Intrinsic value of Cabot Corporation - CBT

Previous Close

$45.07

  Intrinsic Value

$65.58

stock screener

  Rating & Target

buy

+45%

Previous close

$45.07

 
Intrinsic value

$65.58

 
Up/down potential

+45%

 
Rating

buy

We calculate the intrinsic value of CBT 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 2.7

 

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, %
  14.00
  13.10
  12.29
  11.56
  10.90
  10.31
  9.78
  9.30
  8.87
  8.49
  8.14
  7.82
  7.54
  7.29
  7.06
  6.85
  6.67
  6.50
  6.35
  6.22
  6.09
  5.98
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
  5.42
Revenue, $m
  3,696
  4,180
  4,694
  5,236
  5,807
  6,406
  7,033
  7,688
  8,370
  9,080
  9,819
  10,587
  11,386
  12,216
  13,078
  13,974
  14,906
  15,875
  16,883
  17,933
  19,025
  20,164
  21,351
  22,589
  23,880
  25,229
  26,637
  28,108
  29,646
  31,254
Variable operating expenses, $m
  3,220
  3,639
  4,084
  4,554
  5,049
  5,568
  6,111
  6,677
  7,268
  7,883
  8,504
  9,170
  9,861
  10,580
  11,327
  12,103
  12,910
  13,749
  14,623
  15,532
  16,478
  17,464
  18,492
  19,564
  20,683
  21,851
  23,070
  24,345
  25,677
  27,069
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
  3,220
  3,639
  4,084
  4,554
  5,049
  5,568
  6,111
  6,677
  7,268
  7,883
  8,504
  9,170
  9,861
  10,580
  11,327
  12,103
  12,910
  13,749
  14,623
  15,532
  16,478
  17,464
  18,492
  19,564
  20,683
  21,851
  23,070
  24,345
  25,677
  27,069
Operating income, $m
  476
  541
  609
  682
  758
  839
  923
  1,010
  1,102
  1,197
  1,315
  1,418
  1,524
  1,636
  1,751
  1,871
  1,996
  2,126
  2,261
  2,401
  2,547
  2,700
  2,859
  3,024
  3,197
  3,378
  3,566
  3,763
  3,969
  4,185
EBITDA, $m
  652
  737
  828
  924
  1,025
  1,130
  1,241
  1,356
  1,477
  1,602
  1,732
  1,868
  2,009
  2,155
  2,307
  2,465
  2,630
  2,801
  2,978
  3,164
  3,356
  3,557
  3,767
  3,985
  4,213
  4,451
  4,699
  4,959
  5,230
  5,514
Interest expense (income), $m
  48
  56
  73
  90
  109
  128
  149
  170
  193
  217
  241
  267
  294
  321
  350
  380
  411
  444
  477
  512
  549
  586
  626
  667
  710
  755
  801
  850
  901
  954
  1,009
Earnings before tax, $m
  420
  468
  519
  573
  630
  690
  752
  817
  885
  955
  1,048
  1,124
  1,203
  1,285
  1,371
  1,460
  1,552
  1,648
  1,748
  1,852
  1,961
  2,074
  2,192
  2,315
  2,443
  2,577
  2,717
  2,863
  3,015
  3,175
Tax expense, $m
  113
  126
  140
  155
  170
  186
  203
  221
  239
  258
  283
  303
  325
  347
  370
  394
  419
  445
  472
  500
  529
  560
  592
  625
  660
  696
  733
  773
  814
  857
Net income, $m
  306
  342
  379
  419
  460
  504
  549
  597
  646
  697
  765
  820
  878
  938
  1,001
  1,066
  1,133
  1,203
  1,276
  1,352
  1,431
  1,514
  1,600
  1,690
  1,783
  1,881
  1,983
  2,090
  2,201
  2,318

