Intrinsic value of Armstrong World Industries Inc - AWI

Previous Close

$98.71

  Intrinsic Value

$71.17

stock screener

  Rating & Target

sell

-28%

Previous close

$98.71

 
Intrinsic value

$71.17

 
Up/down potential

-28%

 
Rating

sell

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.

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 4.8

 

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, %
  11.50
  10.85
  10.27
  9.74
  9.26
  8.84
  8.45
  8.11
  7.80
  7.52
  7.27
  7.04
  6.84
  6.65
  6.49
  6.34
  6.20
  6.08
  5.98
  5.88
  5.79
  5.71
  5.64
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
Revenue, $m
  1,087
  1,205
  1,329
  1,458
  1,593
  1,734
  1,881
  2,033
  2,192
  2,357
  2,528
  2,706
  2,891
  3,083
  3,283
  3,491
  3,708
  3,933
  4,168
  4,413
  4,669
  4,935
  5,214
  5,505
  5,808
  6,126
  6,458
  6,805
  7,169
  7,549
Variable operating expenses, $m
  867
  956
  1,050
  1,148
  1,250
  1,356
  1,467
  1,583
  1,703
  1,827
  1,913
  2,047
  2,187
  2,333
  2,484
  2,642
  2,805
  2,976
  3,154
  3,339
  3,533
  3,734
  3,945
  4,165
  4,395
  4,635
  4,886
  5,149
  5,424
  5,712
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
  867
  956
  1,050
  1,148
  1,250
  1,356
  1,467
  1,583
  1,703
  1,827
  1,913
  2,047
  2,187
  2,333
  2,484
  2,642
  2,805
  2,976
  3,154
  3,339
  3,533
  3,734
  3,945
  4,165
  4,395
  4,635
  4,886
  5,149
  5,424
  5,712
Operating income, $m
  220
  249
  279
  311
  343
  378
  413
  451
  489
  529
  615
  658
  703
  750
  799
  849
  902
  957
  1,014
  1,074
  1,136
  1,201
  1,269
  1,339
  1,413
  1,491
  1,571
  1,656
  1,744
  1,837
EBITDA, $m
  332
  368
  406
  446
  487
  530
  575
  621
  670
  720
  772
  827
  883
  942
  1,003
  1,067
  1,133
  1,202
  1,273
  1,348
  1,426
  1,508
  1,593
  1,682
  1,775
  1,872
  1,973
  2,079
  2,190
  2,306
Interest expense (income), $m
  33
  44
  54
  65
  76
  88
  100
  112
  125
  139
  153
  168
  183
  199
  216
  233
  251
  269
  289
  309
  330
  352
  375
  398
  423
  449
  477
  505
  535
  566
  598
Earnings before tax, $m
  176
  195
  214
  235
  256
  278
  301
  325
  350
  376
  447
  475
  504
  535
  566
  599
  633
  668
  705
  744
  784
  826
  870
  916
  964
  1,014
  1,066
  1,121
  1,179
  1,239
Tax expense, $m
  48
  53
  58
  63
  69
  75
  81
  88
  95
  102
  121
  128
  136
  144
  153
  162
  171
  180
  190
  201
  212
  223
  235
  247
  260
  274
  288
  303
  318
  334
Net income, $m
  129
  142
  156
  171
  187
  203
  220
  237
  256
  275
  326
  347
  368
  390
  413
  437
  462
  488
  515
  543
  573
  603
  635
  669
  704
  740
  779
  819
  860
  904

