Intrinsic value of Tower International - TOWR

Previous Close

$30.60

  Intrinsic Value

$43.27

stock screener

  Rating & Target

buy

+41%

Previous close

$30.60

 
Intrinsic value

$43.27

 
Up/down potential

+41%

 
Rating

buy

We calculate the intrinsic value of TOWR 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 0.6

 

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, %
  6.57
  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
  1,914
  1,952
  1,997
  2,049
  2,106
  2,170
  2,240
  2,316
  2,399
  2,488
  2,583
  2,686
  2,794
  2,911
  3,034
  3,165
  3,303
  3,450
  3,605
  3,770
  3,943
  4,125
  4,318
  4,521
  4,735
  4,961
  5,198
  5,448
  5,711
  5,988
  6,278
Variable operating expenses, $m
 
  1,687
  1,725
  1,770
  1,819
  1,874
  1,934
  2,000
  2,071
  2,148
  2,230
  2,312
  2,406
  2,506
  2,612
  2,725
  2,845
  2,971
  3,105
  3,246
  3,395
  3,552
  3,718
  3,893
  4,078
  4,272
  4,476
  4,691
  4,918
  5,156
  5,406
Fixed operating expenses, $m
 
  167
  171
  176
  180
  184
  189
  194
  199
  204
  209
  214
  219
  225
  230
  236
  242
  248
  254
  261
  267
  274
  281
  288
  295
  302
  310
  317
  325
  334
  342
Total operating expenses, $m
  1,813
  1,854
  1,896
  1,946
  1,999
  2,058
  2,123
  2,194
  2,270
  2,352
  2,439
  2,526
  2,625
  2,731
  2,842
  2,961
  3,087
  3,219
  3,359
  3,507
  3,662
  3,826
  3,999
  4,181
  4,373
  4,574
  4,786
  5,008
  5,243
  5,490
  5,748
Operating income, $m
  101
  99
  101
  103
  107
  111
  117
  122
  129
  136
  145
  159
  169
  180
  191
  204
  217
  231
  247
  263
  281
  299
  319
  341
  363
  387
  412
  439
  468
  498
  530
EBITDA, $m
  173
  151
  155
  159
  164
  170
  176
  184
  193
  202
  213
  224
  237
  250
  265
  280
  297
  315
  334
  354
  376
  399
  424
  450
  478
  507
  538
  571
  606
  643
  682
Interest expense (income), $m
  19
  16
  17
  18
  19
  21
  22
  24
  25
  27
  29
  31
  33
  36
  38
  41
  44
  47
  50
  54
  57
  61
  65
  70
  74
  79
  84
  89
  95
  100
  106
Earnings before tax, $m
  74
  82
  83
  85
  88
  91
  95
  99
  104
  109
  116
  128
  136
  144
  153
  162
  173
  184
  196
  209
  223
  238
  254
  271
  289
  308
  329
  350
  373
  398
  424
Tax expense, $m
  18
  22
  23
  23
  24
  25
  26
  27
  28
  30
  31
  35
  37
  39
  41
  44
  47
  50
  53
  57
  60
  64
  69
  73
  78
  83
  89
  95
  101
  107
  114
Net income, $m
  39
  60
  61
  62
  64
  66
  69
  72
  76
  80
  84
  93
  99
  105
  112
  119
  126
  134
  143
  153
  163
  174
  185
  198
  211
  225
  240
  256
  273
  290
  309

