Intrinsic value of Cato Corporation (The) - CATO

Previous Close

$12.63

  Intrinsic Value

$9.32

stock screener

  Rating & Target

sell

-26%

Previous close

$12.63

 
Intrinsic value

$9.32

 
Up/down potential

-26%

 
Rating

sell

We calculate the intrinsic value of CATO 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 0.3

 

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
  867
  887
  910
  935
  964
  995
  1,029
  1,065
  1,105
  1,147
  1,193
  1,241
  1,293
  1,347
  1,405
  1,467
  1,532
  1,601
  1,674
  1,751
  1,832
  1,918
  2,008
  2,103
  2,203
  2,309
  2,419
  2,536
  2,659
  2,788
Variable operating expenses, $m
  613
  627
  643
  661
  681
  703
  727
  753
  781
  811
  843
  877
  914
  953
  994
  1,037
  1,083
  1,132
  1,184
  1,238
  1,295
  1,356
  1,420
  1,487
  1,558
  1,632
  1,711
  1,793
  1,880
  1,971
Fixed operating expenses, $m
  248
  254
  259
  265
  271
  277
  283
  289
  296
  302
  309
  316
  322
  330
  337
  344
  352
  360
  367
  376
  384
  392
  401
  410
  419
  428
  437
  447
  457
  467
Total operating expenses, $m
  861
  881
  902
  926
  952
  980
  1,010
  1,042
  1,077
  1,113
  1,152
  1,193
  1,236
  1,283
  1,331
  1,381
  1,435
  1,492
  1,551
  1,614
  1,679
  1,748
  1,821
  1,897
  1,977
  2,060
  2,148
  2,240
  2,337
  2,438
Operating income, $m
  6
  6
  7
  9
  11
  15
  18
  23
  28
  34
  41
  48
  56
  65
  75
  86
  97
  110
  123
  138
  153
  170
  187
  207
  227
  249
  272
  296
  322
  350
EBITDA, $m
  26
  27
  28
  31
  34
  38
  42
  48
  54
  61
  68
  77
  86
  96
  108
  120
  133
  147
  162
  178
  195
  214
  234
  255
  278
  302
  328
  355
  384
  415
Interest expense (income), $m
  0
  0
  0
  0
  1
  1
  1
  2
  2
  3
  3
  4
  4
  5
  5
  6
  7
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  18
  19
  20
  22
Earnings before tax, $m
  6
  6
  7
  8
  10
  13
  17
  21
  26
  31
  37
  44
  52
  60
  69
  79
  90
  101
  114
  128
  142
  158
  175
  193
  212
  232
  254
  277
  302
  328
Tax expense, $m
  2
  2
  2
  2
  3
  4
  5
  6
  7
  8
  10
  12
  14
  16
  19
  21
  24
  27
  31
  34
  38
  43
  47
  52
  57
  63
  69
  75
  82
  89
Net income, $m
  4
  4
  5
  6
  8
  10
  12
  15
  19
  23
  27
  32
  38
  44
  50
  58
  66
  74
  83
  93
  104
  115
  127
  141
  155
  170
  185
  202
  220
  240