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
  3,700
  4,184
  4,698
  5,242
  5,813
  6,413
  7,040
  7,695
  8,378
  9,089
  9,829
  10,598
  11,397
  12,228
  13,091
  13,988
  14,921
  15,891
  16,900
  17,950
  19,044
  20,184
  21,372
  22,611
  23,904
  25,254
  26,663
  28,136
  29,676
  31,285
Adjusted assets (=assets-cash), $m
  3,700
  4,184
  4,698
  5,242
  5,813
  6,413
  7,040
  7,695
  8,378
  9,089
  9,829
  10,598
  11,397
  12,228
  13,091
  13,988
  14,921
  15,891
  16,900
  17,950
  19,044
  20,184
  21,372
  22,611
  23,904
  25,254
  26,663
  28,136
  29,676
  31,285
Revenue / Adjusted assets
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
Average production assets, $m
  1,619
  1,831
  2,056
  2,294
  2,544
  2,806
  3,081
  3,367
  3,666
  3,977
  4,301
  4,637
  4,987
  5,350
  5,728
  6,121
  6,529
  6,953
  7,395
  7,854
  8,333
  8,832
  9,352
  9,894
  10,460
  11,050
  11,667
  12,311
  12,985
  13,689
Working capital, $m
  617
  698
  784
  874
  970
  1,070
  1,175
  1,284
  1,398
  1,516
  1,640
  1,768
  1,901
  2,040
  2,184
  2,334
  2,489
  2,651
  2,819
  2,995
  3,177
  3,367
  3,566
  3,772
  3,988
  4,213
  4,448
  4,694
  4,951
  5,219
Total debt, $m
  1,296
  1,608
  1,939
  2,289
  2,657
  3,043
  3,447
  3,869
  4,309
  4,766
  5,243
  5,738
  6,253
  6,788
  7,344
  7,921
  8,522
  9,147
  9,797
  10,473
  11,178
  11,912
  12,677
  13,475
  14,307
  15,177
  16,084
  17,033
  18,024
  19,061
Total liabilities, $m
  2,383
  2,695
  3,026
  3,376
  3,744
  4,130
  4,534
  4,956
  5,396
  5,853
  6,330
  6,825
  7,340
  7,875
  8,431
  9,008
  9,609
  10,234
  10,884
  11,560
  12,265
  12,999
  13,764
  14,562
  15,394
  16,264
  17,171
  18,120
  19,111
  20,148
Total equity, $m
  1,317
  1,490
  1,673
  1,866
  2,070
  2,283
  2,506
  2,740
  2,983
  3,236
  3,499
  3,773
  4,057
  4,353
  4,660
  4,980
  5,312
  5,657
  6,016
  6,390
  6,780
  7,186
  7,609
  8,050
  8,510
  8,990
  9,492
  10,016
  10,564
  11,137
Total liabilities and equity, $m
  3,700
  4,185
  4,699
  5,242
  5,814
  6,413
  7,040
  7,696
  8,379
  9,089
  9,829
  10,598
  11,397
  12,228
  13,091
  13,988
  14,921
  15,891
  16,900
  17,950
  19,045
  20,185
  21,373
  22,612
  23,904
  25,254
  26,663
  28,136
  29,675
  31,285
Debt-to-equity ratio
  0.980
  1.080
  1.160
  1.230
  1.280
  1.330
  1.380
  1.410
  1.440
  1.470
  1.500
  1.520
  1.540
  1.560
  1.580
  1.590
  1.600
  1.620
  1.630
  1.640
  1.650
  1.660
  1.670
  1.670
  1.680
  1.690
  1.690
  1.700
  1.710
  1.710
Adjusted equity ratio
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  306
  342
  379
  419
  460
  504
  549
  597
  646
  697
  765
  820
  878
  938
  1,001
  1,066
  1,133
  1,203
  1,276
  1,352
  1,431
  1,514
  1,600
  1,690
  1,783
  1,881
  1,983
  2,090
  2,201
  2,318
Depreciation, amort., depletion, $m
  176
  197
  219
  242
  266
  292
  318
  346
  375
  405
  418
  450
  484
  519
  556
  594
  634
  675
  718
  763
  809
  857
  908
  961
  1,015
  1,073
  1,133
  1,195
  1,261
  1,329
Funds from operations, $m
  483
  539
  598
  660
  726
  795
  867
  943
  1,021
  1,103
  1,182
  1,271
  1,362
  1,458
  1,557