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
  2,091
  2,317
  2,555
  2,804
  3,064
  3,335
  3,617
  3,910
  4,215
  4,532
  4,861
  5,203
  5,559
  5,929
  6,313
  6,714
  7,130
  7,564
  8,016
  8,487
  8,978
  9,491
  10,027
  10,586
  11,170
  11,780
  12,419
  13,087
  13,786
  14,517
Adjusted assets (=assets-cash), $m
  2,091
  2,317
  2,555
  2,804
  3,064
  3,335
  3,617
  3,910
  4,215
  4,532
  4,861
  5,203
  5,559
  5,929
  6,313
  6,714
  7,130
  7,564
  8,016
  8,487
  8,978
  9,491
  10,027
  10,586
  11,170
  11,780
  12,419
  13,087
  13,786
  14,517
Revenue / Adjusted assets
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
Average production assets, $m
  804
  892
  983
  1,079
  1,179
  1,283
  1,392
  1,505
  1,622
  1,744
  1,871
  2,002
  2,139
  2,281
  2,429
  2,583
  2,744
  2,911
  3,085
  3,266
  3,455
  3,652
  3,858
  4,073
  4,298
  4,533
  4,779
  5,036
  5,305
  5,586
Working capital, $m
  -75
  -83
  -92
  -101
  -110
  -120
  -130
  -140
  -151
  -163
  -174
  -187
  -199
  -213
  -227
  -241
  -256
  -271
  -288
  -305
  -322
  -341
  -360
  -380
  -401
  -423
  -446
  -470
  -495
  -521
Total debt, $m
  1,008
  1,203
  1,408
  1,622
  1,846
  2,079
  2,322
  2,574
  2,837
  3,109
  3,393
  3,688
  3,994
  4,312
  4,643
  4,988
  5,347
  5,720
  6,109
  6,515
  6,938
  7,379
  7,840
  8,322
  8,825
  9,350
  9,900
  10,475
  11,077
  11,707
Total liabilities, $m
  1,800
  1,995
  2,200
  2,414
  2,638
  2,871
  3,114
  3,367
  3,629
  3,902
  4,185
  4,480
  4,786
  5,105
  5,436
  5,780
  6,139
  6,513
  6,902
  7,307
  7,730
  8,172
  8,633
  9,114
  9,617
  10,143
  10,693
  11,268
  11,869
  12,499
Total equity, $m
  291
  322
  355
  390
  426
  464
  503
  543
  586
  630
  676
  723
  773
  824
  878
  933
  991
  1,051
  1,114
  1,180
  1,248
  1,319
  1,394
  1,471
  1,553
  1,637
  1,726
  1,819
  1,916
  2,018
Total liabilities and equity, $m
  2,091
  2,317
  2,555
  2,804
  3,064
  3,335
  3,617
  3,910
  4,215
  4,532
  4,861
  5,203
  5,559
  5,929
  6,314
  6,713
  7,130
  7,564
  8,016
  8,487
  8,978
  9,491
  10,027
  10,585
  11,170
  11,780
  12,419
  13,087
  13,785
  14,517
Debt-to-equity ratio
  3.470
  3.730
  3.960
  4.160
  4.330
  4.480
  4.620
  4.740
  4.840
  4.940
  5.020
  5.100
  5.170
  5.230
  5.290
  5.350
  5.390
  5.440
  5.480
  5.520
  5.560
  5.590
  5.630
  5.660
  5.680
  5.710
  5.740
  5.760
  5.780
  5.800
Adjusted equity ratio
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  129
  142
  156
  171
  187
  203
  220
  237
  256
  275
  326
  347
  368
  390
  413
  437
  462
  488
  515
  543
  573
  603
  635
  669
  704
  740
  779
  819
  860
  904
Depreciation, amort., depletion, $m
  112
  119
  127
  135
  143
  152
  161
  171
  180
  191
  157
  168
  180
  192
  204
  217
  231
  245
  259
  274
  290
  307
  324
  342
  361
  381
  402
  423
  446
  469
Funds from operations, $m
  240
  261
  283
  306
  330
  355
  381
  408
  436
  465
  484
  515
  548
  582
  617
  654
  693
  732
  774
  818
  863
  910
  959
  1,011
  1,065
  1,121
  1,180
  1,242
  1,306
  1,374
Change in working capital, $m
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
Cash from operations, $m
  248
  269
  292
  315
  339
  365
  391
  419
  447
  477
  495
  527
  561
  595
  631
  669
  707
  748
  790
  834
  880
  929
  979
  1,031
  1,086
  1,143
  1,203
  1,266
  1,331
  1,400
Maintenance CAPEX, $m
  -61
  -68
  -75
  -83
  -91
  -99
  -108
  -117
  -126
  -136
  -147
  -157
  -168
  -180
  -192
  -204
  -217
  -231
  -245
  -259
  -274
  -290
  -307
  -324
  -342
  -361
  -381
  -402
  -423
  -446
New CAPEX, $m
  -83
  -87
  -92
  -96
  -100
  -104
  -108
  -113
  -117
  -122
  -127
  -132
  -137
  -142
  -148
  -154
  -160
  -167
  -174
  -181
  -189
  -197
  -206
  -215
  -225
  -235
  -246
  -257
  -269
  -281
