Intrinsic value of Central Garden & Pet Company - CENT

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$27.68

  Intrinsic Value

$26.02

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  Rating & Target

hold

-6%

Previous close

$27.68

 
Intrinsic value

$26.02

 
Up/down potential

-6%

 
Rating

hold

We calculate the intrinsic value of CENT 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 1.6

 

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, %
  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
  4.87
  4.89
  4.90
  4.91
  4.92
  4.92
  4.93
  4.94
  4.95
  4.95
  4.96
  4.96
  4.96
  4.97
  4.97
  4.97
  4.98
Revenue, $m
  2,315
  2,420
  2,531
  2,649
  2,772
  2,903
  3,040
  3,185
  3,337
  3,498
  3,666
  3,844
  4,031
  4,227
  4,434
  4,651
  4,879
  5,119
  5,371
  5,636
  5,914
  6,207
  6,514
  6,837
  7,176
  7,532
  7,906
  8,299
  8,712
  9,146
Variable operating expenses, $m
  2,138
  2,234
  2,336
  2,443
  2,556
  2,675
  2,801
  2,933
  3,073
  3,219
  3,352
  3,514
  3,685
  3,864
  4,053
  4,252
  4,460
  4,680
  4,910
  5,152
  5,407
  5,674
  5,955
  6,250
  6,560
  6,886
  7,228
  7,587
  7,964
  8,361
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
  2,138
  2,234
  2,336
  2,443
  2,556
  2,675
  2,801
  2,933
  3,073
  3,219
  3,352
  3,514
  3,685
  3,864
  4,053
  4,252
  4,460
  4,680
  4,910
  5,152
  5,407
  5,674
  5,955
  6,250
  6,560
  6,886
  7,228
  7,587
  7,964
  8,361
Operating income, $m
  177
  186
  195
  206
  216
  227
  239
  252
  265
  278
  315
  330
  346
  363
  381
  399
  419
  439
  461
  484
  508
  533
  559
  587
  616
  647
  679
  712
  748
  785
EBITDA, $m
  231
  242
  253
  265
  277
  290
  304
  318
  334
  350
  367
  384
  403
  423
  443
  465
  488
  512
  537
  563
  591
  621
  651
  684
  717
  753
  791
  830
  871
  914
Interest expense (income), $m
  28
  50
  53
  56
  60
  63
  67
  71
  76
  80
  85
  90
  95
  100
  106
  112
  119
  126
  133
  140
  148
  156
  165
  174
  183
  193
  204
  215
  227
  239
  252
Earnings before tax, $m
  127
  133
  139
  146
  153
  160
  168
  176
  185
  194
  225
  235
  246
  257
  268
  280
  293
  307
  321
  336
  352
  368
  385
  404
  423
  443
  464
  486
  509
  533
Tax expense, $m
  34
  36
  38
  39
  41
  43
  45
  48
  50
  52
  61
  63
  66
  69
  72
  76
  79
  83
  87
  91
  95
  99
  104
  109
  114
  120
  125
  131
  137
  144
Net income, $m
  93
  97
  102
  106
  112
  117
  123
  129
  135
  141
  164
  172
  179
  187
  196
  205
  214
  224
  234
  245
  257
  269
  281
  295
  308
  323
  339
  355
  372
  389

