Intrinsic value of Carrols Restaurant Group - TAST

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$12.25

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$12.25

 
Intrinsic value

$7.48

 
Up/down potential

-39%

 
Rating

sell

 
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 TAST 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 2017), $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
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, %
  9.90
  5.20
  5.18
  5.16
  5.15
  5.13
  5.12
  5.11
  5.10
  5.09
  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
  5.01
  5.01
  5.01
  5.01
Revenue, $m
  944
  993
  1,045
  1,098
  1,155
  1,214
  1,276
  1,342
  1,410
  1,482
  1,557
  1,636
  1,719
  1,806
  1,897
  1,992
  2,093
  2,198
  2,309
  2,425
  2,547
  2,675
  2,809
  2,950
  3,098
  3,254
  3,417
  3,588
  3,768
  3,957
  4,155
Variable operating expenses, $m
 
  794
  835
  878
  923
  971
  1,020
  1,072
  1,127
  1,184
  1,244
  1,305
  1,371
  1,440
  1,513
  1,589
  1,669
  1,753
  1,841
  1,934
  2,031
  2,133
  2,241
  2,353
  2,471
  2,595
  2,725
  2,862
  3,005
  3,156
  3,314
Fixed operating expenses, $m
 
  161
  165
  169
  173
  178
  182
  187
  191
  196
  201
  206
  211
  216
  222
  227
  233
  239
  245
  251
  257
  264
  270
  277
  284
  291
  298
  306
  313
  321
  329
Total operating expenses, $m
  908
  955
  1,000
  1,047
  1,096
  1,149
  1,202
  1,259
  1,318
  1,380
  1,445
  1,511
  1,582
  1,656
  1,735
  1,816
  1,902
  1,992
  2,086
  2,185
  2,288
  2,397
  2,511
  2,630
  2,755
  2,886
  3,023
  3,168
  3,318
  3,477
  3,643
Operating income, $m
  36
  38
  44
  51
  58
  66
  74
  83
  92
  102
  112
  125
  137
  149
  162
  176
  191
  206
  223
  240
  258
  278
  298
  320
  343
  368
  393
  421
  449
  480
  512
EBITDA, $m
  83
  87
  96
  105
  115
  125
  137
  148
  161
  174
  188
  202
  218
  234
  252
  270
  289
  310
  332
  354
  379
  404
  431
  459
  490
  521
  555
  590
  627
  667
  708
Interest expense (income), $m
  17
  17
  19
  20
  22
  23
  25
  27
  29
  31
  33
  35
  37
  39
  42
  44
  47
  50
  53
  56
  59
  63
  66
  70
  74
  78
  83
  87
  92
  97
  102
Earnings before tax, $m
  17
  20
  25
  31
  36
  42
  49
  56
  63
  71
  79
  90
  100
  110
  120
  132
  144
  156
  170
  184
  199
  215
  232
  250
  269
  289
  311
  333
  357
  383
  409
Tax expense, $m
  -28
  6
  7
  8
  10
  11
  13
  15
  17
  19
  21
  24
  27
  30
  33
  36
  39
  42
  46
  50
  54
  58
  63
  68
  73
  78
  84
  90
  96
  103
  111
Net income, $m
  45
  15
  19
  22
  27
  31
  36
  41
  46
  52
  58
  66
  73
  80
  88
  96
  105
  114
  124
  134
  145
  157
  169
  183
  197
  211
  227
  243
  261
  279
  299

