Intrinsic value of Spartan Motors - SPAR

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$8.20

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$8.20

 
Intrinsic value

$14.27

 
Up/down potential

+74%

 
Rating

str. buy

 
Value-price divergence* premium content

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

We calculate the intrinsic value of SPAR 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 0.3

 

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, %
  7.45
  3.50
  3.65
  3.78
  3.91
  4.02
  4.11
  4.20
  4.28
  4.35
  4.42
  4.48
  4.53
  4.58
  4.62
  4.66
  4.69
  4.72
  4.75
  4.77
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
Revenue, $m
  591
  612
  634
  658
  684
  711
  740
  772
  805
  840
  877
  916
  957
  1,001
  1,048
  1,096
  1,148
  1,202
  1,259
  1,319
  1,382
  1,449
  1,519
  1,593
  1,670
  1,752
  1,838
  1,928
  2,022
  2,122
  2,226
Variable operating expenses, $m
 
  284
  294
  305
  317
  330
  343
  358
  373
  389
  406
  423
  442
  462
  483
  506
  529
  554
  581
  609
  638
  668
  701
  735
  771
  808
  848
  889
  933
  979
  1,027
Fixed operating expenses, $m
 
  324
  332
  340
  349
  358
  366
  376
  385
  395
  405
  415
  425
  436
  446
  458
  469
  481
  493
  505
  518
  531
  544
  558
  572
  586
  600
  616
  631
  647
  663
Total operating expenses, $m
  582
  608
  626
  645
  666
  688
  709
  734
  758
  784
  811
  838
  867
  898
  929
  964
  998
  1,035
  1,074
  1,114
  1,156
  1,199
  1,245
  1,293
  1,343
  1,394
  1,448
  1,505
  1,564
  1,626
  1,690
Operating income, $m
  9
  4
  8
  13
  18
  24
  31
  38
  47
  56
  66
  79
  91
  104
  118
  133
  149
  167
  185
  205
  227
  250
  274
  300
  328
  358
  389
  423
  459
  496
  537
EBITDA, $m
  17
  11
  15
  20
  26
  32
  39
  47
  56
  65
  76
  87
  100
  113
  127
  143
  160
  178
  197
  218
  240
  263
  288
  315
  344
  374
  406
  441
  477
  516
  557
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
Earnings before tax, $m
  9
  4
  8
  12
  18
  23
  30
  38
  46
  55
  65
  77
  89
  102
  116
  131
  147
  164
  182
  202
  223
  246
  270
  296
  323
  352
  383
  416
  452
  489
  529
Tax expense, $m
  0
  1
  2
  3
  5
  6
  8
  10
  12
  15
  18
  21
  24
  28
  31
  35
  40
  44
  49
  55
  60
  66
  73
  80
  87
  95
  103
  112
  122
  132
  143
Net income, $m
  9
  3
  6
  9
  13
  17
  22
  27
  33
  40
  47
  56
  65
  74
  84
  95
  107
  120
  133
  147
  163
  179
  197
  216
  236
  257
  280
  304
  330
  357
  386

