Intrinsic value of Advance Auto Parts Inc - AAP

Previous Close

$153.24

  Intrinsic Value

$114.31

stock screener

  Rating & Target

sell

-25%

Previous close

$153.24

 
Intrinsic value

$114.31

 
Up/down potential

-25%

 
Rating

sell

We calculate the intrinsic value of AAP 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 0001), $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 11.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  3.30
  3.47
  3.62
  3.76
  3.88
  4.00
  4.10
  4.19
  4.27
  4.34
  4.41
  4.47
  4.52
  4.57
  4.61
  4.65
  4.68
  4.72
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
  4.92
Revenue, $m
  9,897
  10,241
  10,612
  11,011
  11,438
  11,896
  12,383
  12,901
  13,452
  14,036
  14,655
  15,309
  16,001
  16,732
  17,503
  18,317
  19,176
  20,080
  21,033
  22,036
  23,092
  24,204
  25,374
  26,604
  27,898
  29,259
  30,690
  32,194
  33,775
  35,437
Variable operating expenses, $m
  8,239
  8,520
  8,823
  9,149
  9,498
  9,872
  10,270
  10,693
  11,143
  11,620
  11,972
  12,506
  13,071
  13,669
  14,299
  14,964
  15,665
  16,404
  17,182
  18,002
  18,864
  19,773
  20,728
  21,733
  22,791
  23,902
  25,071
  26,300
  27,591
  28,949
Fixed operating expenses, $m
  1,035
  1,058
  1,081
  1,105
  1,129
  1,154
  1,180
  1,206
  1,232
  1,259
  1,287
  1,315
  1,344
  1,374
  1,404
  1,435
  1,466
  1,499
  1,532
  1,565
  1,600
  1,635
  1,671
  1,708
  1,745
  1,784
  1,823
  1,863
  1,904
  1,946
Total operating expenses, $m
  9,274
  9,578
  9,904
  10,254
  10,627
  11,026
  11,450
  11,899
  12,375
  12,879
  13,259
  13,821
  14,415
  15,043
  15,703
  16,399
  17,131
  17,903
  18,714
  19,567
  20,464
  21,408
  22,399
  23,441
  24,536
  25,686
  26,894
  28,163
  29,495
  30,895
Operating income, $m
  623
  663
  707
  757
  811
  869
  933
  1,002
  1,077
  1,156
  1,396
  1,488
  1,585
  1,690
  1,801
  1,919
  2,044
  2,178
  2,319
  2,469
  2,628
  2,796
  2,974
  3,163
  3,362
  3,573
  3,796
  4,031
  4,280
  4,542
EBITDA, $m
  957
  1,003
  1,055
  1,111
  1,173
  1,240
  1,313
  1,392
  1,476
  1,566
  1,663
  1,767
  1,877
  1,995
  2,120
  2,253
  2,394
  2,544
  2,702
  2,871
  3,049
  3,237
  3,437
  3,648
  3,871
  4,106
  4,355
  4,618
  4,895
  5,188
Interest expense (income), $m
  55
  56
  66
  77
  88
  100
  114
  128
  143
  159
  176
  194
  213
  233
  255
  277
  301
  326
  353
  381
  410
  441
  474
  508
  545
  583
  623
  665
  709
  756
  804
Earnings before tax, $m
  566
  597
  631
  668
  710
  756
  805
  859
  918
  980
  1,202
  1,274
  1,352
  1,435
  1,523
  1,617
  1,718
  1,825
  1,938
  2,059
  2,187
  2,322
  2,466
  2,618
  2,780
  2,950
  3,131
  3,322
  3,524
  3,738
Tax expense, $m
  153
  161
  170
  180
  192
  204
  217
  232
  248
  265
  325
  344
  365
  387
  411
  437
  464
  493
  523
  556
  590
  627
  666
  707
  751
  797
  845
  897
  951
  1,009
Net income, $m
  413
  436
  460
  488
  518
  552
  588
  627
  670
  716
  877
  930
  987
  1,047
  1,112
  1,181
  1,254
  1,332
  1,415
  1,503
  1,596
  1,695
  1,800
  1,911
  2,029
  2,154
  2,286
  2,425
  2,573
  2,728