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
Total assets, $m
  490
  513
  540
  568
  597
  628
  660
  694
  729
  766
  805
  846
  889
  934
  981
  1,030
  1,082
  1,137
  1,194
  1,254
  1,317
  1,383
  1,453
  1,525
  1,602
  1,682
  1,767
  1,855
  1,948
  2,046
  2,148
Adjusted assets (=assets-cash), $m
  488
  513
  540
  568
  597
  628
  660
  694
  729
  766
  805
  846
  889
  934
  981
  1,030
  1,082
  1,137
  1,194
  1,254
  1,317
  1,383
  1,453
  1,525
  1,602
  1,682
  1,767
  1,855
  1,948
  2,046
  2,148
Revenue / Adjusted assets
  1.934
  1.936
  1.935
  1.933
  1.935
  1.933
  1.933
  1.934
  1.934
  1.935
  1.934
  1.934
  1.934
  1.934
  1.934
  1.934
  1.934
  1.933
  1.934
  1.934
  1.934
  1.934
  1.933
  1.934
  1.934
  1.935
  1.934
  1.934
  1.934
  1.934
  1.934
Average production assets, $m
  384
  403
  424
  446
  469
  493
  518
  545
  572
  602
  632
  664
  698
  733
  770
  809
  850
  892
  937
  985
  1,034
  1,086
  1,141
  1,198
  1,258
  1,321
  1,387
  1,457
  1,530
  1,606
  1,687
Working capital, $m
  -39
  -41
  -43
  -45
  -47
  -50
  -52
  -55
  -58
  -61
  -64
  -67
  -70
  -74
  -78
  -82
  -86
  -90
  -95
  -99
  -104
  -110
  -115
  -121
  -127
  -133
  -140
  -147
  -154
  -162
  -170
Total debt, $m
  220
  235
  253
  272
  292
  313
  335
  358
  382
  407
  434
  462
  491
  522
  554
  588
  623
  660
  699
  740
  783
  828
  876
  925
  978
  1,032
  1,090
  1,150
  1,214
  1,280
  1,350
Total liabilities, $m
  336
  350
  368
  387
  407
  428
  450
  473
  497
  522
  549
  577
  606
  637
  669
  703
  738
  775
  814
  855
  898
  943
  991
  1,040
  1,093
  1,147
  1,205
  1,265
  1,329
  1,395
  1,465
Total equity, $m
  155
  163
  172
  181
  190
  200
  210
  221
  232
  244
  256
  269
  283
  297
  312
  328
  344
  361
  380
  399
  419
  440
  462
  485
  509
  535
  562
  590
  620
  651
  683
Total liabilities and equity, $m
  491
  513
  540
  568
  597
  628
  660
  694
  729
  766
  805
  846
  889
  934
  981
  1,031
  1,082
  1,136
  1,194
  1,254
  1,317
  1,383
  1,453
  1,525
  1,602
  1,682
  1,767
  1,855
  1,949
  2,046
  2,148
Debt-to-equity ratio
  1.419
  1.440
  1.480
  1.510
  1.540
  1.570
  1.600
  1.620
  1.650
  1.670
  1.700
  1.720
  1.740
  1.760
  1.780
  1.790
  1.810
  1.830
  1.840
  1.860
  1.870
  1.880
  1.900
  1.910
  1.920
  1.930
  1.940
  1.950
  1.960
  1.970
  1.980
Adjusted equity ratio
  0.314
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  45
  15
  19
  22
  27
  31
  36
  41
  46
  52
  58
  66
  73
  80
  88
  96
  105
  114
  124
  134
  145
  157
  169
  183
  197
  211
  227
  243
  261
  279
  299
Depreciation, amort., depletion, $m
  47
  49
  52
  54
  57
  60
  63
  66
  69
  72
  76
  77
  81
  85
  90
  94
  99
  104
  109
  114
  120
  126
  133
  139
  146
  154
  161
  169
  178
  187
  196
Funds from operations, $m
  57
  64
  70
  77
  83
  91
  98
  106
  115
  124
  134
  143
  154
  165
  177
  190
  204
  218
  233
  249
  266
  283
  302
  322
  343
  365
  388
  413
  439
  466
  495
Change in working capital, $m
  -5
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
Cash from operations, $m
  62
  90
  72
  79
  86
  93
  101
  109
  118
  127
  137
  146
  157
  169
  181
  194
  208
  222
  237
  254
  271
  289
  308
  328
  349
  371
  395
  420
  446
  474
  503
Maintenance CAPEX, $m
  0
  -45
  -47
  -49
  -52
  -55
  -57
  -60
  -63
  -67
  -70
  -73
  -77
  -81
  -85
  -90
  -94
  -99
  -104
  -109
  -114
  -120
  -126
  -133
  -139
  -146
  -154
  -161
  -169
  -178
  -187
New CAPEX, $m
  -94
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -55
  -57
  -60
  -63
  -66
  -70
  -73
  -77
  -80
Cash from investing activities, $m
  -96
  -65
  -68
  -71
  -75
  -79
  -82
  -86
  -91
  -96
  -101
  -105
  -111
  -116
  -122
  -129
  -135
  -142
  -149
  -156
  -163
  -172
  -181
  -190
  -199
  -209
  -220
  -231
  -242
  -255
  -267
Free cash flow, $m
  -34
  25
  4
  8
  11
  14
  18
  22
  27
  31
  36
  41
  47
  53
  59
  66
  73
  81
  89
  97
  107
  116
  127
  138
  149
  162
  175
  189
  204
  219
  236
Issuance/(repayment) of debt, $m
  14
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
  34
  35
  37
  39
  41
  43
  45
  47
  50
  52
  55
  58
  60
  63
  67
  70
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  
  14
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
  34
  35
  37
  39
  41
  43
  45
  47
  50
  52
  55
  58
  60
  63
  67
  70
Total cash flow (excl. dividends), $m
  -20
  42
  23
  27
  31
  35
  40
  45
  51
  57
  63
  69
  76
  83
  91
  99
  108
  118
  128
  138
  150
  162
  174
  188
  202
  217
  233
  249
  267
  286
  306
Retained Cash Flow (-), $m
  -47
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -31
  -33
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
 
