Intrinsic value of Rayonier Advanced Materials - RYAM

Previous Close

$16.70

  Intrinsic Value

$8.80

stock screener

  Rating & Target

sell

-47%

Previous close

$16.70

 
Intrinsic value

$8.80

 
Up/down potential

-47%

 
Rating

sell

We calculate the intrinsic value of RYAM 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, %
  -7.65
  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
  869
  886
  907
  930
  956
  985
  1,017
  1,052
  1,089
  1,130
  1,173
  1,219
  1,269
  1,321
  1,377
  1,437
  1,500
  1,566
  1,637
  1,711
  1,790
  1,873
  1,961
  2,053
  2,150
  2,252
  2,360
  2,474
  2,593
  2,718
  2,851
Variable operating expenses, $m
 
  774
  792
  812
  835
  860
  888
  918
  951
  986
  1,024
  1,064
  1,108
  1,154
  1,203
  1,254
  1,309
  1,368
  1,429
  1,494
  1,563
  1,635
  1,712
  1,792
  1,877
  1,966
  2,060
  2,159
  2,264
  2,373
  2,489
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
  722
  774
  792
  812
  835
  860
  888
  918
  951
  986
  1,024
  1,064
  1,108
  1,154
  1,203
  1,254
  1,309
  1,368
  1,429
  1,494
  1,563
  1,635
  1,712
  1,792
  1,877
  1,966
  2,060
  2,159
  2,264
  2,373
  2,489
Operating income, $m
  146
  113
  115
  118
  121
  125
  129
  134
  138
  143
  149
  155
  161
  168
  175
  182
  190
  199
  208
  217
  227
  238
  249
  261
  273
  286
  300
  314
  329
  345
  362
EBITDA, $m
  234
  202
  207
  212
  218
  225
  232
  240
  249
  258
  268
  279
  290
  302
  315
  328
  343
  358
  374
  391
  409
  428
  448
  469
  491
  515
  539
  565
  592
  621
  651
Interest expense (income), $m
  35
  33
  25
  26
  27
  28
  30
  31
  33
  35
  37
  39
  41
  43
  46
  49
  52
  55
  58
  61
  65
  69
  73
  77
  82
  86
  91
  97
  102
  108
  114
Earnings before tax, $m
  113
  79
  90
  92
  94
  97
  100
  102
  105
  109
  112
  116
  120
  124
  129
  134
  139
  144
  150
  156
  162
  169
  176
  184
  191
  200
  208
  217
  227
  237
  248
Tax expense, $m
  40
  21
  24
  25
  26
  26
  27
  28
  28
  29
  30
  31
  32
  34
  35
  36
  37
  39
  40
  42
  44
  46
  48
  50
  52
  54
  56
  59
  61
  64
  67
Net income, $m
  73
  58
  66
  67
  69
  71
  73
  75
  77
  79
  82
  85
  88
  91
  94
  98
  101
  105
  109
  114
  118
  123
  129
  134
  140
  146
  152
  159
  166
  173
  181

