Intrinsic value of Thermon Group Holdings - THR

Previous Close

$16.10

  Intrinsic Value

$11.61

stock screener

  Rating & Target

sell

-28%

  Value-price divergence*

-6%

Previous close

$16.10

 
Intrinsic value

$11.61

 
Up/down potential

-28%

 
Rating

sell

 
Value-price divergence*

-6%

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

We calculate the intrinsic value of THR 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 0.5

 

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, %
  -6.38
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  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
Revenue, $m
  264
  269
  275
  283
  291
  299
  309
  319
  331
  343
  356
  370
  385
  401
  418
  437
  456
  476
  497
  520
  544
  569
  596
  624
  653
  684
  717
  751
  788
  826
  866
Variable operating expenses, $m
 
  47
  47
  48
  49
  50
  52
  53
  54
  56
  58
  47
  49
  51
  53
  56
  58
  61
  64
  66
  69
  73
  76
  80
  83
  87
  92
  96
  101
  106
  111
Fixed operating expenses, $m
 
  206
  211
  216
  222
  227
  233
  239
  245
  251
  257
  264
  270
  277
  284
  291
  298
  306
  313
  321
  329
  338
  346
  355
  364
  373
  382
  392
  401
  411
  422
Total operating expenses, $m
  242
  253
  258
  264
  271
  277
  285
  292
  299
  307
  315
  311
  319
  328
  337
  347
  356
  367
  377
  387
  398
  411
  422
  435
  447
  460
  474
  488
  502
  517
  533
Operating income, $m
  22
  17
  17
  18
  19
  21
  24
  28
  32
  36
  41
  59
  66
  73
  81
  90
  99
  109
  120
  132
  145
  159
  173
  189
  206
  224
  243
  264
  286
  309
  334
EBITDA, $m
  39
  38
  39
  40
  42
  44
  47
  51
  55
  60
  66
  73
  80
  87
  96
  105
  115
  126
  138
  151
  164
  179
  195
  211
  229
  249
  269
  291
  314
  338
  365
Interest expense (income), $m
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  15
Earnings before tax, $m
  19
  14
  14
  15
  16
  18
  21
  24
  28
  32
  37
  55
  61
  68
  75
  84
  93
  102
  113
  124
  137
  150
  164
  179
  196
  213
  232
  251
  273
  295
  319
Tax expense, $m
  4
  4
  4
  4
  4
  5
  6
  6
  7
  9
  10
  15
  16
  18
  20
  23
  25
  28
  30
  34
  37
  40
  44
  48
  53
  58
  63
  68
  74
  80
  86
Net income, $m
  15
  10
  10
  11
  12
  13
  15
  17
  20
  23
  27
  40
  44
  49
  55
  61
  68
  75
  82
  91
  100
  109
  120
  131
  143
  156
  169
  184
  199
  215
  233

