Intrinsic value of Asbury Automotive Group - ABG

Previous Close

$55.85

  Intrinsic Value

$56.66

stock screener

  Rating & Target

hold

+1%

  Value-price divergence*

-7%

Previous close

$55.85

 
Intrinsic value

$56.66

 
Up/down potential

+1%

 
Rating

hold

 
Value-price divergence*

-7%

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

We calculate the intrinsic value of ABG 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 1.2

 

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, %
  -0.91
  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
  6,528
  6,659
  6,812
  6,987
  7,183
  7,401
  7,640
  7,900
  8,182
  8,485
  8,811
  9,159
  9,531
  9,927
  10,348
  10,794
  11,267
  11,768
  12,297
  12,857
  13,447
  14,071
  14,728
  15,421
  16,151
  16,920
  17,729
  18,581
  19,478
  20,421
  21,414
Variable operating expenses, $m
 
  6,319
  6,464
  6,630
  6,816
  7,022
  7,248
  7,495
  7,761
  8,049
  8,357
  8,674
  9,026
  9,401
  9,800
  10,222
  10,670
  11,144
  11,646
  12,176
  12,735
  13,325
  13,948
  14,604
  15,296
  16,024
  16,790
  17,597
  18,447
  19,340
  20,280
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
  6,185
  6,319
  6,464
  6,630
  6,816
  7,022
  7,248
  7,495
  7,761
  8,049
  8,357
  8,674
  9,026
  9,401
  9,800
  10,222
  10,670
  11,144
  11,646
  12,176
  12,735
  13,325
  13,948
  14,604
  15,296
  16,024
  16,790
  17,597
  18,447
  19,340
  20,280
Operating income, $m
  343
  340
  348
  357
  368
  379
  392
  406
  421
  437
  454
  485
  505
  526
  548
  572
  597
  623
  651
  681
  712
  745
  780
  817
  855
  896
  939
  984
  1,032
  1,082
  1,134
EBITDA, $m
  374
  381
  390
  400
  411
  424
  437
  452
  469
  486
  505
  524
  546
  568
  593
  618
  645
  674
  704
  736
  770
  806
  843
  883
  925
  969
  1,015
  1,064
  1,115
  1,169
  1,226
Interest expense (income), $m
  74
  75
  77
  79
  81
  84
  87
  90
  93
  97
  101
  105
  110
  115
  120
  125
  131
  138
  144
  151
  159
  166
  175
  183
  192
  202
  212
  223
  234
  246
  259
Earnings before tax, $m
  268
  265
  271
  278
  287
  295
  305
  316
  327
  340
  353
  380
  395
  411
  428
  446
  465
  486
  507
  530
  554
  579
  605
  633
  663
  694
  727
  761
  797
  835
  876
Tax expense, $m
  101
  72
  73
  75
  77
  80
  82
  85
  88
  92
  95
  103
  107
  111
  116
  120
  126
  131
  137
  143
  149
  156
  163
  171
  179
  187
  196
  205
  215
  226
  236
Net income, $m
  167
  193
  198
  203
  209
  216
  223
  231
  239
  248
  258
  277
  288
  300
  313
  326
  340
  354
  370
  387
  404
  423
  442
  462
  484
  507
  530
  556
  582
  610
  639

