Intrinsic value of Carpenter Technology Corporation - CRS

Previous Close

$42.39

  Intrinsic Value

$41.81

stock screener

  Rating & Target

hold

-1%

Previous close

$42.39

 
Intrinsic value

$41.81

 
Up/down potential

-1%

 
Rating

hold

We calculate the intrinsic value of CRS 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 2.0

 

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, %
  14.10
  13.19
  12.37
  11.63
  10.97
  10.37
  9.84
  9.35
  8.92
  8.53
  8.17
  7.86
  7.57
  7.31
  7.08
  6.87
  6.69
  6.52
  6.37
  6.23
  6.11
  6.00
  5.90
  5.81
  5.73
  5.65
  5.59
  5.53
  5.48
  5.43
Revenue, $m
  2,462
  2,787
  3,132
  3,496
  3,880
  4,282
  4,703
  5,143
  5,602
  6,080
  6,576
  7,093
  7,630
  8,188
  8,768
  9,370
  9,997
  10,649
  11,326
  12,032
  12,767
  13,532
  14,330
  15,162
  16,030
  16,937
  17,883
  18,872
  19,905
  20,986
Variable operating expenses, $m
  1,864
  2,106
  2,362
  2,633
  2,918
  3,218
  3,531
  3,858
  4,199
  4,554
  4,890
  5,274
  5,674
  6,089
  6,520
  6,968
  7,434
  7,918
  8,423
  8,947
  9,494
  10,063
  10,656
  11,275
  11,920
  12,594
  13,298
  14,033
  14,802
  15,605
Fixed operating expenses, $m
  347
  355
  363
  371
  379
  387
  396
  405
  414
  423
  432
  441
  451
  461
  471
  482
  492
  503
  514
  525
  537
  549
  561
  573
  586
  599
  612
  625
  639
  653
Total operating expenses, $m
  2,211
  2,461
  2,725
  3,004
  3,297
  3,605
  3,927
  4,263
  4,613
  4,977
  5,322
  5,715
  6,125
  6,550
  6,991
  7,450
  7,926
  8,421
  8,937
  9,472
  10,031
  10,612
  11,217
  11,848
  12,506
  13,193
  13,910
  14,658
  15,441
  16,258
Operating income, $m
  251
  326
  407
  492
  582
  677
  777
  881
  989
  1,103
  1,254
  1,377
  1,505
  1,638
  1,777
  1,921
  2,071
  2,227
  2,390
  2,559
  2,736
  2,921
  3,113
  3,314
  3,524
  3,744
  3,973
  4,213
  4,464
  4,727
EBITDA, $m
  404
  495
  592
  696
  804
  919
  1,039
  1,164
  1,295
  1,432
  1,574
  1,722
  1,876
  2,037
  2,203
  2,377
  2,557
  2,745
  2,941
  3,145
  3,357
  3,579
  3,810
  4,052
  4,304
  4,568
  4,843
  5,131
  5,433
  5,748
Interest expense (income), $m
  28
  29
  41
  53
  67
  80
  95
  110
  126
  143
  161
  179
  198
  217
  238
  259
  281
  304
  328
  353
  378
  405
  433
  462
  493
  524
  557
  592
  628
  666
  705
Earnings before tax, $m
  221
  285
  353
  426
  502
  582
  666
  754
  846
  942
  1,075
  1,179
  1,288
  1,400
  1,518
  1,640
  1,767
  1,899
  2,037
  2,181
  2,331
  2,487
  2,651
  2,821
  3,000
  3,186
  3,381
  3,585
  3,799
  4,022
Tax expense, $m
  60
  77
  95
  115
  136
  157
  180
  204
  229
  254
  290
  318
  348
  378
  410
  443
  477
  513
  550
  589
  629
  672
  716
  762
  810
  860
  913
  968
  1,026
  1,086
Net income, $m
  161
  208
  258
  311
  366
  425
  487
  551
  618
  688
  785
  861
  940
  1,022
  1,108
  1,197
  1,290
  1,387
  1,487
  1,592
  1,702
  1,816
  1,935
  2,060
  2,190
  2,326
  2,468
  2,617
  2,773
  2,936