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  327
  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
  1,422
  1,116
  1,142
  1,171
  1,204
  1,241
  1,281
  1,325
  1,372
  1,423
  1,477
  1,536
  1,598
  1,664
  1,735
  1,810
  1,889
  1,973
  2,062
  2,155
  2,255
  2,359
  2,469
  2,585
  2,708
  2,837
  2,972
  3,115
  3,266
  3,424
  3,590
Adjusted assets (=assets-cash), $m
  1,095
  1,116
  1,142
  1,171
  1,204
  1,241
  1,281
  1,325
  1,372
  1,423
  1,477
  1,536
  1,598
  1,664
  1,735
  1,810
  1,889
  1,973
  2,062
  2,155
  2,255
  2,359
  2,469
  2,585
  2,708
  2,837
  2,972
  3,115
  3,266
  3,424
  3,590
Revenue / Adjusted assets
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
  0.794
Average production assets, $m
  803
  818
  837
  858
  883
  909
  939
  971
  1,005
  1,043
  1,083
  1,125
  1,171
  1,220
  1,271
  1,326
  1,384
  1,446
  1,511
  1,580
  1,652
  1,729
  1,810
  1,895
  1,984
  2,079
  2,178
  2,283
  2,393
  2,509
  2,631
Working capital, $m
  393
  77
  79
  81
  83
  86
  88
  91
  95
  98
  102
  106
  110
  115
  120
  125
  130
  136
  142
  149
  156
  163
  171
  179
  187
  196
  205
  215
  226
  237
  248
Total debt, $m
  783
  578
  601
  627
  657
  690
  726
  765
  808
  853
  902
  955
  1,011
  1,071
  1,134
  1,202
  1,273
  1,349
  1,429
  1,513
  1,602
  1,696
  1,795
  1,900
  2,010
  2,126
  2,248
  2,377
  2,512
  2,654
  2,804
Total liabilities, $m
  1,210
  1,005
  1,028
  1,054
  1,084
  1,117
  1,153
  1,192
  1,235
  1,280
  1,329
  1,382
  1,438
  1,498
  1,561
  1,629
  1,700
  1,776
  1,856
  1,940
  2,029
  2,123
  2,222
  2,327
  2,437
  2,553
  2,675
  2,804
  2,939
  3,081
  3,231
Total equity, $m
  212
  112
  114
  117
  120
  124
  128
  132
  137
  142
  148
  154
  160
  166
  173
  181
  189
  197
  206
  216
  225
  236
  247
  259
  271
  284
  297
  312
  327
  342
  359
Total liabilities and equity, $m
  1,422
  1,117
  1,142
  1,171
  1,204
  1,241
  1,281
  1,324
  1,372
  1,422
  1,477
  1,536
  1,598
  1,664
  1,734
  1,810
  1,889
  1,973
  2,062
  2,156
  2,254
  2,359
  2,469
  2,586
  2,708
  2,837
  2,972
  3,116
  3,266
  3,423
  3,590
Debt-to-equity ratio
  3.693
  5.180
  5.260
  5.350
  5.450
  5.560
  5.670
  5.780
  5.890
  6.000
  6.110
  6.220
  6.330
  6.430
  6.540
  6.640
  6.740
  6.840
  6.930
  7.020
  7.110
  7.190
  7.270
  7.350
  7.420
  7.490
  7.560
  7.630
  7.690
  7.750
  7.810
Adjusted equity ratio
  -0.105
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  73
  58
  66
  67
  69
  71
  73
  75
  77
  79
  82
  85
  88
  91
  94
  98
  101
  105
  109
  114
  118
  123
  129
  134
  140
  146
  152
  159
  166
  173
  181
Depreciation, amort., depletion, $m
  88
  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
Funds from operations, $m
  250
  148
  158
  162
  166
  171
  176
  181
  187
  194
  201
  208
  216
  225
  234
  243
  253
  264
  275
  287
  300
  313
  327
  342
  358
  374
  391
  410
  429
  449
  470
Change in working capital, $m
  18
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
Cash from operations, $m
  232
  146
  156
  160
  164
  168
  173
  178
  184
  190
  197
  204
  212
  220
  229
  238
  248
  258
  269
  281
  293
  306
  320
  334
  349
  365
  382
  400
  418
  438
  459
Maintenance CAPEX, $m
  0
  -88
  -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
New CAPEX, $m
  -89
  -16
  -19
  -22
  -24
  -27
  -29
  -32
  -35
  -37
  -40
  -43
  -46
  -49
  -52
  -55
  -58
  -62
  -65
  -69
  -73
  -77
  -81
  -85
  -90
  -94
  -99
  -105
  -110
  -116
  -122
Cash from investing activities, $m
  -87
  -104
  -109
  -114
  -118
  -124
  -129
  -135
  -142
  -147
  -155
  -162
  -170
  -178
  -186
  -195
  -204
  -214
  -224
  -235
  -247
  -259
  -271
  -284
  -298
  -312
  -327
  -344
  -361
  -379
  -398
Free cash flow, $m
  145
  42
  47
  46
  45
  44
  44
  43
  43
  43
  43
  43
  43
  43
  43
  44
  44
  45
  45
  46
  47
  48
  49
  50
  51
  53
  54
  56
  57
  59
  61
Issuance/(repayment) of debt, $m
  -71
  -195
  23
  26
  30
  33
  36
  39
  42
  46
  49
  53
  56
  60
  63
  67
  71
  76
  80
  84
  89
  94
  99
  105
  110
  116
  122
  129
  135
  142
  150
Issuance/(repurchase) of shares, $m
  167
  159
  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  
  95
  -36
  23
  26
  30
  33
  36
  39
  42
  46
  49
  53
  56
  60
  63
  67
  71
  76
  80
  84
  89
  94
  99
  105
  110
  116
  122
  129
  135
  142
  150
Total cash flow (excl. dividends), $m
  240
  6
  71
  73
  75
  77
  80
  83
  85
  88
  92
  95
  99
  103
  107
  111
  115
  120
  125
  131
  136
  142
  148
  155
  162
  169
  176
  184
  193
  201
  211
Retained Cash Flow (-), $m
  -229
  -217
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
Prev. year cash balance distribution, $m
 
  317
  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
 
  106
  68
  70
  72
  74
  76
  78
  81
  83
  86
  89
  93
  96
  100
  103
  108
  112
  116
  121
  126
  132
  137
  143
  149
  156
  163
  170
  178
  186
  194
Discount rate, %
 
