Intrinsic value of VSE - VSEC

Previous Close

$51.45

  Intrinsic Value

$44.89

stock screener

  Rating & Target

hold

-13%

Previous close

$51.45

 
Intrinsic value

$44.89

 
Up/down potential

-13%

 
Rating

hold

We calculate the intrinsic value of VSEC 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
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, %
  29.59
  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
  692
  706
  722
  741
  761
  785
  810
  837
  867
  899
  934
  971
  1,010
  1,052
  1,097
  1,144
  1,194
  1,247
  1,304
  1,363
  1,425
  1,492
  1,561
  1,635
  1,712
  1,794
  1,879
  1,970
  2,065
  2,165
  2,270
Variable operating expenses, $m
 
  638
  653
  669
  687
  707
  730
  754
  780
  808
  838
  851
  885
  922
  961
  1,003
  1,047
  1,093
  1,142
  1,194
  1,249
  1,307
  1,368
  1,432
  1,500
  1,572
  1,647
  1,726
  1,809
  1,897
  1,989
Fixed operating expenses, $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
Total operating expenses, $m
  640
  638
  653
  669
  687
  707
  730
  754
  780
  808
  838
  851
  885
  922
  961
  1,003
  1,047
  1,093
  1,142
  1,194
  1,249
  1,307
  1,368
  1,432
  1,500
  1,572
  1,647
  1,726
  1,809
  1,897
  1,989
Operating income, $m
  52
  67
  69
  72
  74
  77
  80
  84
  87
  91
  96
  120
  125
  130
  136
  142
  148
  154
  161
  169
  176
  185
  193
  202
  212
  222
  233
  244
  256
  268
  281
EBITDA, $m
  78
  101
  103
  106
  108
  112
  115
  119
  124
  128
  133
  138
  144
  150
  156
  163
  170
  178
  186
  194
  203
  212
  222
  233
  244
  255
  268
  281
  294
  308
  323
Interest expense (income), $m
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  28
  29
  31
  33
  35
  37
  39
Earnings before tax, $m
  42
  59
  61
  63
  65
  67
  70
  73
  76
  80
  83
  107
  111
  115
  120
  125
  130
  136
  142
  148
  154
  161
  168
  176
  184
  193
  202
  211
  221
  231
  242
Tax expense, $m
  15
  16
  16
  17
  18
  18
  19
  20
  21
  21
  22
  29
  30
  31
  32
  34
  35
  37
  38
  40
  42
  44
  45
  48
  50
  52
  54
  57
  60
  62
  65
Net income, $m
  27
  43
  44
  46
  47
  49
  51
  53
  56
  58
  61
  78
  81
  84
  88
  91
  95
  99
  103
  108
  113
  118
  123
  129
  134
  141
  147
  154
  161
  169
  177