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  32
  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
  243
  218
  226
  235
  244
  254
  264
  275
  287
  300
  313
  327
  342
  357
  374
  391
  410
  429
  449
  471
  494
  517
  542
  569
  596
  625
  656
  688
  722
  758
  795
Adjusted assets (=assets-cash), $m
  211
  218
  226
  235
  244
  254
  264
  275
  287
  300
  313
  327
  342
  357
  374
  391
  410
  429
  449
  471
  494
  517
  542
  569
  596
  625
  656
  688
  722
  758
  795
Revenue / Adjusted assets
  2.801
  2.807
  2.805
  2.800
  2.803
  2.799
  2.803
  2.807
  2.805
  2.800
  2.802
  2.801
  2.798
  2.804
  2.802
  2.803
  2.800
  2.802
  2.804
  2.800
  2.798
  2.803
  2.803
  2.800
  2.802
  2.803
  2.802
  2.802
  2.801
  2.799
  2.800
Average production assets, $m
  33
  34
  36
  37
  38
  40
  41
  43
  45
  47
  49
  51
  54
  56
  59
  61
  64
  67
  71
  74
  77
  81
  85
  89
  94
  98
  103
  108
  113
  119
  125
Working capital, $m
  74
  43
  45
  47
  49
  50
  53
  55
  57
  60
  62
  65
  68
  71
  74
  78
  81
  85
  89
  94
  98
  103
  108
  113
  119
  124
  130
  137
  144
  151
  158
Total debt, $m
  0
  3
  7
  10
  14
  18
  23
  27
  32
  37
  43
  49
  55
  62
  69
  76
  84
  92
  101
  110
  119
  129
  140
  151
  163
  175
  188
  201
  216
  231
  246
Total liabilities, $m
  90
  92
  96
  99
  103
  107
  112
  116
  121
  126
  132
  138
  144
  151
  158
  165
  173
  181
  190
  199
  208
  218
  229
  240
  252
  264
  277
  290
  305
  320
  335
Total equity, $m
  154
  126
  131
  136
  141
  147
  153
  159
  166
  173
  181
  189
  198
  207
  216
  226
  237
  248
  260
  272
  285
  299
  313
  329
  345
  362
  379
  398
  417
  438
  459
Total liabilities and equity, $m
  244
  218
  227
  235
  244
  254
  265
  275
  287
  299
  313
  327
  342
  358
  374
  391
  410
  429
  450
  471
  493
  517
  542
  569
  597
  626
  656
  688
  722
  758
  794
Debt-to-equity ratio
  0.000
  0.030
  0.050
  0.070
  0.100
  0.120
  0.150
  0.170
  0.190
  0.220
  0.240
  0.260
  0.280
  0.300
  0.320
  0.340
  0.350
  0.370
  0.390
  0.400
  0.420
  0.430
  0.450
  0.460
  0.470
  0.480
  0.500
  0.510
  0.520
  0.530
  0.540
Adjusted equity ratio
  0.578
  0.578
  0.578
  0.578
  0.578
  0.578
  0.578
  0.578
  0.578
  0.578
  0.578
  0.578
  0.578
  0.578
  0.578
  0.578
  0.578
  0.578
  0.578
  0.578
  0.578
  0.578
  0.578
  0.578
  0.578
  0.578
  0.578
  0.578
  0.578
  0.578
  0.578

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  9
  3
  6
  9
  13
  17
  22
  27
  33
  40
  47
  56
  65
  74
  84
  95
  107
  120
  133
  147
  163
  179
  197
  216
  236
  257
  280
  304
  330
  357
  386
Depreciation, amort., depletion, $m
  8
  7
  7
  8
  8
  8
  8
  9
  9
  9
  10
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  19
  20
Funds from operations, $m
  31
  10
  13
  17
  21
  25
  30
  36
  42
  49
  57
  65
  74
  84
  94
  105
  118
  131
  145
  160
  176
  193
  211
  230
  251
  273
  297
  322
  348
  376
  406
Change in working capital, $m
  8
  1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
Cash from operations, $m
  23
  35
  12
  15
  19
  23
  28
  34
  40
  47
  54
  62
  71
  80
  91
  102
  114
  127
  140
  155
  171
  188
  206
  225
  246
  267
  291
  315
  341
  369
  399
Maintenance CAPEX, $m
  0
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -19
New CAPEX, $m
  -13
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
Cash from investing activities, $m
  -13
  -6
  -7
  -7
  -7
  -8
  -9
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -25
Free cash flow, $m
  10
  28
  5
  8
  11
  16
  20
  25
  31
  38
  45
  52
  60
  69
  79
  90
  101
  113
  126
  140
  155
  171
  189
  207
  227
  248
  270
  293
  318
  345
  373
Issuance/(repayment) of debt, $m
  -5
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
Issuance/(repurchase) of shares, $m
  -2
  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  
  -8
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
Total cash flow (excl. dividends), $m
  2
  31
  8
  11
  15
  20
  25
  30
  36
  43
  50
  58
  66
  76
  86
  97
  109
  121
  135
  149
  165
  182
  199
  218
  238
  260
  283
  307
  333
  360
  389
Retained Cash Flow (-), $m
  -5
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
Prev. year cash balance distribution, $m
 
  32
  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
 
  59
  3
  6
  10
  14
  19
  24
  29
  36
  43
  50
  58
  67
  76
  87
  98
  110
  123
  137
  152
  168
  185
  203
  222
  243
  265
  288
  313
  340
  368
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
 