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  3
  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
  2,336
  2,380
  2,434
  2,497
  2,567
  2,645
  2,731
  2,824
  2,924
  3,033
  3,149
  3,274
  3,406
  3,548
  3,698
  3,858
  4,027
  4,206
  4,395
  4,595
  4,806
  5,029
  5,264
  5,511
  5,772
  6,047
  6,336
  6,641
  6,961
  7,299
  7,653
Adjusted assets (=assets-cash), $m
  2,333
  2,380
  2,434
  2,497
  2,567
  2,645
  2,731
  2,824
  2,924
  3,033
  3,149
  3,274
  3,406
  3,548
  3,698
  3,858
  4,027
  4,206
  4,395
  4,595
  4,806
  5,029
  5,264
  5,511
  5,772
  6,047
  6,336
  6,641
  6,961
  7,299
  7,653
Revenue / Adjusted assets
  2.798
  2.798
  2.799
  2.798
  2.798
  2.798
  2.798
  2.797
  2.798
  2.798
  2.798
  2.797
  2.798
  2.798
  2.798
  2.798
  2.798
  2.798
  2.798
  2.798
  2.798
  2.798
  2.798
  2.798
  2.798
  2.798
  2.798
  2.798
  2.798
  2.798
  2.798
Average production assets, $m
  843
  859
  879
  901
  927
  955
  986
  1,019
  1,055
  1,095
  1,137
  1,182
  1,230
  1,281
  1,335
  1,392
  1,453
  1,518
  1,586
  1,659
  1,735
  1,815
  1,900
  1,989
  2,083
  2,183
  2,287
  2,397
  2,513
  2,634
  2,762
Working capital, $m
  227
  1,125
  1,151
  1,181
  1,214
  1,251
  1,291
  1,335
  1,383
  1,434
  1,489
  1,548
  1,611
  1,678
  1,749
  1,824
  1,904
  1,989
  2,078
  2,173
  2,273
  2,378
  2,489
  2,606
  2,730
  2,859
  2,996
  3,140
  3,292
  3,451
  3,619
Total debt, $m
  1,789
  1,827
  1,875
  1,930
  1,992
  2,061
  2,136
  2,218
  2,306
  2,402
  2,504
  2,614
  2,731
  2,855
  2,987
  3,128
  3,277
  3,434
  3,601
  3,777
  3,962
  4,158
  4,365
  4,583
  4,813
  5,054
  5,309
  5,577
  5,859
  6,156
  6,468
Total liabilities, $m
  2,056
  2,094
  2,142
  2,197
  2,259
  2,328
  2,403
  2,485
  2,573
  2,669
  2,771
  2,881
  2,998
  3,122
  3,254
  3,395
  3,544
  3,701
  3,868
  4,044
  4,229
  4,425
  4,632
  4,850
  5,080
  5,321
  5,576
  5,844
  6,126
  6,423
  6,735
Total equity, $m
  280
  286
  292
  300
  308
  317
  328
  339
  351
  364
  378
  393
  409
  426
  444
  463
  483
  505
  527
  551
  577
  603
  632
  661
  693
  726
  760
  797
  835
  876
  918
Total liabilities and equity, $m
  2,336
  2,380
  2,434
  2,497
  2,567
  2,645
  2,731
  2,824
  2,924
  3,033
  3,149
  3,274
  3,407
  3,548
  3,698
  3,858
  4,027
  4,206
  4,395
  4,595
  4,806
  5,028
  5,264
  5,511
  5,773
  6,047
  6,336
  6,641
  6,961
  7,299
  7,653
Debt-to-equity ratio
  6.389
  6.400
  6.420
  6.440
  6.470
  6.490
  6.520
  6.550
  6.570
  6.600
  6.630
  6.650
  6.680
  6.710
  6.730
  6.760
  6.780
  6.800
  6.830
  6.850
  6.870
  6.890
  6.910
  6.930
  6.950
  6.970
  6.980
  7.000
  7.010
  7.030
  7.040
Adjusted equity ratio
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  167
  193
  198
  203
  209
  216
  223
  231
  239
  248
  258
  277
  288
  300
  313
  326
  340
  354
  370
  387
  404
  423
  442
  462
  484
  507
  530
  556
  582
  610
  639
Depreciation, amort., depletion, $m
  31
  41
  42
  43
  44
  45
  46
  47
  48
  49
  51
  39
  41
  43
  44
  46
  48
  51
  53
  55
  58
  61
  63
  66
  69
  73
  76
  80
  84
  88
  92
Funds from operations, $m
  85
  235
  240
  246
  253
  260
  269
  277
  287
  297
  308
  317
  329
  343
  357
  372
  388
  405
  423
  442
  462
  483
  505
  529
  553
  579
  607
  636
  666
  698
  731
Change in working capital, $m
  -57
  22
  26
  30
  33
  37
  40
  44
  48
  51
  55
  59
  63
  67
  71
  75
  80
  85
  89
  95
  100
  105
  111
  117
  123
  130
  137
  144
  152
  159
  168
Cash from operations, $m
  142
  213
  214
  217
  220
  224
  228
  233
  239
  246
  253
  258
  267
  276
  286
  297
  308
  320
  334
  347
  362
  378
  394
  412
  430
  449
  470
  492
  514
  538
  564
Maintenance CAPEX, $m
  0
  -28
  -29
  -29
  -30
  -31
  -32
  -33
  -34
  -35
  -36
  -38
  -39
  -41
  -43
  -44
  -46
  -48
  -51
  -53
  -55
  -58
  -61
  -63
  -66
  -69
  -73
  -76
  -80
  -84
  -88
New CAPEX, $m
  -112
  -16
  -20
  -23
  -25
  -28
  -31
  -34
  -36
  -39
  -42
  -45
  -48
  -51
  -54
  -58
  -61
  -65
  -68
  -72
  -76
  -80
  -85
  -89
  -94
  -99
  -104
  -110
  -116
  -122
  -128
Cash from investing activities, $m
  5
  -44
  -49
  -52
  -55
  -59
  -63
  -67
  -70
  -74
  -78
  -83
  -87
  -92
  -97
  -102
  -107
  -113
  -119
  -125
  -131
  -138
  -146
  -152
  -160
  -168
  -177
  -186
  -196
  -206
  -216
Free cash flow, $m
  147
  169
  166
  165
  164
  165
  165
  167
  169
  172
  175
  175
  179
  184
  189
  195
  201
  207
  215
  222
  231
  239
  249
  259
  269
  281
  293
  305
  319
  333
  348
Issuance/(repayment) of debt, $m
  72
  41
  48
  55
  62
  68
  75
  82
  89
  95
  102
  110
  117
  124
  132
  140
  149
  157
  167
  176
  186
  196
  207
  218
  230
  242
  255
  268
  282
  297
  312
Issuance/(repurchase) of shares, $m
  -216
  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  
  -147
  41
  48
  55
  62
  68
  75
  82
  89
  95
  102
  110
  117
  124
  132
  140
  149
  157
  167
  176
  186
  196
  207
  218
  230
  242
  255
  268
  282
  297
  312
Total cash flow (excl. dividends), $m
  1
  210
  214
  220
  226
  233
  241
  249
  258
  267
  277
  285
  296
  308
  321
  335
  350
  365
  381
  398
  416
  435
  456
  477
  499
  523
  547
  573
  601
  630
  660
Retained Cash Flow (-), $m
  35
  -6
  -7
  -8
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -35
  -37
  -38
  -40
  -43
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
 
