Intrinsic value of Armstrong World Industries - AWI

Previous Close

$69.70

  Intrinsic Value

$25.51

stock screener

  Rating & Target

str. sell

-63%

Previous close

$69.70

 
Intrinsic value

$25.51

 
Up/down potential

-63%

 
Rating

str. 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 3.6

 

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, %
  10.20
  9.68
  9.21
  8.79
  8.41
  8.07
  7.76
  7.49
  7.24
  7.01
  6.81
  6.63
  6.47
  6.32
  6.19
  6.07
  5.96
  5.87
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
  5.37
  5.34
  5.30
  5.27
  5.24
Revenue, $m
  985
  1,080
  1,180
  1,283
  1,391
  1,503
  1,620
  1,742
  1,868
  1,999
  2,135
  2,276
  2,424
  2,577
  2,736
  2,902
  3,075
  3,256
  3,444
  3,640
  3,846
  4,060
  4,283
  4,517
  4,762
  5,018
  5,286
  5,566
  5,859
  6,167
Variable operating expenses, $m
  843
  921
  1,001
  1,086
  1,173
  1,264
  1,359
  1,458
  1,560
  1,666
  1,733
  1,848
  1,967
  2,091
  2,221
  2,356
  2,496
  2,643
  2,795
  2,955
  3,121
  3,295
  3,477
  3,666
  3,865
  4,073
  4,290
  4,517
  4,756
  5,005
Fixed operating expenses, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
Total operating expenses, $m
  842
  920
  1,000
  1,085
  1,172
  1,263
  1,358
  1,457
  1,559
  1,665
  1,732
  1,847
  1,966
  2,090
  2,220
  2,355
  2,495
  2,642
  2,793
  2,953
  3,119
  3,293
  3,475
  3,664
  3,863
  4,071
  4,288
  4,515
  4,754
  5,003
Operating income, $m
  142
  160
  179
  199
  219
  240
  262
  285
  309
  334
  403
  430
  458
  487
  517
  548
  581
  615
  650
  687
  726
  766
  808
  853
  899
  947
  997
  1,050
  1,106
  1,163
EBITDA, $m
  261
  287
  313
  340
  369
  399
  430
  462
  495
  530
  566
  603
  642
  683
  725
  769
  815
  862
  912
  964
  1,018
  1,075
  1,134
  1,196
  1,261
  1,328
  1,399
  1,473
  1,551
  1,632
Interest expense (income), $m
  33
  46
  54
  62
  71
  80
  90
  99
  110
  120
  131
  143
  155
  167
  180
  194
  208
  222
  238
  253
  270
  287
  305
  324
  344
  364
  386
  408
  432
  456
  482
Earnings before tax, $m
  96
  106
  117
  128
  139
  151
  163
  175
  189
  202
  260
  275
  290
  306
  323
  340
  358
  377
  397
  417
  439
  461
  484
  509
  534
  561
  589
  619
  649
  681
Tax expense, $m
  26
  29
  32
  34
  38
  41
  44
  47
  51
  55
  70
  74
  78
  83
  87
  92
  97
  102
  107
  113
  118
  124
  131
  137
  144
  152
  159
  167
  175
  184
Net income, $m
  70
  78
  85
  93
  101
  110
  119
  128
  138
  148
  190
  201
  212
  224
  236
  248
  262
  275
  290
  305
  320
  337
  354
  372
  390
  410
  430
  452
  474
  497

