Intrinsic value of Smart&Final Stores - SFS

Previous Close

$8.95

  Intrinsic Value

$13.04

stock screener

  Rating & Target

buy

+46%

Previous close

$8.95

 
Intrinsic value

$13.04

 
Up/down potential

+46%

 
Rating

buy

We calculate the intrinsic value of SFS 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, %
  9.34
  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
  4.87
  4.89
  4.90
  4.91
  4.92
  4.92
  4.93
  4.94
  4.95
  4.95
  4.96
  4.96
  4.96
  4.97
  4.97
  4.97
  4.98
Revenue, $m
  4,342
  4,537
  4,744
  4,962
  5,192
  5,434
  5,690
  5,959
  6,243
  6,542
  6,856
  7,187
  7,535
  7,901
  8,286
  8,691
  9,117
  9,564
  10,034
  10,529
  11,048
  11,594
  12,167
  12,769
  13,402
  14,067
  14,765
  15,499
  16,269
  17,078
  17,928
Variable operating expenses, $m
 
  4,430
  4,629
  4,839
  5,060
  5,294
  5,540
  5,800
  6,073
  6,360
  6,663
  6,921
  7,256
  7,608
  7,979
  8,369
  8,779
  9,210
  9,662
  10,138
  10,638
  11,164
  11,716
  12,296
  12,905
  13,545
  14,218
  14,924
  15,666
  16,445
  17,264
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
  4,300
  4,430
  4,629
  4,839
  5,060
  5,294
  5,540
  5,800
  6,073
  6,360
  6,663
  6,921
  7,256
  7,608
  7,979
  8,369
  8,779
  9,210
  9,662
  10,138
  10,638
  11,164
  11,716
  12,296
  12,905
  13,545
  14,218
  14,924
  15,666
  16,445
  17,264
Operating income, $m
  42
  107
  115
  123
  131
  140
  150
  160
  170
  181
  193
  266
  279
  293
  307
  322
  338
  355
  372
  390
  410
  430
  451
  473
  497
  521
  547
  575
  603
  633
  665
EBITDA, $m
  129
  219
  229
  240
  251
  263
  275
  288
  302
  316
  332
  348
  364
  382
  401
  420
  441
  463
  485
  509
  534
  561
  588
  618
  648
  680
  714
  750
  787
  826
  867
Interest expense (income), $m
  30
  29
  32
  35
  38
  42
  45
  49
  53
  57
  61
  66
  71
  76
  81
  87
  93
  99
  105
  112
  119
  127
  135
  143
  152
  161
  171
  181
  192
  203
  215
Earnings before tax, $m
  11
  78
  83
  88
  93
  99
  105
  111
  117
  124
  132
  200
  209
  217
  226
  235
  245
  256
  267
  278
  290
  303
  316
  330
  345
  360
  376
  393
  411
  430
  450
Tax expense, $m
  -2
  21
  22
  24
  25
  27
  28
  30
  32
  34
  36
  54
  56
  59
  61
  64
  66
  69
  72
  75
  78
  82
  85
  89
  93
  97
  102
  106
  111
  116
  121
Net income, $m
  13
  57
  60
  64
  68
  72
  76
  81
  86
  91
  96
  146
  152
  158
  165
  172
  179
  187
  195
  203
  212
  221
  231
  241
  252
  263
  275
  287
  300
  314
  328

