Intrinsic value of Smart&Final Stores - SFS

Previous Close

$5.55

  Intrinsic Value

$8.73

stock screener

  Rating & Target

str. buy

+57%

Previous close

$5.55

 
Intrinsic value

$8.73

 
Up/down potential

+57%

 
Rating

str. 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
  5.30
  5.27
  5.24
  5.22
  5.20
  5.18
  5.16
  5.14
  5.13
  5.12
  5.10
  5.09
  5.08
  5.08
  5.07
  5.06
  5.06
  5.05
  5.05
  5.04
  5.04
  5.03
  5.03
  5.03
  5.02
  5.02
  5.02
  5.02
  5.02
  5.01
Revenue, $m
  4,342
  4,813
  5,067
  5,333
  5,611
  5,902
  6,208
  6,528
  6,864
  7,216
  7,585
  7,973
  8,379
  8,805
  9,252
  9,721
  10,213
  10,729
  11,271
  11,839
  12,436
  13,063
  13,720
  14,410
  15,134
  15,895
  16,693
  17,531
  18,410
  19,334
  20,303
Variable operating expenses, $m
 
  4,756
  5,003
  5,261
  5,532
  5,815
  6,112
  6,424
  6,750
  7,092
  7,451
  7,751
  8,145
  8,560
  8,994
  9,450
  9,928
  10,430
  10,957
  11,510
  12,090
  12,699
  13,338
  14,009
  14,713
  15,452
  16,228
  17,043
  17,898
  18,795
  19,738
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
  4,756
  5,003
  5,261
  5,532
  5,815
  6,112
  6,424
  6,750
  7,092
  7,451
  7,751
  8,145
  8,560
  8,994
  9,450
  9,928
  10,430
  10,957
  11,510
  12,090
  12,699
  13,338
  14,009
  14,713
  15,452
  16,228
  17,043
  17,898
  18,795
  19,738
Operating income, $m
  42
  57
  64
  71
  79
  87
  96
  105
  114
  124
  134
  222
  233
  245
  258
  271
  284
  299
  314
  330
  346
  364
  382
  401
  421
  443
  465
  488
  513
  538
  565
EBITDA, $m
  129
  274
  289
  304
  320
  336
  354
  372
  391
  411
  432
  454
  477
  501
  527
  554
  582
  611
  642
  674
  708
  744
  781
  821
  862
  905
  951
  998
  1,048
  1,101
  1,156
Interest expense (income), $m
  30
  38
  42
  46
  50
  55
  60
  65
  70
  76
  82
  88
  94
  101
  108
  116
  123
  131
  140
  149
  159
  168
  179
  190
  201
  213
  226
  239
  253
  268
  283
Earnings before tax, $m
  11
  19
  22
  25
  29
  32
  36
  40
  44
  48
  53
  134
  139
  144
  150
  155
  161
  167
  174
  181
  188
  195
  203
  211
  220
  229
  239
  249
  260
  271
  282
Tax expense, $m
  -2
  5
  6
  7
  8
  9
  10
  11
  12
  13
  14
  36
  38
  39
  40
  42
  43
  45
  47
  49
  51
  53
  55
  57
  59
  62
  65
  67
  70
  73
  76
Net income, $m
  13
  14
  16
  19
  21
  24
  26
  29
  32
  35
  38
  98
  101
  105
  109
  113
  118
  122
  127
  132
  137
  143
  148
  154
  161
  167
  174
  182
  189
  198
  206

