Intrinsic value of Cars.com Inc. - CARS

Previous Close

$21.16

  Intrinsic Value

$37.96

stock screener

  Rating & Target

str. buy

+79%

Previous close

$21.16

 
Intrinsic value

$37.96

 
Up/down potential

+79%

 
Rating

str. buy

We calculate the intrinsic value of CARS 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 1.4

 

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, %
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
Revenue, $m
  695
  730
  766
  805
  845
  887
  932
  978
  1,027
  1,078
  1,132
  1,189
  1,248
  1,311
  1,376
  1,445
  1,517
  1,593
  1,673
  1,756
  1,844
  1,937
  2,033
  2,135
  2,242
  2,354
  2,472
  2,595
  2,725
  2,861
Variable operating expenses, $m
  534
  548
  564
  580
  597
  615
  634
  653
  674
  696
  479
  503
  528
  555
  582
  612
  642
  674
  708
  743
  781
  820
  861
  904
  949
  996
  1,046
  1,098
  1,153
  1,211
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
  534
  548
  564
  580
  597
  615
  634
  653
  674
  696
  479
  503
  528
  555
  582
  612
  642
  674
  708
  743
  781
  820
  861
  904
  949
  996
  1,046
  1,098
  1,153
  1,211
Operating income, $m
  161
  181
  203
  225
  248
  272
  298
  325
  353
  382
  653
  686
  720
  756
  794
  833
  875
  919
  965
  1,013
  1,064
  1,117
  1,173
  1,231
  1,293
  1,358
  1,426
  1,497
  1,572
  1,650
EBITDA, $m
  456
  479
  503
  528
  555
  582
  612
  642
  674
  708
  743
  780
  819
  860
  903
  949
  996
  1,046
  1,098
  1,153
  1,211
  1,271
  1,335
  1,402
  1,472
  1,545
  1,623
  1,704
  1,789
  1,878
Interest expense (income), $m
  0
  37
  40
  43
  45
  49
  52
  55
  59
  62
  66
  70
  74
  79
  84
  89
  94
  99
  105
  111
  117
  124
  131
  138
  146
  154
  162
  171
  181
  190
  201
Earnings before tax, $m
  124
  142
  160
  179
  199
  220
  243
  266
  291
  316
  583
  611
  641
  672
  705
  740
  776
  814
  854
  896
  940
  986
  1,035
  1,086
  1,139
  1,195
  1,254
  1,316
  1,381
  1,450
Tax expense, $m
  33
  38
  43
  48
  54
  60
  66
  72
  78
  85
  157
  165
  173
  182
  190
  200
  209
  220
  231
  242
  254
  266
  279
  293
  308
  323
  339
  355
  373
  391
Net income, $m
  91
  103
  117
  131
  145
  161
  177
  194
  212
  231
  425
  446
  468
  491
  515
  540
  566
  594
  623
  654
  686
  720
  755
  792
  832
  873
  916
  961
  1,008
  1,058