  1,660
  1,767
  1,878
  1,994
  2,115
  2,240
  2,371
  2,508
  2,650
  2,799
  2,954
  3,116
  3,285
  3,462
  3,647
Change in working capital, $m
  76
  81
  86
  91
  95
  100
  105
  109
  114
  119
  123
  128
  133
  139
  144
  150
  156
  162
  168
  175
  183
  190
  198
  207
  216
  225
  235
  246
  257
  269
Cash from operations, $m
  407
  458
  512
  570
  631
  695
  763
  833
  907
  984
  1,059
  1,142
  1,229
  1,319
  1,413
  1,510
  1,611
  1,716
  1,826
  1,940
  2,058
  2,181
  2,310
  2,443
  2,583
  2,729
  2,881
  3,039
  3,205
  3,378
Maintenance CAPEX, $m
  -138
  -157
  -178
  -200
  -223
  -247
  -272
  -299
  -327
  -356
  -386
  -418
  -450
  -484
  -519
  -556
  -594
  -634
  -675
  -718
  -763
  -809
  -857
  -908
  -961
  -1,015
  -1,073
  -1,133
  -1,195
  -1,261
New CAPEX, $m
  -198
  -212
  -225
  -238
  -250
  -262
  -275
  -287
  -299
  -311
  -324
  -337
  -350
  -363
  -378
  -393
  -408
  -424
  -442
  -460
  -479
  -499
  -520
  -542
  -566
  -591
  -617
  -644
  -674
  -704
Cash from investing activities, $m
  -336
  -369
  -403
  -438
  -473
  -509
  -547
  -586
  -626
  -667
  -710
  -755
  -800
  -847
  -897
  -949
  -1,002
  -1,058
  -1,117
  -1,178
  -1,242
  -1,308
  -1,377
  -1,450
  -1,527
  -1,606
  -1,690
  -1,777
  -1,869
  -1,965
Free cash flow, $m
  71
  88
  109
  132
  158
  186
  216
  248
  281
  317
  349
  388
  429
  472
  516
  562
  609
  658
  709
  762
  817
  873
  932
  993
  1,057
  1,123
  1,191
  1,262
  1,336
  1,414
Issuance/(repayment) of debt, $m
  293
  312
  331
  350
  368
  386
  404
  422
  440
  458
  476
  495
  515
  535
  556
  578
  601
  625
  650
  676
  704
  734
  765
  798
  833
  869
  908
  948
  991
  1,037
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  
  293
  312
  331
  350
  368
  386
  404
  422
  440
  458
  476
  495
  515
  535
  556
  578
  601
  625
  650
  676
  704
  734
  765
  798
  833
  869
  908
  948
  991
  1,037
Total cash flow (excl. dividends), $m
  364
  401
  440
  482
  526
  572
  620
  669
  721
  775
  826
  884
  944
  1,007
  1,072
  1,139
  1,210
  1,283
  1,359
  1,438
  1,521
  1,607
  1,697
  1,791
  1,889
  1,992
  2,099
  2,211
  2,328
  2,450
Retained Cash Flow (-), $m
  -163
  -173
  -183
  -193
  -203
  -213
  -223
  -233
  -243
  -253
  -263
  -274
  -285
  -296
  -307
  -319
  -332
  -345
  -359
  -374
  -389
  -406
  -423
  -441
  -460
  -480
  -502
  -524
  -548
  -573
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
  200
  228
  257
  289
  323
  358
  396
  436
  478
  522
  562
  610
  659
  711
  764
  820
  878
  938
  1,000
  1,065
  1,132
  1,202
  1,274
  1,350
  1,429
  1,511
  1,597
  1,686
  1,780
  1,877
Discount rate, %
  5.70
  5.99
  6.28
  6.60
  6.93
  7.27
  7.64
  8.02
  8.42
  8.84
  9.28
  9.75
  10.24
  10.75
  11.29
  11.85
  12.44
  13.06
  13.72
  14.40
  15.12
  15.88
  16.67
  17.51
  18.38
  19.30
  20.27
  21.28
  22.34
  23.46
PV of cash for distribution, $m
  190
  203
  214
  224
  231
  235
  237
  235
  231
  224
  212
  200
  186
  170
  154
  137
  120
  103
  87
  72
  59
  47
  37
  28
  21
  15
  11
  8
  5
  3
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

