Intrinsic value of Barrett Business Services, Inc. - BBSI

Previous Close

$82.00

  Intrinsic Value

$70.46

stock screener

  Rating & Target

hold

-14%

Previous close

$82.00

 
Intrinsic value

$70.46

 
Up/down potential

-14%

 
Rating

hold

We calculate the intrinsic value of BBSI 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 0.6

 

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, %
  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
  960
  982
  1,007
  1,035
  1,067
  1,101
  1,139
  1,179
  1,223
  1,270
  1,320
  1,374
  1,431
  1,492
  1,556
  1,624
  1,696
  1,773
  1,853
  1,938
  2,028
  2,123
  2,223
  2,328
  2,439
  2,556
  2,678
  2,808
  2,944
  3,087
Variable operating expenses, $m
  617
  631
  647
  666
  686
  708
  732
  758
  786
  816
  845
  880
  916
  955
  996
  1,040
  1,086
  1,135
  1,187
  1,241
  1,299
  1,359
  1,423
  1,491
  1,562
  1,636
  1,715
  1,798
  1,885
  1,977
Fixed operating expenses, $m
  312
  319
  326
  333
  340
  348
  355
  363
  371
  379
  387
  396
  405
  414
  423
  432
  442
  451
  461
  471
  482
  492
  503
  514
  525
  537
  549
  561
  573
  586
Total operating expenses, $m
  929
  950
  973
  999
  1,026
  1,056
  1,087
  1,121
  1,157
  1,195
  1,232
  1,276
  1,321
  1,369
  1,419
  1,472
  1,528
  1,586
  1,648
  1,712
  1,781
  1,851
  1,926
  2,005
  2,087
  2,173
  2,264
  2,359
  2,458
  2,563
Operating income, $m
  31
  32
  34
  37
  41
  46
  52
  59
  66
  75
  87
  98
  110
  123
  137
  152
  169
  186
  205
  226
  248
  271
  296
  323
  352
  382
  414
  449
  485
  524
EBITDA, $m
  36
  38
  40
  43
  47
  52
  58
  65
  73
  81
  91
  102
  114
  127
  142
  157
  174
  192
  211
  232
  254
  278
  303
  330
  359
  390
  423
  457
  494
  534
Interest expense (income), $m
  0
  1
  -25
  -22
  -19
  -15
  -10
  -6
  -1
  5
  11
  17
  24
  31
  39
  47
  56
  65
  75
  86
  97
  108
  120
  133
  147
  161
  176
  192
  209
  226
  245
Earnings before tax, $m
  30
  57
  56
  56
  56
  57
  58
  59
  62
  64
  70
  74
  79
  84
  90
  96
  103
  111
  120
  129
  140
  151
  163
  176
  191
  206
  222
  240
  259
  279
Tax expense, $m
  8
  15
  15
  15
  15
  15
  16
  16
  17
  17
  19
  20
  21
  23
  24
  26
  28
  30
  32
  35
  38
  41
  44
  48
  51
  56
  60
  65
  70
  75
Net income, $m
  22
  42
  41
  41
  41
  41
  42
  43
  45
  47
  51
  54
  57
  61
  65
  70
  75
  81
  87
  94
  102
  110
  119
  129
  139
  150
  162
  175
  189
  204

