Intrinsic value of Armstrong World Industries - AWI

Previous Close

$61.45

  Intrinsic Value

$18.41

stock screener

  Rating & Target

str. sell

-70%

Previous close

$61.45

 
Intrinsic value

$18.41

 
Up/down potential

-70%

 
Rating

str. sell

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

We calculate the intrinsic value of AWI 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.

Please visit our new site that uses elements of artificial intelligence for stock valuation: artificial intelligence value of Armstrong World Industries (AWI) stock.

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, %
  0.32
  5.10
  5.09
  5.08
  5.07
  5.07
  5.06
  5.05
  5.05
  5.04
  5.04
  5.03
  5.03
  5.03
  5.03
  5.02
  5.02
  5.02
  5.02
  5.02
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.00
Revenue, $m
  1,235
  1,298
  1,364
  1,433
  1,506
  1,582
  1,662
  1,746
  1,835
  1,927
  2,024
  2,126
  2,233
  2,345
  2,463
  2,587
  2,717
  2,853
  2,996
  3,147
  3,304
  3,470
  3,644
  3,826
  4,018
  4,219
  4,431
  4,652
  4,885
  5,130
  5,386
Variable operating expenses, $m
 
  1,151
  1,210
  1,271
  1,336
  1,404
  1,475
  1,549
  1,627
  1,709
  1,795
  1,886
  1,981
  2,080
  2,185
  2,295
  2,410
  2,531
  2,658
  2,791
  2,931
  3,078
  3,232
  3,394
  3,564
  3,742
  3,930
  4,127
  4,333
  4,550
  4,778
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
  1,050
  1,151
  1,210
  1,271
  1,336
  1,404
  1,475
  1,549
  1,627
  1,709
  1,795
  1,886
  1,981
  2,080
  2,185
  2,295
  2,410
  2,531
  2,658
  2,791
  2,931
  3,078
  3,232
  3,394
  3,564
  3,742
  3,930
  4,127
  4,333
  4,550
  4,778
Operating income, $m
  185
  147
  154
  162
  170
  179
  188
  197
  207
  218
  229
  240
  252
  265
  278
  292
  307
  322
  339
  356
  373
  392
  412
  432
  454
  477
  501
  526
  552
  580
  609
EBITDA, $m
  274
  240
  253
  266
  279
  293
  308
  324
  340
  357
  375
  394
  414
  435
  456
  479
  503
  529
  555
  583
  612
  643
  675
  709
  744
  782
  821
  862
  905
  950
  998
Interest expense (income), $m
  33
  30
  32
  35
  37
  40
  44
  47
  50
  54
  58
  62
  66
  70
  75
  80
  85
  90
  96
  102
  108
  115
  121
  129
  136
  144
  152
  161
  170
  180
  190
Earnings before tax, $m
  144
  117
  122
  127
  133
  138
  144
  150
  157
  164
  171
  178
  186
  195
  203
  212
  222
  232
  243
  254
  265
  277
  290
  304
  318
  333
  348
  365
  382
  400
  419
Tax expense, $m
  50
  32
  33
  34
  36
  37
  39
  41
  42
  44
  46
  48
  50
  53
  55
  57
  60
  63
  65
  68
  72
  75
  78
  82
  86
  90
  94
  98
  103
  108
  113
Net income, $m
  105
  85
  89
  93
  97
  101
  105
  110
  115
  120
  125
  130
  136
  142
  148
  155
  162
  169
  177
  185
  194
  203
  212
  222
  232
  243
  254
  266
  279
  292
  306