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  54
  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
  1,952
  1,983
  2,073
  2,169
  2,269
  2,375
  2,487
  2,605
  2,729
  2,859
  2,997
  3,141
  3,293
  3,453
  3,622
  3,799
  3,985
  4,180
  4,386
  4,602
  4,829
  5,067
  5,318
  5,581
  5,858
  6,148
  6,453
  6,774
  7,111
  7,464
  7,836
Adjusted assets (=assets-cash), $m
  1,898
  1,983
  2,073
  2,169
  2,269
  2,375
  2,487
  2,605
  2,729
  2,859
  2,997
  3,141
  3,293
  3,453
  3,622
  3,799
  3,985
  4,180
  4,386
  4,602
  4,829
  5,067
  5,318
  5,581
  5,858
  6,148
  6,453
  6,774
  7,111
  7,464
  7,836
Revenue / Adjusted assets
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
Average production assets, $m
  796
  830
  868
  908
  950
  994
  1,041
  1,091
  1,142
  1,197
  1,255
  1,315
  1,379
  1,446
  1,516
  1,590
  1,668
  1,750
  1,836
  1,927
  2,022
  2,122
  2,227
  2,337
  2,453
  2,574
  2,702
  2,836
  2,977
  3,125
  3,281
Working capital, $m
  34
  45
  47
  50
  52
  54
  57
  60
  62
  65
  69
  72
  75
  79
  83
  87
  91
  96
  100
  105
  110
  116
  122
  128
  134
  141
  148
  155
  163
  171
  179
Total debt, $m
  679
  685
  749
  817
  888
  963
  1,042
  1,126
  1,214
  1,306
  1,404
  1,506
  1,614
  1,727
  1,847
  1,972
  2,104
  2,243
  2,388
  2,542
  2,703
  2,872
  3,049
  3,236
  3,432
  3,638
  3,854
  4,082
  4,320
  4,571
  4,835
Total liabilities, $m
  1,400
  1,406
  1,470
  1,538
  1,609
  1,684
  1,763
  1,847
  1,935
  2,027
  2,125
  2,227
  2,335
  2,448
  2,568
  2,693
  2,825
  2,964
  3,109
  3,263
  3,424
  3,593
  3,770
  3,957
  4,153
  4,359
  4,575
  4,803
  5,041
  5,292
  5,556
Total equity, $m
  552
  577
  603
  631
  660
  691
  724
  758
  794
  832
  872
  914
  958
  1,005
  1,054
  1,105
  1,160
  1,216
  1,276
  1,339
  1,405
  1,475
  1,547
  1,624
  1,705
  1,789
  1,878
  1,971
  2,069
  2,172
  2,280
Total liabilities and equity, $m
  1,952
  1,983
  2,073
  2,169
  2,269
  2,375
  2,487
  2,605
  2,729
  2,859
  2,997
  3,141
  3,293
  3,453
  3,622
  3,798
  3,985
  4,180
  4,385
  4,602
  4,829
  5,068
  5,317
  5,581
  5,858
  6,148
  6,453
  6,774
  7,110
  7,464
  7,836
Debt-to-equity ratio
  1.230
  1.190
  1.240
  1.290
  1.340
  1.390
  1.440
  1.490
  1.530
  1.570
  1.610
  1.650
  1.680
  1.720
  1.750
  1.780
  1.810
  1.840
  1.870
  1.900
  1.920
  1.950
  1.970
  1.990
  2.010
  2.030
  2.050
  2.070
  2.090
  2.100
  2.120
Adjusted equity ratio
  0.262
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  13
  57
  60
  64
  68
  72
  76
  81
  86
  91
  96
  146
  152
  158
  165
  172
  179
  187
  195
  203
  212
  221
  231
  241
  252
  263
  275
  287
  300
  314
  328
Depreciation, amort., depletion, $m
  87
  112
  115
  117
  120
  122
  125
  128
  132
  135
  139
  81
  85
  89
  94
  98
  103
  108
  113
  119
  125
  131
  137
  144
  151
  159
  167
  175
  184
  193
  203
Funds from operations, $m
  77
  169
  175
  181
  188
  194
  202
  209
  217
  226
  235
  228
  237
  248
  259
  270
  282
  295
  308
  322
  337
  352
  368
  385
  403
  422
  442
  462
  484
  507
  531
Change in working capital, $m
  -20
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
Cash from operations, $m
  97
  167
  173
  179
  185
  192
  199
  207
  215
  223
  232
  224
  234
  244
  255
  266
  278
  290
  303
  317
  331
  347
  362
  379
  397
  415
  435
  455
  476
  499
  522
Maintenance CAPEX, $m
  0
  -49
  -51
  -54
  -56
  -59
  -61
  -64
  -67
  -71
  -74
  -77
  -81
  -85
  -89
  -94
  -98
  -103
  -108
  -113
  -119
  -125
  -131
  -137
  -144
  -151
  -159
  -167
  -175
  -184
  -193
New CAPEX, $m
  -151
  -34
  -38
  -40
  -42
  -44
  -47
  -49
  -52
  -55
  -58
  -61
  -64
  -67
  -70
  -74
  -78
  -82
  -86
  -90
  -95
  -100
  -105
  -110
  -116
  -122
  -128
  -134
  -141
  -148
  -156
Cash from investing activities, $m
  -153
  -83
  -89
  -94
  -98
  -103
  -108
  -113
  -119
  -126
  -132
  -138
  -145
  -152
  -159
  -168
  -176
  -185
  -194
  -203
  -214
  -225
  -236
  -247
  -260
  -273
  -287
  -301
  -316
  -332
  -349
Free cash flow, $m
  -56
  84
  84
  85
  87
  89
  91
  93
  95
  98
  100
  86
  89
  92
  95
  98
  102
  105
  109
  113
  117
  122
  127
  131
  137
  142
  148
  154
  160
  167
  174
Issuance/(repayment) of debt, $m
  89
  60
  64
  68
  71
  75
  79
  83
  88
  93
  97
  103
  108
  113
  119
  125
  132
  139
  146
  153
  161
  169
  178
  187
  196
  206
  216
  227
  239
  251
  263
Issuance/(repurchase) of shares, $m
  -29
  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  
  51
  60
  64
  68
  71
  75
  79
  83
  88
  93
  97
  103
  108
  113
  119
  125
  132
  139
  146
  153
  161
  169
  178
  187
  196
  206
  216
  227
  239
  251
  263
Total cash flow (excl. dividends), $m
  -5
  144
  148
  153
  158
  164
  170
  177
  183
  190
  198
  189
  197
  205
  214
  224
  234
  244
  255
  266
  278
  291
  304
  318
  333
  348
  364
  381
  399
  418
  437
Retained Cash Flow (-), $m
  15
  -25
  -26
  -28
  -29
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -44
  -47
  -49
  -51
  -54
  -57
  -60
  -63
  -66
  -69
  -73
  -77
  -80
  -85
  -89
  -93
  -98
  -103
  -108
Prev. year cash balance distribution, $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 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
 