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
  1,906
  2,007
  2,112
  2,222
  2,338
  2,459
  2,585
  2,718
  2,858
  3,004
  3,157
  3,318
  3,487
  3,664
  3,850
  4,045
  4,249
  4,464
  4,689
  4,925
  5,173
  5,434
  5,707
  5,994
  6,295
  6,611
  6,943
  7,291
  7,657
  8,041
Adjusted assets (=assets-cash), $m
  1,898
  1,906
  2,007
  2,112
  2,222
  2,338
  2,459
  2,585
  2,718
  2,858
  3,004
  3,157
  3,318
  3,487
  3,664
  3,850
  4,045
  4,249
  4,464
  4,689
  4,925
  5,173
  5,434
  5,707
  5,994
  6,295
  6,611
  6,943
  7,291
  7,657
  8,041
Revenue / Adjusted assets
  2.288
  2.525
  2.525
  2.525
  2.525
  2.524
  2.525
  2.525
  2.525
  2.525
  2.525
  2.525
  2.525
  2.525
  2.525
  2.525
  2.525
  2.525
  2.525
  2.525
  2.525
  2.525
  2.525
  2.525
  2.525
  2.525
  2.525
  2.525
  2.525
  2.525
  2.525
Average production assets, $m
  796
  1,401
  1,474
  1,552
  1,633
  1,718
  1,807
  1,900
  1,997
  2,100
  2,207
  2,320
  2,438
  2,562
  2,692
  2,829
  2,972
  3,122
  3,280
  3,445
  3,619
  3,801
  3,993
  4,193
  4,404
  4,625
  4,858
  5,101
  5,357
  5,626
  5,908
Working capital, $m
  34
  48
  51
  53
  56
  59
  62
  65
  69
  72
  76
  80
  84
  88
  93
  97
  102
  107
  113
  118
  124
  131
  137
  144
  151
  159
  167
  175
  184
  193
  203
Total debt, $m
  679
  774
  852
  933
  1,019
  1,109
  1,203
  1,301
  1,405
  1,513
  1,627
  1,746
  1,871
  2,002
  2,139
  2,284
  2,435
  2,594
  2,761
  2,936
  3,119
  3,312
  3,514
  3,727
  3,950
  4,184
  4,429
  4,687
  4,958
  5,242
  5,540
Total liabilities, $m
  1,400
  1,481
  1,559
  1,641
  1,727
  1,816
  1,910
  2,009
  2,112
  2,221
  2,334
  2,453
  2,578
  2,709
  2,847
  2,991
  3,143
  3,302
  3,468
  3,643
  3,827
  4,020
  4,222
  4,434
  4,657
  4,891
  5,137
  5,395
  5,665
  5,949
  6,248
Total equity, $m
  552
  425
  447
  471
  496
  521
  548
  577
  606
  637
  670
  704
  740
  778
  817
  858
  902
  948
  995
  1,046
  1,098
  1,154
  1,212
  1,273
  1,337
  1,404
  1,474
  1,548
  1,626
  1,707
  1,793
Total liabilities and equity, $m
  1,952
  1,906
  2,006
  2,112
  2,223
  2,337
  2,458
  2,586
  2,718
  2,858
  3,004
  3,157
  3,318
  3,487
  3,664
  3,849
  4,045
  4,250
  4,463
  4,689
  4,925
  5,174
  5,434
  5,707
  5,994
  6,295
  6,611
  6,943
  7,291
  7,656
  8,041
Debt-to-equity ratio
  1.230
  1.820
  1.900
  1.980
  2.060
  2.130
  2.190
  2.260
  2.320
  2.370
  2.430
  2.480
  2.530
  2.570
  2.620
  2.660
  2.700
  2.740
  2.770
  2.810
  2.840
  2.870
  2.900
  2.930
  2.950
  2.980
  3.000
  3.030
  3.050
  3.070
  3.090
Adjusted equity ratio
  0.262
  0.223
  0.223
  0.223
  0.223
  0.223
  0.223
  0.223
  0.223
  0.223
  0.223
  0.223
  0.223
  0.223
  0.223
  0.223
  0.223
  0.223
  0.223
  0.223
  0.223
  0.223
  0.223
  0.223
  0.223
  0.223
  0.223
  0.223
  0.223
  0.223
  0.223

