Intrinsic value of Cooper Tire & Rubber Company - CTB

Previous Close

$30.55

  Intrinsic Value

$44.09

stock screener

  Rating & Target

buy

+44%

Previous close

$30.55

 
Intrinsic value

$44.09

 
Up/down potential

+44%

 
Rating

buy

We calculate the intrinsic value of CTB 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 1.5

 

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
  2,864
  2,930
  3,005
  3,090
  3,184
  3,286
  3,398
  3,519
  3,650
  3,790
  3,940
  4,100
  4,270
  4,451
  4,643
  4,846
  5,062
  5,290
  5,530
  5,784
  6,052
  6,335
  6,633
  6,947
  7,278
  7,626
  7,993
  8,378
  8,784
  9,211
Variable operating expenses, $m
  2,555
  2,613
  2,680
  2,755
  2,838
  2,929
  3,028
  3,136
  3,252
  3,376
  3,495
  3,637
  3,788
  3,948
  4,119
  4,299
  4,490
  4,692
  4,906
  5,131
  5,369
  5,620
  5,884
  6,163
  6,456
  6,765
  7,090
  7,432
  7,792
  8,171
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
  2,555
  2,613
  2,680
  2,755
  2,838
  2,929
  3,028
  3,136
  3,252
  3,376
  3,495
  3,637
  3,788
  3,948
  4,119
  4,299
  4,490
  4,692
  4,906
  5,131
  5,369
  5,620
  5,884
  6,163
  6,456
  6,765
  7,090
  7,432
  7,792
  8,171
Operating income, $m
  310
  317
  326
  335
  346
  357
  370
  384
  398
  414
  445
  463
  482
  503
  524
  547
  572
  597
  625
  653
  684
  716
  749
  785
  822
  861
  903
  946
  992
  1,040
EBITDA, $m
  463
  474
  486
  500
  515
  531
  549
  569
  590
  613
  637
  663
  690
  720
  751
  784
  818
  855
  894
  935
  978
  1,024
  1,072
  1,123
  1,177
  1,233
  1,292
  1,355
  1,420
  1,489
Interest expense (income), $m
  29
  31
  34
  37
  41
  45
  50
  55
  61
  67
  74
  81
  89
  97
  106
  115
  125
  136
  147
  159
  171
  184
  198
  213
  228
  244
  261
  279
  298
  318
  339
Earnings before tax, $m
  279
  283
  288
  294
  300
  307
  314
  322
  331
  340
  364
  374
  385
  397
  409
  422
  436
  450
  466
  482
  499
  518
  537
  557
  578
  600
  624
  648
  674
  702
Tax expense, $m
  75
  77
  78
  79
  81
  83
  85
  87
  89
  92
  98
  101
  104
  107
  110
  114
  118
  122
  126
  130
  135
  140
  145
  150
  156
  162
  168
  175
  182
  189
Net income, $m
  204
  207
  211
  215
  219
  224
  230
  235
  242
  248
  265
  273
  281
  290
  299
  308
  318
  329
  340
  352
  365
  378
  392
  406
  422
  438
  455
  473
  492
  512

