Intrinsic value of Transcat - TRNS

Previous Close

$12.95

  Intrinsic Value

$22.97

stock screener

  Rating & Target

str. buy

+77%

  Value-price divergence*

+2004%

Previous close

$12.95

 
Intrinsic value

$22.97

 
Up/down potential

+77%

 
Rating

str. buy

 
Value-price divergence*

+2004%

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

We calculate the intrinsic value of TRNS 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 0.1

 

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, %
  18.03
  15.20
  14.18
  13.26
  12.44
  11.69
  11.02
  10.42
  9.88
  9.39
  8.95
  8.56
  8.20
  7.88
  7.59
  7.33
  7.10
  6.89
  6.70
  6.53
  6.38
  6.24
  6.12
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
Revenue, $m
  144
  166
  189
  215
  241
  269
  299
  330
  363
  397
  433
  470
  508
  548
  590
  633
  678
  725
  773
  824
  876
  931
  988
  1,047
  1,109
  1,173
  1,241
  1,311
  1,384
  1,461
  1,541
Variable operating expenses, $m
 
  150
  171
  194
  217
  242
  269
  296
  325
  355
  387
  417
  451
  486
  523
  561
  601
  643
  686
  731
  777
  826
  876
  929
  984
  1,041
  1,101
  1,163
  1,228
  1,296
  1,367
Fixed operating expenses, $m
 
  5
  5
  5
  6
  6
  6
  6
  6
  6
  6
  7
  7
  7
  7
  7
  7
  8
  8
  8
  8
  8
  9
  9
  9
  9
  10
  10
  10
  10
  10
Total operating expenses, $m
  136
  155
  176
  199
  223
  248
  275
  302
  331
  361
  393
  424
  458
  493
  530
  568
  608
  651
  694
  739
  785
  834
  885
  938
  993
  1,050
  1,111
  1,173
  1,238
  1,306
  1,377
Operating income, $m
  8
  10
  13
  16
  18
  21
  25
  28
  32
  35
  39
  46
  51
  55
  60
  64
  69
  74
  80
  85
  91
  97
  103
  109
  116
  123
  131
  138
  146
  155
  163
EBITDA, $m
  14
  16
  19
  22
  25
  29
  33
  36
  40
  45
  49
  54
  58
  63
  69
  74
  79
  85
  91
  98
  104
  111
  118
  125
  133
  141
  150
  158
  167
  177
  187
Interest expense (income), $m
  0
  1
  1
  1
  2
  2
  2
  3
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  15
  16
Earnings before tax, $m
  7
  9
  12
  14
  17
  19
  22
  25
  29
  32
  35
  42
  46
  50
  54
  58
  63
  67
  72
  77
  82
  87
  93
  99
  105
  111
  118
  125
  132
  139
  147
Tax expense, $m
  2
  3
  3
  4
  5
  5
  6
  7
  8
  9
  10
  11
  12
  13
  15
  16
  17
  18
  19
  21
  22
  24
  25
  27
  28
  30
  32
  34
  36
  38
  40
Net income, $m
  5
  7
  9
  10
  12
  14
  16
  18
  21
  23
  26
  31
  34
  36
  39
  42
  46
  49
  52
  56
  60
  64
  68
  72
  76
  81
  86
  91
  96
  102
  107