  119
  122
  125
  129
  133
  138
  142
  147
  152
  158
  147
  153
  159
  165
  172
  179
  187
  195
  203
  212
  222
  231
  242
  252
  264
  275
  288
  301
  315
  329
Discount rate, %
 
  8.20
  8.61
  9.04
  9.49
  9.97
  10.47
  10.99
  11.54
  12.12
  12.72
  13.36
  14.02
  14.73
  15.46
  16.24
  17.05
  17.90
  18.79
  19.73
  20.72
  21.76
  22.84
  23.99
  25.19
  26.45
  27.77
  29.16
  30.61
  32.15
  33.75
PV of cash for distribution, $m
 
  110
  103
  97
  90
  83
  76
  69
  61
  54
  48
  37
  32
  27
  22
  18
  14
  11
  9
  7
  5
  4
  3
  2
  1
  1
  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
  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

Smart & Final Stores, Inc. is a food retailer. The Company is engaged in the business of selling fresh perishables and everyday grocery items, together with foodservice, packaging and janitorial products. The Company operates through two segments: Smart & Final, and Cash and Carry. The Smart & Final segment focuses on both household and business customers. Its Smart & Final stores offer various selections of fresh perishables and everyday grocery items, together with a focused selection of foodservice, packaging and janitorial products, under both national and private label brands. The Cash & Carry segment focuses primarily on restaurants, caterers and a range of other foodservice businesses. It operates non-membership warehouse-style grocery stores under the Smart & Final banner in California, Arizona, and Nevada. The Company also operates non-membership warehouse-style grocery stores in Washington, Oregon, California, Idaho, Utah, and Nevada under the Cash & Carry banner.