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
  2,064
  2,264
  2,473
  2,690
  2,917
  3,152
  3,397
  3,651
  3,915
  4,190
  4,475
  4,772
  5,081
  5,402
  5,736
  6,085
  6,447
  6,826
  7,220
  7,632
  8,062
  8,511
  8,980
  9,470
  9,983
  10,520
  11,081
  11,669
  12,284
  12,928
Adjusted assets (=assets-cash), $m
  2,064
  2,264
  2,473
  2,690
  2,917
  3,152
  3,397
  3,651
  3,915
  4,190
  4,475
  4,772
  5,081
  5,402
  5,736
  6,085
  6,447
  6,826
  7,220
  7,632
  8,062
  8,511
  8,980
  9,470
  9,983
  10,520
  11,081
  11,669
  12,284
  12,928
Revenue / Adjusted assets
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
Average production assets, $m
  771
  846
  924
  1,005
  1,089
  1,177
  1,269
  1,364
  1,462
  1,565
  1,671
  1,782
  1,898
  2,018
  2,142
  2,273
  2,408
  2,549
  2,697
  2,851
  3,011
  3,179
  3,354
  3,537
  3,729
  3,929
  4,139
  4,358
  4,588
  4,828
Working capital, $m
  278
  305
  333
  362
  392
  424
  457
  491
  527
  564
  602
  642
  683
  727
  772
  818
  867
  918
  971
  1,027
  1,084
  1,145
  1,208
  1,274
  1,343
  1,415
  1,491
  1,570
  1,652
  1,739
Total debt, $m
  998
  1,153
  1,315
  1,484
  1,659
  1,842
  2,032
  2,229
  2,434
  2,647
  2,869
  3,099
  3,339
  3,588
  3,847
  4,118
  4,399
  4,693
  4,999
  5,318
  5,652
  6,000
  6,364
  6,745
  7,143
  7,559
  7,995
  8,451
  8,928
  9,428
Total liabilities, $m
  1,602
  1,757
  1,919
  2,088
  2,263
  2,446
  2,636
  2,833
  3,038
  3,251
  3,473
  3,703
  3,943
  4,192
  4,451
  4,722
  5,003
  5,297
  5,603
  5,922
  6,256
  6,604
  6,968
  7,349
  7,747
  8,163
  8,599
  9,055
  9,532
  10,032
Total equity, $m
  462
  507
  554
  603
  653
  706
  761
  818
  877
  939
  1,002
  1,069
  1,138
  1,210
  1,285
  1,363
  1,444
  1,529
  1,617
  1,710
  1,806
  1,906
  2,012
  2,121
  2,236
  2,356
  2,482
  2,614
  2,752
  2,896
Total liabilities and equity, $m
  2,064
  2,264
  2,473
  2,691
  2,916
  3,152
  3,397
  3,651
  3,915
  4,190
  4,475
  4,772
  5,081
  5,402
  5,736
  6,085
  6,447
  6,826
  7,220
  7,632
  8,062
  8,510
  8,980
  9,470
  9,983
  10,519
  11,081
  11,669
  12,284
  12,928
Debt-to-equity ratio
  2.160
  2.270
  2.370
  2.460
  2.540
  2.610
  2.670
  2.730
  2.780
  2.820
  2.860
  2.900
  2.930
  2.970
  2.990
  3.020
  3.050
  3.070
  3.090
  3.110
  3.130
  3.150
  3.160
  3.180
  3.190
  3.210
  3.220
  3.230
  3.240
  3.260
Adjusted equity ratio
  0.224
  0.224
  0.224
  0.224
  0.224
  0.224
  0.224
  0.224
  0.224
  0.224
  0.224
  0.224
  0.224
  0.224
  0.224
  0.224
  0.224
  0.224
  0.224
  0.224
  0.224
  0.224
  0.224
  0.224
  0.224
  0.224
  0.224
  0.224
  0.224
  0.224

