Intrinsic value of CECO Environmental Corp. - CECE

Previous Close

$6.80

  Intrinsic Value

$4.03

stock screener

  Rating & Target

sell

-41%

Previous close

$6.80

 
Intrinsic value

$4.03

 
Up/down potential

-41%

 
Rating

sell

We calculate the intrinsic value of CECE 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 0.2

 

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, %
  27.60
  25.34
  23.31
  21.48
  19.83
  18.35
  17.01
  15.81
  14.73
  13.76
  12.88
  12.09
  11.38
  10.74
  10.17
  9.65
  9.19
  8.77
  8.39
  8.05
  7.75
  7.47
  7.23
  7.00
  6.80
  6.62
  6.46
  6.31
  6.18
  6.06
Revenue, $m
  430
  539
  665
  807
  967
  1,145
  1,340
  1,551
  1,780
  2,025
  2,286
  2,562
  2,853
  3,160
  3,481
  3,818
  4,168
  4,534
  4,914
  5,310
  5,721
  6,149
  6,593
  7,055
  7,535
  8,034
  8,553
  9,093
  9,655
  10,241
Variable operating expenses, $m
  419
  525
  647
  785
  940
  1,112
  1,301
  1,506
  1,728
  1,965
  2,216
  2,484
  2,766
  3,064
  3,375
  3,701
  4,041
  4,395
  4,764
  5,148
  5,547
  5,961
  6,392
  6,840
  7,305
  7,789
  8,292
  8,815
  9,360
  9,928
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
  419
  525
  647
  785
  940
  1,112
  1,301
  1,506
  1,728
  1,965
  2,216
  2,484
  2,766
  3,064
  3,375
  3,701
  4,041
  4,395
  4,764
  5,148
  5,547
  5,961
  6,392
  6,840
  7,305
  7,789
  8,292
  8,815
  9,360
  9,928
Operating income, $m
  11
  14
  18
  22
  27
  33
  39
  45
  52
  60
  70
  78
  87
  96
  106
  117
  127
  138
  150
  162
  175
  188
  201
  215
  230
  245
  261
  278
  295
  313
EBITDA, $m
  22
  28
  35
  42
  50
  60
  70
  81
  93
  105
  119
  133
  149
  164
  181
  199
  217
  236
  256
  276
  298
  320
  343
  367
  392
  418
  445
  473
  503
  533
Interest expense (income), $m
  7
  6
  10
  15
  21
  27
  35
  43
  52
  62
  72
  84
  96
  109
  122
  136
  151
  167
  183
  200
  218
  236
  255
  275
  296
  317
  339
  362
  387
  412
  438
Earnings before tax, $m
  5
  4
  3
  2
  0
  -2
  -4
  -7
  -10
  -13
  -14
  -18
  -22
  -26
  -30
  -35
  -40
  -45
  -50
  -56
  -61
  -68
  -74
  -80
  -87
  -94
  -101
  -109
  -117
  -125
Tax expense, $m
  1
  1
  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
  0
  0
Net income, $m
  4
  3
  2
  1
  0
  -2
  -4
  -7
  -10
  -13
  -14
  -18
  -22
  -26
  -30
  -35
  -40
  -45
  -50
  -56
  -61
  -68
  -74
  -80
  -87
  -94
  -101
  -109
  -117
  -125