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
  590
  604
  619
  636
  656
  677
  700
  725
  752
  781
  811
  844
  879
  917
  956
  998
  1,043
  1,089
  1,139
  1,191
  1,247
  1,305
  1,366
  1,431
  1,499
  1,571
  1,646
  1,726
  1,809
  1,897
Adjusted assets (=assets-cash), $m
  590
  604
  619
  636
  656
  677
  700
  725
  752
  781
  811
  844
  879
  917
  956
  998
  1,043
  1,089
  1,139
  1,191
  1,247
  1,305
  1,366
  1,431
  1,499
  1,571
  1,646
  1,726
  1,809
  1,897
Revenue / Adjusted assets
  1.627
  1.626
  1.627
  1.627
  1.627
  1.626
  1.627
  1.626
  1.626
  1.626
  1.628
  1.628
  1.628
  1.627
  1.628
  1.627
  1.626
  1.628
  1.627
  1.627
  1.626
  1.627
  1.627
  1.627
  1.627
  1.627
  1.627
  1.627
  1.627
  1.627
Average production assets, $m
  50
  51
  52
  54
  55
  57
  59
  61
  64
  66
  69
  71
  74
  78
  81
  84
  88
  92
  96
  101
  105
  110
  116
  121
  127
  133
  139
  146
  153
  161
Working capital, $m
  -519
  -531
  -545
  -560
  -577
  -596
  -616
  -638
  -662
  -687
  -714
  -743
  -774
  -807
  -842
  -879
  -918
  -959
  -1,003
  -1,049
  -1,097
  -1,149
  -1,203
  -1,260
  -1,319
  -1,383
  -1,449
  -1,519
  -1,593
  -1,670
Total debt, $m
  -102
  -90
  -76
  -60
  -43
  -23
  -3
  20
  44
  70
  98
  127
  159
  192
  228
  266
  306
  348
  392
  440
  489
  542
  597
  655
  716
  781
  849
  920
  996
  1,075
Total liabilities, $m
  531
  543
  557
  573
  590
  609
  630
  652
  677
  703
  730
  760
  792
  825
  861
  898
  938
  981
  1,025
  1,072
  1,122
  1,174
  1,230
  1,288
  1,349
  1,414
  1,482
  1,553
  1,628
  1,707
Total equity, $m
  59
  60
  62
  64
  66
  68
  70
  72
  75
  78
  81
  84
  88
  92
  96
  100
  104
  109
  114
  119
  125
  130
  137
  143
  150
  157
  165
  173
  181
  190
Total liabilities and equity, $m
  590
  603
  619
  637
  656
  677
  700
  724
  752
  781
  811
  844
  880
  917
  957
  998
  1,042
  1,090
  1,139
  1,191
  1,247
  1,304
  1,367
  1,431
  1,499
  1,571
  1,647
  1,726
  1,809
  1,897
Debt-to-equity ratio
  -1.720
  -1.480
  -1.220
  -0.940
  -0.650
  -0.350
  -0.040
  0.270
  0.580
  0.900
  1.200
  1.510
  1.810
  2.100
  2.380
  2.660
  2.930
  3.190
  3.450
  3.690
  3.930
  4.150
  4.370
  4.580
  4.780
  4.970
  5.160
  5.330
  5.500
  5.670
Adjusted equity ratio
  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
  22
  42
  41
  41
  41
  41
  42
  43
  45
  47
  51
  54
  57
  61
  65
  70
  75
  81
  87
  94
  102
  110
  119
  129
  139
  150
  162
  175
  189
  204
Depreciation, amort., depletion, $m
  5
  5
  6
  6
  6
  6
  6
  6
  6
  6
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
Funds from operations, $m
  27
  47
  47
  46
  47
  47
  48
  49
  51
  53
  55
  58
  62
  66
  70
  75
  80
  86
  93
  100
  108
  117
  126
  136
  146
  158
  170
  184
  198
  213
Change in working capital, $m
  -10
  -12
  -14
  -15
  -17
  -19
  -20
  -22
  -24
  -25
  -27
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -44
  -46
  -49
  -51
  -54
  -57
  -60
  -63
  -66
  -70
  -74
  -77
Cash from operations, $m
  37
  59
  60
  62
  63
  66
  68
  71
  75
  79
  82
  87
  93
  98
  105
  112
  119
  128
  137
  146
  157
  168
  180
  193
  206
  221
  237
  254
  272
  291
Maintenance CAPEX, $m
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
New CAPEX, $m
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
Cash from investing activities, $m
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -9
  -9
  -9
  -9
  -10
  -11
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -15
  -16
Free cash flow, $m
  33
  55
  56
  57
  59
  61
  63
  66
  69
  73
  76
  80
  85
  91
  97
  104
  111
  119
  127
  136
  146
  157
  168
  180
  194
  208
  223
  239
  256
  274
Issuance/(repayment) of debt, $m
  -106
  12
  14
  16
  17
  19
  21
  22
  24
  26
  28
  30
  32
  34
  36
  38
  40
  42
  45
  47
  50
  52
  55
  58
  61
  65
  68
  71
  75
  79
Issuance/(repurchase) of shares, $m
  96
  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  
  -10
  12
  14
  16
  17
  19
  21
  22
  24
  26
  28
  30
  32
  34
  36
  38
  40
  42
  45
  47
  50
  52
  55
  58
  61
  65
  68
  71
  75
  79
Total cash flow (excl. dividends), $m
  23
  67
  70
  73
  76
  80
  84
  88
  93
  99
  104
  110
  117
  125
  133
  141
  151
  161
  172
  183
  196
  209
  223
  239
  255
  272
  291
  310
  331
  353
Retained Cash Flow (-), $m
  -118
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
Prev. year cash balance distribution, $m
  178
  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
  83
  66
  68
  71
  74
  78
  81
  86
  90
  96
  101
  107
  114
  121
  129
  137
  146
  156
  167
  178
  190
  203
  217
  232
  248
  265
  283
  302
  323
  345
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
  80
  60
  59
  59
  57
  56
  55
  54
  52
  50
  48
  46
  43
  41
  38
  35
  32
  29
  26
  23
  20
  17
  14
  12
  10
  8
  6
  5
  4
  3
Current shareholders' claim on cash, %
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
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Barrett Business Services, Inc. (BBSI) is a provider of business management solutions for small and mid-sized companies. The Company has developed a management platform that integrates a knowledge-based approach from the management consulting industry with tools from the human resource outsourcing industry. BBSI's purpose is to advocate for business owners, particularly in the small and mid-sized business segment. The Company offers two categories of services: Professional Employer Services (PEO) and Staffing. Its staffing services include on-demand or short-term staffing assignments, contract staffing, direct placement, and long-term or indefinite-term on-site management. As of December 31, 2016, the Company operated in 20 states and the District of Columbia through a network of 57 branch locations in California, Oregon, Utah, Washington, Idaho, Arizona, Colorado, Maryland, North Carolina, Delaware, Nevada, Pennsylvania and Virginia.