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  142
  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
  1,758
  1,699
  1,785
  1,876
  1,971
  2,071
  2,176
  2,286
  2,401
  2,522
  2,649
  2,783
  2,923
  3,070
  3,224
  3,386
  3,556
  3,735
  3,922
  4,119
  4,325
  4,542
  4,769
  5,008
  5,259
  5,523
  5,799
  6,089
  6,394
  6,714
  7,050
Adjusted assets (=assets-cash), $m
  1,616
  1,699
  1,785
  1,876
  1,971
  2,071
  2,176
  2,286
  2,401
  2,522
  2,649
  2,783
  2,923
  3,070
  3,224
  3,386
  3,556
  3,735
  3,922
  4,119
  4,325
  4,542
  4,769
  5,008
  5,259
  5,523
  5,799
  6,089
  6,394
  6,714
  7,050
Revenue / Adjusted assets
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
Average production assets, $m
  1,099
  1,154
  1,213
  1,274
  1,339
  1,407
  1,478
  1,553
  1,631
  1,713
  1,800
  1,890
  1,985
  2,085
  2,190
  2,300
  2,415
  2,536
  2,664
  2,797
  2,938
  3,085
  3,239
  3,402
  3,572
  3,751
  3,939
  4,136
  4,343
  4,560
  4,789
Working capital, $m
  182
  69
  72
  76
  80
  84
  88
  93
  97
  102
  107
  113
  118
  124
  131
  137
  144
  151
  159
  167
  175
  184
  193
  203
  213
  224
  235
  247
  259
  272
  285
Total debt, $m
  874
  911
  989
  1,071
  1,156
  1,246
  1,340
  1,439
  1,543
  1,652
  1,767
  1,887
  2,013
  2,145
  2,284
  2,429
  2,582
  2,743
  2,912
  3,089
  3,275
  3,470
  3,674
  3,890
  4,115
  4,352
  4,601
  4,863
  5,137
  5,425
  5,727
Total liabilities, $m
  1,492
  1,529
  1,607
  1,689
  1,774
  1,864
  1,958
  2,057
  2,161
  2,270
  2,385
  2,505
  2,631
  2,763
  2,902
  3,047
  3,200
  3,361
  3,530
  3,707
  3,893
  4,088
  4,292
  4,508
  4,733
  4,970
  5,219
  5,481
  5,755
  6,043
  6,345
Total equity, $m
  266
  170
  179
  188
  197
  207
  218
  229
  240
  252
  265
  278
  292
  307
  322
  339
  356
  373
  392
  412
  433
  454
  477
  501
  526
  552
  580
  609
  639
  671
  705
Total liabilities and equity, $m
  1,758
  1,699
  1,786
  1,877
  1,971
  2,071
  2,176
  2,286
  2,401
  2,522
  2,650
  2,783
  2,923
  3,070
  3,224
  3,386
  3,556
  3,734
  3,922
  4,119
  4,326
  4,542
  4,769
  5,009
  5,259
  5,522
  5,799
  6,090
  6,394
  6,714
  7,050
Debt-to-equity ratio
  3.286
  5.360
  5.540
  5.710
  5.870
  6.020
  6.160
  6.300
  6.430
  6.550
  6.670
  6.780
  6.890
  6.990
  7.080
  7.170
  7.260
  7.350
  7.420
  7.500
  7.570
  7.640
  7.700
  7.770
  7.820
  7.880
  7.930
  7.990
  8.030
  8.080
  8.120
Adjusted equity ratio
  0.077
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  105
  85
  89
  93
  97
  101
  105
  110
  115
  120
  125
  130
  136
  142
  148
  155
  162
  169
  177
  185
  194
  203
  212
  222
  232
  243
  254
  266
  279
  292
  306
Depreciation, amort., depletion, $m
  89
  94
  99
  104
  109
  114
  120
  126
  133
  139
  146
  154
  161
  170
  178
  187
  196
  206
  217
  227
  239
  251
  263
  277
  290
  305
  320
  336
  353
  371
  389
Funds from operations, $m
  -143
  179
  188
  197
  206
  215
  225
  236
  247
  259
  271
  284
  297
  312
  326
  342
  358
  376
  394
  413
  432
  453
  475
  498
  522
  548
  574
  602
  632
  663
  695
Change in working capital, $m
  -192
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
Cash from operations, $m
  49
  176
  184
  193
  202
  211
  221
  232
  242
  254
  266
  279
  292
  306
  320
  335
  352
  368
  386
  405
  424
  445
  466
  489
  512
  537
  563
  591
  619
  650
  681
Maintenance CAPEX, $m
  0
  -89
  -94
  -99
  -104
  -109
  -114
  -120
  -126
  -133
  -139
  -146
  -154
  -161
  -170
  -178
  -187
  -196
  -206
  -217
  -227
  -239
  -251
  -263
  -277
  -290
  -305
  -320
  -336
  -353
  -371
New CAPEX, $m
  -104
  -55
  -59
  -62
  -65
  -68
  -71
  -75
  -78
  -82
  -86
  -91
  -95
  -100
  -105
  -110
  -115
  -121
  -127
  -134
  -140
  -147
  -155
  -162
  -170
  -179
  -188
  -197
  -207
  -217
  -228
Cash from investing activities, $m
  -17
  -144
  -153
  -161
  -169
  -177
  -185
  -195
  -204
  -215
  -225
  -237
  -249
  -261
  -275
  -288
  -302
  -317
  -333
  -351
  -367
  -386
  -406
  -425
  -447
  -469
  -493
  -517
  -543
  -570
  -599
Free cash flow, $m
  32
  31
  32
  33
  34
  35
  36
  37
  38
  39
  40
  42
  43
  44
  46
  47
  49
  51
  53
  54
  56
  59
  61
  63
  65
  68
  71
  73
  76
  79
  82
Issuance/(repayment) of debt, $m
  -71
  62
  78
  82
  86
  90
  94
  99
  104
  109
  114
  120
  126
  132
  139
  146
  153
  161
  169
  177
  186
  195
  205
  215
  226
  237
  249
  261
  274
  288
  302
Issuance/(repurchase) of shares, $m
  -43
  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  
  -129
  62
  78
  82
  86
  90
  94
  99
  104
  109
  114
  120
  126
  132
  139
  146
  153
  161
  169
  177
  186
  195
  205
  215
  226
  237
  249
  261
  274
  288
  302
Total cash flow (excl. dividends), $m
  -103
  93
  110
  114
  119
  125
  130
  136
  142
  148
  155
  162
  169
  177
  185
  193
  202
  211
  221
  231
  242
  254
  266
  278
  291
  305
  319
  335
  351
  367
  385
Retained Cash Flow (-), $m
  503
  -21
  -9
  -9
  -10
  -10
  -10
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -34
Prev. year cash balance distribution, $m
 