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
  464
  474
  486
  500
  515
  532
  550
  570
  591
  614
  638
  664
  691
  720
  752
  785
  819
  856
  895
  936
  980
  1,026
  1,074
  1,125
  1,178
  1,234
  1,294
  1,356
  1,422
  1,491
Adjusted assets (=assets-cash), $m
  464
  474
  486
  500
  515
  532
  550
  570
  591
  614
  638
  664
  691
  720
  752
  785
  819
  856
  895
  936
  980
  1,026
  1,074
  1,125
  1,178
  1,234
  1,294
  1,356
  1,422
  1,491
Revenue / Adjusted assets
  1.869
  1.871
  1.872
  1.870
  1.872
  1.870
  1.871
  1.868
  1.870
  1.868
  1.870
  1.869
  1.871
  1.871
  1.868
  1.869
  1.871
  1.870
  1.870
  1.871
  1.869
  1.869
  1.870
  1.869
  1.870
  1.871
  1.869
  1.870
  1.870
  1.870
Average production assets, $m
  121
  123
  126
  130
  134
  138
  143
  148
  154
  159
  166
  173
  180
  187
  195
  204
  213
  223
  233
  243
  255
  267
  279
  292
  306
  321
  336
  353
  370
  388
Working capital, $m
  34
  35
  35
  36
  38
  39
  40
  42
  43
  45
  47
  48
  50
  53
  55
  57
  60
  62
  65
  68
  71
  75
  78
  82
  86
  90
  94
  99
  104
  109
Total debt, $m
  4
  8
  13
  19
  25
  32
  40
  48
  57
  66
  76
  87
  99
  111
  124
  137
  152
  167
  184
  201
  219
  238
  258
  279
  302
  325
  350
  376
  403
  432
Total liabilities, $m
  193
  198
  203
  209
  215
  222
  229
  238
  246
  256
  266
  277
  288
  300
  313
  327
  342
  357
  373
  390
  409
  428
  448
  469
  491
  515
  540
  566
  593
  622
Total equity, $m
  270
  277
  284
  292
  300
  310
  321
  332
  344
  358
  372
  387
  403
  420
  438
  457
  478
  499
  522
  546
  571
  598
  626
  656
  687
  720
  754
  791
  829
  869
Total liabilities and equity, $m
  463
  475
  487
  501
  515
  532
  550
  570
  590
  614
  638
  664
  691
  720
  751
  784
  820
  856
  895
  936
  980
  1,026
  1,074
  1,125
  1,178
  1,235
  1,294
  1,357
  1,422
  1,491
Debt-to-equity ratio
  0.010
  0.030
  0.050
  0.060
  0.080
  0.100
  0.120
  0.140
  0.160
  0.180
  0.210
  0.220
  0.240
  0.260
  0.280
  0.300
  0.320
  0.340
  0.350
  0.370
  0.380
  0.400
  0.410
  0.430
  0.440
  0.450
  0.460
  0.480
  0.490
  0.500
Adjusted equity ratio
  0.583
  0.583
  0.583
  0.583
  0.583
  0.583
  0.583
  0.583
  0.583
  0.583
  0.583
  0.583
  0.583
  0.583
  0.583
  0.583
  0.583
  0.583
  0.583
  0.583
  0.583
  0.583
  0.583
  0.583
  0.583
  0.583
  0.583
  0.583
  0.583
  0.583

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  4
  4
  5
  6
  8
  10
  12
  15
  19
  23
  27
  32
  38
  44
  50
  58
  66
  74
  83
  93
  104
  115
  127
  141
  155
  170
  185
  202
  220
  240
Depreciation, amort., depletion, $m
  20
  21
  21
  22
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  39
  41
  42
  44
  47
  49
  51
  53
  56
  59
  62
  65
Funds from operations, $m
  24
  25
  26
  28
  30
  33
  36
  40
  44
  49
  55
  61
  68
  75
  83
  92
  101
  111
  122
  134
  146
  160
  174
  189
  206
  223
  242
  261
  282
  304
Change in working capital, $m
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
Cash from operations, $m
  24
  24
  25
  27
  29
  31
  35
  38
  43
  48
  53
  59
  66
  73
  81
  89
  98
  108
  119
  131
  143
  156
  170
  186
  202
  219
  237
  257
  277
  299
Maintenance CAPEX, $m
  -20
  -20
  -21
  -21
  -22
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -35
  -37
  -39
  -41
  -42
  -44
  -47
  -49
  -51
  -53
  -56
  -59
  -62
New CAPEX, $m
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
Cash from investing activities, $m
  -23
  -23
  -24
  -25
  -26
  -26
  -28
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -39
  -42
  -43
  -45
  -47
  -50
  -52
  -54
  -57
  -60
  -63
  -66
  -68
  -72
  -76
  -80
Free cash flow, $m
  1
  1
  1
  2
  3
  5
  7
  10
  13
  16
  20
  25
  30
  35
  41
  48
  55
  63
  72
  81
  91
  102
  114
  126
  139
  153
  168
  184
  201
  220
Issuance/(repayment) of debt, $m
  4
  4
  5
  6
  6
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  27
  29
Issuance/(repurchase) of shares, $m
  1
  2
  2
  2
  1
  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  
  5
  6
  7
  8
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  27
  29
Total cash flow (excl. dividends), $m
  6
  8
  9
  10
  11
  12
  14
  18
  21
  26
  30
  35
  41
  47
  54
  62
  70
  79
  88
  98
  109
  121
  134
  147
  161
  177
  193
  210
  229
  249
Retained Cash Flow (-), $m
  -5
  -6
  -7
  -8
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -35
  -36
  -38
  -40
Prev. year cash balance distribution, $m
  62
  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
  62
  1
  2
  2
  2
  2
  4
  6
  9
  12
  16
  20
  25
  30
  36
  43
  50
  57
  65
  74
  84
  94
  106
  117
  130
  144
  158
  174
  191
  208
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
  60
  1
  1
  1
  1
  2
  3
  4
  5
  6
  8
  9
  10
  10
  11
  11
  11
  11
  10
  9
  9
  8
  7
  6
  5
  4
  3
  3
  2
  2
Current shareholders' claim on cash, %
  99.5
  98.7
  97.9
  97.2
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8

