Intrinsic value of Thermon Group Holdings - THR

Previous Close

$23.25

  Intrinsic Value

$12.55

stock screener

  Rating & Target

sell

-46%

Previous close

$23.25

 
Intrinsic value

$12.55

 
Up/down potential

-46%

 
Rating

sell

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

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, %
  -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
 
  53
  53
  54
  55
  56
  57
  59
  60
  61
  63
  44
  45
  47
  49
  51
  54
  56
  59
  61
  64
  67
  70
  73
  77
  81
  84
  89
  93
  97
  102
Fixed operating expenses, $m
 
  198
  203
  207
  212
  216
  221
  226
  231
  236
  241
  246
  252
  257
  263
  269
  275
  281
  287
  293
  300
  306
  313
  320
  327
  334
  342
  349
  357
  365
  373
Total operating expenses, $m
  242
  251
  256
  261
  267
  272
  278
  285
  291
  297
  304
  290
  297
  304
  312
  320
  329
  337
  346
  354
  364
  373
  383
  393
  404
  415
  426
  438
  450
  462
  475
Operating income, $m
  22
  18
  19
  21
  24
  27
  31
  35
  40
  46
  52
  80
  88
  97
  106
  116
  127
  139
  152
  165
  180
  196
  212
  230
  249
  269
  291
  314
  338
  364
  391
EBITDA, $m
  40
  66
  67
  70
  73
  77
  82
  87
  94
  100
  108
  117
  126
  136
  147
  159
  172
  186
  201
  216
  233
  252
  271
  291
  313
  337
  361
  388
  416
  445
  476
Interest expense (income), $m
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  13
  13
  14
  15
  16
  17
  18
Earnings before tax, $m
  19
  15
  16
  18
  20
  23
  26
  31
  35
  41
  47
  75
  82
  90
  99
  109
  119
  131
  143
  156
  170
  185
  201
  218
  237
  256
  277
  299
  322
  347
  374
Tax expense, $m
  4
  4
  4
  5
  5
  6
  7
  8
  10
  11
  13
  20
  22
  24
  27
  29
  32
  35
  39
  42
  46
  50
  54
  59
  64
  69
  75
  81
  87
  94
  101
Net income, $m
  15
  11
  12
  13
  15
  17
  19
  22
  26
  30
  34
  55
  60
  66
  72
  80
  87
  95
  104
  114
  124
  135
  147
  159
  173
  187
  202
  218
  235
  253
  273

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  88
  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
  454
  427
  437
  448
  460
  474
  490
  506
  524
  544
  565
  587
  611
  636
  663
  692
  722
  754
  788
  824
  862
  902
  944
  988
  1,035
  1,084
  1,136
  1,191
  1,248
  1,309
  1,372
Adjusted assets (=assets-cash), $m
  366
  427
  437
  448
  460
  474
  490
  506
  524
  544
  565
  587
  611
  636
  663
  692
  722
  754
  788
  824
  862
  902
  944
  988
  1,035
  1,084
  1,136
  1,191
  1,248
  1,309
  1,372
Revenue / Adjusted assets
  0.721
  0.630
  0.629
  0.632
  0.633
  0.631
  0.631
  0.630
  0.632
  0.631
  0.630
  0.630
  0.630
  0.631
  0.630
  0.632
  0.632
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.632
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
  0.631
Average production assets, $m
  138
  265
  271
  278
  286
  294
  304
  314
  325
  337
  350
  364
  379
  395
  411
  429
  448
  468
  489
  511
  535
  559
  585
  613
  642
  673
  705
  739
  774
  812
  851
Working capital, $m
  146
  19
  19
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  36
  38
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
Total debt, $m
  80
  63
  66
  69
  73
  77
  82
  87
  92
  98
  104
  111
  118
  126
  134
  143
  152
  161
  172
  182
  194
  206
  219
  232
  246
  261
  276
  293
  310
  328
  347
Total liabilities, $m
  146
  128
  131
  135
  139
  143
  147
  152
  158
  164
  170
  177
  184
  192
  200
  208
  217
  227
  237
  248
  259
  271
  284
  297
  312
  326
  342
  358
  376
  394
  413
Total equity, $m
  308
  298
  305
  313
  322
  332
  342
  354
  367
  380
  395
  410
  427
  445
  464
  484
  505
  527
  551
  576
  602
  630
  660
  691
  724
  758
  794
  832
  873
  915
  959
Total liabilities and equity, $m
  454
  426
  436
  448
  461
  475
  489
  506
  525
  544
  565
  587
  611
  637
  664
  692
  722
  754
  788
  824
  861
  901
  944
  988
  1,036
  1,084
  1,136
  1,190
  1,249
  1,309
  1,372
Debt-to-equity ratio
  0.260
  0.210
  0.220
  0.220
  0.230
  0.230
  0.240
  0.250
  0.250
  0.260
  0.260
  0.270
  0.280
  0.280
  0.290
  0.290
  0.300
  0.310
  0.310
  0.320
  0.320
  0.330
  0.330
  0.340
  0.340
  0.340
  0.350
  0.350
  0.360
  0.360
  0.360
Adjusted equity ratio
  0.601
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  15
  11
  12
  13
  15
  17
  19
  22
  26
  30
  34
  55
  60
  66
  72
  80
  87
  95
  104
  114
  124
  135
  147
  159
  173
  187
  202
  218
  235
  253
  273
Depreciation, amort., depletion, $m
  18
  47
  48
  49
  49
  50
  51
  52
  53
  55
  56
  36
  38
  39
  41
  43
  45
  47
  49
  51
  53
  56
  59
  61
  64
  67
  70
  74
  77
  81
  85
Funds from operations, $m
  22
  58
  60
  62
  64
  67
  71
  75
  79
  84
  90
  91
  98
  105
  114
  122
  132
  142
  153
  165
  178
  191
  205
  221
  237
  254
  273
  292
  313
  335
  358
Change in working capital, $m
  -4
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
Cash from operations, $m
  26
  58
  59
  61
  64
  66
  70
  74
  78
  84
  89
  90
  97
  104
  112
  121
  131
  141
  152
  163
  176
  189
  204
  219
  235
  252
  270
  290
  310
  332
  355
Maintenance CAPEX, $m
  0
  -26
  -26
  -27
  -28
  -29
  -29
  -30
  -31
  -33
  -34
  -35
  -36
  -38
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -53
  -56
  -59
  -61
  -64
  -67
  -70
  -74
  -77
  -81
New CAPEX, $m
  -8
  -5
  -6
  -7
  -8
  -9
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -39
Cash from investing activities, $m
  -52
  -31
  -32
  -34
  -36
  -38
  -38
  -40
  -42
  -45
  -47
  -49
  -51
  -54
  -56
  -59
  -62
  -65
  -68
  -71
  -74
  -78
  -82
  -87
  -90
  -95
  -99
  -104
  -110
  -115
  -120
Free cash flow, $m
  -26
  27
  27
  27
  28
  29
  31
  33
  36
  39
  43
  41
  46
  51
  56
  62
  69
  76
  84
  92
  101
  111
  122
  133
  145
  157
  171
  185
  201
  217
  234
Issuance/(repayment) of debt, $m
  -14
  3
  3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
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
  3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
Total cash flow (excl. dividends), $m
  -42
  30
  30
  30
  32
  33
  36
  38
  41
  45
  49
  48
  53
  58
  64
  71
  78
  86
  94
  103
  113
  123
  134
  146
  159
  172
  186
  202
  218
  235
  254
Retained Cash Flow (-), $m
  -14
  -5
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -28
  -29
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -44
Prev. year cash balance distribution, $m
 
