Intrinsic value of Supreme Industries - STS

Previous Close

$21.00

  Intrinsic Value

$45.34

stock screener

  Rating & Target

str. buy

+116%

  Value-price divergence*

+74%

Previous close

$21.00

 
Intrinsic value

$45.34

 
Up/down potential

+116%

 
Rating

str. buy

 
Value-price divergence*

+74%

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

We calculate the intrinsic value of STS 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 0.4

 

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, %
  7.55
  7.60
  7.34
  7.11
  6.90
  6.71
  6.54
  6.38
  6.24
  6.12
  6.01
  5.91
  5.82
  5.73
  5.66
  5.59
  5.54
  5.48
  5.43
  5.39
  5.35
  5.32
  5.28
  5.26
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
Revenue, $m
  299
  322
  345
  370
  395
  422
  449
  478
  508
  539
  571
  605
  640
  677
  715
  756
  797
  841
  887
  935
  985
  1,037
  1,092
  1,149
  1,209
  1,272
  1,338
  1,407
  1,480
  1,556
  1,635
Variable operating expenses, $m
 
  169
  181
  194
  208
  221
  236
  251
  267
  283
  300
  318
  336
  356
  376
  397
  419
  442
  466
  491
  517
  544
  573
  603
  635
  668
  703
  739
  777
  817
  859
Fixed operating expenses, $m
 
  119
  122
  125
  128
  131
  135
  138
  141
  145
  148
  152
  156
  160
  164
  168
  172
  177
  181
  185
  190
  195
  200
  205
  210
  215
  220
  226
  232
  237
  243
Total operating expenses, $m
  270
  288
  303
  319
  336
  352
  371
  389
  408
  428
  448
  470
  492
  516
  540
  565
  591
  619
  647
  676
  707
  739
  773
  808
  845
  883
  923
  965
  1,009
  1,054
  1,102
Operating income, $m
  29
  34
  42
  51
  60
  69
  79
  89
  100
  111
  123
  135
  148
  162
  176
  191
  207
  223
  240
  258
  278
  298
  319
  341
  365
  389
  415
  443
  471
  502
  534
EBITDA, $m
  32
  37
  46
  54
  64
  73
  83
  94
  105
  117
  129
  141
  155
  169
  183
  198
  215
  231
  249
  268
  287
  308
  330
  353
  377
  402
  429
  457
  486
  517
  550
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
Earnings before tax, $m
  28
  34
  42
  51
  60
  69
  79
  89
  99
  111
  122
  134
  147
  161
  175
  190
  205
  222
  239
  257
  276
  296
  317
  339
  362
  387
  412
  439
  468
  498
  530
Tax expense, $m
  9
  9
  11
  14
  16
  19
  21
  24
  27
  30
  33
  36
  40
  43
  47
  51
  55
  60
  64
  69
  74
  80
  86
  91
  98
  104
  111
  119
  126
  135
  143
Net income, $m
  19
  25
  31
  37
  43
  50
  57
  65
  73
  81
  89
  98
  108
  117
  128
  138
  150
  162
  174
  187
  201
  216
  231
  247
  264
  282
  301
  321
  342
  364
  387

