Intrinsic value of Alamo Group - ALG

Previous Close

$107.82

  Intrinsic Value

$38.46

stock screener

  Rating & Target

str. sell

-64%

Previous close

$107.82

 
Intrinsic value

$38.46

 
Up/down potential

-64%

 
Rating

str. sell

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

We calculate the intrinsic value of ALG 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, %
  -3.98
  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
  845
  862
  882
  904
  930
  958
  989
  1,023
  1,059
  1,098
  1,141
  1,186
  1,234
  1,285
  1,339
  1,397
  1,458
  1,523
  1,592
  1,664
  1,741
  1,821
  1,906
  1,996
  2,091
  2,190
  2,295
  2,405
  2,521
  2,643
  2,772
Variable operating expenses, $m
 
  796
  814
  835
  858
  884
  913
  943
  977
  1,013
  1,051
  1,085
  1,129
  1,176
  1,226
  1,279
  1,335
  1,394
  1,457
  1,523
  1,593
  1,667
  1,745
  1,827
  1,913
  2,004
  2,100
  2,201
  2,307
  2,419
  2,537
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
  777
  796
  814
  835
  858
  884
  913
  943
  977
  1,013
  1,051
  1,085
  1,129
  1,176
  1,226
  1,279
  1,335
  1,394
  1,457
  1,523
  1,593
  1,667
  1,745
  1,827
  1,913
  2,004
  2,100
  2,201
  2,307
  2,419
  2,537
Operating income, $m
  68
  66
  67
  69
  71
  74
  76
  79
  82
  86
  89
  101
  105
  109
  114
  119
  124
  129
  135
  141
  148
  155
  162
  169
  177
  186
  195
  204
  214
  224
  235
EBITDA, $m
  89
  87
  90
  92
  94
  97
  100
  104
  108
  111
  116
  120
  125
  130
  136
  142
  148
  155
  162
  169
  177
  185
  194
  203
  212
  222
  233
  244
  256
  268
  281
Interest expense (income), $m
  6
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
Earnings before tax, $m
  62
  62
  63
  65
  67
  69
  71
  74
  77
  79
  83
  93
  97
  101
  105
  109
  114
  119
  124
  129
  135
  141
  147
  154
  161
  168
  176
  184
  193
  202
  212
Tax expense, $m
  22
  17
  17
  18
  18
  19
  19
  20
  21
  21
  22
  25
  26
  27
  28
  29
  31
  32
  33
  35
  36
  38
  40
  42
  43
  45
  48
  50
  52
  55
  57
Net income, $m
  40
  45
  46
  47
  49
  50
  52
  54
  56
  58
  60
  68
  71
  74
  77
  80
  83
  87
  90
  94
  98
  103
  107
  112
  117
  123
  129
  135
  141
  148
  155

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  17
  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
  553
  547
  559
  574
  590
  608
  628
  649
  672
  697
  724
  752
  783
  815
  850
  887
  925
  967
  1,010
  1,056
  1,104
  1,156
  1,210
  1,267
  1,327
  1,390
  1,456
  1,526
  1,600
  1,677
  1,759
Adjusted assets (=assets-cash), $m
  536
  547
  559
  574
  590
  608
  628
  649
  672
  697
  724
  752
  783
  815
  850
  887
  925
  967
  1,010
  1,056
  1,104
  1,156
  1,210
  1,267
  1,327
  1,390
  1,456
  1,526
  1,600
  1,677
  1,759
Revenue / Adjusted assets
  1.576
  1.576
  1.578
  1.575
  1.576
  1.576
  1.575
  1.576
  1.576
  1.575
  1.576
  1.577
  1.576
  1.577
  1.575
  1.575
  1.576
  1.575
  1.576
  1.576
  1.577
  1.575
  1.575
  1.575
  1.576
  1.576
  1.576
  1.576
  1.576
  1.576
  1.576
Average production assets, $m
  155
  158
  161
  166
  170
  175
  181
  187
  194
  201
  209
  217
  226
  235
  245
  256
  267
  279
  291
  305
  319
  333
  349
  365
  383
  401
  420
  440
  461
  484
  507
Working capital, $m
  249
  237
  242
  249
  256
  263
  272
  281
  291
  302
  314
  326
  339
  353
  368
  384
  401
  419
  438
  458
  479
  501
  524
  549
  575
  602
  631
  661
  693
  727
  762
Total debt, $m
  70
  73
  77
  82
  87
  92
  98
  105
  112
  120
  128
  137
  146
  156
  167
  178
  190
  203
  216
  230
  245
  261
  278
  295
  314
  333
  354
  375
  398
  422
  447
Total liabilities, $m
  165
  168
  172
  177
  182
  187
  193
  200
  207
  215
  223
  232
  241
  251
  262
  273
  285
  298
  311
  325
  340
  356
  373
  390
  409
  428
  449
  470
  493
  517
  542
Total equity, $m
  388
  378
  387
  397
  408
  421
  434
  449
  465
  482
  501
  521
  542
  564
  588
  613
  640
  669
  699
  731
  764
  800
  837
  876
  918
  962
  1,008
  1,056
  1,107
  1,161
  1,217
Total liabilities and equity, $m
  553
  546
  559
  574
  590
  608
  627
  649
  672
  697
  724
  753
  783
  815
  850
  886
  925
  967
  1,010
  1,056
  1,104
  1,156
  1,210
  1,266
  1,327
  1,390
  1,457
  1,526
  1,600
  1,678
  1,759
Debt-to-equity ratio
  0.180
  0.190
  0.200
  0.210
  0.210
  0.220
  0.230
  0.230
  0.240
  0.250
  0.260
  0.260
  0.270
  0.280
  0.280
  0.290
  0.300
  0.300
  0.310
  0.320
  0.320
  0.330
  0.330
  0.340
  0.340
  0.350
  0.350
  0.360
  0.360
  0.360
  0.370
Adjusted equity ratio
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692
  0.692

