Intrinsic value of Ruth's Hospitality Group - RUTH

Previous Close

$20.20

  Intrinsic Value

$28.52

stock screener

  Rating & Target

buy

+41%

  Value-price divergence*

+38%

Previous close

$20.20

 
Intrinsic value

$28.52

 
Up/down potential

+41%

 
Rating

buy

 
Value-price divergence*

+38%

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

We calculate the intrinsic value of RUTH 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 0.6

 

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, %
  3.49
  7.50
  7.25
  7.02
  6.82
  6.64
  6.48
  6.33
  6.20
  6.08
  5.97
  5.87
  5.78
  5.71
  5.64
  5.57
  5.51
  5.46
  5.42
  5.38
  5.34
  5.30
  5.27
  5.25
  5.22
  5.20
  5.18
  5.16
  5.15
  5.13
  5.12
Revenue, $m
  386
  415
  445
  476
  509
  543
  578
  614
  652
  692
  733
  776
  821
  868
  917
  968
  1,022
  1,077
  1,136
  1,197
  1,261
  1,327
  1,397
  1,471
  1,548
  1,628
  1,712
  1,801
  1,893
  1,991
  2,092
Variable operating expenses, $m
 
  287
  308
  329
  351
  374
  399
  424
  450
  477
  505
  532
  563
  595
  629
  664
  701
  739
  779
  821
  864
  910
  958
  1,009
  1,061
  1,116
  1,174
  1,235
  1,298
  1,365
  1,435
Fixed operating expenses, $m
 
  75
  77
  79
  81
  83
  85
  87
  89
  91
  93
  96
  98
  101
  103
  106
  108
  111
  114
  117
  120
  123
  126
  129
  132
  135
  139
  142
  146
  149
  153
Total operating expenses, $m
  338
  362
  385
  408
  432
  457
  484
  511
  539
  568
  598
  628
  661
  696
  732
  770
  809
  850
  893
  938
  984
  1,033
  1,084
  1,138
  1,193
  1,251
  1,313
  1,377
  1,444
  1,514
  1,588
Operating income, $m
  48
  53
  61
  69
  77
  85
  94
  104
  114
  124
  135
  148
  160
  172
  185
  198
  213
  227
  243
  259
  276
  294
  313
  333
  354
  376
  399
  424
  449
  476
  504
EBITDA, $m
  61
  67
  76
  85
  94
  103
  113
  124
  135
  146
  158
  170
  183
  197
  211
  226
  242
  258
  275
  293
  312
  332
  353
  375
  398
  422
  448
  475
  503
  533
  564
Interest expense (income), $m
  1
  2
  3
  4
  4
  5
  6
  7
  8
  9
  10
  11
  12
  14
  15
  16
  17
  19
  20
  22
  24
  25
  27
  29
  31
  33
  35
  37
  40
  42
  45
Earnings before tax, $m
  46
  51
  58
  65
  72
  80
  88
  97
  106
  115
  124
  137
  147
  159
  170
  182
  195
  209
  223
  237
  253
  269
  286
  304
  323
  343
  364
  386
  410
  434
  460
Tax expense, $m
  15
  14
  16
  18
  20
  22
  24
  26
  29
  31
  34
  37
  40
  43
  46
  49
  53
  56
  60
  64
  68
  73
  77
  82
  87
  93
  98
  104
  111
  117
  124
Net income, $m
  30
  37
  42
  48
  53
  59
  64
  71
  77
  84
  91
  100
  108
  116
  124
  133
  142
  152
  163
  173
  185
  197
  209
  222
  236
  251
  266
  282
  299
  317
  336