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
  2,687
  2,749
  2,819
  2,899
  2,986
  3,083
  3,188
  3,302
  3,424
  3,555
  3,696
  3,846
  4,006
  4,175
  4,355
  4,546
  4,748
  4,962
  5,188
  5,426
  5,678
  5,943
  6,223
  6,517
  6,827
  7,154
  7,498
  7,860
  8,240
  8,641
Adjusted assets (=assets-cash), $m
  2,687
  2,749
  2,819
  2,899
  2,986
  3,083
  3,188
  3,302
  3,424
  3,555
  3,696
  3,846
  4,006
  4,175
  4,355
  4,546
  4,748
  4,962
  5,188
  5,426
  5,678
  5,943
  6,223
  6,517
  6,827
  7,154
  7,498
  7,860
  8,240
  8,641
Revenue / Adjusted assets
  1.066
  1.066
  1.066
  1.066
  1.066
  1.066
  1.066
  1.066
  1.066
  1.066
  1.066
  1.066
  1.066
  1.066
  1.066
  1.066
  1.066
  1.066
  1.066
  1.066
  1.066
  1.066
  1.066
  1.066
  1.066
  1.066
  1.066
  1.066
  1.066
  1.066
Average production assets, $m
  1,088
  1,113
  1,142
  1,174
  1,210
  1,249
  1,291
  1,337
  1,387
  1,440
  1,497
  1,558
  1,623
  1,691
  1,764
  1,842
  1,923
  2,010
  2,101
  2,198
  2,300
  2,407
  2,521
  2,640
  2,766
  2,898
  3,037
  3,184
  3,338
  3,500
Working capital, $m
  533
  545
  559
  575
  592
  611
  632
  655
  679
  705
  733
  763
  794
  828
  864
  901
  941
  984
  1,029
  1,076
  1,126
  1,178
  1,234
  1,292
  1,354
  1,418
  1,487
  1,558
  1,634
  1,713
Total debt, $m
  340
  375
  414
  458
  507
  560
  618
  682
  749
  822
  900
  984
  1,072
  1,167
  1,266
  1,372
  1,485
  1,603
  1,728
  1,861
  2,000
  2,148
  2,303
  2,466
  2,638
  2,820
  3,011
  3,211
  3,423
  3,645
Total liabilities, $m
  1,491
  1,525
  1,565
  1,609
  1,657
  1,711
  1,769
  1,832
  1,900
  1,973
  2,051
  2,134
  2,223
  2,317
  2,417
  2,523
  2,635
  2,754
  2,879
  3,012
  3,151
  3,298
  3,454
  3,617
  3,789
  3,971
  4,161
  4,362
  4,573
  4,796
Total equity, $m
  1,196
  1,223
  1,255
  1,290
  1,329
  1,372
  1,419
  1,469
  1,524
  1,582
  1,645
  1,711
  1,783
  1,858
  1,938
  2,023
  2,113
  2,208
  2,309
  2,415
  2,527
  2,645
  2,769
  2,900
  3,038
  3,184
  3,337
  3,498
  3,667
  3,845
Total liabilities and equity, $m
  2,687
  2,748
  2,820
  2,899
  2,986
  3,083
  3,188
  3,301
  3,424
  3,555
  3,696
  3,845
  4,006
  4,175
  4,355
  4,546
  4,748
  4,962
  5,188
  5,427
  5,678
  5,943
  6,223
  6,517
  6,827
  7,155
  7,498
  7,860
  8,240
  8,641
Debt-to-equity ratio
  0.280
  0.310
  0.330
  0.350
  0.380
  0.410
  0.440
  0.460
  0.490
  0.520
  0.550
  0.570
  0.600
  0.630
  0.650
  0.680
  0.700
  0.730
  0.750
  0.770
  0.790
  0.810
  0.830
  0.850
  0.870
  0.890
  0.900
  0.920
  0.930
  0.950
Adjusted equity ratio
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  204
  207
  211
  215
  219
  224
  230
  235
  242
  248
  265
  273
  281
  290
  299
  308
  318
  329
  340
  352
  365
  378
  392
  406
  422
  438
  455
  473
  492
  512
Depreciation, amort., depletion, $m
  153
  157
  160
  164
  169
  174
  179
  185
  192
  199
  192
  200
  208
  217
  226
  236
  247
  258
  269
  282
  295
  309
  323
  338
  355
  372
  389
  408
  428
  449
Funds from operations, $m
  357
  363
  371
  379
  388
  398
  409
  421
  433
  447
  457
  473
  489
  506
  525
  544
  565
  587
  610
  634
  659
  686
  715
  745
  776
  810
  845
  881
  920
  961
Change in working capital, $m
  10
  12
  14
  16
  17
  19
  21
  23
  24
  26
  28
  30
  32
  34
  36
  38
  40
  42
  45
  47
  50
  53
  55
  58
  62
  65
  68
  72
  75
  79
Cash from operations, $m
  347
  351
  357
  363
  371
  379
  388
  398
  409
  421
  429
  443
  457
  473
  489
  506
  525
  544
  565
  587
  610
  634
  659
  686
  715
  745
  776
  810
  845
  881
Maintenance CAPEX, $m
  -137
  -140
  -143
  -146
  -151
  -155
  -160
  -166
  -171
  -178
  -185
  -192
  -200
  -208
  -217
  -226
  -236
  -247
  -258
  -269
  -282
  -295
  -309
  -323
  -338
  -355
  -372
  -389
  -408
  -428
New CAPEX, $m
  -22
  -25
  -29
  -32
  -36
  -39
  -43
  -46
  -50
  -53
  -57
  -61
  -65
  -69
  -73
  -77
  -82
  -87
  -91
  -97
  -102
  -107
  -113
  -119
  -126
  -132
  -139
  -147
  -154
  -162
Cash from investing activities, $m
  -159
  -165
  -172
  -178
  -187
  -194
  -203
  -212
  -221
  -231
  -242
  -253
  -265
  -277
  -290
  -303
  -318
  -334
  -349
  -366
  -384
  -402
  -422
  -442
  -464
  -487
  -511
  -536
  -562
  -590
Free cash flow, $m
  188
  187
  186
  185
  185
  185
  186
  187
  188
  190
  188
  190
  193
  196
  199
  203
  207
  211
  216
  221
  226
  232
  238
  244
  251
  258
  266
  274
  282
  291
Issuance/(repayment) of debt, $m
  29
  34
  39
  44
  49
  54
  58
  63
  68
  73
  78
  83
  89
  94
  100
  106
  112
  119
  125
  132
  140
  147
  155
  163
  172
  181
  191
  201
  211
  222
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  
  29
  34
  39
  44
  49
  54
  58
  63
  68
  73
  78
  83
  89
  94
  100
  106
  112
  119
  125
  132
  140
  147
  155
  163
  172
  181
  191
  201
  211
  222
Total cash flow (excl. dividends), $m
  217
  221
  225
  229
  233
  238
  244
  250
  256
  263
  266
  274
  282
  290
  299
  309
  319
  330
  341
  353
  365
  379
  393
  407
  423
  439
  456
  475
  494
  514
Retained Cash Flow (-), $m
  -24
  -27
  -31
  -35
  -39
  -43
  -47
  -51
  -54
  -58
  -63
  -67
  -71
  -76
  -80
  -85
  -90
  -95
  -100
  -106
  -112
  -118
  -124
  -131
  -138
  -145
  -153
  -161
  -169
  -178
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
  193
  193
  193
  194
  194
  196
  197
  199
  201
  204
  203
  207
  210
  215
  219
  224
  229
  235
  240
  247
  254
  261
  268
  276
  285
  294
  303
  314
  324
  335
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
  185
  177
  168
  159
  151
  142
  133
  124
  116
  107
  97
  88
  80
  72
  64
  57
  50
  43
  37
  31
  26
  22
  18
  14
  11
  9
  7
  5
  4
  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