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  13
  14
  16
  19
  21
  24
  26
  29
  32
  35
  38
  98
  101
  105
  109
  113
  118
  122
  127
  132
  137
  143
  148
  154
  161
  167
  174
  182
  189
  198
  206
Depreciation, amort., depletion, $m
  87
  217
  224
  232
  240
  249
  258
  267
  277
  287
  298
  232
  244
  256
  269
  283
  297
  312
  328
  345
  362
  380
  399
  419
  440
  463
  486
  510
  536
  563
  591
Funds from operations, $m
  77
  231
  241
  251
  261
  272
  284
  296
  309
  322
  336
  330
  345
  361
  378
  396
  415
  434
  455
  476
  499
  523
  548
  574
  601
  630
  660
  692
  725
  760
  797
Change in working capital, $m
  -20
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
Cash from operations, $m
  97
  229
  238
  248
  259
  269
  281
  293
  305
  319
  332
  326
  341
  357
  374
  391
  410
  429
  449
  471
  493
  516
  541
  567
  594
  622
  652
  684
  716
  751
  787
Maintenance CAPEX, $m
  0
  -133
  -140
  -147
  -155
  -163
  -172
  -181
  -190
  -200
  -210
  -221
  -232
  -244
  -256
  -269
  -283
  -297
  -312
  -328
  -345
  -362
  -380
  -399
  -419
  -440
  -463
  -486
  -510
  -536
  -563
New CAPEX, $m
  -151
  -69
  -74
  -77
  -81
  -85
  -89
  -93
  -98
  -102
  -107
  -113
  -118
  -124
  -130
  -136
  -143
  -150
  -158
  -165
  -174
  -182
  -191
  -201
  -211
  -221
  -232
  -244
  -256
  -269
  -282
Cash from investing activities, $m
  -153
  -202
  -214
  -224
  -236
  -248
  -261
  -274
  -288
  -302
  -317
  -334
  -350
  -368
  -386
  -405
  -426
  -447
  -470
  -493
  -519
  -544
  -571
  -600
  -630
  -661
  -695
  -730
  -766
  -805
  -845
Free cash flow, $m
  -56
  26
  24
  23
  22
  21
  20
  19
  18
  16
  15
  -7
  -9
  -11
  -12
  -14
  -16
  -18
  -20
  -23
  -25
  -28
  -30
  -33
  -36
  -39
  -43
  -46
  -50
  -54
  -58
Issuance/(repayment) of debt, $m
  89
  74
  78
  82
  86
  90
  94
  99
  103
  108
  114
  119
  125
  131
  138
  144
  151
  159
  167
  175
  184
  193
  202
  212
  223
  234
  246
  258
  271
  284
  298
Issuance/(repurchase) of shares, $m
  -29
  8
  6
  5
  4
  2
  1
  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
  82
  84
  87
  90
  92
  95
  99
  103
  108
  114
  119
  125
  131
  138
  144
  151
  159
  167
  175
  184
  193
  202
  212
  223
  234
  246
  258
  271
  284
  298
Total cash flow (excl. dividends), $m
  -5
  109
  108
  110
  112
  113
  115
  118
  121
  125
  129
  112
  116
  120
  125
  130
  135
  141
  146
  152
  158
  165
  172
  179
  187
  195
  203
  212
  221
  231
  241
Retained Cash Flow (-), $m
  15
  -22
  -22
  -23
  -25
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -38
  -39
  -41
  -43
  -46
  -48
  -50
  -53
  -55
  -58
  -61
  -64
  -67
  -70
  -74
  -78
  -82
  -86
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
 
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  31
  32
  34
  36
  37
  39
  41
  43
  45
  48
  50
  53
  55
  58
Cash available for distribution, $m
 
  87
  86
  87
  87
  87
  88
  89
  91
  94
  96
  78
  80
  83
  86
  89
  92
  95
  98
  102
  106
  110
  114
  118
  123
  127
  133
  138
  143
  149
  155
Discount rate, %
 
  7.60
  7.98
  8.38
  8.80
  9.24
  9.70
  10.18
  10.69
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.05
  15.80
  16.59
  17.42
  18.29
  19.20
  20.17
  21.17
  22.23
  23.34
  24.51
  25.74
  27.02
  28.37
  29.79
  31.28
PV of cash for distribution, $m
 
  80
  74
  68
  62
  56
  50
  45
  41
  36
  31
  21
  18
  16
  13
  11
  9
  7
  5
  4
  3
  2
  2
  1
  1
  1
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  98.0
  96.6
  95.6
  94.9
  94.5
  94.3
  94.3
  94.3
  94.3
  94.3
  94.3
  94.3
  94.3
  94.3
  94.3
  94.3
  94.3
  94.3
  94.3
  94.3
  94.3
  94.3
  94.3
  94.3
  94.3
  94.3
  94.3
  94.3
  94.3
  94.3

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 31.1
Price to Sales 0.1
Price to Book 0.7
Price to Tangible Book
Price to Cash Flow 4.2
Price to Free Cash Flow -7.5
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 $4571 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 5.3% 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 7.6%, 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 98.9%.

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 5.4% 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 0.3%.

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 29.1%.

Life of production assets of 10 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 - $403 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 72 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 $0.4 billion.

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COMPANY NEWS

▶ When Should You Buy Smart & Final Stores Inc (NYSE:SFS)?   [Jun-26-18 12:35PM  Simply Wall St.]
▶ Smart & Final Stores: 1Q Earnings Snapshot   [May-02-18 07:24PM  Associated Press]
▶ Moving Average Crossover Alert: Smart (SFS)   [Apr-06-18 10:15AM  Zacks]
▶ Is Sfinks Polska SA. (WSE:SFS) A Financially Sound Company?   [Mar-18-18 07:30AM  Simply Wall St.]
▶ Smart & Final Stores reports 4Q loss   [Mar-14-18 05:13PM  Associated Press]
▶ 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]
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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