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
  1,701
  1,778
  1,860
  1,946
  2,037
  2,133
  2,234
  2,340
  2,452
  2,570
  2,694
  2,824
  2,962
  3,106
  3,258
  3,417
  3,585
  3,761
  3,946
  4,141
  4,346
  4,560
  4,786
  5,023
  5,273
  5,534
  5,809
  6,098
  6,401
  6,720
Adjusted assets (=assets-cash), $m
  1,701
  1,778
  1,860
  1,946
  2,037
  2,133
  2,234
  2,340
  2,452
  2,570
  2,694
  2,824
  2,962
  3,106
  3,258
  3,417
  3,585
  3,761
  3,946
  4,141
  4,346
  4,560
  4,786
  5,023
  5,273
  5,534
  5,809
  6,098
  6,401
  6,720
Revenue / Adjusted assets
  1.361
  1.361
  1.361
  1.361
  1.361
  1.361
  1.361
  1.361
  1.361
  1.361
  1.361
  1.361
  1.361
  1.361
  1.361
  1.361
  1.361
  1.361
  1.361
  1.361
  1.361
  1.361
  1.361
  1.361
  1.361
  1.361
  1.361
  1.361
  1.361
  1.361
Average production assets, $m
  419
  438
  458
  479
  502
  525
  550
  576
  604
  633
  664
  696
  730
  765
  802
  842
  883
  927
  972
  1,020
  1,070
  1,123
  1,179
  1,237
  1,299
  1,363
  1,431
  1,502
  1,577
  1,655
Working capital, $m
  535
  559
  585
  612
  640
  671
  702
  736
  771
  808
  847
  888
  931
  976
  1,024
  1,074
  1,127
  1,182
  1,241
  1,302
  1,366
  1,434
  1,505
  1,579
  1,658
  1,740
  1,826
  1,917
  2,013
  2,113
Total debt, $m
  736
  781
  829
  880
  933
  989
  1,049
  1,111
  1,177
  1,246
  1,319
  1,395
  1,476
  1,561
  1,650
  1,743
  1,842
  1,945
  2,054
  2,168
  2,288
  2,415
  2,547
  2,686
  2,833
  2,986
  3,148
  3,317
  3,495
  3,682
Total liabilities, $m
  998
  1,044
  1,092
  1,142
  1,196
  1,252
  1,311
  1,374
  1,439
  1,509
  1,581
  1,658
  1,738
  1,823
  1,912
  2,006
  2,104
  2,208
  2,317
  2,431
  2,551
  2,677
  2,810
  2,949
  3,095
  3,249
  3,410
  3,580
  3,758
  3,945
Total equity, $m
  702
  734
  768
  804
  841
  881
  923
  966
  1,013
  1,061
  1,113
  1,166
  1,223
  1,283
  1,345
  1,411
  1,481
  1,553
  1,630
  1,710
  1,795
  1,883
  1,977
  2,075
  2,178
  2,286
  2,399
  2,518
  2,644
  2,775
Total liabilities and equity, $m
  1,700
  1,778
  1,860
  1,946
  2,037
  2,133
  2,234
  2,340
  2,452
  2,570
  2,694
  2,824
  2,961
  3,106
  3,257
  3,417
  3,585
  3,761
  3,947
  4,141
  4,346
  4,560
  4,787
  5,024
  5,273
  5,535
  5,809
  6,098
  6,402
  6,720
Debt-to-equity ratio
  1.050
  1.060
  1.080
  1.090
  1.110
  1.120
  1.140
  1.150
  1.160
  1.170
  1.190
  1.200
  1.210
  1.220
  1.230
  1.240
  1.240
  1.250
  1.260
  1.270
  1.280
  1.280
  1.290
  1.290
  1.300
  1.310
  1.310
  1.320
  1.320
  1.330
Adjusted equity ratio
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  93
  97
  102
  106
  112
  117
  123
  129
  135
  141
  164
  172
  179
  187
  196
  205
  214
  224
  234
  245
  257
  269
  281
  295
  308
  323
  339
  355
  372
  389
Depreciation, amort., depletion, $m
  55
  56
  58
  59
  61
  63
  65
  67
  69
  71
  52
  54
  57
  60
  63
  66
  69
  72
  76
  80
  84
  88
  92
  97
  101
  107
  112
  117
  123
  129
Funds from operations, $m
  147
  153
  159
  166
  173
  180
  187
  195
  204
  213
  216
  226
  236
  247
  259
  270
  283
  296
  310
  325
  340
  356
  373
  391
  410
  430
  450
  472
  495
  519
Change in working capital, $m
  23
  24
  26
  27
  29
  30
  32
  33
  35
  37
  39
  41
  43
  45
  48
  50
  53
  55
  58
  61
  64
  68
  71
  75
  78
  82
  86
  91
  95
  100
Cash from operations, $m
  124
  129
  134
  139
  144
  150
  156
  162
  169
  176
  177
  185
  193
  202
  211
  220
  230
  241
  252
  264
  276
  289
  302
  317
  332
  347
  364
  381
  399
  419
Maintenance CAPEX, $m
  -31
  -33
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
  -60
  -63
  -66
  -69
  -72
  -76
  -80
  -84
  -88
  -92
  -97
  -101
  -107
  -112
  -117
  -123
New CAPEX, $m
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -36
  -37
  -39
  -41
  -43
  -46
  -48
  -50
  -53
  -56
  -58
  -61
  -64
  -68
  -71
  -75
  -78
Cash from investing activities, $m
  -49
  -52
  -54
  -57
  -59
  -63
  -66
  -69
  -73
  -76
  -80
  -84
  -88
  -93
  -97
  -102
  -107
  -112
  -118
  -124
  -130
  -137
  -144
  -150
  -158
  -165
  -175
  -183
  -192
  -201
Free cash flow, $m
  75
  77
  79
  82
  84
  87
  90
  93
  96
  99
  97
  101
  105
  109
  114
  118
  123
  129
  134
  140
  146
  152
  159
  166
  174
  181
  190
  198
  207
  217
Issuance/(repayment) of debt, $m
  44
  45
  48
  51
  53
  56
  59
  62
  66
  69
  73
  77
  81
  85
  89
  94
  98
  103
  109
  114
  120
  126
  133
  139
  146
  154
  161
  170
  178
  187
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  
  44
  45
  48
  51
  53
  56
  59
  62
  66
  69
  73
  77
  81
  85
  89
  94
  98
  103
  109
  114
  120
  126
  133
  139
  146
  154
  161
  170
  178
  187
Total cash flow (excl. dividends), $m
  118
  122
  127
  132
  138
  143
  149
  155
  162
  169
  170
  178
  185
  194
  203
  212
  222
  232
  243
  254
  266
  278
  292
  305
  320
  335
  351
  368
  385
  404
Retained Cash Flow (-), $m
  -30
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -49
  -51
  -54
  -57
  -60
  -63
  -66
  -69
  -73
  -77
  -80
  -84
  -89
  -93
  -98
  -103
  -108
  -114
  -119
  -125
  -132
Prev. year cash balance distribution, $m
  280
  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
  368
  90
  93
  97
  100
  104
  107
  111
  115
  120
  119
  124
  129
  134
  140
  146
  152
  159
  166
  174
  181
  190
  198
  207
  217
  227
  237
  249
  260
  272
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
  353
  83
  81
  80
  77
  75
  72
  70
  66
  63
  56
  53
  49
  45
  41
  37
  33
  29
  26
  22
  19
  16
  13
  11
  8
  7
  5
  4
  3
  2
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

