Intrinsic value of ARC Document Solutions - ARC

Previous Close

$2.45

  Intrinsic Value

$0.00

stock screener

  Rating & Target

str. sell

-100%

Previous close

$2.45

 
Intrinsic value

$0.00

 
Up/down potential

-100%

 
Rating

str. sell

We calculate the intrinsic value of ARC 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
   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, %
  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
  403
  412
  423
  435
  448
  462
  478
  495
  513
  533
  554
  577
  601
  626
  653
  682
  712
  744
  778
  814
  851
  891
  933
  977
  1,024
  1,073
  1,124
  1,179
  1,236
  1,296
Variable operating expenses, $m
  448
  458
  470
  482
  497
  512
  529
  548
  568
  589
  599
  623
  649
  676
  705
  736
  769
  804
  840
  879
  920
  963
  1,008
  1,056
  1,106
  1,159
  1,214
  1,273
  1,335
  1,399
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
  448
  458
  470
  482
  497
  512
  529
  548
  568
  589
  599
  623
  649
  676
  705
  736
  769
  804
  840
  879
  920
  963
  1,008
  1,056
  1,106
  1,159
  1,214
  1,273
  1,335
  1,399
Operating income, $m
  -45
  -46
  -47
  -48
  -49
  -50
  -51
  -53
  -54
  -56
  -44
  -46
  -48
  -50
  -52
  -55
  -57
  -60
  -62
  -65
  -68
  -71
  -75
  -78
  -82
  -86
  -90
  -94
  -99
  -104
EBITDA, $m
  -11
  -12
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -32
  -34
  -35
  -37
Interest expense (income), $m
  6
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  29
  30
  32
Earnings before tax, $m
  -53
  -54
  -55
  -56
  -58
  -59
  -61
  -63
  -65
  -67
  -56
  -59
  -61
  -64
  -67
  -70
  -73
  -76
  -80
  -84
  -88
  -92
  -97
  -101
  -106
  -112
  -117
  -123
  -129
  -136
Tax expense, $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
Net income, $m
  -53
  -54
  -55
  -56
  -58
  -59
  -61
  -63
  -65
  -67
  -56
  -59
  -61
  -64
  -67
  -70
  -73
  -76
  -80
  -84
  -88
  -92
  -97
  -101
  -106
  -112
  -117
  -123
  -129
  -136