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  38
  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
  134
  103
  111
  119
  127
  135
  144
  154
  163
  173
  183
  194
  206
  217
  230
  243
  256
  270
  285
  300
  316
  333
  350
  369
  388
  408
  430
  452
  475
  499
  525
Adjusted assets (=assets-cash), $m
  96
  103
  111
  119
  127
  135
  144
  154
  163
  173
  183
  194
  206
  217
  230
  243
  256
  270
  285
  300
  316
  333
  350
  369
  388
  408
  430
  452
  475
  499
  525
Revenue / Adjusted assets
  3.115
  3.126
  3.108
  3.109
  3.110
  3.126
  3.118
  3.104
  3.117
  3.116
  3.120
  3.119
  3.107
  3.120
  3.109
  3.111
  3.113
  3.115
  3.112
  3.117
  3.117
  3.114
  3.120
  3.114
  3.116
  3.118
  3.112
  3.113
  3.116
  3.118
  3.114
Average production assets, $m
  46
  50
  53
  57
  61
  65
  69
  74
  78
  83
  88
  93
  99
  104
  110
  116
  123
  130
  137
  144
  152
  160
  168
  177
  186
  196
  206
  217
  228
  240
  252
Working capital, $m
  58
  29
  31
  33
  36
  38
  40
  43
  46
  49
  51
  54
  58
  61
  64
  68
  72
  76
  80
  84
  89
  93
  98
  103
  109
  114
  120
  127
  133
  140
  147
Total debt, $m
  7
  2
  4
  6
  8
  10
  13
  15
  17
  20
  23
  26
  28
  32
  35
  38
  42
  45
  49
  53
  57
  62
  66
  71
  76
  81
  87
  92
  99
  105
  112
Total liabilities, $m
  32
  27
  29
  31
  33
  35
  38
  40
  42
  45
  48
  51
  53
  57
  60
  63
  67
  70
  74
  78
  82
  87
  91
  96
  101
  106
  112
  117
  124
  130
  137
Total equity, $m
  102
  76
  82
  88
  94
  100
  107
  114
  121
  128
  136
  144
  152
  161
  170
  179
  189
  200
  211
  222
  234
  246
  259
  273
  287
  302
  318
  334
  352
  370
  389
Total liabilities and equity, $m
  134
  103
  111
  119
  127
  135
  145
  154
  163
  173
  184
  195
  205
  218
  230
  242
  256
  270
  285
  300
  316
  333
  350
  369
  388
  408
  430
  451
  476
  500
  526
Debt-to-equity ratio
  0.069
  0.020
  0.050
  0.070
  0.090
  0.100
  0.120
  0.130
  0.140
  0.160
  0.170
  0.180
  0.190
  0.200
  0.200
  0.210
  0.220
  0.230
  0.230
  0.240
  0.240
  0.250
  0.250
  0.260
  0.260
  0.270
  0.270
  0.280
  0.280
  0.280
  0.290
Adjusted equity ratio
  0.667
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  19
  25
  31
  37
  43
  50
  57
  65
  73
  81
  89
  98
  108
  117
  128
  138
  150
  162
  174
  187
  201
  216
  231
  247
  264
  282
  301
  321
  342
  364
  387
Depreciation, amort., depletion, $m
  3
  3
  3
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  13
  14
  15
  16
  16
Funds from operations, $m
  35
  28
  34
  41
  47
  55
  62
  70
  78
  86
  95
  104
  114
  124
  135
  146
  158
  170
  183
  197
  211
  226
  242
  259
  276
  295
  314
  335
  357
  379
  403
Change in working capital, $m
  6
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
Cash from operations, $m
  29
  26
  32
  38
  45
  52
  59
  67
  75
  83
  92
  101
  111
  121
  131
  142
  154
  166
  179
  193
  207
  222
  237
  254
  271
  289
  309
  329
  350
  372
  396
Maintenance CAPEX, $m
  0
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -16
New CAPEX, $m
  -4
  -4
  -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
Cash from investing activities, $m
  -4
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -18
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
Free cash flow, $m
  25
  19
  25
  31
  38
  44
  51
  58
  66
  73
  82
  90
  99
  109
  119
  129
  140
  151
  164
  176
  190
  204
  218
  234
  250
  267
  286
  305
  325
  346
  368
Issuance/(repayment) of debt, $m
  -1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
Issuance/(repurchase) of shares, $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
  0
Cash from financing (excl. dividends), $m  
  -1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
Total cash flow (excl. dividends), $m
  25
  21
  27
  33
  40
  46
  53
  61
  68
  76
  84
  93
  102
  112
  122
  132
  144
  155
  167
  180
  194
  208
  223
  239
  255
  273
  291
  310
  331
  352
  375
Retained Cash Flow (-), $m
  -13
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
Prev. year cash balance distribution, $m
 