  117
  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
 
  189
  101
  105
  110
  115
  119
  125
  130
  136
  142
  148
  155
  162
  169
  177
  185
  194
  202
  212
  222
  232
  243
  254
  266
  279
  292
  306
  320
  335
  351
Discount rate, %
 
  8.10
  8.51
  8.93
  9.38
  9.85
  10.34
  10.85
  11.40
  11.97
  12.57
  13.19
  13.85
  14.55
  15.27
  16.04
  16.84
  17.68
  18.57
  19.49
  20.47
  21.49
  22.57
  23.69
  24.88
  26.12
  27.43
  28.80
  30.24
  31.75
  33.34
PV of cash for distribution, $m
 
  175
  86
  81
  77
  72
  66
  61
  55
  49
  43
  38
  33
  28
  23
  19
  15
  12
  9
  7
  5
  4
  3
  2
  1
  1
  1
  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

Armstrong World Industries, Inc. (AWI) is a global producer of ceiling systems. The Company owns and operates the Building Products (Ceilings) segment. The Company designs, manufactures and sells ceiling systems (primarily mineral fiber, fiberglass wool and metal) around the world. Its products are used in commercial and institutional buildings. Its geographical segments include Americas (including Canada); Europe, Middle East and Africa (including Russia) (EMEA), and Pacific Rim. As of December 31, 2016, it had 15 manufacturing plants in eight countries, including six plants located throughout the United States. Its Americas segment sells products for use in single and multi-family housing. It sells commercial products to building materials distributors re-selling its products to contractors, subcontractors' alliances, architect and design firms, and facility owners. Residential ceiling products are sold in the Americas primarily to wholesalers and retailers.

FINANCIAL RATIOS  of  Armstrong World Industries (AWI)

Valuation Ratios
P/E Ratio 31.9
Price to Sales 2.7
Price to Book 12.6
Price to Tangible Book
Price to Cash Flow 68.3
Price to Free Cash Flow -60.8
Growth Rates
Sales Growth Rate 0.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -39.2%
Cap. Spend. - 3 Yr. Gr. Rate -13.4%
Financial Strength
Quick Ratio 6
Current Ratio 0
LT Debt to Equity 319.2%
Total Debt to Equity 328.6%
Interest Coverage 5
Management Effectiveness
Return On Assets 5.7%
Ret/ On Assets - 3 Yr. Avg. 4.3%
Return On Total Capital 7.2%
Ret/ On T. Cap. - 3 Yr. Avg. 5.5%
Return On Equity 20.3%
Return On Equity - 3 Yr. Avg. 14.4%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 30%
Gross Margin - 3 Yr. Avg. 30.1%
EBITDA Margin 21.5%
EBITDA Margin - 3 Yr. Avg. 21.8%
Operating Margin 15%
Oper. Margin - 3 Yr. Avg. 13.9%
Pre-Tax Margin 11.7%
Pre-Tax Margin - 3 Yr. Avg. 9.9%
Net Profit Margin 8.5%
Net Profit Margin - 3 Yr. Avg. 7%
Effective Tax Rate 34.7%
Eff/ Tax Rate - 3 Yr. Avg. 49.2%
Payout Ratio 0%

AWI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AWI stock intrinsic value calculation we used $1235 million for the last fiscal year's total revenue generated by Armstrong World Industries. The default revenue input number comes from 2016 income statement of Armstrong World Industries. 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 AWI stock valuation model: a) initial revenue growth rate of 5.1% 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 8.1%, whose default value for AWI is calculated based on our internal credit rating of Armstrong World Industries, 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 Armstrong World Industries.
    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 AWI stock the variable cost ratio is equal to 88.7%.

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 AWI 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 Armstrong World Industries.

Corporate tax rate of 27% is the nominal tax rate for Armstrong World Industries. 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 AWI 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 AWI are equal to 88.9%.

Life of production assets of 12.3 years is the average useful life of capital assets used in Armstrong World Industries 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 AWI is equal to 5.3%. 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 - $266 million for Armstrong World Industries - 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 52.519 million for Armstrong World Industries 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 Armstrong World Industries at the current share price and the inputted number of shares is $3.2 billion.

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Financial statements of AWI
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