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  70
  78
  85
  93
  101
  110
  119
  128
  138
  148
  190
  201
  212
  224
  236
  248
  262
  275
  290
  305
  320
  337
  354
  372
  390
  410
  430
  452
  474
  497
Depreciation, amort., depletion, $m
  119
  126
  134
  142
  150
  158
  167
  176
  186
  196
  162
  173
  184
  196
  208
  221
  234
  248
  262
  277
  292
  309
  326
  343
  362
  381
  402
  423
  445
  469
Funds from operations, $m
  189
  204
  219
  235
  251
  268
  286
  305
  324
  344
  352
  374
  396
  420
  444
  469
  495
  523
  552
  581
  613
  645
  679
  715
  752
  791
  832
  875
  919
  966
Change in working capital, $m
  26
  27
  28
  29
  30
  32
  33
  34
  36
  37
  38
  40
  42
  43
  45
  47
  49
  51
  53
  55
  58
  60
  63
  66
  69
  72
  76
  79
  83
  87
Cash from operations, $m
  164
  177
  191
  206
  221
  237
  253
  270
  288
  307
  314
  334
  355
  376
  399
  422
  447
  472
  498
  526
  555
  585
  616
  649
  683
  719
  756
  796
  837
  880
Maintenance CAPEX, $m
  -68
  -75
  -82
  -90
  -98
  -106
  -114
  -123
  -132
  -142
  -152
  -162
  -173
  -184
  -196
  -208
  -221
  -234
  -248
  -262
  -277
  -292
  -309
  -326
  -343
  -362
  -381
  -402
  -423
  -445
New CAPEX, $m
  -71
  -75
  -78
  -81
  -85
  -88
  -91
  -95
  -99
  -103
  -107
  -111
  -115
  -120
  -125
  -130
  -136
  -141
  -147
  -154
  -161
  -168
  -175
  -183
  -192
  -200
  -210
  -219
  -230
  -241
Cash from investing activities, $m
  -139
  -150
  -160
  -171
  -183
  -194
  -205
  -218
  -231
  -245
  -259
  -273
  -288
  -304
  -321
  -338
  -357
  -375
  -395
  -416
  -438
  -460
  -484
  -509
  -535
  -562
  -591
  -621
  -653
  -686
Free cash flow, $m
  24
  28
  31
  35
  39
  43
  48
  52
  57
  62
  55
  61
  66
  72
  78
  84
  90
  97
  104
  110
  117
  125
  132
  140
  148
  157
  165
  174
  184
  193
Issuance/(repayment) of debt, $m
  148
  155
  162
  169
  176
  183
  190
  197
  205
  213
  222
  230
  240
  249
  259
  270
  282
  294
  306
  320
  334
  348
  364
  381
  398
  416
  436
  456
  477
  500
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  
  148
  155
  162
  169
  176
  183
  190
  197
  205
  213
  222
  230
  240
  249
  259
  270
  282
  294
  306
  320
  334
  348
  364
  381
  398
  416
  436
  456
  477
  500
Total cash flow (excl. dividends), $m
  172
  183
  193
  203
  214
  226
  237
  250
  262
  275
  277
  291
  306
  321
  338
  354
  372
  390
  410
  430
  451
  473
  496
  521
  546
  573
  601
  630
  661
  693
Retained Cash Flow (-), $m
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -59
  -62
  -64
  -66
  -69
  -72
  -75
  -78
  -81
  -85
  -88
  -92
  -96
  -101
  -105
  -110
  -115
  -120
  -126
  -132
  -138
  -144
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
  129
  138
  146
  155
  164
  173
  183
  193
  203
  214
  213
  225
  237
  249
  263
  276
  291
  306
  321
  338
  355
  373
  391
  411
  431
  453
  475
  499
  523
  549
Discount rate, %
  7.70
  8.09
  8.49
  8.91
  9.36
  9.83
  10.32
  10.83
  11.38
  11.95
  12.54
  13.17
  13.83
  14.52
  15.25
  16.01
  16.81
  17.65
  18.53
  19.46
  20.43
  21.45
  22.52
  23.65
  24.83
  26.07
  27.38
  28.75
  30.18
  31.69
PV of cash for distribution, $m
  120
  118
  114
  110
  105
  99
  92
  85
  77
  69
  58
  51
  44
  37
  31
  26
  21
  16
  13
  10
  7
  5
  4
  3
  2
  1
  1
  0
  0
  0
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 (AWI)

Valuation Ratios
P/E Ratio 36.1
Price to Sales 3.1
Price to Book 14.3
Price to Tangible Book
Price to Cash Flow 77.4
Price to Free Cash Flow -69
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 $893.6 million for the last fiscal year's total revenue generated by Armstrong World Industries. The default revenue input number comes from 0001 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 10.2% 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 7.7%, 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 86.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $-1 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.

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 78.3%.

Life of production assets of 10.3 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 28.2%. 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 - $419.3 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 51.664 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 $3.6 billion.

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COMPANY NEWS

▶ Armstrong World Industries: 2Q Earnings Snapshot   [08:44AM  Associated Press]
▶ EU mergers and takeovers (July 9)   [Jul-09-18 03:48PM  Reuters]
▶ Armstrong World Industries Acquires Plasterform, Inc.   [May-31-18 06:53PM  GlobeNewswire]
▶ Armstrong World Industries, Inc. to Host Earnings Call   [Apr-30-18 09:00AM  ACCESSWIRE]
▶ Armstrong World Industries: 1Q Earnings Snapshot   [06:43AM  Associated Press]
▶ 5 Stocks to Buy as Housing Data Remains Bullish   [Apr-25-18 08:25AM  Zacks]
▶ Armstrong World Industries, Inc. to Host Earnings Call   [Feb-26-18 08:15AM  ACCESSWIRE]
▶ Armstrong World Industries posts 4Q profit   [07:35AM  Associated Press]
▶ First Eagle Fund of America 4th Quarter Commentary   [Jan-29-18 05:39PM  GuruFocus.com]
▶ What Happened in the Stock Market Today   [Nov-20-17 05:04PM  Motley Fool]
▶ Armstrong World Industries posts 3Q profit   [Oct-30-17 07:32AM  Associated Press]

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