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
Total assets, $m
  662
  675
  691
  709
  729
  751
  775
  801
  830
  861
  894
  929
  967
  1,007
  1,050
  1,095
  1,143
  1,194
  1,247
  1,304
  1,364
  1,427
  1,494
  1,564
  1,638
  1,716
  1,798
  1,885
  1,976
  2,072
  2,172
Adjusted assets (=assets-cash), $m
  662
  675
  691
  709
  729
  751
  775
  801
  830
  861
  894
  929
  967
  1,007
  1,050
  1,095
  1,143
  1,194
  1,247
  1,304
  1,364
  1,427
  1,494
  1,564
  1,638
  1,716
  1,798
  1,885
  1,976
  2,072
  2,172
Revenue / Adjusted assets
  1.045
  1.046
  1.045
  1.045
  1.044
  1.045
  1.045
  1.045
  1.045
  1.044
  1.045
  1.045
  1.044
  1.045
  1.045
  1.045
  1.045
  1.044
  1.046
  1.045
  1.045
  1.046
  1.045
  1.045
  1.045
  1.045
  1.045
  1.045
  1.045
  1.045
  1.045
Average production assets, $m
  198
  202
  207
  212
  218
  224
  232
  240
  248
  257
  267
  278
  289
  301
  314
  327
  342
  357
  373
  390
  408
  427
  447
  468
  490
  513
  538
  563
  591
  619
  649
Working capital, $m
  110
  133
  136
  140
  144
  148
  153
  158
  164
  170
  177
  184
  191
  199
  207
  216
  226
  236
  246
  258
  269
  282
  295
  309
  324
  339
  355
  372
  390
  409
  429
Total debt, $m
  237
  245
  255
  266
  278
  292
  307
  323
  340
  359
  380
  401
  425
  449
  476
  503
  533
  564
  597
  632
  669
  708
  749
  792
  838
  886
  936
  989
  1,045
  1,104
  1,166
Total liabilities, $m
  407
  415
  425
  436
  448
  462
  477
  493
  510
  529
  550
  571
  595
  619
  646
  673
  703
  734
  767
  802
  839
  878
  919
  962
  1,008
  1,056
  1,106
  1,159
  1,215
  1,274
  1,336
Total equity, $m
  255
  260
  266
  273
  281
  289
  298
  309
  320
  331
  344
  358
  372
  388
  404
  422
  440
  460
  480
  502
  525
  550
  575
  602
  631
  661
  692
  726
  761
  798
  836
Total liabilities and equity, $m
  662
  675
  691
  709
  729
  751
  775
  802
  830
  860
  894
  929
  967
  1,007
  1,050
  1,095
  1,143
  1,194
  1,247
  1,304
  1,364
  1,428
  1,494
  1,564
  1,639
  1,717
  1,798
  1,885
  1,976
  2,072
  2,172
Debt-to-equity ratio
  0.929
  0.940
  0.960
  0.970
  0.990
  1.010
  1.030
  1.050
  1.070
  1.080
  1.100
  1.120
  1.140
  1.160
  1.180
  1.190
  1.210
  1.230
  1.240
  1.260
  1.270
  1.290
  1.300
  1.320
  1.330
  1.340
  1.350
  1.360
  1.370
  1.380
  1.390
Adjusted equity ratio
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  27
  43
  44
  46
  47
  49
  51
  53
  56
  58
  61
  78
  81
  84
  88
  91
  95
  99
  103
  108
  113
  118
  123
  129
  134
  141
  147
  154
  161
  169
  177
Depreciation, amort., depletion, $m
  26
  33
  33
  34
  34
  35
  35
  36
  36
  37
  37
  18
  19
  20
  21
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
  34
  35
  37
  39
  40
  42
Funds from operations, $m
  42
  76
  78
  80
  82
  84
  86
  89
  92
  95
  98
  96
  100
  104
  108
  113
  117
  122
  128
  133
  139
  146
  152
  159
  166
  174
  182
  191
  200
  209
  219
Change in working capital, $m
  -5
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
Cash from operations, $m
  47
  74
  75
  76
  78
  79
  81
  84
  86
  89
  92
  89
  92
  96
  100
  104
  108
  112
  117
  122
  127
  133
  139
  145
  152
  159
  166
  174
  182
  190
  199
Maintenance CAPEX, $m
  0
  -13
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -40
New CAPEX, $m
  -7
  -4
  -5
  -5
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
Cash from investing activities, $m
  -6
  -17
  -18
  -18
  -20
  -21
  -22
  -23
  -25
  -25
  -27
  -28
  -29
  -31
  -33
  -35
  -35
  -37
  -39
  -41
  -43
  -46
  -48
  -50
  -53
  -55
  -59
  -61
  -64
  -68
  -70
Free cash flow, $m
  41
  57
  57
  57
  58
  59
  60
  61
  62
  63
  65
  61
  63
  65
  67
  70
  72
  75
  78
  81
  84
  88
  91
  95
  99
  103
  108
  113
  118
  123
  129
Issuance/(repayment) of debt, $m
  -20
  8
  10
  11
  12
  14
  15
  16
  18
  19
  20
  22
  23
  25
  26
  28
  30
  31
  33
  35
  37
  39
  41
  43
  46
  48
  51
  53
  56
  59
  62
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  
  -39
  8
  10
  11
  12
  14
  15
  16
  18
  19
  20
  22
  23
  25
  26
  28
  30
  31
  33
  35
  37
  39
  41
  43
  46
  48
  51
  53
  56
  59
  62
Total cash flow (excl. dividends), $m
  2
  65
  66
  68
  70
  72
  74
  77
  79
  82
  85
  83
  86
  90
  94
  97
  102
  106
  111
  116
  121
  126
  132
  138
  145
  151
  159
  166
  174
  182
  191
Retained Cash Flow (-), $m
  -26
  -5
  -6
  -7
  -8
  -9
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -37
  -39
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
 
  60
  61
  61
  62
  64
  65
  67
  68
  70
  72
  69
  72
  74
  77
  80
  83
  87
  90
  94
  98
  102
  107
  111
  116
  121
  127
  133
  139
  145
  152
Discount rate, %
 
  7.70
  8.09
  8.49
  8.91
  9.36
  9.83
  10.32
  10.83
  11.38
  11.95
  12.54
  13.17
  13.83
  14.52
  15.25
  16.01
  16.81
  17.65
  18.53
  19.46
  20.43
  21.45
  22.52
  23.65
  24.83
  26.07
  27.38
  28.75
  30.18
  31.69
PV of cash for distribution, $m
 
  56
  52
  48
  44
  41
  37
  34
  30
  27
  23
  19
  16
  14
  12
  10
  8
  6
  5
  4
  3
  2
  1
  1
  1
  0
  0
  0
  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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VSE Corporation is a services and supply chain management company. The Company's segments include Supply Chain Management Group, Aviation Group, Federal Services Group, and IT, Energy and Management Consulting Group. The Company provides logistics and distribution services for legacy systems and equipment and professional and technical services to the United States Government, including the United States Department of Defense (DoD), the United States Postal Service (USPS), federal civilian agencies, and commercial and other customers. The Company's service offerings include supply chain and inventory management services; vehicle fleet sustainment programs; vehicle fleet parts supply and distribution; maintenance, repair, and operations (MRO) of aircraft engines and engine components; aircraft engine parts supply and distribution; engineering support for military vehicles; military equipment refurbishment and modification, and ship MRO and follow-on technical support.