  57
  3
  6
  8
  11
  13
  16
  18
  20
  22
  24
  25
  25
  26
  25
  25
  24
  23
  21
  19
  17
  15
  13
  11
  9
  8
  6
  5
  4
  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
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Spartan Motors, Inc., through its subsidiaries, engineers, manufactures, and sells heavy-duty and custom vehicles in the United States, Canada, South America, and Asia. It operates through three segments: Emergency Response Vehicles, Delivery and Service Vehicles, and Specialty Chassis and Vehicles. The Emergency Response Vehicles segment offers emergency response chassis and bodies, and aerial ladder components. The Delivery and Service Vehicles segment provides walk-in vans for use in the package delivery, one-way truck rental, bakery/snack delivery, utility, and linen/uniform rental businesses; and commercial truck bodies, as well as interior equipment up fitting and aftermarket parts. The Specialty Chassis and Vehicles segment offers motor home chassis, defense vehicles, and other specialty chassis, as well as distributes related aftermarket parts and assemblies. Spartan Motors, Inc. markets its products under the Spartan ERV, Aeromaster, Trademaster, Metromaster, Utilivan, and Utilimaster brand names. The company sells its products through a network of independent truck dealers to commercial vehicle dealers and leasing companies, as well as directly to end-users. Spartan Motors, Inc. was founded in 1975 and is headquartered in Charlotte, Michigan.

FINANCIAL RATIOS  of  Spartan Motors (SPAR)

Valuation Ratios
P/E Ratio 31.3
Price to Sales 0.5
Price to Book 1.8
Price to Tangible Book
Price to Cash Flow 12.3
Price to Free Cash Flow 28.2
Growth Rates
Sales Growth Rate 7.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 160%
Cap. Spend. - 3 Yr. Gr. Rate 26.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 3.8%
Ret/ On Assets - 3 Yr. Avg. -1%
Return On Total Capital 5.8%
Ret/ On T. Cap. - 3 Yr. Avg. -1.3%
Return On Equity 5.9%
Return On Equity - 3 Yr. Avg. -1.4%
Asset Turnover 2.5
Profitability Ratios
Gross Margin 12.4%
Gross Margin - 3 Yr. Avg. 10.7%
EBITDA Margin 2.9%
EBITDA Margin - 3 Yr. Avg. 1.1%
Operating Margin 1.5%
Oper. Margin - 3 Yr. Avg. -0.3%
Pre-Tax Margin 1.5%
Pre-Tax Margin - 3 Yr. Avg. -0.3%
Net Profit Margin 1.5%
Net Profit Margin - 3 Yr. Avg. -0.5%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 56.4%
Payout Ratio 33.3%

SPAR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SPAR stock intrinsic value calculation we used $591 million for the last fiscal year's total revenue generated by Spartan Motors. The default revenue input number comes from 2016 income statement of Spartan Motors. 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 SPAR stock valuation model: a) initial revenue growth rate of 3.5% 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 SPAR is calculated based on our internal credit rating of Spartan Motors, 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 Spartan Motors.
    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 SPAR stock the variable cost ratio is equal to 46.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $316 million in the base year in the intrinsic value calculation for SPAR 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 Spartan Motors.

Corporate tax rate of 27% is the nominal tax rate for Spartan Motors. 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 SPAR 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 SPAR are equal to 5.6%.

Life of production assets of 6.1 years is the average useful life of capital assets used in Spartan Motors 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 SPAR is equal to 7.1%. 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 - $154 million for Spartan Motors - 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 35.726 million for Spartan Motors 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 Spartan Motors at the current share price and the inputted number of shares is $0.3 billion.


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COMPANY NEWS

▶ Spartan Motors beats Street 4Q forecasts   [08:19AM  Associated Press]
▶ Is Spartan Motors Inc (SPAR) A Good Stock To Buy?   [Dec-13-16 05:19PM  at Insider Monkey]
▶ Malibu Boats Inc (MBUU): Are Hedge Funds Right About This Stock?   [Dec-05-16 01:41PM  at Insider Monkey]
▶ Spartan Motors Announces Dividend   [Nov-07-16 08:30AM  PR Newswire]
▶ Spartan Motors Inc (SPAR): Ariel Investments Lowers Its Stake   [Sep-13-16 08:48AM  at Insider Monkey]
▶ Spartan Motors Added to Russell 2000® Index   [Jun-27-16 07:00AM  PR Newswire]
Stock chart of SPAR Financial statements of SPAR
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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