  31
  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
 
  47
  22
  27
  34
  40
  47
  54
  61
  69
  77
  85
  94
  103
  113
  123
  134
  145
  157
  169
  182
  196
  210
  225
  241
  258
  275
  294
  314
  334
  356
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
 
  45
  20
  24
  28
  31
  34
  36
  38
  39
  40
  40
  40
  39
  38
  36
  34
  31
  29
  26
  23
  20
  17
  15
  12
  10
  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
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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Supreme Industries, Inc. (Supreme) is a manufacturer of specialized vehicles, including truck bodies and specialty vehicles. The Company operates through two segments: specialized commercial vehicles and fiberglass products. The Company manufactures specialized commercial vehicles that are attached to a truck chassis. The Company's truck bodies are offered in aluminum, FiberPanel PW, FiberPanel HC, or SignaturePlate. The Company's products include Signature van bodies, Iner-City cutaway van bodies, Spartan service bodies, Spartan cargo vans, Kold King insulated van bodies, stake bodies, armored sport utility vehicles (SUVs), armored trucks and specialty vehicles, and trolleys. Its products are attached to light-duty truck chassis and medium-duty truck chassis. Supreme integrates a range of options into its truck bodies, including liftgates, cargo-handling equipment, customized doors, special bumpers, ladder racks and refrigeration equipment.

FINANCIAL RATIOS  of  Supreme Industries (STS)

Valuation Ratios
P/E Ratio 18.7
Price to Sales 1.2
Price to Book 3.5
Price to Tangible Book
Price to Cash Flow 12.2
Price to Free Cash Flow 14.2
Growth Rates
Sales Growth Rate 7.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate -7.8%
Financial Strength
Quick Ratio 5
Current Ratio 0.2
LT Debt to Equity 0%
Total Debt to Equity 6.9%
Interest Coverage 0
Management Effectiveness
Return On Assets 14.9%
Ret/ On Assets - 3 Yr. Avg. 10.8%
Return On Total Capital 18.4%
Ret/ On T. Cap. - 3 Yr. Avg. 13.5%
Return On Equity 19.9%
Return On Equity - 3 Yr. Avg. 14.7%
Asset Turnover 2.3
Profitability Ratios
Gross Margin 22.4%
Gross Margin - 3 Yr. Avg. 20.2%
EBITDA Margin 10.4%
EBITDA Margin - 3 Yr. Avg. 8.2%
Operating Margin 9.7%
Oper. Margin - 3 Yr. Avg. 7.3%
Pre-Tax Margin 9.4%
Pre-Tax Margin - 3 Yr. Avg. 7.1%
Net Profit Margin 6.4%
Net Profit Margin - 3 Yr. Avg. 4.7%
Effective Tax Rate 32.1%
Eff/ Tax Rate - 3 Yr. Avg. 32.4%
Payout Ratio 36.8%

STS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the STS stock intrinsic value calculation we used $299 million for the last fiscal year's total revenue generated by Supreme Industries. The default revenue input number comes from 2016 income statement of Supreme Industries. 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 STS stock valuation model: a) initial revenue growth rate of 7.6% 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 STS is calculated based on our internal credit rating of Supreme Industries, 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 Supreme Industries.
    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 STS stock the variable cost ratio is equal to 52.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $116 million in the base year in the intrinsic value calculation for STS 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 Supreme Industries.

Corporate tax rate of 27% is the nominal tax rate for Supreme Industries. 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 STS 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 STS are equal to 15.4%.

Life of production assets of 15.3 years is the average useful life of capital assets used in Supreme Industries 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 STS is equal to 9%. 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 - $102 million for Supreme Industries - 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 17.16 million for Supreme Industries 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 Supreme Industries at the current share price and the inputted number of shares is $0.4 billion.

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Financial statements of STS
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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