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
  3,429
  3,882
  4,362
  4,869
  5,404
  5,964
  6,551
  7,163
  7,802
  8,467
  9,159
  9,879
  10,627
  11,404
  12,211
  13,051
  13,923
  14,831
  15,775
  16,758
  17,781
  18,847
  19,958
  21,117
  22,326
  23,589
  24,907
  26,284
  27,723
  29,228
Adjusted assets (=assets-cash), $m
  3,429
  3,882
  4,362
  4,869
  5,404
  5,964
  6,551
  7,163
  7,802
  8,467
  9,159
  9,879
  10,627
  11,404
  12,211
  13,051
  13,923
  14,831
  15,775
  16,758
  17,781
  18,847
  19,958
  21,117
  22,326
  23,589
  24,907
  26,284
  27,723
  29,228
Revenue / Adjusted assets
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
Average production assets, $m
  1,689
  1,912
  2,148
  2,398
  2,662
  2,938
  3,227
  3,528
  3,843
  4,171
  4,511
  4,866
  5,234
  5,617
  6,015
  6,428
  6,858
  7,305
  7,770
  8,254
  8,758
  9,283
  9,830
  10,401
  10,997
  11,618
  12,268
  12,946
  13,655
  14,396
Working capital, $m
  867
  981
  1,102
  1,231
  1,366
  1,507
  1,656
  1,810
  1,972
  2,140
  2,315
  2,497
  2,686
  2,882
  3,086
  3,298
  3,519
  3,748
  3,987
  4,235
  4,494
  4,763
  5,044
  5,337
  5,643
  5,962
  6,295
  6,643
  7,007
  7,387
Total debt, $m
  760
  989
  1,232
  1,488
  1,759
  2,042
  2,339
  2,649
  2,972
  3,309
  3,659
  4,023
  4,402
  4,795
  5,204
  5,628
  6,070
  6,529
  7,007
  7,504
  8,022
  8,561
  9,124
  9,710
  10,322
  10,960
  11,627
  12,324
  13,053
  13,814
Total liabilities, $m
  1,735
  1,964
  2,207
  2,464
  2,734
  3,018
  3,315
  3,625
  3,948
  4,284
  4,635
  4,999
  5,377
  5,770
  6,179
  6,604
  7,045
  7,504
  7,982
  8,479
  8,997
  9,537
  10,099
  10,685
  11,297
  11,936
  12,603
  13,300
  14,028
  14,789
Total equity, $m
  1,694
  1,918
  2,155
  2,405
  2,669
  2,946
  3,236
  3,539
  3,854
  4,183
  4,525
  4,880
  5,250
  5,634
  6,032
  6,447
  6,878
  7,326
  7,793
  8,278
  8,784
  9,310
  9,859
  10,432
  11,029
  11,653
  12,304
  12,984
  13,695
  14,439
Total liabilities and equity, $m
  3,429
  3,882
  4,362
  4,869
  5,403
  5,964
  6,551
  7,164
  7,802
  8,467
  9,160
  9,879
  10,627
  11,404
  12,211
  13,051
  13,923
  14,830
  15,775
  16,757
  17,781
  18,847
  19,958
  21,117
  22,326
  23,589
  24,907
  26,284
  27,723
  29,228
Debt-to-equity ratio
  0.450
  0.520
  0.570
  0.620
  0.660
  0.690
  0.720
  0.750
  0.770
  0.790
  0.810
  0.820
  0.840
  0.850
  0.860
  0.870
  0.880
  0.890
  0.900
  0.910
  0.910
  0.920
  0.930
  0.930
  0.940
  0.940
  0.950
  0.950
  0.950
  0.960
Adjusted equity ratio
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  161
  208
  258
  311
  366
  425
  487
  551
  618
  688
  785
  861
  940
  1,022
  1,108
  1,197
  1,290
  1,387
  1,487
  1,592
  1,702
  1,816
  1,935
  2,060
  2,190
  2,326
  2,468
  2,617
  2,773
  2,936
Depreciation, amort., depletion, $m
  153
  169
  186
  203
  222
  242
  262
  283
  306
  329
  320
  345
  371
  398
  427
  456
  486
  518
  551
  585
  621
  658
  697
  738
  780
  824
  870
  918
  968
  1,021
Funds from operations, $m
  314
  377
  444
  514
  588
  667
  749
  834
  924
  1,017
  1,105
  1,206
  1,311
  1,421
  1,535
  1,653
  1,776
  1,905
  2,038
  2,178