  204
  207
  212
  218
  224
  230
  238
  246
  254
  263
  270
  280
  291
  303
  316
  329
  343
  358
  374
  391
  409
  427
  447
  468
  490
  513
  537
  562
  589
  617
Discount rate, %
 
  12.70
  13.34
  14.00
  14.70
  15.44
  16.21
  17.02
  17.87
  18.76
  19.70
  20.69
  21.72
  22.81
  23.95
  25.15
  26.40
  27.72
  29.11
  30.56
  32.09
  33.70
  35.38
  37.15
  39.01
  40.96
  43.01
  45.16
  47.41
  49.79
  52.27
PV of cash for distribution, $m
 
  181
  161
  143
  126
  109
  94
  79
  66
  54
  44
  34
  26
  20
  15
  11
  8
  5
  4
  2
  1
  1
  1
  0
  0
  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
  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

Asbury Automotive Group, Inc. is an automotive retailer in the United States. As of December 31, 2016, the Company owned and operated 93 new vehicle franchises, representing 28 brands of automobiles at 77 dealership locations, and 23 collision centers in the United States. In addition, as of December 31, 2016, it owned and operated two standalone used vehicle stores in Florida. Its stores offer automotive products and services, including new and used vehicles; parts and service, including vehicle repair and maintenance services, replacement parts, and collision repair services; and finance and insurance products, including arranging vehicle financing through third parties and aftermarket products, such as extended service contracts, guaranteed asset protection (GAP) insurance, prepaid maintenance, and credit life and disability insurance. Its new vehicle revenues include new vehicle sales and lease transactions arranged by dealerships with third-party financial institutions.

FINANCIAL RATIOS  of  Asbury Automotive Group (ABG)

Valuation Ratios
P/E Ratio 7.1
Price to Sales 0.2
Price to Book 4.2
Price to Tangible Book
Price to Cash Flow 8.4
Price to Free Cash Flow 39.6
Growth Rates
Sales Growth Rate -0.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 9.8%
Cap. Spend. - 3 Yr. Gr. Rate 2.7%
Financial Strength
Quick Ratio 0
Current Ratio 0.3
LT Debt to Equity 325.7%
Total Debt to Equity 638.9%
Interest Coverage 5
Management Effectiveness
Return On Assets 9.2%
Ret/ On Assets - 3 Yr. Avg. 8.5%
Return On Total Capital 8.1%
Ret/ On T. Cap. - 3 Yr. Avg. 7.5%
Return On Equity 56.1%
Return On Equity - 3 Yr. Avg. 41.5%
Asset Turnover 2.8
Profitability Ratios
Gross Margin 16.2%
Gross Margin - 3 Yr. Avg. 16.3%
EBITDA Margin 5.7%
EBITDA Margin - 3 Yr. Avg. 5.2%
Operating Margin 5.3%
Oper. Margin - 3 Yr. Avg. 4.8%
Pre-Tax Margin 4.1%
Pre-Tax Margin - 3 Yr. Avg. 3.8%
Net Profit Margin 2.6%
Net Profit Margin - 3 Yr. Avg. 2.3%
Effective Tax Rate 37.7%
Eff/ Tax Rate - 3 Yr. Avg. 38.2%
Payout Ratio 0%

ABG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ABG stock intrinsic value calculation we used $6528 million for the last fiscal year's total revenue generated by Asbury Automotive Group. The default revenue input number comes from 2016 income statement of Asbury Automotive Group. 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 ABG 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 12.7%, whose default value for ABG is calculated based on our internal credit rating of Asbury Automotive Group, 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 Asbury Automotive Group.
    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 ABG stock the variable cost ratio is equal to 94.9%.

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 ABG 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 4.2% for Asbury Automotive Group.

Corporate tax rate of 27% is the nominal tax rate for Asbury Automotive Group. 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 ABG 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 ABG are equal to 12.9%.

Life of production assets of 31.4 years is the average useful life of capital assets used in Asbury Automotive Group 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 ABG is equal to 16.9%. 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 - $280 million for Asbury Automotive Group - 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 20.939 million for Asbury Automotive Group 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 Asbury Automotive Group at the current share price and the inputted number of shares is $1.2 billion.

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COMPANY NEWS

▶ 5 Stocks With Strong Earnings and Revenue Growth   [Sep-25-17 12:39PM  GuruFocus.com]
▶ Asbury Automotive misses Street 2Q forecasts   [Jul-25-17 04:45PM  Associated Press]
▶ Asbury Automotive tops 1Q profit forecasts   [06:58AM  Associated Press]
Financial statements of ABG
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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