Cabot Corporation is a global specialty chemicals and performance materials company. The Company operates through four business segments: reinforcement materials, performance chemicals, purification solutions and specialty fluids. Reinforcement materials' rubber grade carbon blacks are used to enhance the physical properties of the systems and applications in which they are incorporated. Its rubber blacks products are used in tires and industrial products. Performance Chemicals consists of two businesses: specialty carbons and formulations business, and metal oxides business. Purification Solutions' activated carbon products are used for the purification of water, air and pharmaceuticals, among others, as either a colorant or a decolorizing agent in the production of food and beverage applications. Its specialty fluids segment produces and markets cesium formate as a drilling and completion fluid for use in high pressure and high temperature oil and gas well construction.

FINANCIAL RATIOS  of  Cabot Corporation (CBT)

Valuation Ratios
P/E Ratio 11.6
Price to Sales 1
Price to Book 1.9
Price to Tangible Book
Price to Cash Flow 8.2
Price to Free Cash Flow 14.5
Growth Rates
Sales Growth Rate 12.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 31.3%
Cap. Spend. - 3 Yr. Gr. Rate -3%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 46.5%
Total Debt to Equity 64.3%
Interest Coverage 7
Management Effectiveness
Return On Assets 9%
Ret/ On Assets - 3 Yr. Avg. 2.3%
Return On Total Capital 10.4%
Ret/ On T. Cap. - 3 Yr. Avg. 1.5%
Return On Equity 17.5%
Return On Equity - 3 Yr. Avg. 2.8%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 24.1%
Gross Margin - 3 Yr. Avg. 23.4%
EBITDA Margin 18.1%
EBITDA Margin - 3 Yr. Avg. 9.9%
Operating Margin 12.4%
Oper. Margin - 3 Yr. Avg. 3.9%
Pre-Tax Margin 10.6%
Pre-Tax Margin - 3 Yr. Avg. 1.8%
Net Profit Margin 8.9%
Net Profit Margin - 3 Yr. Avg. 1.1%
Effective Tax Rate 10.1%
Eff/ Tax Rate - 3 Yr. Avg. 13.2%
Payout Ratio 32%

CBT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CBT stock intrinsic value calculation we used $3242 million for the last fiscal year's total revenue generated by Cabot Corporation. The default revenue input number comes from 0001 income statement of Cabot Corporation. 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 CBT stock valuation model: a) initial revenue growth rate of 14% 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 5.7%, whose default value for CBT is calculated based on our internal credit rating of Cabot Corporation, 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 Cabot Corporation.
    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 CBT stock the variable cost ratio is equal to 87.2%.

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 CBT 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 5.6% for Cabot Corporation.

Corporate tax rate of 27% is the nominal tax rate for Cabot Corporation. 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 CBT 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 CBT are equal to 43.8%.

Life of production assets of 10.3 years is the average useful life of capital assets used in Cabot Corporation 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 CBT is equal to 16.7%. 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 - $1154 million for Cabot Corporation - 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 59.502 million for Cabot Corporation 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 Cabot Corporation at the current share price and the inputted number of shares is $2.7 billion.

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