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
Total assets, $m
  9,337
  9,661
  10,011
  10,387
  10,791
  11,222
  11,682
  12,171
  12,691
  13,241
  13,825
  14,443
  15,095
  15,785
  16,513
  17,281
  18,090
  18,943
  19,842
  20,789
  21,785
  22,834
  23,937
  25,098
  26,319
  27,603
  28,953
  30,372
  31,863
  33,431
Adjusted assets (=assets-cash), $m
  9,337
  9,661
  10,011
  10,387
  10,791
  11,222
  11,682
  12,171
  12,691
  13,241
  13,825
  14,443
  15,095
  15,785
  16,513
  17,281
  18,090
  18,943
  19,842
  20,789
  21,785
  22,834
  23,937
  25,098
  26,319
  27,603
  28,953
  30,372
  31,863
  33,431
Revenue / Adjusted assets
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
Average production assets, $m
  2,237
  2,314
  2,398
  2,488
  2,585
  2,688
  2,799
  2,916
  3,040
  3,172
  3,312
  3,460
  3,616
  3,781
  3,956
  4,140
  4,334
  4,538
  4,753
  4,980
  5,219
  5,470
  5,734
  6,013
  6,305
  6,613
  6,936
  7,276
  7,633
  8,009
Working capital, $m
  1,346
  1,393
  1,443
  1,497
  1,556
  1,618
  1,684
  1,755
  1,829
  1,909
  1,993
  2,082
  2,176
  2,276
  2,380
  2,491
  2,608
  2,731
  2,860
  2,997
  3,141
  3,292
  3,451
  3,618
  3,794
  3,979
  4,174
  4,378
  4,593
  4,819
Total debt, $m
  1,223
  1,420
  1,633
  1,861
  2,106
  2,368
  2,647
  2,944
  3,259
  3,593
  3,948
  4,322
  4,719
  5,137
  5,579
  6,045
  6,537
  7,054
  7,600
  8,175
  8,779
  9,416
  10,086
  10,790
  11,532
  12,311
  13,130
  13,992
  14,897
  15,848
Total liabilities, $m
  5,668
  5,864
  6,077
  6,305
  6,550
  6,812
  7,091
  7,388
  7,703
  8,038
  8,392
  8,767
  9,163
  9,581
  10,023
  10,489
  10,981
  11,499
  12,044
  12,619
  13,224
  13,860
  14,530
  15,235
  15,976
  16,755
  17,574
  18,436
  19,341
  20,293
Total equity, $m
  3,669
  3,797
  3,934
  4,082
  4,241
  4,410
  4,591
  4,783
  4,987
  5,204
  5,433
  5,676
  5,932
  6,203
  6,489
  6,791
  7,109
  7,445
  7,798
  8,170
  8,562
  8,974
  9,407
  9,864
  10,343
  10,848
  11,378
  11,936
  12,522
  13,138
Total liabilities and equity, $m
  9,337
  9,661
  10,011
  10,387
  10,791
  11,222
  11,682
  12,171
  12,690
  13,242
  13,825
  14,443
  15,095
  15,784
  16,512
  17,280
  18,090
  18,944
  19,842
  20,789
  21,786
  22,834
  23,937
  25,099
  26,319
  27,603
  28,952
  30,372
  31,863
  33,431
Debt-to-equity ratio
  0.330
  0.370
  0.410
  0.460
  0.500
  0.540
  0.580
  0.620
  0.650
  0.690
  0.730
  0.760
  0.800
  0.830
  0.860
  0.890
  0.920
  0.950
  0.970
  1.000
  1.030
  1.050
  1.070
  1.090
  1.110
  1.130
  1.150
  1.170
  1.190
  1.210
Adjusted equity ratio
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  413
  436
  460
  488
  518
  552
  588
  627
  670
  716
  877
  930
  987
  1,047
  1,112
  1,181
  1,254
  1,332
  1,415
  1,503
  1,596
  1,695
  1,800
  1,911
  2,029
  2,154
  2,286
  2,425
  2,573
  2,728
Depreciation, amort., depletion, $m
  334
  341
  348
  355
  363
  371
  380
  389
  399
  410
  267
  279
  292
  305
  319
  334
  349
  366
  383
  402
  421
  441
  462
  485
  508
  533
  559
  587
  616
  646
Funds from operations, $m
  748