Cooper Tire & Rubber Company is a manufacturer and marketer of replacement tires. The Company specializes in the design, manufacture, marketing and sales of passenger car, light truck, medium truck, motorcycle, and racing tires. The Company operates through four segments: North America, Latin America, Europe, and Asia. The North America segment comprises its operations in the United States and Canada. The Americas Tire Operations segment manufactures and markets passenger car and light truck tires, for sale in the United States replacement markets. The Latin America segment comprises its operations in Mexico, Central America, and South America. The European segment has operations in the United Kingdom and the Republic of Serbia. Its the United Kingdom entity manufactures and markets passenger car, light truck, motorcycle and racing tires and tire retread material. As of December 31, 2016, the Company operated nine manufacturing facilities and 20 distribution centers in 10 countries.

FINANCIAL RATIOS  of  Cooper Tire & Rubber Company (CTB)

Valuation Ratios
P/E Ratio 6.5
Price to Sales 0.6
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 5.2
Price to Free Cash Flow 12
Growth Rates
Sales Growth Rate -1.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -4.4%
Cap. Spend. - 3 Yr. Gr. Rate -0.6%
Financial Strength
Quick Ratio 18
Current Ratio 0.1
LT Debt to Equity 27.7%
Total Debt to Equity 30.3%
Interest Coverage 14
Management Effectiveness
Return On Assets 10.6%
Ret/ On Assets - 3 Yr. Avg. 9.6%
Return On Total Capital 18.4%
Ret/ On T. Cap. - 3 Yr. Avg. 17.4%
Return On Equity 24.1%
Return On Equity - 3 Yr. Avg. 23.6%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 22.3%
Gross Margin - 3 Yr. Avg. 19.9%
EBITDA Margin 18%
EBITDA Margin - 3 Yr. Avg. 16.5%
Operating Margin 13.2%
Oper. Margin - 3 Yr. Avg. 11.3%
Pre-Tax Margin 12.5%
Pre-Tax Margin - 3 Yr. Avg. 11.3%
Net Profit Margin 8.5%
Net Profit Margin - 3 Yr. Avg. 7.3%
Effective Tax Rate 31.6%
Eff/ Tax Rate - 3 Yr. Avg. 33%
Payout Ratio 9.3%

CTB stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CTB stock intrinsic value calculation we used $2808 million for the last fiscal year's total revenue generated by Cooper Tire & Rubber Company. The default revenue input number comes from 0001 income statement of Cooper Tire & Rubber 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 CTB 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 CTB is calculated based on our internal credit rating of Cooper Tire & Rubber 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 Cooper Tire & Rubber 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 CTB stock the variable cost ratio is equal to 89.2%.

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 CTB 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 9.9% for Cooper Tire & Rubber Company.

Corporate tax rate of 27% is the nominal tax rate for Cooper Tire & Rubber 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 CTB 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 CTB are equal to 38%.

Life of production assets of 7.8 years is the average useful life of capital assets used in Cooper Tire & Rubber 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 CTB is equal to 18.6%. 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 - $1172.043 million for Cooper Tire & Rubber 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 49.983 million for Cooper Tire & Rubber 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 Cooper Tire & Rubber Company at the current share price and the inputted number of shares is $1.5 billion.

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