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  85
  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
  469
  391
  400
  411
  422
  435
  449
  464
  481
  499
  518
  538
  560
  584
  608
  634
  662
  692
  723
  756
  790
  827
  866
  906
  949
  995
  1,042
  1,092
  1,145
  1,200
  1,259
Adjusted assets (=assets-cash), $m
  384
  391
  400
  411
  422
  435
  449
  464
  481
  499
  518
  538
  560
  584
  608
  634
  662
  692
  723
  756
  790
  827
  866
  906
  949
  995
  1,042
  1,092
  1,145
  1,200
  1,259
Revenue / Adjusted assets
  0.688
  0.688
  0.688
  0.689
  0.690
  0.687
  0.688
  0.688
  0.688
  0.687
  0.687
  0.688
  0.688
  0.687
  0.688
  0.689
  0.689
  0.688
  0.687
  0.688
  0.689
  0.688
  0.688
  0.689
  0.688
  0.687
  0.688
  0.688
  0.688
  0.688
  0.688
Average production assets, $m
  141
  144
  147
  151
  155
  160
  165
  171
  177
  183
  190
  198
  206
  214
  223
  233
  243
  254
  266
  278
  290
  304
  318
  333
  349
  365
  383
  401
  421
  441
  462
Working capital, $m
  142
  72
  74
  76
  78
  81
  83
  86
  89
  92
  96
  100
  104
  108
  113
  117
  123
  128
  134
  140
  146
  153
  160
  168
  176
  184
  193
  202
  212
  222
  233
Total debt, $m
  94
  83
  87
  91
  96
  101
  107
  114
  121
  128
  136
  145
  154
  163
  174
  185
  196
  209
  222
  236
  250
  266
  282
  299
  317
  336
  356
  377
  399
  422
  446
Total liabilities, $m
  174
  164
  168
  172
  177
  182
  188
  195
  202
  209
  217
  226
  235
  244
  255
  266
  277
  290
  303
  317
  331
  347
  363
  380
  398
  417
  437
  458
  480
  503
  527
Total equity, $m
  294
  227
  233
  239
  245
  253
  261
  270
  279
  290
  301
  313
  326
  339
  353
  369
  385
  402
  420
  439
  459
  481
  503
  527
  552
  578
  605
  635
  665
  697
  731
Total liabilities and equity, $m
  468
  391
  401
  411
  422
  435
  449
  465
  481
  499
  518
  539
  561
  583
  608
  635
  662
  692
  723
  756
  790
  828
  866
  907
  950
  995
  1,042
  1,093
  1,145
  1,200
  1,258
Debt-to-equity ratio
  0.320
  0.360
  0.370
  0.380
  0.390
  0.400
  0.410
  0.420
  0.430
  0.440
  0.450
  0.460
  0.470
  0.480
  0.490
  0.500
  0.510
  0.520
  0.530
  0.540
  0.540
  0.550
  0.560
  0.570
  0.570
  0.580
  0.590
  0.590
  0.600
  0.610
  0.610
Adjusted equity ratio
  0.544
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  15
  10
  10
  11
  12
  13
  15
  17
  20
  23
  27
  40
  44
  49
  55
  61
  68
  75
  82
  91
  100
  109
  120
  131
  143
  156
  169
  184
  199
  215
  233
Depreciation, amort., depletion, $m
  17
  22
  22
  22
  23
  23
  23
  24
  24
  24
  25
  13
  14
  14
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  26
  27
  28
  29
  31
Funds from operations, $m
  53
  32
  32
  33
  34
  36
  38
  41
  44
  48
  52
  53
  58
  64
  70
  77
  84
  92
  100
  109
  119
  130
  141
  153
  166
  180
  195
  210
  227
  245
  264
Change in working capital, $m
  5
  1
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
Cash from operations, $m
  48
  30
  31
  31
  32
  34
  36
  38
  41
  44
  48
  49
  54
  59
  65
  72
  79
  86
  94
  103
  113
  123
  134
  146
  158
  172
  186
  201
  217
  235
  253
Maintenance CAPEX, $m
  0
  -9
  -10
  -10
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -29
New CAPEX, $m
  -13
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
Cash from investing activities, $m
  -42
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -17
  -19
  -19
  -21
  -21
  -23
  -23
  -25
  -26
  -27
  -28
  -30
  -32
  -32
  -34
  -36
  -38
  -40
  -41
  -44
  -46
  -48
  -50
Free cash flow, $m
  6
  18
  18
  18
  18
  19
  20
  21
  24
  26
  29
  29
  33
  37
  42
  47
  53
  59
  66
  73
  81
  90
  99
  109
  120
  132
  144
  157
  171
  186
  202
Issuance/(repayment) of debt, $m
  -14
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
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  
  -15
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
Total cash flow (excl. dividends), $m
  -9
  21
  21
  22
  23
  24
  26
  28
  30
  34
  37
  38
  42
  47
  52
  58
  65
  72
  79
  87
  96
  105
  116
  127
  138
  151
  164
  178
  193
  209
  226
Retained Cash Flow (-), $m
  -22
  -4
  -5
  -6
  -7
  -7
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -34
Prev. year cash balance distribution, $m
 
  71
  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
 
  88
  16
  16
  16
  17
  18
  19
  21
  23
  26
  26
  29
  33
  38
  43
  48
  54
  61
  68
  76
  84
  93
  103
  113
  124
  136
  149
  163
  177
  193
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
 
