927
  2,025
  2,127
  2,235
  2,348
  2,467
  2,591
  2,722
  2,859
Variable operating expenses, $m
 
  287
  302
  318
  334
  351
  369
  387
  407
  427
  448
  444
  467
  491
  517
  544
  572
  601
  632
  665
  699
  734
  771
  811
  852
  895
  940
  988
  1,037
  1,090
  1,145
Fixed operating expenses, $m
 
  241
  247
  253
  259
  266
  273
  279
  286
  293
  301
  308
  316
  324
  332
  340
  349
  358
  367
  376
  385
  395
  405
  415
  425
  436
  447
  458
  469
  481
  493
Total operating expenses, $m
  502
  528
  549
  571
  593
  617
  642
  666
  693
  720
  749
  752
  783
  815
  849
  884
  921
  959
  999
  1,041
  1,084
  1,129
  1,176
  1,226
  1,277
  1,331
  1,387
  1,446
  1,506
  1,571
  1,638
Operating income, $m
  114
  122
  139
  156
  174
  193
  213
  234
  256
  279
  303
  356
  383
  412
  442
  474
  507
  543
  580
  619
  661
  705
  751
  799
  850
  904
  961
  1,021
  1,084
  1,151
  1,221
EBITDA, $m
  141
  166
  183
  202
  221
  241
  262
  284
  307
  332
  358
  385
  414
  444
  476
  509
  545
  582
  621
  662
  706
  752
  801
  852
  906
  962
  1,022
  1,085
  1,152
  1,222
  1,295
Interest expense (income), $m
  0
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  23
  25
  26
  28
  30
  31
  33
  35
  37
  39
  41
  44
  46
  49
  51
  54
Earnings before tax, $m
  105
  113
  129
  145
  163
  181
  200
  220
  241
  263
  286
  338
  364
  391
  420
  450
  483
  516
  552
  590
  629
  671
  715
  762
  811
  863
  917
  975
  1,036
  1,100
  1,167
Tax expense, $m
  34
  31
  35
  39
  44
  49
  54
  59
  65
  71
  77
  91
  98
  106
  113
  122
  130
  139
  149
  159
  170
  181
  193
  206
  219
  233
  248
  263
  280
  297
  315
Net income, $m
  71
  83
  94
  106
  119
  132
  146
  160
  176
  192
  209
  247
  266
  286
  307
  329
  352
  377
  403
  431
  460
  490
  522
  556
  592
  630
  670
  712
  756
  803
  852

