Intrinsic value of Thermon Group Holdings - THR

Previous Close

$22.84

  Intrinsic Value

$10.86

stock screener

  Rating & Target

str. sell

-52%

Previous close

$22.84

 
Intrinsic value

$10.86

 
Up/down potential

-52%

 
Rating

str. 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

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 0.7

 

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
  63
  66
  69
  73
  76
  79
  83
  87
  91
  96
  100
  105
  110
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
  376
  387
  398
  411
  422
  434
  447
  460
  473
  488
  501
  516
  532
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
  174
  189
  206
  224
  244
  264
  286
  309
  334
EBITDA, $m
  40
  39
  39
  40
  42
  45
  48
  51
  56
  61
  66
  73
  80
  88
  96
  106
  116
  127
  138
  151
  165
  179
  195
  212
  230
  249
  270
  291
  314
  339
  365
Interest expense (income), $m
  3
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
Earnings before tax, $m
  19
  15
  15
  16
  17
  19
  22
  25
  29
  33
  38
  56
  62
  69
  77
  85
  94
  104
  115
  126
  139
  152
  167
  182
  198
  216
  235
  255
  276
  298
  323
Tax expense, $m
  4
  4
  4
  4
  5
  5
  6
  7
  8
  9
  10
  15
  17
  19
  21
  23
  25
  28
  31
  34
  37
  41
  45
  49
  54
  58
  63
  69
  74
  81
  87
Net income, $m
  15
  11
  11
  11
  12
  14
  16
  18
  21
  24
  28
  41
  45
  50
  56
  62
  69
  76
  84
  92
  101
  111
  122
  133
  145
  158
  171
  186
  201
  218
  235

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
  373
  382
  392
  403
  415
  429
  443
  459
  476
  494
  514
  535
  557
  580
  605
  632
  660
  690
  721
  754
  789
  826
  865
  906
  949
  994
  1,042
  1,093
  1,145
  1,201
Adjusted assets (=assets-cash), $m
  366
  373
  382
  392
  403
  415
  429
  443
  459
  476
  494
  514
  535
  557
  580
  605
  632
  660
  690
  721
  754
  789
  826
  865
  906
  949
  994
  1,042
  1,093
  1,145
  1,201
Revenue / Adjusted assets
  0.721
  0.721
  0.720
  0.722
  0.722
  0.720
  0.720
  0.720
  0.721
  0.721
  0.721
  0.720
  0.720
  0.720
  0.721
  0.722
  0.722
  0.721
  0.720
  0.721
  0.721
  0.721
  0.722
  0.721
  0.721
  0.721
  0.721
  0.721
  0.721
  0.721
  0.721
Average production assets, $m
  138
  141
  144
  148
  152
  157
  162
  167
  173
  179
  186
  194
  202
  210
  219
  228
  238
  249
  260
  272
  284
  298
  312
  326
  342
  358
  375
  393
  412
  432
  453
Working capital, $m
  146
  79
  81
  83
  86
  88
  91
  94
  98
  101
  105
  109
  114
  118
  123
  129
  134
  140
  147
  153
  160
  168
  176
  184
  193
  202
  212
  222
  232
  244
  255
Total debt, $m
  80
  62
  65
  69
  73
  77
  81
  86
  92
  98
  104
  111
  118
  126
  134
  142
  151
  161
  171
  182
  193
  205
  218
  232
  246
  260
  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
  298
  312
  326
  342
  359
  376
  394
  413
Total equity, $m
  308
  245
  251
  257
  264
  272
  281
  291
  301
  312
  324
  337
  351
  365
  381
  397
  415
  433
  452
  473
  495
  518
  542
  567
  594
  623
  652
  684
  717
  751
  788
Total liabilities and equity, $m
  454
  373
  382
  392
  403
  415
  428
  443
  459
  476
  494
  514
  535
  557
  581
  605
  632
  660
  689
  721
  754
  789
  826
  865
  906
  949
  994
  1,043
  1,093
  1,145
  1,201
Debt-to-equity ratio
  0.260
  0.260
  0.260
  0.270
  0.270
  0.280
  0.290
  0.300
  0.310
  0.310
  0.320
  0.330
  0.340
  0.340
  0.350
  0.360
  0.370
  0.370
  0.380
  0.380
  0.390
  0.400
  0.400
  0.410
  0.410
  0.420
  0.420
  0.430
  0.430
  0.440
  0.440
Adjusted equity ratio
  0.601
  0.656
  0.656
  0.656
  0.656
  0.656
  0.656
  0.656
  0.656
  0.656
  0.656
  0.656
  0.656
  0.656
  0.656
  0.656
  0.656
  0.656
  0.656
  0.656
  0.656
  0.656
  0.656
  0.656
  0.656
  0.656
  0.656
  0.656
  0.656
  0.656
  0.656

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  15
  11
  11
  11
  12
  14
  16
  18
  21
  24
  28
  41
  45
  50
  56
  62
  69
  76
  84
  92
  101
  111
  122
  133
  145
  158
  171
  186
  201
  218
  235
Depreciation, amort., depletion, $m
  18
  22
  22
  22
  23
  23
  23
  24
  24
  25
  25
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  21
  22
  24
  25
  26
  27
  28
  30
  31
Funds from operations, $m
  22
  33
  33
  34
  35
  37
  39
  42
  45
  49
  53
  54
  59
  65
  71
  78
  85
  93
  102
  111
  121
  132
  143
  155
  168
  182
  197
  213
  230
  248
  267
Change in working capital, $m
  -4
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
Cash from operations, $m
  26
  31
  31
  32
  33
  34
  36
  39
  42
  45
  49
  50
  55
  60
  66
  73
  80
  87
  95
  104
  114
  124
  135
  147
  160
  173
  187
  203
  219
  236
  255
Maintenance CAPEX, $m
  0
  -10
  -10
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -21
  -22
  -24
  -25
  -26
  -27
  -28
  -30
New CAPEX, $m
  -8
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
Cash from investing activities, $m
  -52
  -13
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -31
  -33
  -35
  -36
  -37
  -40
  -42
  -44
  -46
  -48
  -51
Free cash flow, $m
  -26
  19
  18
  18
  18
  19
  20
  22
  24
  27
  30
  30
  34
  38
  43
  48
  54
  60
  67
  75
  83
  91
  101
  111
  122
  133
  146
  159
  173
  188
  204
Issuance/(repayment) of debt, $m
  -14
  2
  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
  2
  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
  21
  21
  21
  22
  23
  25
  27
  30
  33
  36
  36
  41
  46
  51
  57
  63
  70
  77
  85
  94
  103
  113
  124
  136
  148
  161
  175
  190
  206
  223
Retained Cash Flow (-), $m
  -14
  -5
  -6
  -6
  -7
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -35
  -37
Prev. year cash balance distribution, $m
 
  68
  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
 
  84
  16
  15
  15
  15
  16
  18
  19
  21
  24
  24
  27
  31
  35
  40
  46
  51
  58
  65
  72
  80
  89
  99
  109
  120
  131
  144
  157
  172
  187
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
 
  81
  14
  13
  12
  12
  12
  12
  12
  12
  13
  11
  12
  12
  12
  12
  12
  11
  11
  10
  9
  8
  7
  6
  6
  5
  4
  3
  2
  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
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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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 49.3
Price to Sales 2.8
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 28.4
Price to Free Cash Flow 41.1
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 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 52.3%.

Life of production assets of 14.5 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 29.5%. 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 32.402 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

▶ 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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