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
  2,726
  2,862
  3,005
  3,156
  3,313
  3,479
  3,653
  3,836
  4,027
  4,229
  4,440
  4,662
  4,895
  5,140
  5,397
  5,667
  5,950
  6,248
  6,560
  6,888
  7,233
  7,594
  7,974
  8,373
  8,791
  9,231
  9,692
  10,177
  10,686
  11,220
Adjusted assets (=assets-cash), $m
  2,726
  2,862
  3,005
  3,156
  3,313
  3,479
  3,653
  3,836
  4,027
  4,229
  4,440
  4,662
  4,895
  5,140
  5,397
  5,667
  5,950
  6,248
  6,560
  6,888
  7,233
  7,594
  7,974
  8,373
  8,791
  9,231
  9,692
  10,177
  10,686
  11,220
Revenue / Adjusted assets
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
Average production assets, $m
  1,280
  1,344
  1,411
  1,481
  1,555
  1,633
  1,715
  1,801
  1,891
  1,985
  2,084
  2,189
  2,298
  2,413
  2,534
  2,660
  2,793
  2,933
  3,080
  3,234
  3,395
  3,565
  3,743
  3,931
  4,127
  4,333
  4,550
  4,778
  5,017
  5,267
Working capital, $m
  47
  49
  51
  54
  57
  59
  62
  66
  69
  72
  76
  80
  84
  88
  92
  97
  102
  107
  112
  118
  124
  130
  136
  143
  150
  158
  166
  174
  183
  192
Total debt, $m
  738
  789
  843
  899
  958
  1,020
  1,085
  1,153
  1,225
  1,300
  1,379
  1,462
  1,549
  1,641
  1,737
  1,838
  1,944
  2,055
  2,172
  2,295
  2,424
  2,559
  2,701
  2,850
  3,006
  3,171
  3,343
  3,525
  3,715
  3,915
Total liabilities, $m
  1,019
  1,070
  1,124
  1,180
  1,239
  1,301
  1,366
  1,435
  1,506
  1,582
  1,661
  1,744
  1,831
  1,922
  2,019
  2,119
  2,225
  2,337
  2,454
  2,576
  2,705
  2,840
  2,982
  3,131
  3,288
  3,452
  3,625
  3,806
  3,996
  4,196
Total equity, $m
  1,706
  1,792
  1,881
  1,975
  2,074
  2,178
  2,287
  2,401
  2,521
  2,647
  2,780
  2,919
  3,064
  3,218
  3,379
  3,547
  3,725
  3,911
  4,107
  4,312
  4,528
  4,754
  4,992
  5,241
  5,503
  5,778
  6,067
  6,371
  6,689
  7,024
Total liabilities and equity, $m
  2,725
  2,862
  3,005
  3,155
  3,313
  3,479
  3,653
  3,836
  4,027
  4,229
  4,441
  4,663
  4,895
  5,140
  5,398
  5,666
  5,950
  6,248
  6,561
  6,888
  7,233
  7,594
  7,974
  8,372
  8,791
  9,230
  9,692
  10,177
  10,685
  11,220
Debt-to-equity ratio
  0.430
  0.440
  0.450
  0.450
  0.460
  0.470
  0.470
  0.480
  0.490
  0.490
  0.500
  0.500
  0.510
  0.510
  0.510
  0.520
  0.520
  0.530
  0.530
  0.530
  0.540
  0.540
  0.540
  0.540
  0.550
  0.550
  0.550
  0.550
  0.560
  0.560
Adjusted equity ratio
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  91
  103
  117
  131
  145
  161
  177
  194
  212
  231
  425
  446
  468
  491
  515
  540
  566
  594
  623
  654
  686
  720
  755
  792
  832
  873
  916
  961
  1,008
  1,058
Depreciation, amort., depletion, $m
  295
  298
  301
  304
  307
  310
  314
  317
  321
  325
  90
  95
  99
  104
  110
  115
  121
  127
  133
  140
  147
  154
  162
  170
  179
  188
  197
  207
  217
  228
Funds from operations, $m
  385
  401
  417
  434
  452
  471
  491
  512
  533
  556
  516
  541
  567
  595
  624
  655
  687
  721
  757
  794
  833
  874
  917
  963
  1,010
  1,060
  1,113
  1,168
  1,226
  1,286
Change in working capital, $m
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
Cash from operations, $m
  383
  399
  415
  432
  450
  468
  488
  509
  530
  553
  512
  537
  563
  591
  620
  651
  682
  716
  751
  788
  827
  868
  911
  956
  1,003
  1,053
  1,105
  1,159
  1,217
  1,277
Maintenance CAPEX, $m
  -53
  -55
  -58
  -61
  -64
  -67
  -71
  -74
  -78
  -82
  -86
  -90
  -95
  -99
  -104
  -110
  -115
  -121
  -127
  -133
  -140
  -147
  -154
  -162
  -170
  -179
  -188
  -197
  -207
  -217
New CAPEX, $m
  -61
  -64
  -67
  -71
  -74
  -78
  -82
  -86
  -90
  -95
  -99
  -104
  -109
  -115
  -121
  -127
  -133
  -140
  -147
  -154
  -162
  -170
  -178
  -187
  -197
  -206
  -217
  -228
  -239
  -251
Cash from investing activities, $m
  -114
  -119
  -125
  -132
  -138
  -145
  -153
  -160
  -168
  -177
  -185
  -194
  -204
  -214
  -225
  -237
  -248
  -261
  -274
  -287
  -302
  -317
  -332
  -349
  -367
  -385
  -405
  -425
  -446
  -468
Free cash flow, $m
  270
  279
  290
  300
  311
  323
  336
  349
  362
  377
  327
  343
  359
  377
  395
  414
  434
  455
  478
  501
  526
  551
  578
  607
  636
  668
  700
  735
  771
  809
Issuance/(repayment) of debt, $m
  46
  51
  54
  56
  59
  62
  65
  68
  72
  75
  79
  83
  87
  92
  96
  101
  106
  111
  117
  123
  129
  135
  142
  149
  157
  164
  173
  181
  190
  200
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  
  46
  51
  54
  56
  59
  62
  65
  68
  72
  75
  79
  83
  87
  92
  96
  101
  106
  111
  117
  123
  129
  135
  142
  149
  157
  164
  173
  181
  190
  200
Total cash flow (excl. dividends), $m
  315
  330
  343
  356
  370
  385
  401
  417
  434
  452
  406
  426
  446
  468
  491
  515
  540
  567
  595
  624
  654
  686
  720
  756
  793
  832
  873
  916
  961
  1,009
Retained Cash Flow (-), $m
  -79
  -85
  -90
  -94
  -99
  -104
  -109
  -114
  -120
  -126
  -132
  -139
  -146
  -153
  -161
  -169
  -177
  -186
  -196
  -205
  -216
  -226
  -238
  -250
  -262
  -275
  -289
  -303
  -319
  -334
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
  236
  245
  253
  262
  272
  281
  292
  303
  314
  326
  274
  287
  301
  315
  330
  346
  363
  381
  399
  418
  439
  460
  483
  506
  531
  557
  584
  613
  643
  674
Discount rate, %
  5.80
  6.09
  6.39
  6.71
  7.05
  7.40
  7.77
  8.16
  8.57
  9.00
  9.45
  9.92
  10.42
  10.94
  11.48
  12.06
  12.66
  13.29
  13.96
  14.66
  15.39
  16.16
  16.97
  17.81
  18.71
  19.64
  20.62
  21.65
  22.74
  23.87
PV of cash for distribution, $m
  223
  218
  210
  202
  193
  183
  173
  162
  150
  138
  101
  92
  83
  74
  65
  56
  48
  40
  33
  27
  22
  17
  13
  10
  7
  5
  4
  3
  2
  1
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