FINANCIAL RATIOS  of  Barrett Business Services, Inc. (BBSI)

Valuation Ratios
P/E Ratio 31.2
Price to Sales 0.7
Price to Book 8.5
Price to Tangible Book
Price to Cash Flow 7.4
Price to Free Cash Flow 8.1
Growth Rates
Sales Growth Rate 13.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 133.3%
Cap. Spend. - 3 Yr. Gr. Rate 11.8%
Financial Strength
Quick Ratio NaN
Current Ratio 0.2
LT Debt to Equity 7.1%
Total Debt to Equity 7.1%
Interest Coverage 0
Management Effectiveness
Return On Assets 3.5%
Ret/ On Assets - 3 Yr. Avg. 0.7%
Return On Total Capital 25.3%
Ret/ On T. Cap. - 3 Yr. Avg. 8.2%
Return On Equity 30.4%
Return On Equity - 3 Yr. Avg. 12.7%
Asset Turnover 1.6
Profitability Ratios
Gross Margin 17.4%
Gross Margin - 3 Yr. Avg. 13.3%
EBITDA Margin 3.4%
EBITDA Margin - 3 Yr. Avg. 0.8%
Operating Margin 3.1%
Oper. Margin - 3 Yr. Avg. 0.4%
Pre-Tax Margin 3.1%
Pre-Tax Margin - 3 Yr. Avg. 0.4%
Net Profit Margin 2.3%
Net Profit Margin - 3 Yr. Avg. 0.5%
Effective Tax Rate 26.9%
Eff/ Tax Rate - 3 Yr. Avg. 31.7%
Payout Ratio 31.6%

BBSI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BBSI stock intrinsic value calculation we used $941 million for the last fiscal year's total revenue generated by Barrett Business Services, Inc.. The default revenue input number comes from 0001 income statement of Barrett Business Services, 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 BBSI 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 BBSI is calculated based on our internal credit rating of Barrett Business Services, 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 Barrett Business Services, 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 BBSI stock the variable cost ratio is equal to 64.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $305 million in the base year in the intrinsic value calculation for BBSI 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 24.6% for Barrett Business Services, Inc..

Corporate tax rate of 27% is the nominal tax rate for Barrett Business Services, 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 BBSI 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 BBSI are equal to 5.2%.

Life of production assets of 17.2 years is the average useful life of capital assets used in Barrett Business Services, 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 BBSI is equal to -54.1%. 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 - $119.037 million for Barrett Business Services, 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 7.408 million for Barrett Business Services, 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 Barrett Business Services, Inc. at the current share price and the inputted number of shares is $0.6 billion.

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