  15
  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
 
  3
  4
  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
Cash available for distribution, $m
 
  39
  23
  23
  23
  24
  25
  27
  29
  31
  34
  32
  36
  41
  46
  51
  57
  63
  70
  78
  86
  95
  105
  115
  126
  138
  150
  164
  178
  193
  209
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
 
  38
  21
  20
  19
  18
  18
  18
  18
  18
  18
  15
  15
  15
  15
  15
  14
  14
  13
  12
  11
  10
  9
  8
  6
  5
  4
  4
  3
  2
  2
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

Thermon Group Holdings, Inc. is a provider of engineered thermal solutions for process industries. The Company operates through four segments based on four geographic countries or regions: United States, Canada, Europe and Asia. Its product portfolio includes self-regulating and power limiting heating cables, which change heat output as pipe temperature changes, as well as constant wattage heating cables; mineral insulated (MI) cable; skin effect trace heater; heat traced tube bundles for environmental gas sampling systems; 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; turnkey solutions that provide solutions for heat tracing, including design, optimization, installation and ongoing maintenance; products and services, such as heating, sensing, monitoring, controlling and calibration tools, and temporary electric power distribution and lighting products.

FINANCIAL RATIOS  of  Thermon Group Holdings (THR)

Valuation Ratios
P/E Ratio 50.2
Price to Sales 2.9
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 28.9
Price to Free Cash Flow 41.8
Growth Rates
Sales Growth Rate -6.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -38.5%
Cap. Spend. - 3 Yr. Gr. Rate 21.7%
Financial Strength
Quick Ratio 4
Current Ratio 0.1
LT Debt to Equity 19.5%
Total Debt to Equity 26%
Interest Coverage 7
Management Effectiveness
Return On Assets 3.8%
Ret/ On Assets - 3 Yr. Avg. 7%
Return On Total Capital 3.9%
Ret/ On T. Cap. - 3 Yr. Avg. 7.6%
Return On Equity 5%
Return On Equity - 3 Yr. Avg. 10.6%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 42.4%
Gross Margin - 3 Yr. Avg. 46.3%
EBITDA Margin 15.2%
EBITDA Margin - 3 Yr. Avg. 19.9%
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 19.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $194 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 5.4% 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 1.3%.

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 THR are equal to 98.3%.

Life of production assets of 10 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 6.9%. 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 - $308 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 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 $0.7 billion.

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COMPANY NEWS

▶ Thermon Reports Fiscal 2018 Results   [May-24-18 08:00AM  ACCESSWIRE]
▶ A Preview Of Thermon Group's Earnings   [May-23-18 04:08PM  Benzinga]
▶ Thermon Appoints Linda Dalgetty to Its Board of Directors   [Mar-22-18 09:24AM  GlobeNewswire]
▶ Thermon Group posts 3Q profit   [08:38AM  Associated Press]
▶ Woodward (WWD) Surges: Stock Moves 6.2% Higher   [Nov-10-17 08:51AM  Zacks]
▶ Thermon Group beats 2Q profit forecasts   [Oct-23-17 08:11AM  Associated Press]
▶ 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]
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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