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
  347
  355
  364
  374
  385
  398
  411
  426
  442
  459
  477
  496
  517
  539
  562
  587
  613
  640
  669
  700
  733
  767
  803
  841
  881
  923
  968
  1,014
  1,063
  1,115
Adjusted assets (=assets-cash), $m
  347
  355
  364
  374
  385
  398
  411
  426
  442
  459
  477
  496
  517
  539
  562
  587
  613
  640
  669
  700
  733
  767
  803
  841
  881
  923
  968
  1,014
  1,063
  1,115
Revenue / Adjusted assets
  1.161
  1.161
  1.162
  1.163
  1.164
  1.161
  1.163
  1.162
  1.161
  1.161
  1.161
  1.163
  1.162
  1.161
  1.162
  1.162
  1.162
  1.163
  1.163
  1.163
  1.161
  1.162
  1.162
  1.162
  1.162
  1.163
  1.161
  1.163
  1.163
  1.162
Average production assets, $m
  208
  213
  218
  224
  231
  239
  247
  255
  265
  275
  286
  298
  310
  323
  337
  352
  367
  384
  401
  420
  439
  460
  481
  504
  528
  554
  580
  608
  638
  669
Working capital, $m
  -4
  -5
  -5
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
Total debt, $m
  149
  153
  159
  165
  172
  180
  188
  197
  207
  218
  229
  241
  253
  267
  281
  296
  312
  329
  347
  366
  386
  407
  430
  453
  478
  504
  531
  560
  590
  622
Total liabilities, $m
  214
  218
  224
  230
  237
  245
  253
  262
  272
  283
  294
  306
  318
  332
  346
  361
  377
  394
  412
  431
  451
  472
  495
  518
  543
  569
  596
  625
  655
  687
Total equity, $m
  133
  136
  140
  144
  148
  153
  158
  164
  170
  176
  183
  191
  198
  207
  216
  225
  235
  246
  257
  269
  281
  295
  308
  323
  338
  355
  372
  389
  408
  428
Total liabilities and equity, $m
  347
  354
  364
  374
  385
  398
  411
  426
  442
  459
  477
  497
  516
  539
  562
  586
  612
  640
  669
  700
  732
  767
  803
  841
  881
  924
  968
  1,014
  1,063
  1,115
Debt-to-equity ratio
  1.120
  1.130
  1.140
  1.150
  1.160
  1.180
  1.190
  1.210
  1.220
  1.240
  1.250
  1.260
  1.280
  1.290
  1.300
  1.320
  1.330
  1.340
  1.350
  1.360
  1.370
  1.380
  1.390
  1.400
  1.410
  1.420
  1.430
  1.440
  1.440
  1.450
Adjusted equity ratio
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -53
  -54
  -55
  -56
  -58
  -59
  -61
  -63
  -65
  -67
  -56
  -59
  -61
  -64
  -67
  -70
  -73
  -76
  -80
  -84
  -88
  -92
  -97
  -101
  -106
  -112
  -117
  -123
  -129
  -136
Depreciation, amort., depletion, $m
  34
  34
  35
  35
  36
  37
  38
  39
  39
  41
  29
  30
  31
  32
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  53
  55
  58
  61
  64
  67
Funds from operations, $m
  -19
  -20
  -20
  -21
  -22
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -46
  -49
  -51
  -54
  -56
  -59
  -62
  -65
  -69
Change in working capital, $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
  -1
  -1
  -1
  -1
  -1
  -1
Cash from operations, $m
  -19
  -20
  -20
  -21
  -22
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -53
  -56
  -59
  -62
  -65
  -68
Maintenance CAPEX, $m
  -20
  -21
  -21
  -22
  -22
  -23
  -24
  -25
  -26
  -26
  -28
  -29
  -30
  -31
  -32
  -34
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -53
  -55
  -58
  -61
  -64
New CAPEX, $m
  -4
  -5
  -5
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
Cash from investing activities, $m
  -24
  -26
  -26
  -28
  -29
  -30
  -32
  -34
  -35
  -36
  -39
  -41
  -42
  -44
  -46
  -49
  -51
  -54
  -55
  -58
  -61
  -65
  -68
  -71
  -74
  -78
  -82
  -86
  -90
  -95
Free cash flow, $m
  -44
  -45
  -47
  -49
  -51
  -53
  -55
  -58
  -60
  -63
  -66
  -69
  -72
  -75
  -79
  -83
  -87
  -91
  -95
  -100
  -105
  -110
  -116
  -121
  -128
  -134
  -141
  -148
  -155
  -163
Issuance/(repayment) of debt, $m
  4
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  30
  32
Issuance/(repurchase) of shares, $m
  56
  57
  59
  60
  62
  64
  66
  68
  71
  73
  63
  66
  69
  72
  76
  79
  83
  87
  91
  96
  100
  105
  111
  116
  122
  128
  134
  141
  148
  155
Cash from financing (excl. dividends), $m  
  60
  62
  65
  66
  69
  72
  74
  77
  81
  83
  74
  78
  82
  85
  90
  94
  99
  104
  109
  115
  120
  126
  133
  139
  147
  154
  161
  170
  178
  187
Total cash flow (excl. dividends), $m
  16
  17
  17
  18
  18
  19
  19
  20
  20
  21
  9
  9
  10
  10
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
Retained Cash Flow (-), $m
  -56
  -57
  -59
  -60
  -62
  -64
  -66
  -68
  -71
  -73
  -63
  -66
  -69
  -72
  -76
  -79
  -83
  -87
  -91
  -96
  -100
  -105
  -111
  -116
  -122
  -128
  -134
  -141
  -148
  -155
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
  3
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
Cash available for distribution, $m
  -40
  -40
  -41
  -42
  -44
  -45
  -47
  -49
  -50
  -52
  -55
  -57
  -59
  -62
  -65
  -68
  -71
  -74
  -77
  -81
  -85
  -89
  -94
  -98
  -103
  -108
  -113
  -119
  -125
  -131
Discount rate, %
  5.60
  5.88
  6.17
  6.48
  6.81
  7.15
  7.50
  7.88
  8.27
  8.69
  9.12
  9.58
  10.06
  10.56
  11.09
  11.64
  12.22
  12.84
  13.48
  14.15
  14.86
  15.60
  16.38
  17.20
  18.06
  18.96
  19.91
  20.91
  21.95
  23.05
PV of cash for distribution, $m
  -38
  -36
  -35
  -33
  -32
  -30
  -28
  -26
  -25
  -23
  -21
  -19
  -17
  -15
  -13
  -12
  -10
  -8
  -7
  -6
  -5
  -4
  -3
  -2
  -2
  -1
  -1
  -1
  0
  0
Current shareholders' claim on cash, %
  66.7
  44.6
  29.8
  19.9
  13.3
  8.9
  5.9
  3.9
  2.6
  1.8
  1.2
  0.9
  0.6
  0.4
  0.3
  0.2
  0.2
  0.1
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