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  63
  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
  1,163
  1,122
  1,148
  1,177
  1,210
  1,247
  1,287
  1,331
  1,379
  1,430
  1,485
  1,543
  1,606
  1,673
  1,744
  1,819
  1,899
  1,983
  2,072
  2,166
  2,266
  2,371
  2,482
  2,598
  2,722
  2,851
  2,987
  3,131
  3,282
  3,441
  3,608
Adjusted assets (=assets-cash), $m
  1,100
  1,122
  1,148
  1,177
  1,210
  1,247
  1,287
  1,331
  1,379
  1,430
  1,485
  1,543
  1,606
  1,673
  1,744
  1,819
  1,899
  1,983
  2,072
  2,166
  2,266
  2,371
  2,482
  2,598
  2,722
  2,851
  2,987
  3,131
  3,282
  3,441
  3,608
Revenue / Adjusted assets
  1.740
  1.740
  1.740
  1.741
  1.740
  1.740
  1.740
  1.740
  1.740
  1.740
  1.739
  1.741
  1.740
  1.740
  1.740
  1.740
  1.739
  1.740
  1.740
  1.741
  1.740
  1.740
  1.740
  1.740
  1.740
  1.740
  1.740
  1.740
  1.740
  1.740
  1.740
Average production assets, $m
  233
  236
  242
  248
  255
  263
  271
  280
  290
  301
  313
  325
  338
  352
  367
  383
  400
  417
  436
  456
  477
  499
  523
  547
  573
  600
  629
  659
  691
  724
  760
Working capital, $m
  58
  29
  30
  31
  32
  33
  34
  35
  36
  37
  39
  40
  42
  44
  46
  47
  50
  52
  54
  57
  59
  62
  65
  68
  71
  74
  78
  82
  86
  90
  94
Total debt, $m
  390
  374
  396
  420
  448
  479
  513
  549
  589
  632
  678
  727
  779
  835
  894
  957
  1,024
  1,095
  1,169
  1,248
  1,332
  1,420
  1,512
  1,610
  1,713
  1,821
  1,936
  2,056
  2,182
  2,315
  2,455
Total liabilities, $m
  955
  939
  961
  985
  1,013
  1,044
  1,078
  1,114
  1,154
  1,197
  1,243
  1,292
  1,344
  1,400
  1,459
  1,522
  1,589
  1,660
  1,734
  1,813
  1,897
  1,985
  2,077
  2,175
  2,278
  2,386
  2,501
  2,621
  2,747
  2,880
  3,020
Total equity, $m
  208
  183
  187
  192
  197
  203
  210
  217
  225
  233
  242
  252
  262
  273
  284
  296
  309
  323
  338
  353
  369
  386
  405
  424
  444
  465
  487
  510
  535
  561
  588
Total liabilities and equity, $m
  1,163
  1,122
  1,148
  1,177
  1,210
  1,247
  1,288
  1,331
  1,379
  1,430
  1,485
  1,544
  1,606
  1,673
  1,743
  1,818
  1,898
  1,983
  2,072
  2,166
  2,266
  2,371
  2,482
  2,599
  2,722
  2,851
  2,988
  3,131
  3,282
  3,441
  3,608
Debt-to-equity ratio
  1.875
  2.050
  2.120
  2.190
  2.270
  2.360
  2.440
  2.530
  2.620
  2.710
  2.800
  2.890
  2.980
  3.060
  3.150
  3.230
  3.310
  3.390
  3.460
  3.530
  3.610
  3.670
  3.740
  3.800
  3.860
  3.920
  3.970
  4.030
  4.080
  4.130
  4.170
Adjusted equity ratio
  0.132
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163
  0.163