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  39
  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
  1,109
  1,132
  1,196
  1,264
  1,334
  1,408
  1,485
  1,566
  1,650
  1,738
  1,831
  1,927
  2,028
  2,134
  2,246
  2,362
  2,484
  2,612
  2,746
  2,886
  3,034
  3,188
  3,351
  3,521
  3,699
  3,887
  4,083
  4,290
  4,506
  4,733
  4,972
Adjusted assets (=assets-cash), $m
  1,070
  1,132
  1,196
  1,264
  1,334
  1,408
  1,485
  1,566
  1,650
  1,738
  1,831
  1,927
  2,028
  2,134
  2,246
  2,362
  2,484
  2,612
  2,746
  2,886
  3,034
  3,188
  3,351
  3,521
  3,699
  3,887
  4,083
  4,290
  4,506
  4,733
  4,972
Revenue / Adjusted assets
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
Average production assets, $m
  387
  409
  432
  456
  482
  508
  536
  565
  596
  628
  661
  696
  732
  771
  811
  853
  897
  943
  992
  1,042
  1,096
  1,151
  1,210
  1,271
  1,336
  1,404
  1,474
  1,549
  1,627
  1,709
  1,795
Working capital, $m
  355
  325
  344
  363
  384
  405
  427
  450
  474
  500
  526
  554
  583
  614
  646
  679
  714
  751
  789
  830
  872
  917
  963
  1,012
  1,064
  1,117
  1,174
  1,233
  1,295
  1,361
  1,429
Total debt, $m
  270
  277
  300
  324
  349
  375
  402
  431
  460
  492
  524
  558
  594
  631
  671
  712
  755
  800
  847
  897
  949
  1,004
  1,061
  1,121
  1,184
  1,250
  1,319
  1,392
  1,469
  1,549
  1,633
Total liabilities, $m
  392
  399
  422
  446
  471
  497
  524
  553
  582
  614
  646
  680
  716
  753
  793
  834
  877
  922
  969
  1,019
  1,071
  1,126
  1,183
  1,243
  1,306
  1,372
  1,441
  1,514
  1,591
  1,671
  1,755
Total equity, $m
  717
  732
  774
  818
  863
  911
  961
  1,013
  1,068
  1,125
  1,184
  1,247
  1,312
  1,381
  1,453
  1,528
  1,607
  1,690
  1,777
  1,868
  1,963
  2,063
  2,168
  2,278
  2,394
  2,515
  2,642
  2,775
  2,915
  3,062
  3,217
Total liabilities and equity, $m
  1,109
  1,131
  1,196
  1,264
  1,334
  1,408
  1,485
  1,566
  1,650
  1,739
  1,830
  1,927
  2,028
  2,134
  2,246
  2,362
  2,484
  2,612
  2,746
  2,887
  3,034
  3,189
  3,351
  3,521
  3,700
  3,887
  4,083
  4,289
  4,506
  4,733
  4,972
Debt-to-equity ratio
  0.377
  0.380
  0.390
  0.400
  0.400
  0.410
  0.420
  0.430
  0.430
  0.440
  0.440
  0.450
  0.450
  0.460
  0.460
  0.470
  0.470
  0.470
  0.480
  0.480
  0.480
  0.490
  0.490
  0.490
  0.490
  0.500
  0.500
  0.500
  0.500
  0.510
  0.510
Adjusted equity ratio
  0.634
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  71
  83
  94
  106
  119
  132
  146
  160
  176
  192
  209
  247
  266
  286
  307
  329
  352
  377
  403
  431
  460
  490
  522
  556
  592
  630
  670
  712
  756
  803
  852
Depreciation, amort., depletion, $m
  27
  44
  45
  46
  47
  48
  49
  50
  51
  53
  54
  29
  30
  32
  34
  35
  37
  39
  41
  43
  45
  48
  50
  53
  55
  58
  61
  64
  67
  71
  74
Funds from operations, $m
  84
  127
  139
  152
  165
  180
  195
  210
  227
  245
  263
  275
  296
  317
  340
  364
  389
  416
  444
  474
  505
  538
  572
  609
  647
  688
  731
  776
  823
  873
  926
Change in working capital, $m
  -17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  30
  32
  33
  35
  37
  39
  40
  42
  44
  47
  49
  51
  54
  57
  59
  62
  65
  69
Cash from operations, $m
  101
  109
  120
  132
  145
  158
  173
  187
  203
  219
  237
  248
  267
  287
  308
  331
  354
  379
  405
  433
  462
  493
  526
  560
  596
  634
  674
  716
  761
  808
  857
Maintenance CAPEX, $m
  0
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
  -48
  -50
  -53
  -55
  -58
  -61
  -64
  -67
  -71
New CAPEX, $m
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -30
  -32
  -33
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -53
  -56
  -59
  -61
  -64
  -68
  -71
  -74
  -78
  -82
  -86
Cash from investing activities, $m
  -21
  -38
  -40
  -42
  -44
  -47
  -49
  -51
  -53
  -57
  -59
  -62
  -66
  -68
  -72
  -76
  -79
  -83
  -87
  -92
  -96
  -101
  -107
  -111
  -117
  -123
  -129
  -135
  -142
  -149
  -157
Free cash flow, $m
  80
  71
  80
  90
  101
  112
  124
  136
  149
  163
  177
  185
  201
  218
  236
  255
  275
  296
  318
  341
  366
  392
  420
  448
  479
  511
  545
  581
  619
  659
  701
Issuance/(repayment) of debt, $m
  -95
  21
  23
  24
  25
  26
  27
  28
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  50
  52
  55
  57
  60
  63
  66
  69
  73
  76
  80
  84
Issuance/(repurchase) of shares, $m
  11
  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  
  -79
  21
  23
  24
  25
  26
  27
  28
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  50
  52
  55
  57
  60
  63
  66
  69
  73
  76
  80
  84
Total cash flow (excl. dividends), $m
  0
  92
  103
  114
  126
  138
  151
  164
  179
  194
  210
  219
  237
  256
  275
  296
  318
  341
  365
  391
  418
  447
  477
  509
  542
  577
  615
  654
  695
  739
  785
Retained Cash Flow (-), $m
  -96
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -55
  -57
  -60
  -63
  -65
  -69
  -72
  -75
  -79
  -83
  -87
  -91
  -95
  -100
  -105
  -110
  -116
  -121
  -127
  -133
  -140
  -147
  -154
Prev. year cash balance distribution, $m
 
  25
  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
 
  77
  61
  70
  80
  90
  101
  112
  124
  137
  150
  157
  172
  187
  204
  221
  239
  258
  279
  300
  323
  347
  372
  398
  426
  456
  487
  520
  555
  592
  631
Discount rate, %
 
  4.60
  4.83
  5.07
  5.33
  5.59
  5.87
  6.16
  6.47
  6.80
  7.14
  7.49
  7.87
  8.26
  8.67
  9.11
  9.56
  10.04
  10.54
  11.07
  11.62
  12.21
  12.82
  13.46
  14.13
  14.84
  15.58
  16.36
  17.17
  18.03
  18.93
PV of cash for distribution, $m
 