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  4
  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
  207
  218
  234
  251
  268
  285
  304
  323
  343
  364
  386
  408
  432
  457
  482
  509
  537
  567
  597
  630
  663
  698
  735
  774
  814
  856
  901
  947
  996
  1,047
  1,101
Adjusted assets (=assets-cash), $m
  203
  218
  234
  251
  268
  285
  304
  323
  343
  364
  386
  408
  432
  457
  482
  509
  537
  567
  597
  630
  663
  698
  735
  774
  814
  856
  901
  947
  996
  1,047
  1,101
Revenue / Adjusted assets
  1.901
  1.904
  1.902
  1.896
  1.899
  1.905
  1.901
  1.901
  1.901
  1.901
  1.899
  1.902
  1.900
  1.899
  1.902
  1.902
  1.903
  1.899
  1.903
  1.900
  1.902
  1.901
  1.901
  1.901
  1.902
  1.902
  1.900
  1.902
  1.901
  1.902
  1.900
Average production assets, $m
  131
  140
  150
  161
  172
  183
  195
  208
  220
  234
  248
  262
  278
  293
  310
  327
  345
  364
  384
  404
  426
  449
  472
  497
  523
  550
  579
  609
  640
  673
  707
Working capital, $m
  -45
  -53
  -57
  -60
  -65
  -69
  -73
  -78
  -83
  -88
  -93
  -99
  -104
  -110
  -116
  -123
  -130
  -137
  -144
  -152
  -160
  -169
  -177
  -187
  -197
  -207
  -217
  -229
  -240
  -253
  -266
Total debt, $m
  25
  35
  45
  55
  66
  77
  89
  101
  114
  127
  140
  155
  170
  185
  201
  218
  236
  255
  274
  294
  315
  338
  361
  385
  411
  437
  465
  495
  525
  558
  592
Total liabilities, $m
  128
  138
  148
  158
  169
  180
  192
  204
  217
  230
  243
  258
  273
  288
  304
  321
  339
  358
  377
  397
  418
  441
  464
  488
  514
  540
  568
  598
  628
  661
  695
Total equity, $m
  79
  81
  86
  92
  99
  105
  112
  119
  127
  134
  142
  151
  159
  169
  178
  188
  198
  209
  220
  232
  245
  258
  271
  285
  300
  316
  332
  350
  368
  386
  406
Total liabilities and equity, $m
  207
  219
  234
  250
  268
  285
  304
  323
  344
  364
  385
  409
  432
  457
  482
  509
  537
  567
  597
  629
  663
  699
  735
  773
  814
  856
  900
  948
  996
  1,047
  1,101
Debt-to-equity ratio
  0.316
  0.430
  0.520
  0.600
  0.670
  0.730
  0.790
  0.850
  0.900
  0.940
  0.990
  1.030
  1.060
  1.100
  1.130
  1.160
  1.190
  1.220
  1.240
  1.270
  1.290
  1.310
  1.330
  1.350
  1.370
  1.380
  1.400
  1.420
  1.430
  1.440
  1.460
Adjusted equity ratio
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  30
  37
  42
  48
  53
  59
  64
  71
  77
  84
  91
  100
  108
  116
  124
  133
  142
  152
  163
  173
  185
  197
  209
  222
  236
  251
  266
  282
  299
  317
  336
Depreciation, amort., depletion, $m
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  22
  23
  25
  26
  27
  29
  31
  32
  34
  36
  38
  40
  42
  44
  46
  49
  51
  54
  57
  59
Funds from operations, $m
  53
  52
  57
  63
  70
  76
  83
  90
  98
  106
  114
  122
  131
  140
  150
  161
  171
  183
  195
  207
  220
  234
  249
  264
  280
  297
  315
  333
  353
  373
  395
Change in working capital, $m
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
Cash from operations, $m
  56
  55
  61
  67
  74
  81
  88
  95
  103
  111
  119
  127
  137
  146
  156
  167
  178
  190
  202
  215
  229
  243
  258
  273
  290
  307
  325
  344
  365
  386
  408
Maintenance CAPEX, $m
  0
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -49
  -51
  -54
  -57
New CAPEX, $m
  -26
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -34
Cash from investing activities, $m
  -25
  -21
  -22
  -24
  -25
  -25
  -27
  -28
  -30
  -32
  -34
  -36
  -37
  -39
  -42
  -43
  -45
  -48
  -51
  -53
  -56
  -59
  -62
  -65
  -68
  -71
  -75
  -79
  -82
  -87
  -91
Free cash flow, $m
  31
  34
  39
  44
  49
  55
  60
  66
  73
  79
  86
  92
  99
  107
  115
  124
  133
  142
  152
  162
  173
  184
  196
  209
  222
  236
  251
  266
  282
  299
  317
Issuance/(repayment) of debt, $m
  25
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
  34
Issuance/(repurchase) of shares, $m
  -45
  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  
  -21
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
  34
Total cash flow (excl. dividends), $m
  10
  44
  49
  55
  60
  66
  72
  78
  85
  92
  99
  106
  114
  123
  132
  141
  150
  161
  171
  182
  194
  207
  220
  233
  248
  263
  279
  295
  313
  331
  351
Retained Cash Flow (-), $m
  19
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
Prev. year cash balance distribution, $m
 
  4
  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
 
  43
  43
  49
  54
  59
  65
  71
  78
  84
  91
  98
  106
  114
  122
  131
  140
  150
  160
  171
  182
  194
  206
  219
  233
  247
  262
  278
  295
  312
  331
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
 