  776
  808
  843
  881
  923
  968
  1,017
  1,069
  1,126
  1,145
  1,209
  1,279
  1,352
  1,431
  1,515
  1,603
  1,698
  1,798
  1,904
  2,017
  2,136
  2,263
  2,396
  2,538
  2,687
  2,845
  3,012
  3,188
  3,374
Change in working capital, $m
  43
  47
  50
  54
  58
  62
  66
  71
  75
  79
  84
  89
  94
  99
  105
  111
  117
  123
  130
  136
  144
  151
  159
  167
  176
  185
  195
  205
  215
  226
Cash from operations, $m
  705
  730
  757
  789
  823
  860
  901
  946
  994
  1,046
  1,060
  1,120
  1,184
  1,253
  1,326
  1,404
  1,487
  1,575
  1,669
  1,768
  1,873
  1,985
  2,104
  2,229
  2,362
  2,502
  2,650
  2,807
  2,973
  3,148
Maintenance CAPEX, $m
  -175
  -180
  -187
  -193
  -201
  -208
  -217
  -226
  -235
  -245
  -256
  -267
  -279
  -292
  -305
  -319
  -334
  -349
  -366
  -383
  -402
  -421
  -441
  -462
  -485
  -508
  -533
  -559
  -587
  -616
New CAPEX, $m
  -72
  -78
  -84
  -90
  -97
  -103
  -110
  -117
  -124
  -132
  -140
  -148
  -156
  -165
  -174
  -184
  -194
  -204
  -215
  -227
  -239
  -251
  -264
  -278
  -292
  -308
  -323
  -340
  -357
  -376
Cash from investing activities, $m
  -247
  -258
  -271
  -283
  -298
  -311
  -327
  -343
  -359
  -377
  -396
  -415
  -435
  -457
  -479
  -503
  -528
  -553
  -581
  -610
  -641
  -672
  -705
  -740
  -777
  -816
  -856
  -899
  -944
  -992
Free cash flow, $m
  458
  472
  487
  505
  525
  549
  575
  603
  635
  669
  665
  705
  749
  796
  847
  901
  959
  1,021
  1,087
  1,158
  1,233
  1,313
  1,398
  1,488
  1,584
  1,686
  1,794
  1,908
  2,029
  2,157
Issuance/(repayment) of debt, $m
  178
  197
  212
  229
  245
  262
  279
  297
  315
  334
  354
  375
  396
  419
  442
  466
  491
  518
  546
  575
  605
  637
  670
  705
  741
  779
  819
  861
  905
  952
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
Cash from financing (excl. dividends), $m  
  178
  197
  212
  229
  245
  262
  279
  297
  315
  334
  354
  375
  396
  419
  442
  466
  491
  518
  546
  575
  605
  637
  670
  705
  741
  779
  819
  861
  905
  952
Total cash flow (excl. dividends), $m
  636
  668
  699
  733
  770
  810
  854
  900
  950
  1,003
  1,019
  1,080
  1,145
  1,215
  1,288
  1,367
  1,450
  1,539
  1,633
  1,732
  1,838
  1,950
  2,068
  2,193
  2,325
  2,465
  2,613
  2,769
  2,934
  3,109
Retained Cash Flow (-), $m
  -119
  -127
  -138
  -148
  -159
  -169
  -181
  -192
  -204
  -217
  -229
  -243
  -257
  -271
  -286
  -302
  -318
  -335
  -353
  -372
  -392
  -412
  -434
  -456
  -480
  -505
  -530
  -558
  -586
  -616
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
  517
  541
  562
  585
  612
  641
  673
  708
  746
  787
  790
  837
  889
  944
  1,002
  1,065
  1,132
  1,204
  1,280
  1,360
  1,446
  1,537
  1,634
  1,737
  1,846
  1,961
  2,083
  2,212
  2,348
  2,493
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
  496
  495
  489
  482
  474
  465
  455
  442
  428
  413
  375
  357
  338
  317
  294
  271
  246
  222
  197
  173
  150
  128
  107
  88
  72
  57
  45
  34
  26
  19
Current shareholders' claim on cash, %
  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