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  40
  45
  46
  47
  49
  50
  52
  54
  56
  58
  60
  68
  71
  74
  77
  80
  83
  87
  90
  94
  98
  103
  107
  112
  117
  123
  129
  135
  141
  148
  155
Depreciation, amort., depletion, $m
  21
  22
  22
  23
  23
  23
  24
  25
  25
  26
  26
  20
  21
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  33
  35
  36
  38
  40
  42
  44
  46
Funds from operations, $m
  87
  67
  68
  70
  72
  74
  76
  78
  81
  84
  87
  88
  91
  95
  99
  103
  107
  112
  117
  122
  127
  133
  139
  146
  152
  159
  167
  175
  183
  192
  201
Change in working capital, $m
  11
  5
  5
  6
  7
  8
  9
  9
  10
  11
  12
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  30
  32
  34
  35
Cash from operations, $m
  76
  62
  63
  64
  65
  66
  67
  69
  71
  73
  75
  76
  78
  81
  84
  87
  91
  94
  98
  102
  106
  111
  116
  121
  126
  132
  138
  144
  151
  158
  165
Maintenance CAPEX, $m
  0
  -14
  -14
  -15
  -15
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -40
  -42
  -44
New CAPEX, $m
  -10
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -24
Cash from investing activities, $m
  -9
  -17
  -18
  -19
  -20
  -20
  -22
  -22
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -34
  -36
  -38
  -39
  -42
  -44
  -46
  -48
  -50
  -53
  -55
  -58
  -61
  -64
  -68
Free cash flow, $m
  67
  45
  45
  45
  45
  45
  46
  47
  47
  48
  49
  48
  50
  51
  53
  54
  56
  58
  60
  62
  65
  67
  70
  73
  76
  79
  82
  86
  90
  94
  98
Issuance/(repayment) of debt, $m
  -74
  3
  4
  4
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  18
  18
  19
  20
  22
  23
  24
  25
Issuance/(repurchase) of shares, $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
Cash from financing (excl. dividends), $m  
  -73
  3
  4
  4
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  18
  18
  19
  20
  22
  23
  24
  25
Total cash flow (excl. dividends), $m
  -6
  48
  49
  49
  50
  51
  52
  53
  54
  56
  57
  57
  59
  61
  63
  66
  68
  71
  73
  76
  80
  83
  87
  90
  94
  98
  103
  107
  112
  117
  123
Retained Cash Flow (-), $m
  -28
  -7
  -9
  -10
  -11
  -12
  -14
  -15
  -16
  -17
  -19
  -20
  -21
  -22
  -24
  -25
  -27
  -28
  -30
  -32
  -34
  -35
  -37
  -39
  -41
  -44
  -46
  -48
  -51
  -54
  -56
Prev. year cash balance distribution, $m
 
  17
  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
 
  58
  40
  39
  39
  39
  38
  38
  38
  39
  39
  37
  38
  39
  39
  40
  41
  42
  43
  45
  46
  48
  49
  51
  53
  55
  57
  59
  61
  64
  67
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
 
  56
  37
  34
  32
  30
  28
  26
  24
  22
  20
  18
  16
  15
  13
  12
  10
  9
  8
  7
  6
  5
  4
  3
  3
  2
  2
  1
  1
  1
  1
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

Alamo Group Inc. is engaged in the design and manufacture of agricultural equipment and infrastructure maintenance equipment for governmental and industrial use. The Company operates in Industrial, Agricultural and European segments. The Company's products include tractor-mounted mowing and other vegetation maintenance equipment, street sweepers, excavators, vacuum trucks, snow removal equipment, pothole patchers, zero turn radius mowers, agricultural implements and related aftermarket. As of December 31, 2016, the Company operated 24 plants in North America, Europe, Australia and Brazil. The Company sells its products through a network of independent dealers and distributors to Governmental end users, related independent contractors, as well as to the agricultural and commercial turf markets. It also offers replacement parts for each of its wholegoods lines. The Company's products are sold through various marketing organizations, and dealer and distributor networks.