  2,323
  2,474
  2,632
  2,797
  2,970
  3,150
  3,338
  3,535
  3,742
  3,957
Change in working capital, $m
  107
  114
  121
  128
  135
  142
  148
  155
  161
  168
  175
  182
  189
  196
  204
  212
  221
  229
  239
  248
  259
  269
  281
  293
  306
  319
  333
  348
  364
  380
Cash from operations, $m
  207
  263
  322
  386
  453
  525
  600
  679
  762
  849
  930
  1,024
  1,122
  1,224
  1,330
  1,441
  1,556
  1,675
  1,800
  1,929
  2,064
  2,205
  2,351
  2,504
  2,664
  2,831
  3,005
  3,187
  3,378
  3,577
Maintenance CAPEX, $m
  -105
  -120
  -136
  -152
  -170
  -189
  -208
  -229
  -250
  -273
  -296
  -320
  -345
  -371
  -398
  -427
  -456
  -486
  -518
  -551
  -585
  -621
  -658
  -697
  -738
  -780
  -824
  -870
  -918
  -968
New CAPEX, $m
  -209
  -223
  -237
  -250
  -263
  -276
  -289
  -302
  -315
  -328
  -341
  -354
  -368
  -383
  -398
  -413
  -430
  -447
  -465
  -484
  -504
  -525
  -547
  -571
  -596
  -622
  -649
  -678
  -709
  -741
Cash from investing activities, $m
  -314
  -343
  -373
  -402
  -433
  -465
  -497
  -531
  -565
  -601
  -637
  -674
  -713
  -754
  -796
  -840
  -886
  -933
  -983
  -1,035
  -1,089
  -1,146
  -1,205
  -1,268
  -1,334
  -1,402
  -1,473
  -1,548
  -1,627
  -1,709
Free cash flow, $m
  -107
  -80
  -50
  -16
  20
  60
  103
  149
  197
  249
  293
  350
  409
  470
  534
  601
  670
  742
  817
  894
  975
  1,059
  1,146
  1,236
  1,331
  1,429
  1,532
  1,639
  1,751
  1,867
Issuance/(repayment) of debt, $m
  214
  229
  243
  257
  270
  284
  297
  310
  323
  337
  350
  364
  378
  393
  409
  425
  442
  459
  478
  497
  518
  539
  562
  586
  612
  639
  667
  697
  728
  762
Issuance/(repurchase) of shares, $m
  47
  15
  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  
  261
  244
  243
  257
  270
  284
  297
  310
  323
  337
  350
  364
  378
  393
  409
  425
  442
  459
  478
  497
  518
  539
  562
  586
  612
  639
  667
  697
  728
  762
Total cash flow (excl. dividends), $m
  154
  164
  193
  240
  291
  344
  400
  459
  521
  585
  644
  714
  787
  864
  943
  1,026
  1,112
  1,201
  1,294
  1,391
  1,493
  1,598
  1,708
  1,823
  1,943
  2,068
  2,199
  2,336
  2,479
  2,629
Retained Cash Flow (-), $m
  -208
  -223
  -237
  -251
  -264
  -277
  -290
  -303
  -316
  -329
  -342
  -355
  -369
  -384
  -399
  -415
  -431
  -448
  -466
  -485
  -506
  -527
  -549
  -572
  -597
  -624
  -651
  -680
  -711
  -743
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
  -54
  -59
  -44
  -10
  27
  67
  110
  156
  205
  257
  302
  359
  418
  480
  544
  611
  680
  753
  828
  906
  987
  1,071
  1,159
  1,250
  1,345
  1,444
  1,548
  1,655
  1,768
  1,885
Discount rate, %
  4.70
  4.94
  5.18
  5.44
  5.71
  6.00
  6.30
  6.61
  6.94
  7.29
  7.66
  8.04
  8.44
  8.86
  9.31
  9.77
  10.26
  10.77
  11.31
  11.88
  12.47
  13.09
  13.75
  14.44
  15.16
  15.92
  16.71
  17.55
  18.42
  19.35
PV of cash for distribution, $m
  -51
  -54
  -38
  -8
  20
  47
  72
  94
  112
  127
  134
  142
  146
  146
  143
  137
  129
  119
  108
  96
  84
  71
  60
  49
  39
  31
  24
  18
  13
  9
Current shareholders' claim on cash, %
  97.7
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1