  84
  15
  14
  13
  13
  13
  13
  13
  13
  14
  12
  13
  13
  13
  13
  12
  12
  11
  10
  10
  9
  8
  7
  6
  5
  4
  3
  3
  2
  1
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
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Thermon Group Holdings, Inc. provides thermal engineered solutions for process industries in the United States, Canada, Europe, and Asia. Its products include various electric heat tracing cables, steam tracing components, tubing bundles, and instrument and control products. The company offers self-regulating and power limiting heating cables, which automatically increase or decrease heat output as pipe temperature changes, as well as constant wattage heating cables; mineral insulated cables for generating high temperatures used in harsh environments; skin effect trace heaters, which could heat lines up to 15 miles long from a single power point; and heat traced tube bundles for environmental gas sampling systems. It also provides heat transfer compounds and steam tracers for steam tracing solutions; control and monitoring systems for electric tracing of pipes, tanks, hoppers, and instrument sampling systems; hopper heating modules, which are self-contained heaters for use in cement plants and fossil fuel power facilities; and turnkey solutions that provide solutions for heat tracing comprising design, optimization, planning, product supply, engineering services, system integration, installation, commissioning, and maintenance. In addition, the company offers heating, sensing, monitoring, controlling, and calibration tools; and temporary electric power distribution and lighting products that are used in energy infrastructure construction projects and maintenance/turnaround projects. The company offers its solutions to the energy, chemical processing, and power generation markets through a network of sales and service professionals, and distributors. Thermon Group Holdings, Inc. is headquartered in San Marcos, Texas.

FINANCIAL RATIOS  of  Thermon Group Holdings (THR)

Valuation Ratios
P/E Ratio 34.6
Price to Sales 2
Price to Book 1.8
Price to Tangible Book
Price to Cash Flow 10.8
Price to Free Cash Flow 14.8
Growth Rates
Sales Growth Rate -6.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 116.7%
Cap. Spend. - 3 Yr. Gr. Rate 16.7%
Financial Strength
Quick Ratio 6
Current Ratio 0.1
LT Debt to Equity 27.2%
Total Debt to Equity 32%
Interest Coverage 7
Management Effectiveness
Return On Assets 3.8%
Ret/ On Assets - 3 Yr. Avg. 7.5%
Return On Total Capital 3.9%
Ret/ On T. Cap. - 3 Yr. Avg. 7.9%
Return On Equity 5.3%
Return On Equity - 3 Yr. Avg. 11.6%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 42.4%
Gross Margin - 3 Yr. Avg. 46.3%
EBITDA Margin 14.8%
EBITDA Margin - 3 Yr. Avg. 20.2%
Operating Margin 8.3%
Oper. Margin - 3 Yr. Avg. 14.4%
Pre-Tax Margin 7.2%
Pre-Tax Margin - 3 Yr. Avg. 13%
Net Profit Margin 5.7%
Net Profit Margin - 3 Yr. Avg. 9.9%
Effective Tax Rate 21.1%
Eff/ Tax Rate - 3 Yr. Avg. 22.8%
Payout Ratio 0%

THR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the THR stock intrinsic value calculation we used $264 million for the last fiscal year's total revenue generated by Thermon Group Holdings. The default revenue input number comes from 2017 income statement of Thermon Group Holdings. 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 THR stock valuation model: a) initial revenue growth rate of 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 4.3%, whose default value for THR is calculated based on our internal credit rating of Thermon Group Holdings, 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 Thermon Group Holdings.
    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 THR stock the variable cost ratio is equal to 17.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $201 million in the base year in the intrinsic value calculation for THR 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 Thermon Group Holdings.

Corporate tax rate of 27% is the nominal tax rate for Thermon Group Holdings. 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 THR 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 THR are equal to 53.4%.

Life of production assets of 15 years is the average useful life of capital assets used in Thermon Group Holdings 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 THR is equal to 26.9%. 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 - $294 million for Thermon Group Holdings - 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 32.119 million for Thermon Group Holdings 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 Thermon Group Holdings at the current share price and the inputted number of shares is $0.5 billion.

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COMPANY NEWS

▶ Thermon Group misses Street 1Q forecasts   [Aug-03-17 12:28AM  Associated Press]
▶ Should You Get Rid of Thermon Group (THR) Now?   [Jun-15-17 09:00AM  Zacks]
▶ Thermon Group misses 4Q profit forecasts   [May-24-17 08:14AM  Associated Press]
▶ Thermon Reports Fiscal 2017 Results   [08:00AM  GlobeNewswire]
▶ Thermon Group meets 3Q profit forecasts   [08:07AM  Associated Press]
▶ How Nantkwest Inc (NK) Stacks Up Versus Peers   [Dec-16-16 12:13AM  at Insider Monkey]
▶ Today's Top 5 Stock Picks: Bulletproof and Cash Rich   [Oct-06-16 11:36AM  at Barrons.com]
▶ Thermon Reports Fiscal 2016 Results   [08:00AM  Marketwired]
Stock chart of THR Financial statements of THR
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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