ARC Document Solutions, Inc. (ARC) is a document solutions provider for the architectural, engineering and construction (AEC) industry. The Company also provides document solutions to businesses of various types. ARC's offerings include managed print services (MPS), offsite services, archive and information management (AIM), specialized color printing, Web-based document management applications, digital shipping/managed file transfer, and equipment and supplies sales. MPS is an onsite service where it installs a complete document solution platform in its customers' offices and project sites. Its Offsite Services offering operates over 180 offsite service centers. AIM enables its customers to store information and intellectual property in a cloud-based and searchable digital archive. The Specialized Color Printing offering is focused on color printing, finishing and assembly of graphic materials. Its Web-Based Document Management Applications develop and offer tools to its customers.

FINANCIAL RATIOS  of  ARC Document Solutions (ARC)

Valuation Ratios
P/E Ratio -2.3
Price to Sales 0.3
Price to Book 0.8
Price to Tangible Book
Price to Cash Flow 2.1
Price to Free Cash Flow 2.7
Growth Rates
Sales Growth Rate -5.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -14.3%
Cap. Spend. - 3 Yr. Gr. Rate -7.8%
Financial Strength
Quick Ratio 2
Current Ratio 0.1
LT Debt to Equity 95.3%
Total Debt to Equity 104.7%
Interest Coverage -8
Management Effectiveness
Return On Assets -10.1%
Ret/ On Assets - 3 Yr. Avg. 7%
Return On Total Capital -14.1%
Ret/ On T. Cap. - 3 Yr. Avg. 5.6%
Return On Equity -27.3%
Return On Equity - 3 Yr. Avg. 14.5%
Asset Turnover 1
Profitability Ratios
Gross Margin 32.8%
Gross Margin - 3 Yr. Avg. 33.7%
EBITDA Margin -3.4%
EBITDA Margin - 3 Yr. Avg. 8.7%
Operating Margin -11.3%
Oper. Margin - 3 Yr. Avg. 0.8%
Pre-Tax Margin -12.8%
Pre-Tax Margin - 3 Yr. Avg. -1.3%
Net Profit Margin -11.8%
Net Profit Margin - 3 Yr. Avg. 4.1%
Effective Tax Rate 7.7%
Eff/ Tax Rate - 3 Yr. Avg. -69.6%
Payout Ratio 0%

ARC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ARC stock intrinsic value calculation we used $395 million for the last fiscal year's total revenue generated by ARC Document Solutions. The default revenue input number comes from 2017 income statement of ARC Document Solutions. 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 ARC 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 5.6%, whose default value for ARC is calculated based on our internal credit rating of ARC Document Solutions, 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 ARC Document Solutions.
    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 ARC stock the variable cost ratio is equal to 111.3%.

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 ARC 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 ARC Document Solutions.

Corporate tax rate of 27% is the nominal tax rate for ARC Document Solutions. 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 ARC stock is equal to 0.7%.

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 ARC are equal to 51.6%.

Life of production assets of 10 years is the average useful life of capital assets used in ARC Document Solutions 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 ARC is equal to -1.1%. 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 - $130 million for ARC Document Solutions - 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 46 million for ARC Document Solutions 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 ARC Document Solutions at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ ARC Document Solutions: 1Q Earnings Snapshot   [May-01-18 05:26PM  Associated Press]
▶ ARC Document Solutions reports 4Q loss   [05:03AM  Associated Press]
▶ ARC Document Solutions reports 3Q loss   [Nov-01-17 05:09PM  Associated Press]
▶ November Undervalued Stock Opportunities   [Oct-31-17 09:03AM  Simply Wall St.]
▶ Weekly Top Insider Buys Highlight for the Week of Oct. 6   [Oct-08-17 04:26PM  GuruFocus.com]
▶ ARC Document Solutions posts 2Q profit   [Aug-01-17 10:08PM  Associated Press]
▶ 9 Stocks Charles Brandes Continues to Buy   [Jun-01-17 03:13PM  GuruFocus.com]
▶ ARC Document Solutions posts 1Q profit   [May-02-17 06:29PM  Associated Press]
▶ Kleinfeld out as chair and CEO of Arconic   [10:10AM  American City Business Journals]
▶ Emerson (EMR) Business Wing Opens New Office in Germany   [Mar-30-17 09:14AM  Investopedia]
▶ ARC Document Solutions posts 4Q profit   [Feb-21-17 05:52PM  Associated Press]
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