Carpenter Technology Corporation is engaged in the manufacturing, fabrication and distribution of specialty metals. The Company's segments include Specialty Alloys Operations (SAO) and Performance Engineered Products (PEP). Its SAO segment consists of alloy and stainless steel manufacturing operations. Its PEP segment includes the Dynamet titanium business, the Carpenter Powder Products business, the Amega West business, the Specialty Steel Supply business and the Latrobe and Mexico distribution businesses. It develops, manufactures and distributes cast/wrought and powder metal stainless steels, and special alloys, including high temperature (iron-nickel-cobalt base), stainless, corrosion resistant, controlled expansion alloys, ultra-high strength and implantable alloys, tool and die steels and other specialty metals, as well as cast/wrought titanium alloys. The Company manufactures and rents down-hole drilling tools and components used in the oil and gas industry.

FINANCIAL RATIOS  of  Carpenter Technology Corporation (CRS)

Valuation Ratios
P/E Ratio 42.2
Price to Sales 1.1
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 15.4
Price to Free Cash Flow 66.1
Growth Rates
Sales Growth Rate -0.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 4.2%
Cap. Spend. - 3 Yr. Gr. Rate -22.3%
Financial Strength
Quick Ratio 1
Current Ratio 0.1
LT Debt to Equity 45.9%
Total Debt to Equity 50.5%
Interest Coverage 4
Management Effectiveness
Return On Assets 2.3%
Ret/ On Assets - 3 Yr. Avg. 1.9%
Return On Total Capital 2.7%
Ret/ On T. Cap. - 3 Yr. Avg. 2.1%
Return On Equity 4.1%
Return On Equity - 3 Yr. Avg. 3.1%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 15.8%
Gross Margin - 3 Yr. Avg. 15.1%
EBITDA Margin 12%
EBITDA Margin - 3 Yr. Avg. 10.7%
Operating Margin 5.5%
Oper. Margin - 3 Yr. Avg. 4.5%
Pre-Tax Margin 3.9%
Pre-Tax Margin - 3 Yr. Avg. 3%
Net Profit Margin 2.6%
Net Profit Margin - 3 Yr. Avg. 2%
Effective Tax Rate 32.9%
Eff/ Tax Rate - 3 Yr. Avg. 38.9%
Payout Ratio 72.3%

CRS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CRS stock intrinsic value calculation we used $2158 million for the last fiscal year's total revenue generated by Carpenter Technology Corporation. The default revenue input number comes from 0001 income statement of Carpenter Technology 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 CRS stock valuation model: a) initial revenue growth rate of 14.1% 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 4.7%, whose default value for CRS is calculated based on our internal credit rating of Carpenter Technology 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 Carpenter Technology 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 CRS stock the variable cost ratio is equal to 75.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $340 million in the base year in the intrinsic value calculation for CRS 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 Carpenter Technology Corporation.

Corporate tax rate of 27% is the nominal tax rate for Carpenter Technology 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 CRS 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 CRS are equal to 68.6%.

Life of production assets of 14.1 years is the average useful life of capital assets used in Carpenter Technology 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 CRS is equal to 35.2%. 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 - $1485.9 million for Carpenter Technology 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 47.315 million for Carpenter Technology 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 Carpenter Technology Corporation at the current share price and the inputted number of shares is $2.0 billion.

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