  34
  14
  18
  22
  26
  30
  35
  40
  45
  50
  56
  62
  69
  76
  84
  92
  100
  110
  119
  130
  140
  152
  164
  177
  191
  206
  221
  238
  255
  273
Discount rate, %
 
  7.80
  8.19
  8.60
  9.03
  9.48
  9.95
  10.45
  10.98
  11.52
  12.10
  12.71
  13.34
  14.01
  14.71
  15.44
  16.22
  17.03
  17.88
  18.77
  19.71
  20.70
  21.73
  22.82
  23.96
  25.16
  26.41
  27.73
  29.12
  30.58
  32.11
PV of cash for distribution, $m
 
  32
  12
  14
  15
  16
  17
  17
  17
  17
  16
  15
  14
  13
  11
  10
  8
  7
  6
  5
  4
  3
  2
  1
  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

Carrols Restaurant Group, Inc., through its subsidiaries, operates franchisee restaurants of Burger King. As of January 3, 2016, it operated 705 Burger King restaurants in 16 states of the United States. The company was founded in 1960 and is headquartered in Syracuse, New York.

FINANCIAL RATIOS  of  Carrols Restaurant Group (TAST)

Valuation Ratios
P/E Ratio 9.6
Price to Sales 0.5
Price to Book 2.8
Price to Tangible Book
Price to Cash Flow 7
Price to Free Cash Flow -13.5
Growth Rates
Sales Growth Rate 9.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 64.9%
Cap. Spend. - 3 Yr. Gr. Rate 13.5%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 140.6%
Total Debt to Equity 141.9%
Interest Coverage 2
Management Effectiveness
Return On Assets 19.6%
Ret/ On Assets - 3 Yr. Avg. 6.9%
Return On Total Capital 13.1%
Ret/ On T. Cap. - 3 Yr. Avg. -0.7%
Return On Equity 34.2%
Return On Equity - 3 Yr. Avg. -2.4%
Asset Turnover 2.1
Profitability Ratios
Gross Margin 35.1%
Gross Margin - 3 Yr. Avg. 33.4%
EBITDA Margin 8.6%
EBITDA Margin - 3 Yr. Avg. 6.5%
Operating Margin 3.8%
Oper. Margin - 3 Yr. Avg. 1.7%
Pre-Tax Margin 1.8%
Pre-Tax Margin - 3 Yr. Avg. -0.7%
Net Profit Margin 4.8%
Net Profit Margin - 3 Yr. Avg. -0.2%
Effective Tax Rate -164.7%
Eff/ Tax Rate - 3 Yr. Avg. -70.3%
Payout Ratio 0%

TAST stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TAST stock intrinsic value calculation we used $944 million for the last fiscal year's total revenue generated by Carrols Restaurant Group. The default revenue input number comes from 2017 income statement of Carrols Restaurant Group. 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 TAST stock valuation model: a) initial revenue growth rate of 5.2% 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 7.8%, whose default value for TAST is calculated based on our internal credit rating of Carrols Restaurant Group, 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 Carrols Restaurant Group.
    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 TAST stock the variable cost ratio is equal to 80%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $157 million in the base year in the intrinsic value calculation for TAST 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 8% for Carrols Restaurant Group.

Corporate tax rate of 27% is the nominal tax rate for Carrols Restaurant Group. 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 TAST 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 TAST are equal to 40.6%.

Life of production assets of 8.6 years is the average useful life of capital assets used in Carrols Restaurant Group 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 TAST is equal to -4.1%. 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 - $155 million for Carrols Restaurant Group - 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 36.59 million for Carrols Restaurant Group 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 Carrols Restaurant Group at the current share price and the inputted number of shares is $0.4 billion.


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COMPANY NEWS

▶ 3 Growth Stocks for Astute Investors   [May-10-17 09:31AM  Motley Fool]
▶ Carrols Restaurant reports 1Q loss   [08:33AM  Associated Press]
▶ Carrols Restaurant posts 4Q profit   [07:19AM  Associated Press]
▶ Buying Value Stocks on the Breakout   [Feb-08-17 07:59PM  Zacks]
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▶ Should You Avoid Carrols Restaurant Group, Inc. (TAST)?   [Dec-02-16 08:24AM  at Insider Monkey]
▶ Chipotle may be the worst restaurant for investors   [Oct-19-16 07:25AM  at MarketWatch]
Stock chart of TAST Financial statements of TAST Annual reports of TAST
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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