Cash from investing activities, $m
  -144
  -155
  -167
  -179
  -191
  -203
  -216
  -230
  -243
  -258
  -274
  -289
  -305
  -322
  -340
  -358
  -377
  -398
  -419
  -440
  -463
  -487
  -513
  -539
  -567
  -596
  -627
  -659
  -692
  -727
Free cash flow, $m
  104
  114
  125
  137
  149
  161
  175
  189
  203
  218
  222
  239
  256
  273
  291
  310
  330
  351
  372
  394
  417
  441
  466
  492
  519
  547
  576
  607
  639
  673
Issuance/(repayment) of debt, $m
  188
  195
  205
  214
  224
  233
  243
  253
  263
  273
  284
  295
  306
  318
  331
  345
  359
  373
  389
  406
  423
  442
  461
  481
  503
  526
  550
  575
  602
  630
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  
  188
  195
  205
  214
  224
  233
  243
  253
  263
  273
  284
  295
  306
  318
  331
  345
  359
  373
  389
  406
  423
  442
  461
  481
  503
  526
  550
  575
  602
  630
Total cash flow (excl. dividends), $m
  292
  310
  330
  351
  372
  395
  418
  441
  466
  491
  506
  533
  562
  592
  623
  655
  689
  724
  761
  800
  840
  882
  927
  973
  1,022
  1,073
  1,126
  1,182
  1,241
  1,303
Retained Cash Flow (-), $m
  -29
  -32
  -33
  -35
  -36
  -38
  -39
  -41
  -42
  -44
  -46
  -48
  -49
  -51
  -53
  -56
  -58
  -60
  -63
  -65
  -68
  -71
  -74
  -78
  -81
  -85
  -89
  -93
  -97
  -102
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
  263
  278
  297
  316
  336
  357
  378
  400
  423
  447
  460
  486
  512
  540
  569
  599
  631
  664
  698
  734
  772
  811
  852
  895
  941
  988
  1,037
  1,089
  1,144
  1,201
Discount rate, %
  5.90
  6.20
  6.50
  6.83
  7.17
  7.53
  7.91
  8.30
  8.72
  9.15
  9.61
  10.09
  10.60
  11.13
  11.68
  12.27
  12.88
  13.52
  14.20
  14.91
  15.65
  16.44
  17.26
  18.12
  19.03
  19.98
  20.98
  22.03
  23.13
  24.29
PV of cash for distribution, $m
  248
  247
  246
  243
  238
  231
  222
  212
  200
  186
  168
  153
  138
  123
  109
  94
  80
  68
  56
  46
  36
  29
  22
  16
  12
  9
  6
  4
  3
  2
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

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 Inc (AWI)

Valuation Ratios
P/E Ratio 51.2
Price to Sales 4.4
Price to Book 20.2
Price to Tangible Book
Price to Cash Flow 109.6
Price to Free Cash Flow -97.7
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 $975 million for the last fiscal year's total revenue generated by Armstrong World Industries Inc. The default revenue input number comes from 0001 income statement of Armstrong World Industries 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 AWI stock valuation model: a) initial revenue growth rate of 11.5% 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 5.9%, whose default value for AWI is calculated based on our internal credit rating of Armstrong World Industries 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 Armstrong World Industries 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 AWI stock the variable cost ratio is equal to 80.2%.

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 5.4% for Armstrong World Industries Inc.

Corporate tax rate of 27% is the nominal tax rate for Armstrong World Industries 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 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 74%.

Life of production assets of 11.9 years is the average useful life of capital assets used in Armstrong World Industries 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 AWI is equal to -6.9%. 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 - $261.2 million for Armstrong World Industries 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 48.450 million for Armstrong World Industries 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 Armstrong World Industries Inc at the current share price and the inputted number of shares is $4.8 billion.

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