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
  501
  628
  775
  941
  1,127
  1,334
  1,561
  1,808
  2,074
  2,360
  2,664
  2,986
  3,326
  3,683
  4,058
  4,449
  4,858
  5,284
  5,728
  6,189
  6,668
  7,167
  7,684
  8,223
  8,782
  9,364
  9,968
  10,598
  11,253
  11,936
Adjusted assets (=assets-cash), $m
  501
  628
  775
  941
  1,127
  1,334
  1,561
  1,808
  2,074
  2,360
  2,664
  2,986
  3,326
  3,683
  4,058
  4,449
  4,858
  5,284
  5,728
  6,189
  6,668
  7,167
  7,684
  8,223
  8,782
  9,364
  9,968
  10,598
  11,253
  11,936
Revenue / Adjusted assets
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
  0.858
Average production assets, $m
  170
  213
  263
  320
  383
  453
  530
  614
  705
  802
  905
  1,015
  1,130
  1,251
  1,379
  1,512
  1,651
  1,795
  1,946
  2,103
  2,266
  2,435
  2,611
  2,794
  2,984
  3,181
  3,387
  3,601
  3,823
  4,055
Working capital, $m
  18
  23
  28
  34
  41
  48
  56
  65
  75
  85
  96
  108
  120
  133
  146
  160
  175
  190
  206
  223
  240
  258
  277
  296
  316
  337
  359
  382
  406
  430
Total debt, $m
  135
  204
  284
  375
  477
  589
  713
  848
  993
  1,148
  1,314
  1,489
  1,675
  1,869
  2,074
  2,287
  2,510
  2,742
  2,984
  3,235
  3,496
  3,768
  4,050
  4,343
  4,648
  4,965
  5,295
  5,638
  5,995
  6,367
Total liabilities, $m
  273
  342
  422
  513
  614
  727
  851
  985
  1,131
  1,286
  1,452
  1,627
  1,813
  2,007
  2,211
  2,425
  2,648
  2,880
  3,122
  3,373
  3,634
  3,906
  4,188
  4,481
  4,786
  5,103
  5,433
  5,776
  6,133
  6,505
Total equity, $m
  228
  286
  352
  428
  513
  607
  710
  823
  944
  1,074
  1,212
  1,359
  1,513
  1,676
  1,846
  2,024
  2,210
  2,404
  2,606
  2,816
  3,034
  3,261
  3,496
  3,741
  3,996
  4,260
  4,536
  4,822
  5,120
  5,431
Total liabilities and equity, $m
  501
  628
  774
  941
  1,127
  1,334
  1,561
  1,808
  2,075
  2,360
  2,664
  2,986
  3,326
  3,683
  4,057
  4,449
  4,858
  5,284
  5,728
  6,189
  6,668
  7,167
  7,684
  8,222
  8,782
  9,363
  9,969
  10,598
  11,253
  11,936
Debt-to-equity ratio
  0.590
  0.720
  0.810
  0.880
  0.930
  0.970
  1.000
  1.030
  1.050
  1.070
  1.080
  1.100
  1.110
  1.120
  1.120
  1.130
  1.140
  1.140
  1.140
  1.150
  1.150
  1.160
  1.160
  1.160
  1.160
  1.170
  1.170
  1.170
  1.170
  1.170
Adjusted equity ratio
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  4
  3
  2
  1
  0
  -2
  -4
  -7
  -10
  -13
  -14
  -18
  -22
  -26
  -30
  -35
  -40
  -45
  -50
  -56
  -61
  -68
  -74
  -80
  -87
  -94
  -101
  -109
  -117
  -125
Depreciation, amort., depletion, $m
  11
  14
  17
  20
  23
  27
  31
  36
  41
  46
  49
  55
  61
  68
  75
  82
  90
  98
  106
  114
  123
  132
  142
  152
  162
  173
  184
  196
  208
  220
Funds from operations, $m
  15
  17
  19
  21
  23
  25
  27
  29
  31
  33
  35
  37
  40
  42
  45
  47
  50
  53
  56
  59
  62
  65
  68
  72
  75
  79
  83
  87
  91
  95
Change in working capital, $m
  4
  5
  5
  6
  7
  7
  8
  9
  10
  10
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
Cash from operations, $m
  11
  12
  14
  15
  16
  17
  19
  20
  21
  23
  24
  26
  28
  29
  31
  33
  35
  37
  40
  42
  44
  47
  49
  52
  55
  58
  61
  64
  67
  71
Maintenance CAPEX, $m
  -7
  -9
  -12
  -14
  -17
  -21
  -25
  -29
  -33
  -38
  -44
  -49
  -55
  -61
  -68
  -75
  -82
  -90
  -98
  -106
  -114
  -123
  -132
  -142
  -152
  -162
  -173
  -184
  -196
  -208
New CAPEX, $m
  -37
  -43
  -50
  -57
  -63
  -70
  -77
  -84
  -90
  -97
  -103
  -109
  -115
  -121
  -127
  -133
  -139
  -145
  -151
  -157
  -163
  -169
  -176
  -183
  -190
  -198
  -206
  -214
  -223
  -232
Cash from investing activities, $m
  -44
  -52
  -62
  -71
  -80
  -91
  -102
  -113
  -123
  -135
  -147
  -158
  -170
  -182
  -195
  -208
  -221
  -235
  -249
  -263
  -277
  -292
  -308
  -325
  -342
  -360
  -379
  -398
  -419
  -440
Free cash flow, $m
  -33
  -40
  -48
  -56
  -65
  -74
  -83
  -93
  -103
  -113
  -123
  -133
  -143
  -153
  -164
  -175
  -186
  -197
  -209
  -221
  -233
  -246
  -259
  -273
  -287
  -302
  -318
  -334
  -351
  -369
Issuance/(repayment) of debt, $m
  59
  69
  80
  91
  102
  113
  124
  135
  145
  156
  166
  176
  185
  195
  204
  213
  223
  232
  242
  251
  261
  272
  282
  293
  305
  317
  330
  343
  357
  372
Issuance/(repurchase) of shares, $m
  46
  55
  64
  74
  85
  96
  108
  119
  131
  143
  152
  164
  176
  188
  201
  213
  226
  239
  252
  266
  280
  294
  309
  325
  342
  359
  377
  395
  415
  436
Cash from financing (excl. dividends), $m  
  105
  124
  144
  165
  187
  209
  232
  254
  276
  299
  318
  340
  361
  383
  405
  426
  449
  471
  494
  517
  541
  566
  591
  618
  647
  676
  707
  738
  772
  808
Total cash flow (excl. dividends), $m
  72
  84
  96
  109
  122
  135
  148
  161
  173
  186
  195
  207
  218
  230
  241
  252
  263
  274
  285
  296
  308
  320
  333
  346
  359
  374
  389
  405
  421
  439
Retained Cash Flow (-), $m
  -49
  -58
  -67
  -76
  -85
  -96
  -108
  -119
  -131
  -143
  -152
  -164
  -176
  -188
  -201
  -213
  -226
  -239
  -252
  -266
  -280
  -294
  -309
  -325
  -342
  -359
  -377
  -395
  -415
  -436
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
  23
  26
  30
  33
  37
  39
  40
  42
  42
  43
  43
  43
  42
  41
  40
  39
  37
  35
  33
  31
  28
  26
  23
  21
  18
  15
  12
  9
  6
  3
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
  22
  24
  26
  28
  29
  28
  27
  26
  24
  22
  20
  18
  16
  14
  12
  10
  8
  6
  5
  4
  3
  2
  2
  1
  1
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  83.9
  71.1
  60.9
  52.5
  45.7
  40.1
  35.4
  31.4
  28.1
  25.2
  22.8
  20.7
  18.8
  17.2
  15.8
  14.5
  13.4
  12.4
  11.5
  10.7
  10.0
  9.3
  8.7
  8.1
  7.6
  7.1
  6.7
  6.2
  5.9
  5.5