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  39
  60
  61
  62
  64
  66
  69
  72
  76
  80
  84
  93
  99
  105
  112
  119
  126
  134
  143
  153
  163
  174
  185
  198
  211
  225
  240
  256
  273
  290
  309
Depreciation, amort., depletion, $m
  72
  53
  54
  55
  57
  58
  60
  62
  64
  66
  68
  65
  68
  70
  73
  77
  80
  83
  87
  91
  95
  100
  105
  109
  115
  120
  126
  132
  138
  145
  152
Funds from operations, $m
  143
  113
  115
  117
  121
  124
  129
  134
  139
  146
  152
  158
  167
  175
  185
  195
  206
  218
  231
  244
  258
  274
  290
  307
  326
  345
  366
  388
  411
  435
  461
Change in working capital, $m
  -1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
Cash from operations, $m
  144
  112
  114
  117
  120
  123
  128
  133
  138
  144
  151
  157
  165
  174
  183
  193
  204
  216
  228
  242
  256
  271
  287
  304
  322
  342
  362
  384
  407
  431
  457
Maintenance CAPEX, $m
  0
  -47
  -47
  -48
  -50
  -51
  -53
  -54
  -56
  -58
  -60
  -63
  -65
  -68
  -70
  -73
  -77
  -80
  -83
  -87
  -91
  -95
  -100
  -105
  -109
  -115
  -120
  -126
  -132
  -138
  -145
New CAPEX, $m
  -116
  -4
  -5
  -6
  -7
  -8
  -8
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -33
  -35
Cash from investing activities, $m
  -115
  -51
  -52
  -54
  -57
  -59
  -61
  -63
  -66
  -69
  -72
  -75
  -78
  -82
  -85
  -89
  -94
  -98
  -102
  -107
  -112
  -117
  -123
  -130
  -135
  -142
  -149
  -156
  -164
  -171
  -180
Free cash flow, $m
  29
  62
  61
  62
  63
  65
  67
  69
  72
  75
  79
  82
  87
  92
  98
  104
  111
  118
  126
  134
  144
  153
  164
  175
  187
  200
  213
  228
  243
  260
  277
Issuance/(repayment) of debt, $m
  -55
  18
  22
  25
  28
  31
  34
  37
  40
  43
  46
  49
  52
  56
  59
  63
  67
  71
  75
  79
  83
  88
  93
  98
  103
  108
  114
  120
  126
  133
  140
Issuance/(repurchase) of shares, $m
  -19
  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  
  -78
  18
  22
  25
  28
  31
  34
  37
  40
  43
  46
  49
  52
  56
  59
  63
  67
  71
  75
  79
  83
  88
  93
  98
  103
  108
  114
  120
  126
  133
  140
Total cash flow (excl. dividends), $m
  -50
  80
  83
  87
  91
  95
  100
  106
  112
  118
  125
  131
  139
  148
  157
  167
  177
  189
  201
  213
  227
  241
  257
  273
  290
  308
  328
  348
  370
  393
  417
Retained Cash Flow (-), $m
  -10
  -4
  -4
  -5
  -5
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
Prev. year cash balance distribution, $m
 
  29
  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
 
  105
  79
  82
  86
  90
  94
  99
  104
  110
  116
  122
  129
  137
  145
  155
  164
  175
  186
  198
  211
  224
  239
  254
  270
  287
  305
  325
  345
  367
  390
Discount rate, %
 
  6.50
  6.83
  7.17
  7.52
  7.90
  8.30
  8.71
  9.15
  9.60
  10.08
  10.59
  11.12
  11.67
  12.26
  12.87
  13.51
  14.19
  14.90
  15.64
  16.43
  17.25
  18.11
  19.01
  19.96
  20.96
  22.01
  23.11
  24.27
  25.48
  26.75
PV of cash for distribution, $m
 
  99
  69
  67
  64
  61
  58
  55
  52
  48
  44
  40
  36
  33
  29
  25
  22
  18
  15
  13
  10
  8
  6
  5
  3
  2
  2
  1
  1
  1
  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

Tower International, Inc. is a global manufacturer of engineered automotive structural metal components and assemblies primarily serving original equipment manufacturers (OEMs). The Company's product portfolio includes body-structure stampings, frame and other chassis structures, and welded assemblies for small and large cars, crossovers, pickups and sport utility vehicles (SUVs). The Company offers body structures and assemblies, including structural metal components, such as body pillars, roof rails and side sills. The Company also offers Class A surfaces and assemblies, which are components of the exterior skin of the vehicle, such as body sides, hoods, doors, fenders and pickup truck boxes. The Company's lower vehicle frames and structures include chassis structures. Its products include pickup truck and SUV full frames, automotive engine and rear suspension cradles, floor pan components and cross members that form the basic lower body structure of the vehicle.