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1
  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
  92
  105
  120
  136
  152
  170
  189
  209
  229
  251
  273
  297
  321
  346
  373
  400
  428
  458
  489
  521
  554
  588
  624
  662
  701
  742
  784
  829
  875
  923
  974
Adjusted assets (=assets-cash), $m
  91
  105
  120
  136
  152
  170
  189
  209
  229
  251
  273
  297
  321
  346
  373
  400
  428
  458
  489
  521
  554
  588
  624
  662
  701
  742
  784
  829
  875
  923
  974
Revenue / Adjusted assets
  1.582
  1.581
  1.575
  1.581
  1.586
  1.582
  1.582
  1.579
  1.585
  1.582
  1.586
  1.582
  1.583
  1.584
  1.582
  1.583
  1.584
  1.583
  1.581
  1.582
  1.581
  1.583
  1.583
  1.582
  1.582
  1.581
  1.583
  1.581
  1.582
  1.583
  1.582
Average production assets, $m
  22
  25
  29
  33
  37
  41
  46
  51
  56
  61
  66
  72
  78
  84
  90
  97
  104
  111
  118
  126
  134
  142
  151
  160
  170
  180
  190
  201
  212
  223
  236
Working capital, $m
  16
  18
  21
  24
  27
  30
  33
  37
  40
  44
  48
  52
  56
  61
  65
  70
  75
  80
  86
  91
  97
  103
  110
  116
  123
  130
  138
  146
  154
  162
  171
Total debt, $m
  27
  33
  41
  49
  58
  68
  78
  88
  99
  110
  122
  134
  147
  161
  174
  189
  204
  219
  236
  252
  270
  288
  307
  327
  347
  369
  391
  415
  439
  465
  491
Total liabilities, $m
  49
  55
  63
  71
  80
  90
  100
  110
  121
  132
  144
  156
  169
  183
  196
  211
  226
  241
  258
  274
  292
  310
  329
  349
  369
  391
  413
  437
  461
  487
  513
Total equity, $m
  43
  50
  57
  64
  72
  81
  89
  99
  109
  119
  129
  140
  152
  164
  176
  189
  203
  217
  231
  246
  262
  278
  295
  313
  332
  351
  371
  392
  414
  437
  461
Total liabilities and equity, $m
  92
  105
  120
  135
  152
  171
  189
  209
  230
  251
  273
  296
  321
  347
  372
  400
  429
  458
  489
  520
  554
  588
  624
  662
  701
  742
  784
  829
  875
  924
  974
Debt-to-equity ratio
  0.628
  0.670
  0.730
  0.770
  0.810
  0.840
  0.870
  0.890
  0.910
  0.930
  0.940
  0.960
  0.970
  0.980
  0.990
  1.000
  1.010
  1.010
  1.020
  1.020
  1.030
  1.040
  1.040
  1.040
  1.050
  1.050
  1.050
  1.060
  1.060
  1.060
  1.070
Adjusted equity ratio
  0.462
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  5
  7
  9
  10
  12
  14
  16
  18
  21
  23
  26
  31
  34
  36
  39
  42
  46
  49
  52
  56
  60
  64
  68
  72
  76
  81
  86
  91
  96
  102
  107
Depreciation, amort., depletion, $m
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  7
  8
  8
  9
  10
  10
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
Funds from operations, $m
  4
  13
  15
  17
  19
  22
  24
  27
  30
  33
  36
  38
  41
  45
  48
  52
  56
  60
  64
  69
  73
  78
  83
  88
  93
  99
  105
  111
  117
  124
  131
Change in working capital, $m
  -4
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  9
  9
Cash from operations, $m
  8
  10
  12
  14
  16
  18
  21
  23
  26
  29
  32
  34
  37
  40
  44
  47
  51
  55
  59
  63
  67
  72
  77
  81
  87
  92
  97
  103
  109
  116
  122
Maintenance CAPEX, $m
  0
  -2
  -3
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
New CAPEX, $m
  -5
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
Cash from investing activities, $m
  -12
  -5
  -7
  -7
  -7
  -8
  -9
  -10
  -10
  -11
  -11
  -13
  -13
  -14
  -14
  -16
  -17
  -17
  -18
  -20
  -21
  -21
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -34
Free cash flow, $m
  -4
  5
  6
  7
  9
  10
  12
  14
  16
  18
  20
  22
  24
  26
  29
  32
  34
  37
  40
  43
  47
  50
  54
  57
  61
  65
  69
  73
  78
  83
  88
Issuance/(repayment) of debt, $m
  8
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  17
  18
  19
  20
  21
  21
  22
  23
  24
  26
  27
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  
  5
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  17
  18
  19
  20
  21
  21
  22
  23
  24
  26
  27
Total cash flow (excl. dividends), $m
  0
  12
  14
  16
  18
  20
  22
  24
  27
  29
  32
  34
  37
  40
  43
  46
  49
  53
  57
  60
  64
  68
  73
  77
  82
  87
  92
  97
  102
  108
  114
Retained Cash Flow (-), $m
  -4
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
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
 
  5
  7
  8
  10
  11
  13
  15
  17
  19
  21
  23
  25
  28
  30
  33
  36
  39
  42
  45
  49
  52
  56
  59
  63
  67
  71
  76
  80
  85
  90
Discount rate, %
 
  5.40
  5.67
  5.95
  6.25
  6.56
  6.89
  7.24
  7.60
  7.98
  8.38
  8.80
  9.24
  9.70
  10.18
  10.69
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.04
  15.80
  16.59
  17.42
  18.29
  19.20
  20.16
  21.17
  22.23
PV of cash for distribution, $m
 