CECO Environmental Corp. is a provider of engineered technologies to the environmental, energy, and fluid handling and filtration industrial segments. The Company is focused on engineering, designing, building and installing systems that capture, clean and destroy airborne contaminants from industrial facilities, as well as equipment that controls emissions from such facilities, and fluid handling and filtration systems. Its Environmental segment is engaged in the design and manufacture of product recovery and air pollution control technologies that enable its customers to meet compliance targets for toxic emissions, fumes, volatile organic compounds, process and industrial odors. Its Energy segment provides customized solutions for the power and petrochemical industry. Its Fluid Handling and Filtration segment provides the design and manufacture of pump, filtration and fume exhaust solutions.

FINANCIAL RATIOS  of  CECO Environmental Corp. (CECE)

Valuation Ratios
P/E Ratio -6.1
Price to Sales 0.6
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 3.3
Price to Free Cash Flow 3.4
Growth Rates
Sales Growth Rate 13.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio 3
Current Ratio 0.1
LT Debt to Equity 60%
Total Debt to Equity 67.4%
Interest Coverage -4
Management Effectiveness
Return On Assets -5.5%
Ret/ On Assets - 3 Yr. Avg. -0.2%
Return On Total Capital -10.4%
Ret/ On T. Cap. - 3 Yr. Avg. -2.5%
Return On Equity -17.7%
Return On Equity - 3 Yr. Avg. -4.4%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 32.4%
Gross Margin - 3 Yr. Avg. 31.6%
EBITDA Margin -1.7%
EBITDA Margin - 3 Yr. Avg. 5%
Operating Margin -6.2%
Oper. Margin - 3 Yr. Avg. 1%
Pre-Tax Margin -7.9%
Pre-Tax Margin - 3 Yr. Avg. -0.9%
Net Profit Margin -9.1%
Net Profit Margin - 3 Yr. Avg. -1.9%
Effective Tax Rate -15.2%
Eff/ Tax Rate - 3 Yr. Avg. -32.1%
Payout Ratio -23.7%

CECE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CECE stock intrinsic value calculation we used $337 million for the last fiscal year's total revenue generated by CECO Environmental Corp.. The default revenue input number comes from 0001 income statement of CECO Environmental Corp.. 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 CECE stock valuation model: a) initial revenue growth rate of 27.6% 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 CECE is calculated based on our internal credit rating of CECO Environmental Corp., 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 CECO Environmental Corp..
    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 CECE stock the variable cost ratio is equal to 97.6%.

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 CECE 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 7.3% for CECO Environmental Corp..

Corporate tax rate of 27% is the nominal tax rate for CECO Environmental Corp.. 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 CECE 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 CECE are equal to 39.6%.

Life of production assets of 18.4 years is the average useful life of capital assets used in CECO Environmental Corp. 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 CECE is equal to 4.2%. 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 - $178.56 million for CECO Environmental Corp. - 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 34.980 million for CECO Environmental Corp. 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 CECO Environmental Corp. at the current share price and the inputted number of shares is $0.2 billion.

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