  5.80
  6.09
  6.39
  6.71
  7.05
  7.40
  7.77
  8.16
  8.57
  9.00
  9.45
  9.92
  10.42
  10.94
  11.48
  12.06
  12.66
  13.29
  13.96
  14.66
  15.39
  16.16
  16.97
  17.81
  18.71
  19.64
  20.62
  21.65
  22.74
  23.87
PV of cash for distribution, $m
 
  100
  60
  58
  55
  52
  49
  46
  43
  40
  36
  33
  30
  26
  23
  20
  17
  15
  12
  10
  8
  7
  5
  4
  3
  2
  2
  1
  1
  0
  0
Current shareholders' claim on cash, %
  100
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

Rayonier Advanced Materials Inc. is engaged in the production of cellulose specialties. The Company's product lines include cellulose specialties and commodity products. Its products are used in manufacturing processes. The Company's products are sold throughout the world to companies for use in various industrial applications, and to produce a range of products, including cigarette filters, foods, pharmaceuticals, textiles and electronics. The Company focuses on producing various forms of cellulose specialties products, such as cellulose acetate and cellulose ethers. The Company's production facilities are located in Jesup, Georgia and Fernandina Beach, Florida. The Jesup plant can produce cellulose specialties or commodity products using both hardwood and softwood in a pre-hydrolyzed kraft or high potential of hydrogen (pH) cooking process. The Fernandina Beach plant can produce cellulose specialties or commodity products using softwood in a sulfite or low pH cooking process.

FINANCIAL RATIOS  of  Rayonier Advanced Materials (RYAM)

Valuation Ratios
P/E Ratio 9.9
Price to Sales 0.8
Price to Book 3.4
Price to Tangible Book
Price to Cash Flow 3.1
Price to Free Cash Flow 5.1
Growth Rates
Sales Growth Rate -7.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 15.6%
Cap. Spend. - 3 Yr. Gr. Rate -1.5%
Financial Strength
Quick Ratio 33
Current Ratio 0
LT Debt to Equity 364.6%
Total Debt to Equity 369.3%
Interest Coverage 4
Management Effectiveness
Return On Assets 7.1%
Ret/ On Assets - 3 Yr. Avg. 5.7%
Return On Total Capital 8%
Ret/ On T. Cap. - 3 Yr. Avg. 5.9%
Return On Equity 74.9%
Return On Equity - 3 Yr. Avg. -19.1%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 20.8%
Gross Margin - 3 Yr. Avg. 21.9%
EBITDA Margin 27.2%
EBITDA Margin - 3 Yr. Avg. 21.6%
Operating Margin 16.9%
Oper. Margin - 3 Yr. Avg. 12%
Pre-Tax Margin 13%
Pre-Tax Margin - 3 Yr. Avg. 8.7%
Net Profit Margin 8.4%
Net Profit Margin - 3 Yr. Avg. 5.9%
Effective Tax Rate 35.4%
Eff/ Tax Rate - 3 Yr. Avg. 29.7%
Payout Ratio 20.5%

RYAM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RYAM stock intrinsic value calculation we used $869 million for the last fiscal year's total revenue generated by Rayonier Advanced Materials. The default revenue input number comes from 2016 income statement of Rayonier Advanced Materials. 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 RYAM 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 5.8%, whose default value for RYAM is calculated based on our internal credit rating of Rayonier Advanced Materials, 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 Rayonier Advanced Materials.
    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 RYAM stock the variable cost ratio is equal to 87.3%.

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 RYAM 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 4.3% for Rayonier Advanced Materials.

Corporate tax rate of 27% is the nominal tax rate for Rayonier Advanced Materials. 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 RYAM 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 RYAM are equal to 92.3%.

Life of production assets of 9.1 years is the average useful life of capital assets used in Rayonier Advanced Materials 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 RYAM is equal to 8.7%. 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 - $212 million for Rayonier Advanced Materials - 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 43.277 million for Rayonier Advanced Materials 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 Rayonier Advanced Materials at the current share price and the inputted number of shares is $0.7 billion.

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COMPANY NEWS

▶ Rayonier Advanced Materials Completes Acquisition of Tembec   [Nov-20-17 06:59AM  Business Wire]
▶ Rayonier Advanced Materials posts 3Q profit   [Nov-02-17 05:50AM  Associated Press]
▶ Rayonier hosts students, representatives at manufacturing plant   [03:05PM  American City Business Journals]
▶ Rayonier Advanced Materials posts 2Q profit   [Aug-03-17 10:10AM  Associated Press]
Financial statements of RYAM
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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