The Cato Corporation is a fashion specialty retailer. The Company's merchandise lines include dressy, career, and casual sportswear, dresses, coats, shoes, lingerie, costume jewelry, handbags, men's wear and lines for kids and newborns. The Company has two segments: the operation of a fashion specialty stores segment (Retail Segment) and a credit card segment (Credit Segment). The Company operated its women's fashion specialty retail stores in 33 states as of January 28, 2017, principally in the southeastern United States. The Company offers its own credit card to its customers and all credit authorizations, payment processing, and collection efforts are performed by a separate subsidiary of the Company. The Company's stores offer an assortment of on-trend apparel and accessory items in primarily junior/missy, plus sizes, men's and kids sizes with a focus on color, product coordination and selection.

FINANCIAL RATIOS  of  Cato Corporation (The) (CATO)

Valuation Ratios
P/E Ratio 7.1
Price to Sales 0.4
Price to Book 0.9
Price to Tangible Book
Price to Cash Flow 4.7
Price to Free Cash Flow 7.6
Growth Rates
Sales Growth Rate -5.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -12.5%
Cap. Spend. - 3 Yr. Gr. Rate -2.6%
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 7.5%
Ret/ On Assets - 3 Yr. Avg. 9.5%
Return On Total Capital 11.8%
Ret/ On T. Cap. - 3 Yr. Avg. 14.8%
Return On Equity 11.8%
Return On Equity - 3 Yr. Avg. 14.8%
Asset Turnover 1.5
Profitability Ratios
Gross Margin 37.1%
Gross Margin - 3 Yr. Avg. 38.4%
EBITDA Margin 7.5%
EBITDA Margin - 3 Yr. Avg. 10.3%
Operating Margin 4.5%
Oper. Margin - 3 Yr. Avg. 7.6%
Pre-Tax Margin 5.1%
Pre-Tax Margin - 3 Yr. Avg. 8%
Net Profit Margin 4.9%
Net Profit Margin - 3 Yr. Avg. 5.9%
Effective Tax Rate 4.1%
Eff/ Tax Rate - 3 Yr. Avg. 23.1%
Payout Ratio 74.5%

CATO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CATO stock intrinsic value calculation we used $850 million for the last fiscal year's total revenue generated by Cato Corporation (The). The default revenue input number comes from 0001 income statement of Cato Corporation (The). 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 CATO 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 CATO is calculated based on our internal credit rating of Cato Corporation (The), 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 Cato Corporation (The).
    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 CATO stock the variable cost ratio is equal to 70.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $243 million in the base year in the intrinsic value calculation for CATO 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 Cato Corporation (The).

Corporate tax rate of 27% is the nominal tax rate for Cato Corporation (The). 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 CATO 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 CATO are equal to 13.9%.

Life of production assets of 6 years is the average useful life of capital assets used in Cato Corporation (The) 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 CATO is equal to 3.9%. 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 - $326.353 million for Cato Corporation (The) - 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 24.608 million for Cato Corporation (The) 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 Cato Corporation (The) at the current share price and the inputted number of shares is $0.3 billion.

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