FINANCIAL RATIOS  of  Smart&Final Stores (SFS)

Valuation Ratios
P/E Ratio 50.2
Price to Sales 0.2
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 6.7
Price to Free Cash Flow -12.1
Growth Rates
Sales Growth Rate 9.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 10.2%
Cap. Spend. - 3 Yr. Gr. Rate 22.4%
Financial Strength
Quick Ratio 1
Current Ratio 0.1
LT Debt to Equity 111.8%
Total Debt to Equity 123%
Interest Coverage 1
Management Effectiveness
Return On Assets 2.6%
Ret/ On Assets - 3 Yr. Avg. 3.1%
Return On Total Capital 1.1%
Ret/ On T. Cap. - 3 Yr. Avg. 2.5%
Return On Equity 2.3%
Return On Equity - 3 Yr. Avg. 5.7%
Asset Turnover 2.3
Profitability Ratios
Gross Margin 14.5%
Gross Margin - 3 Yr. Avg. 14.8%
EBITDA Margin 2.9%
EBITDA Margin - 3 Yr. Avg. 3.8%
Operating Margin 1%
Oper. Margin - 3 Yr. Avg. 1.9%
Pre-Tax Margin 0.3%
Pre-Tax Margin - 3 Yr. Avg. 1.1%
Net Profit Margin 0.3%
Net Profit Margin - 3 Yr. Avg. 0.7%
Effective Tax Rate -18.2%
Eff/ Tax Rate - 3 Yr. Avg. 17.8%
Payout Ratio 0%

SFS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SFS stock intrinsic value calculation we used $4342 million for the last fiscal year's total revenue generated by Smart&Final Stores. The default revenue input number comes from 2017 income statement of Smart&Final Stores. 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 SFS stock valuation model: a) initial revenue growth rate of 4.5% 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 8.2%, whose default value for SFS is calculated based on our internal credit rating of Smart&Final Stores, 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 Smart&Final Stores.
    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 SFS stock the variable cost ratio is equal to 97.7%.

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 SFS 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 4.7% for Smart&Final Stores.

Corporate tax rate of 27% is the nominal tax rate for Smart&Final Stores. 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 SFS 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 SFS are equal to 18.3%.

Life of production assets of 16.2 years is the average useful life of capital assets used in Smart&Final Stores 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 SFS is equal to 1%. 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 - $552 million for Smart&Final Stores - 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 75.319 million for Smart&Final Stores 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 Smart&Final Stores at the current share price and the inputted number of shares is $0.7 billion.

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COMPANY NEWS

▶ Heres how Walmart is taking on Amazon in the e-commerce battle   [Feb-08-18 11:16AM  Yahoo Finance Video]
▶ 10 Losers That Will Be 2018s Best Stocks to Buy   [Dec-04-17 02:10PM  InvestorPlace]
▶ Smart & Final Stores misses 3Q profit forecasts   [Nov-15-17 04:32PM  Associated Press]
▶ Why Smart & Final Stores, Inc. Stock Jumped Today   [Jul-26-17 01:12PM  Motley Fool]
▶ Smart & Final Stores posts 2Q profit   [Jul-25-17 10:35PM  Associated Press]
▶ [$$] As Grocery Stores Struggle, Some CEOs Get Bargain-Bin Bonuses   [Jun-10-17 09:49AM  The Wall Street Journal]
▶ Smart & Final Stores reports 1Q loss   [May-03-17 07:49PM  Associated Press]
▶ Smart & Final Stores posts 4Q loss   [Mar-08-17 06:20PM  Associated Press]
Financial statements of SFS
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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