  5
  6
  7
  8
  8
  9
  9
  10
  10
  10
  9
  9
  8
  8
  7
  7
  6
  5
  4
  4
  3
  3
  2
  2
  1
  1
  1
  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
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Transcat, Inc. provides calibration and laboratory instrument services in the United States, Canada, and internationally. It operates in two segments, Distribution and Service. The Service segment offers calibration, repair, inspection, analytical qualifications, preventative maintenance, and other related services. This segment also provides three dimensional parts inspection, as well as repair and consulting services. In addition, it offers CalTrak, a proprietary document and asset management system that is used to manage the workflow of its calibration service centers and customersÂ’ assets; CalTrak Online, which provides its customers with Web-based asset management capability, as well as an off-site archive of calibration and other service records; and Compliance, Control and Cost, a Web-based customer portal and asset management tool. The Distribution segment distributes approximately 100,000 test, measurement, and control instruments for customersÂ’ test and measurement instrumentation needs. This segment markets and sells its products through direct marketing, Website, Web-based advertising, outbound sales, and an inbound call center. The company serves provides services and products to highly regulated industries, principally life science, which includes companies in the pharmaceutical, medical device, and biotechnology industries; and additional industries, including industrial manufacturing, energy and utilities, chemical manufacturing, and other industries that require accuracy in processes and confirmation of the capabilities of their equipment. Transcat, Inc. was founded in 1964 and is headquartered in Rochester, New York.

FINANCIAL RATIOS  of  Transcat (TRNS)

Valuation Ratios
P/E Ratio 18.2
Price to Sales 0.6
Price to Book 2.1
Price to Tangible Book
Price to Cash Flow 11.4
Price to Free Cash Flow 30.4
Growth Rates
Sales Growth Rate 18%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 25%
Cap. Spend. - 3 Yr. Gr. Rate 20.1%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 60.5%
Total Debt to Equity 62.8%
Interest Coverage 0
Management Effectiveness
Return On Assets 5.9%
Ret/ On Assets - 3 Yr. Avg. 6.2%
Return On Total Capital 7.8%
Ret/ On T. Cap. - 3 Yr. Avg. 8.3%
Return On Equity 12.2%
Return On Equity - 3 Yr. Avg. 11.9%
Asset Turnover 1.7
Profitability Ratios
Gross Margin 24.3%
Gross Margin - 3 Yr. Avg. 23.8%
EBITDA Margin 9%
EBITDA Margin - 3 Yr. Avg. 8.2%
Operating Margin 5.6%
Oper. Margin - 3 Yr. Avg. 5.4%
Pre-Tax Margin 4.9%
Pre-Tax Margin - 3 Yr. Avg. 4.9%
Net Profit Margin 3.5%
Net Profit Margin - 3 Yr. Avg. 3.3%
Effective Tax Rate 28.6%
Eff/ Tax Rate - 3 Yr. Avg. 31.7%
Payout Ratio 0%

TRNS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TRNS stock intrinsic value calculation we used $144 million for the last fiscal year's total revenue generated by Transcat. The default revenue input number comes from 2017 income statement of Transcat. 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 TRNS stock valuation model: a) initial revenue growth rate of 15.2% 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 5.4%, whose default value for TRNS is calculated based on our internal credit rating of Transcat, 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 Transcat.
    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 TRNS stock the variable cost ratio is equal to 91%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $5 million in the base year in the intrinsic value calculation for TRNS 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 Transcat.

Corporate tax rate of 27% is the nominal tax rate for Transcat. 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 TRNS 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 TRNS are equal to 15.3%.

Life of production assets of 10 years is the average useful life of capital assets used in Transcat 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 TRNS is equal to 11.1%. 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 - $43 million for Transcat - 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 7.02 million for Transcat 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 Transcat at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ ETFs with exposure to Transcat, Inc. : June 26, 2017   [Jun-26-17 05:04PM  Capital Cube]
▶ Transcat, Inc. to Present at East Coast IDEAS Conference   [May-08-17 04:15PM  Business Wire]
▶ ETFs with exposure to Transcat, Inc. : April 19, 2017   [Apr-19-17 02:39PM  Capital Cube]
▶ Transcat Reports Fourth Quarter and Fiscal 2016 Results   [May-17-16 04:15PM  GlobeNewswire]
▶ Transcat, Inc. to Present at 28th Annual ROTH Conference   [Mar-02-16 04:15PM  GlobeNewswire]
▶ Transcat Reports Second Quarter Fiscal 2016 Results   [Oct-26  04:15PM  GlobeNewswire]
▶ Transcat Acquires Anmar Metrology, Inc.   [Aug-24  09:10AM  GlobeNewswire]
▶ 10-Q for Transcat, Inc.   [Aug-10  08:13PM  at Company Spotlight]
▶ 10-K for Transcat, Inc.   [Jun-27  08:09PM  at Company Spotlight]
▶ 10-Q for Transcat, Inc.   [Feb-08  07:07PM  at Company Spotlight]
Stock chart of TRNS Financial statements of TRNS Annual reports of TRNS
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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