Cars.com Inc. owns a digital automotive marketplace business (Cars.com). Cars.com is an online research destination for car shoppers. The Company is engaged in the sale of online subscription advertising products targeting car dealerships. It offers a suite of products and services targeting the automotive needs of its buyer and seller customers. Cars.com offers a digital automotive marketplace search engine that helps car buyers to make informed purchasing decisions and helps sellers to engage with a portion of their target customer base. This online automotive marketplace service connects buyers and sellers across five Websites: Cars.com, Auto.com, DealerRater.com, NewCars.com and PickupTrucks.com. Its automotive marketplace products also include credible user and automotive and dealer reviews. It is also engaged in the sale of display advertising to national advertisers. Car buyers and car owners interface with Cars.com primarily through the Cars.com sites and mobile applications.

FINANCIAL RATIOS  of  Cars.com Inc. (CARS)

Valuation Ratios
P/E Ratio 8.6
Price to Sales 2.4
Price to Book 0.6
Price to Tangible Book
Price to Cash Flow 7.6
Price to Free Cash Flow 8
Growth Rates
Sales Growth Rate 6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 11.1%
Cap. Spend. - 3 Yr. Gr. Rate -1.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 7%
Ret/ On Assets - 3 Yr. Avg. 19.7%
Return On Total Capital 7.5%
Ret/ On T. Cap. - 3 Yr. Avg. 21.6%
Return On Equity 7.5%
Return On Equity - 3 Yr. Avg. 21.6%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 79.5%
Gross Margin - 3 Yr. Avg. 78.8%
EBITDA Margin 41.1%
EBITDA Margin - 3 Yr. Avg. 30.5%
Operating Margin 28%
Oper. Margin - 3 Yr. Avg. 19.6%
Pre-Tax Margin 28%
Pre-Tax Margin - 3 Yr. Avg. 19.7%
Net Profit Margin 27.8%
Net Profit Margin - 3 Yr. Avg. 57.9%
Effective Tax Rate 0.6%
Eff/ Tax Rate - 3 Yr. Avg. 0.2%
Payout Ratio 0%

CARS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CARS stock intrinsic value calculation we used $662 million for the last fiscal year's total revenue generated by Cars.com Inc.. The default revenue input number comes from 0001 income statement of Cars.com 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 CARS stock valuation model: a) initial revenue growth rate of 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 5.8%, whose default value for CARS is calculated based on our internal credit rating of Cars.com 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 Cars.com 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 CARS stock the variable cost ratio is equal to 78.5%.

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 CARS 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 Cars.com Inc..

Corporate tax rate of 27% is the nominal tax rate for Cars.com 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 CARS 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 CARS are equal to 184.1%.

Life of production assets of 23.1 years is the average useful life of capital assets used in Cars.com 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 CARS is equal to 6.7%. 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 - $1626.923 million for Cars.com 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 67.342 million for Cars.com 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 Cars.com Inc. at the current share price and the inputted number of shares is $1.4 billion.

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