FINANCIAL RATIOS  of  VSE (VSEC)

Valuation Ratios
P/E Ratio 20.6
Price to Sales 0.8
Price to Book 2.2
Price to Tangible Book
Price to Cash Flow 11.8
Price to Free Cash Flow 13.9
Growth Rates
Sales Growth Rate 29.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -36.4%
Cap. Spend. - 3 Yr. Gr. Rate 11.8%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 84.7%
Total Debt to Equity 92.9%
Interest Coverage 6
Management Effectiveness
Return On Assets 5%
Ret/ On Assets - 3 Yr. Avg. 5.5%
Return On Total Capital 5.5%
Ret/ On T. Cap. - 3 Yr. Avg. 6.2%
Return On Equity 11.2%
Return On Equity - 3 Yr. Avg. 10.8%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 10.7%
Gross Margin - 3 Yr. Avg. 10.2%
EBITDA Margin 11%
EBITDA Margin - 3 Yr. Avg. 12.5%
Operating Margin 7.5%
Oper. Margin - 3 Yr. Avg. 8.6%
Pre-Tax Margin 6.1%
Pre-Tax Margin - 3 Yr. Avg. 7.2%
Net Profit Margin 3.9%
Net Profit Margin - 3 Yr. Avg. 4.4%
Effective Tax Rate 35.7%
Eff/ Tax Rate - 3 Yr. Avg. 38%
Payout Ratio 7.4%

VSEC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the VSEC stock intrinsic value calculation we used $692 million for the last fiscal year's total revenue generated by VSE. The default revenue input number comes from 2016 income statement of VSE. 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 VSEC 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 7.7%, whose default value for VSEC is calculated based on our internal credit rating of VSE, 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 VSE.
    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 VSEC stock the variable cost ratio is equal to 90.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for VSEC 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 VSE.

Corporate tax rate of 27% is the nominal tax rate for VSE. 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 VSEC 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 VSEC are equal to 28.6%.

Life of production assets of 15.3 years is the average useful life of capital assets used in VSE 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 VSEC is equal to 18.9%. 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 - $255 million for VSE - 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 10.993 million for VSE 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 VSE at the current share price and the inputted number of shares is $0.6 billion.

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COMPANY NEWS

▶ November Undervalued Opportunities Socket Mobile And More   [Nov-28-17 08:02AM  Simply Wall St.]
▶ ETFs with exposure to VSE Corp. : November 13, 2017   [Nov-13-17 01:31PM  Capital Cube]
▶ ETFs with exposure to VSE Corp. : October 31, 2017   [Oct-31-17 11:56AM  Capital Cube]
▶ VSE posts 3Q profit   [Oct-26-17 05:22PM  Associated Press]
▶ VSE Celebrates 35th Nasdaq Listing Anniversary   [Oct-23-17 04:15PM  Business Wire]
▶ VSE Corporation Awarded $35.6M in New Delivery Order Awards   [Oct-18-17 04:15PM  Business Wire]
▶ VSE Corporation Awarded $57.4M in FMS Delivery Orders   [Sep-05-17 04:30PM  Business Wire]
▶ VSE Reports Financial Results for Second Quarter 2017   [Jul-27-17 04:15PM  Business Wire]
▶ VSE Corporation Receives $46.2M in New Awards   [Jul-18-17 04:30PM  Business Wire]
▶ VSE Awarded $22.3M Air Force Ground Equipment Task Order   [Jun-14-17 05:00PM  Business Wire]
▶ VSE Declares a $0.07 Per Share Cash Dividend   [May-03-17 04:30PM  Business Wire]
▶ VSE posts 1Q profit   [Apr-27-17 07:10PM  Associated Press]
▶ VSE posts 4Q profit   [Feb-27-17 07:06PM  Associated Press]
▶ ETFs with exposure to VSE Corp. : January 17, 2017   [Jan-17-17 01:50PM  Capital Cube]
▶ VSE Corporation Awarded $53.4M in FMS Delivery Orders   [Oct-11-16 05:00PM  Business Wire]
▶ VSE Reports Financial Results for Second Quarter 2016   [Jul-28-16 07:01PM  Business Wire]
▶ VSE Announces Jury Verdict in Civil Litigation Matter   [Jul-01-16 04:52PM  Business Wire]
▶ VSE Reports Financial Results for First Quarter 2016   [Apr-28-16 05:52PM  Business Wire]
Financial statements of VSEC
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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