  74
  55
  61
  65
  69
  72
  74
  75
  76
  75
  71
  69
  67
  64
  60
  55
  51
  46
  41
  36
  31
  26
  22
  18
  14
  11
  9
  7
  5
  3
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

RBC Bearings Incorporated is an international manufacturer and marketer of engineered precision bearings and products, which are integral to the manufacture and operation of machines, aircraft and mechanical systems. The Company operates through four segments: Plain Bearings; Roller Bearings; Ball Bearings, and Engineered Products. The Company has over 40 facilities of which over 30 are manufacturing facilities in approximately five countries. The Company classifies its customers into two categories: industrial and aerospace. The Company manufactures bearings and engineered products for a range of diversified industrial markets, including construction and mining, oil and natural resource extraction, heavy truck, marine, rail and train, packaging, semiconductor machinery and the general industrial markets. The Company supplies bearings and engineered products for use in commercial, private and military aircraft and aircraft engines, guided weaponry, and vision and optical systems.

FINANCIAL RATIOS  of  RBC Bearings (ROLL)

Valuation Ratios
P/E Ratio 42.4
Price to Sales 4.9
Price to Book 4.2
Price to Tangible Book
Price to Cash Flow 29.8
Price to Free Cash Flow 37.6
Growth Rates
Sales Growth Rate 3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate -6.3%
Financial Strength
Quick Ratio 3
Current Ratio 0
LT Debt to Equity 35.7%
Total Debt to Equity 37.7%
Interest Coverage 0
Management Effectiveness
Return On Assets 6.4%
Ret/ On Assets - 3 Yr. Avg. 7.7%
Return On Total Capital 7.2%
Ret/ On T. Cap. - 3 Yr. Avg. 8.7%
Return On Equity 10.6%
Return On Equity - 3 Yr. Avg. 10.7%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 37.4%
Gross Margin - 3 Yr. Avg. 37.4%
EBITDA Margin 21.5%
EBITDA Margin - 3 Yr. Avg. 21.4%
Operating Margin 18.4%
Oper. Margin - 3 Yr. Avg. 18.5%
Pre-Tax Margin 17.1%
Pre-Tax Margin - 3 Yr. Avg. 17.4%
Net Profit Margin 11.5%
Net Profit Margin - 3 Yr. Avg. 11.8%
Effective Tax Rate 32.4%
Eff/ Tax Rate - 3 Yr. Avg. 32.3%
Payout Ratio 0%

ROLL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ROLL stock intrinsic value calculation we used $615 million for the last fiscal year's total revenue generated by RBC Bearings. The default revenue input number comes from 2017 income statement of RBC Bearings. 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 ROLL stock valuation model: a) initial revenue growth rate of 5.8% 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 4.6%, whose default value for ROLL is calculated based on our internal credit rating of RBC Bearings, 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 RBC Bearings.
    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 ROLL stock the variable cost ratio is equal to 44.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $235 million in the base year in the intrinsic value calculation for ROLL 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 RBC Bearings.

Corporate tax rate of 27% is the nominal tax rate for RBC Bearings. 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 ROLL 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 ROLL are equal to 62.8%.

Life of production assets of 24.2 years is the average useful life of capital assets used in RBC Bearings 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 ROLL is equal to 50%. 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 - $717 million for RBC Bearings - 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 24.225 million for RBC Bearings 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 RBC Bearings at the current share price and the inputted number of shares is $2.9 billion.

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COMPANY NEWS

▶ Restructuring Charges Hold RBC Bearings Back for Now   [Nov-04-17 11:20AM  Motley Fool]
▶ RBC Bearings Incorporated to Host Earnings Call   [Nov-03-17 08:30AM  ACCESSWIRE]
▶ RBC Bearings misses 2Q profit forecasts   [08:09AM  Associated Press]
▶ What's Working: Industrial plays   [Oct-05-17 08:18AM  CNBC Videos]
▶ RBC Bearings beats Street 1Q forecasts   [Aug-08-17 05:23PM  Associated Press]
▶ RBC Bearings Restarts Its Growth Engines   [10:40AM  Motley Fool]
▶ ETFs with exposure to RBC Bearings, Inc. : June 8, 2017   [Jun-08-17 01:55PM  Capital Cube]
▶ RBC Bearings Announces Senior Leadership Updates   [Jun-07-17 04:30PM  Business Wire]
▶ RBC Bearings tops 4Q profit forecasts   [08:25AM  Associated Press]
▶ RBC Bearings tops 3Q profit forecasts   [08:07AM  Associated Press]
▶ Is RBC Bearings Incorporated (ROLL) A Good Stock to Buy?   [Dec-13-16 04:34AM  at Insider Monkey]
▶ RBC Bearings Keeps Rolling Higher   [Nov-03-16 03:20PM  at Motley Fool]
Financial statements of ROLL
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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