Advance Auto Parts, Inc. provides automotive aftermarket parts in North America, serving do-it-for-me (Professional) and do-it-yourself (DIY), customers. The Company's stores and branches offer a selection of brand name, original equipment manufacturer (OEM) and private label automotive replacement parts, accessories, batteries and maintenance items for domestic and imported cars, vans, sport utility vehicles and light and heavy duty trucks. It serves through various channels ranging from traditional brick and mortar store locations to self-serving e-commerce sites. As of December 31, 2016, it operated 5,062 total stores and 127 branches primarily under the trade names Advance Auto Parts, Autopart International, Carquest and Worldpac. As of December 31, 2016, its Advance Auto Parts operations consisted of three geographic divisions, which included the operations of the stores operating under the Advance Auto Parts, Carquest and Autopart International trade names.

FINANCIAL RATIOS  of  Advance Auto Parts Inc (AAP)

Valuation Ratios
P/E Ratio 24.6
Price to Sales 1.2
Price to Book 3.9
Price to Tangible Book
Price to Cash Flow 22.6
Price to Free Cash Flow 46.9
Growth Rates
Sales Growth Rate -1.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 10.6%
Cap. Spend. - 3 Yr. Gr. Rate 5.8%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 35.8%
Total Debt to Equity 35.8%
Interest Coverage 14
Management Effectiveness
Return On Assets 6%
Ret/ On Assets - 3 Yr. Avg. 6.8%
Return On Total Capital 12.1%
Ret/ On T. Cap. - 3 Yr. Avg. 13.6%
Return On Equity 17.1%
Return On Equity - 3 Yr. Avg. 22.1%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 44.5%
Gross Margin - 3 Yr. Avg. 45.1%
EBITDA Margin 11%
EBITDA Margin - 3 Yr. Avg. 11.2%
Operating Margin 8.2%
Oper. Margin - 3 Yr. Avg. 8.5%
Pre-Tax Margin 7.7%
Pre-Tax Margin - 3 Yr. Avg. 7.8%
Net Profit Margin 4.8%
Net Profit Margin - 3 Yr. Avg. 4.9%
Effective Tax Rate 37.8%
Eff/ Tax Rate - 3 Yr. Avg. 37.2%
Payout Ratio 3.9%

AAP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AAP stock intrinsic value calculation we used $9581 million for the last fiscal year's total revenue generated by Advance Auto Parts Inc. The default revenue input number comes from 0001 income statement of Advance Auto Parts Inc. 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 AAP stock valuation model: a) initial revenue growth rate of 3.3% 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 AAP is calculated based on our internal credit rating of Advance Auto Parts Inc, 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 Advance Auto Parts Inc.
    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 AAP stock the variable cost ratio is equal to 83.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1013 million in the base year in the intrinsic value calculation for AAP 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 Advance Auto Parts Inc.

Corporate tax rate of 27% is the nominal tax rate for Advance Auto Parts Inc. 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 AAP 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 AAP are equal to 22.6%.

Life of production assets of 12.4 years is the average useful life of capital assets used in Advance Auto Parts Inc 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 AAP is equal to 13.6%. 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 - $3550.813 million for Advance Auto Parts Inc - 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 71.687 million for Advance Auto Parts Inc 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 Advance Auto Parts Inc at the current share price and the inputted number of shares is $11.0 billion.

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