Central Garden & Pet Company is a marketer and producer of branded products and distributor of third party products in the pet and lawn and garden supplies industries in the United States. The Company operates in two segments: Pet segment and the Garden segment. It is a marketer and producer of pet supplies in the United States. In addition, its Pet segment operates sales and logistics networks in the industry strategically supporting its brands. Its principal pet supplies categories are dog and cat, aquatics, bird and small animal, wild bird feed and animal health products. The Company markets and produces various brands, including Pennington, The Rebels, AMDRO, Lilly Miller, Ironite, Sevin, and Over-N-Out. Its Garden segment operates a sales and logistics network that strategically supports its brands. The Company's principal lawn and garden product lines include grass seed, wild bird feed and insect control products.

FINANCIAL RATIOS  of  Central Garden & Pet Company (CENT)

Valuation Ratios
P/E Ratio 18.1
Price to Sales 0.7
Price to Book 2.3
Price to Tangible Book
Price to Cash Flow 12.6
Price to Free Cash Flow 20.8
Growth Rates
Sales Growth Rate 12.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 60.7%
Cap. Spend. - 3 Yr. Gr. Rate 21.5%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 62.3%
Total Debt to Equity 62.3%
Interest Coverage 6
Management Effectiveness
Return On Assets 7.8%
Ret/ On Assets - 3 Yr. Avg. 6.2%
Return On Total Capital 8%
Ret/ On T. Cap. - 3 Yr. Avg. 5.4%
Return On Equity 13.3%
Return On Equity - 3 Yr. Avg. 9.4%
Asset Turnover 1.7
Profitability Ratios
Gross Margin 30.8%
Gross Margin - 3 Yr. Avg. 30.2%
EBITDA Margin 9.6%
EBITDA Margin - 3 Yr. Avg. 8.3%
Operating Margin 7.6%
Oper. Margin - 3 Yr. Avg. 6.7%
Pre-Tax Margin 6.1%
Pre-Tax Margin - 3 Yr. Avg. 4.4%
Net Profit Margin 3.8%
Net Profit Margin - 3 Yr. Avg. 2.7%
Effective Tax Rate 36.5%
Eff/ Tax Rate - 3 Yr. Avg. 35.8%
Payout Ratio 0%

CENT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CENT stock intrinsic value calculation we used $2215 million for the last fiscal year's total revenue generated by Central Garden & Pet Company. The default revenue input number comes from 0001 income statement of Central Garden & Pet Company. 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 CENT stock valuation model: a) initial revenue growth rate of 4.5% 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 4.3%, whose default value for CENT is calculated based on our internal credit rating of Central Garden & Pet Company, 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 Central Garden & Pet Company.
    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 CENT stock the variable cost ratio is equal to 92.4%.

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 CENT 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 7.2% for Central Garden & Pet Company.

Corporate tax rate of 27% is the nominal tax rate for Central Garden & Pet Company. 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 CENT 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 CENT are equal to 18.1%.

Life of production assets of 12.8 years is the average useful life of capital assets used in Central Garden & Pet Company 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 CENT is equal to 23.1%. 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 - $952.449 million for Central Garden & Pet Company - 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 57.778 million for Central Garden & Pet Company 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 Central Garden & Pet Company at the current share price and the inputted number of shares is $1.6 billion.

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