FINANCIAL RATIOS  of  Tower International (TOWR)

Valuation Ratios
P/E Ratio 16
Price to Sales 0.3
Price to Book 3
Price to Tangible Book
Price to Cash Flow 4.3
Price to Free Cash Flow 22.3
Growth Rates
Sales Growth Rate 6.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -3.3%
Cap. Spend. - 3 Yr. Gr. Rate 8.3%
Financial Strength
Quick Ratio 2
Current Ratio 0.2
LT Debt to Equity 171.2%
Total Debt to Equity 187.5%
Interest Coverage 5
Management Effectiveness
Return On Assets 4.5%
Ret/ On Assets - 3 Yr. Avg. 9.8%
Return On Total Capital 6.3%
Ret/ On T. Cap. - 3 Yr. Avg. 14.5%
Return On Equity 19.2%
Return On Equity - 3 Yr. Avg. 72.6%
Asset Turnover 1.6
Profitability Ratios
Gross Margin 12.4%
Gross Margin - 3 Yr. Avg. 12.1%
EBITDA Margin 8.6%
EBITDA Margin - 3 Yr. Avg. 8.5%
Operating Margin 5.3%
Oper. Margin - 3 Yr. Avg. 4.8%
Pre-Tax Margin 3.9%
Pre-Tax Margin - 3 Yr. Avg. 3.3%
Net Profit Margin 2%
Net Profit Margin - 3 Yr. Avg. 4.7%
Effective Tax Rate 24.3%
Eff/ Tax Rate - 3 Yr. Avg. -52.6%
Payout Ratio 23.1%

TOWR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TOWR stock intrinsic value calculation we used $1914 million for the last fiscal year's total revenue generated by Tower International. The default revenue input number comes from 2016 income statement of Tower International. 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 TOWR 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 6.5%, whose default value for TOWR is calculated based on our internal credit rating of Tower International, 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 Tower International.
    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 TOWR stock the variable cost ratio is equal to 86.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $163 million in the base year in the intrinsic value calculation for TOWR 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 4.6% for Tower International.

Corporate tax rate of 27% is the nominal tax rate for Tower International. 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 TOWR 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 TOWR are equal to 12.1%.

Life of production assets of 4 years is the average useful life of capital assets used in Tower International 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 TOWR is equal to 1.5%. 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 - $208 million for Tower International - 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 20.521 million for Tower International 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 Tower International at the current share price and the inputted number of shares is $0.6 billion.

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MLR Miller Industr 26.05 8.16  str.sell

COMPANY NEWS

▶ Tower beats Street 3Q forecasts   [Oct-30-17 08:11AM  Associated Press]
▶ Tower International Declares Quarterly Dividend   [Oct-20-17 02:00PM  PR Newswire]
▶ Tower tops 2Q profit forecasts   [Jul-26-17 09:56PM  Associated Press]
▶ Tower International Declares Quarterly Dividend   [Jul-21-17 01:00PM  PR Newswire]
▶ Cars and Small-but-Strong Energy Stocks in Play   [May-19-17 05:20PM  TheStreet.com]
▶ Tower beats Street 1Q forecasts   [May-02-17 08:17AM  Associated Press]
▶ Tower International Declares Quarterly Dividend   [Apr-21-17 01:00PM  PR Newswire]
▶ Auto supplier planning $50 million in Kentucky plant expansions   [Mar-30-17 01:43PM  at bizjournals.com]
▶ Auto supplier planning $50 million in Kentucky plant expansions   [01:43PM  American City Business Journals]
▶ Tower beats 4Q profit forecasts   [08:26AM  Associated Press]
▶ Hedge Funds Are Dumping Tower International Inc (TOWR)   [Dec-07-16 09:21PM  at Insider Monkey]
▶ Tower International Increases Dividend by 10%   [Oct-21-16 01:00PM  PR Newswire]
Financial statements of TOWR
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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