FINANCIAL RATIOS  of  Alamo Group (ALG)

Valuation Ratios
P/E Ratio 30.8
Price to Sales 1.5
Price to Book 3.2
Price to Tangible Book
Price to Cash Flow 16.2
Price to Free Cash Flow 18.7
Growth Rates
Sales Growth Rate -4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -33.3%
Cap. Spend. - 3 Yr. Gr. Rate -6.5%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 18%
Total Debt to Equity 18%
Interest Coverage 11
Management Effectiveness
Return On Assets 7.6%
Ret/ On Assets - 3 Yr. Avg. 7.8%
Return On Total Capital 8.3%
Ret/ On T. Cap. - 3 Yr. Avg. 8.7%
Return On Equity 10.7%
Return On Equity - 3 Yr. Avg. 11.6%
Asset Turnover 1.5
Profitability Ratios
Gross Margin 24.3%
Gross Margin - 3 Yr. Avg. 23.2%
EBITDA Margin 10.5%
EBITDA Margin - 3 Yr. Avg. 10.2%
Operating Margin 8%
Oper. Margin - 3 Yr. Avg. 7.7%
Pre-Tax Margin 7.3%
Pre-Tax Margin - 3 Yr. Avg. 7.4%
Net Profit Margin 4.7%
Net Profit Margin - 3 Yr. Avg. 4.8%
Effective Tax Rate 35.5%
Eff/ Tax Rate - 3 Yr. Avg. 34.7%
Payout Ratio 10%

ALG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ALG stock intrinsic value calculation we used $845 million for the last fiscal year's total revenue generated by Alamo Group. The default revenue input number comes from 2016 income statement of Alamo 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 ALG 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 4.3%, whose default value for ALG is calculated based on our internal credit rating of Alamo 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 Alamo 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 ALG stock the variable cost ratio is equal to 92.4%.

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 ALG 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 5.6% for Alamo Group.

Corporate tax rate of 27% is the nominal tax rate for Alamo 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 ALG 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 ALG are equal to 18.3%.

Life of production assets of 11 years is the average useful life of capital assets used in Alamo 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 ALG is equal to 27.5%. 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 - $388 million for Alamo 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 11.593 million for Alamo 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 Alamo Group at the current share price and the inputted number of shares is $1.2 billion.

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COMPANY NEWS

▶ ETFs with exposure to Alamo Group, Inc. : October 3, 2017   [Oct-03-17 10:50AM  Capital Cube]
▶ Alamo Group Inc. Declares Regular Quarterly Dividend   [Oct-02-17 08:00AM  PR Newswire]
▶ Alamo Group Inc. Acquires R.P.M. Tech Inc.   [Aug-08-17 04:15PM  PR Newswire]
▶ Alamo Group posts 2Q profit   [Aug-02-17 10:54PM  Associated Press]
▶ Alamo Group Inc. Declares Regular Quarterly Dividend   [Jul-03-17 08:00AM  PR Newswire]
▶ ETFs with exposure to Alamo Group, Inc. : June 22, 2017   [Jun-22-17 03:18PM  Capital Cube]
▶ Alamo Group posts 1Q profit   [May-04-17 05:02AM  Associated Press]
▶ Alamo Group Announces Record 2017 First Quarter Results   [May-03-17 06:05PM  PR Newswire]
▶ Alamo Group Inc. Declares Regular Quarterly Dividend   [Apr-03-17 08:00AM  PR Newswire]
▶ San Antonio manufacturers learn about Trump administration regs   [Mar-23-17 01:25PM  at bizjournals.com]
▶ San Antonio manufacturers learn about Trump administration regs   [01:25PM  American City Business Journals]
▶ Alamo Group posts 4Q profit   [Mar-07-17 06:36PM  Associated Press]
▶ Early movers: GM, VZ, DIS, INTC, XRX, ANF & more   [Jan-03-17 08:19AM  at CNBC]
▶ Alamo Group Inc. Announces Departure Of Board Member   [Dec-16-16 08:00AM  PR Newswire]
▶ Is Alamo Group, Inc. (ALG) A Good Stock To Buy?   [02:09AM  at Insider Monkey]
▶ The Only 4 Stocks That Matter to Longview Asset Management   [Aug-12-16 11:12AM  at Insider Monkey]
Financial statements of ALG
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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