  41
  40
  42
  44
  46
  47
  48
  49
  48
  48
  47
  45
  43
  41
  38
  36
  33
  29
  26
  23
  20
  17
  14
  12
  10
  8
  6
  5
  3
  2
Current shareholders' claim on cash, %
  100
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Ruth's Hospitality Group, Inc. develops and operates fine dining restaurants under the name, Ruth's Chris Steak House. The Company operates through two segments. As of December 25, 2016, the Company-owned steakhouse restaurant segment included 68 Ruth's Chris Steak House restaurants and one Ruth's Chris Steak House restaurant, and the franchise operations segment included 81 franchisee-owned Ruth's Chris Steak House restaurants. Its restaurant's menu features a selection of Prime and Choice grade steaks, and other offerings. Its menu also includes lamb chops, fish, shrimp, crab, chicken and lobster. Its Ruth's Chris restaurants offer 10 to 13 appetizer items, including Orleans-style barbequed shrimp, mushrooms stuffed with crabmeat, lobster bisque and osso bucco ravioli. It also offers a range of potatoes and vegetables as side dishes. For dessert, creme brulee, white chocolate bread pudding, cheesecake, fresh seasonal berries with sweet cream sauce and other selections are available.

FINANCIAL RATIOS  of  Ruth's Hospitality Group (RUTH)

Valuation Ratios
P/E Ratio 20.6
Price to Sales 1.6
Price to Book 7.8
Price to Tangible Book
Price to Cash Flow 11
Price to Free Cash Flow 20.6
Growth Rates
Sales Growth Rate 3.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 30%
Cap. Spend. - 3 Yr. Gr. Rate 11.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 31.6%
Total Debt to Equity 31.6%
Interest Coverage 47
Management Effectiveness
Return On Assets 15.1%
Ret/ On Assets - 3 Yr. Avg. 12.3%
Return On Total Capital 29.7%
Ret/ On T. Cap. - 3 Yr. Avg. 24.2%
Return On Equity 33.9%
Return On Equity - 3 Yr. Avg. 27%
Asset Turnover 1.9
Profitability Ratios
Gross Margin 27.5%
Gross Margin - 3 Yr. Avg. 26.4%
EBITDA Margin 15.5%
EBITDA Margin - 3 Yr. Avg. 15.4%
Operating Margin 12.4%
Oper. Margin - 3 Yr. Avg. 11.9%
Pre-Tax Margin 11.9%
Pre-Tax Margin - 3 Yr. Avg. 11.7%
Net Profit Margin 7.8%
Net Profit Margin - 3 Yr. Avg. 6.8%
Effective Tax Rate 32.6%
Eff/ Tax Rate - 3 Yr. Avg. 31.7%
Payout Ratio 30%

RUTH stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RUTH stock intrinsic value calculation we used $386 million for the last fiscal year's total revenue generated by Ruth's Hospitality Group. The default revenue input number comes from 2016 income statement of Ruth's Hospitality Group. 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 RUTH stock valuation model: a) initial revenue growth rate of 7.5% 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 4.3%, whose default value for RUTH is calculated based on our internal credit rating of Ruth's Hospitality Group, 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 Ruth's Hospitality Group.
    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 RUTH stock the variable cost ratio is equal to 69.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $73 million in the base year in the intrinsic value calculation for RUTH 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 8% for Ruth's Hospitality Group.

Corporate tax rate of 27% is the nominal tax rate for Ruth's Hospitality Group. 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 RUTH 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 RUTH are equal to 33.8%.

Life of production assets of 11.9 years is the average useful life of capital assets used in Ruth's Hospitality Group 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 RUTH is equal to -12.7%. 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 - $79 million for Ruth's Hospitality Group - 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 32.171 million for Ruth's Hospitality Group 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 Ruth's Hospitality Group at the current share price and the inputted number of shares is $0.6 billion.

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COMPANY NEWS

▶ Ruth's Hospitality beats Street 2Q forecasts   [Jul-28-17 10:21PM  Associated Press]
▶ The Restaurant Sector Q2 Earnings Cheat Sheet   [Jul-22-17 03:39PM  Benzinga]
▶ Stocks Modestly Higher; These 3 Stocks Reach Buy Zones   [May-05-17 03:01PM  Investor's Business Daily]
▶ Ruth's Hospitality tops 1Q profit forecasts   [07:09AM  Associated Press]
▶ Ruth's Hospitality Continues to Impress   [Mar-21-17 06:34PM  GuruFocus.com]
▶ Ruth's Hospitality tops 4Q profit forecasts   [07:18AM  Associated Press]
▶ Ruth's Chris Steak House expanding to Kauai   [Feb-09-17 08:00PM  at bizjournals.com]
▶ Is Harmonic Inc (HLIT) Going to Burn These Hedge Funds?   [Dec-12-16 08:39AM  at Insider Monkey]
▶ Chipotles third-quarter earnings: What to expect   [Oct-24-16 04:25PM  at MarketWatch]
▶ Michigan Football Lowers the Steaks   [Oct-10-16 02:23PM  at The Wall Street Journal]
Financial statements of RUTH
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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