Intrinsic value of Covenant Transportation Group Cl A - CVTI

Previous Close

$28.78

  Intrinsic Value

$69.44

stock screener

  Rating & Target

str. buy

+141%

Previous close

$28.78

 
Intrinsic value

$69.44

 
Up/down potential

+141%

 
Rating

str. buy

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of CVTI 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 2016), $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 0.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -7.32
  8.50
  8.15
  7.83
  7.55
  7.30
  7.07
  6.86
  6.67
  6.51
  6.36
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.53
  5.47
  5.43
  5.38
  5.34
  5.31
  5.28
  5.25
  5.23
  5.20
  5.18
  5.16
Revenue, $m
  671
  728
  787
  849
  913
  980
  1,049
  1,121
  1,196
  1,274
  1,355
  1,439
  1,527
  1,618
  1,713
  1,813
  1,916
  2,025
  2,138
  2,256
  2,379
  2,508
  2,643
  2,785
  2,933
  3,087
  3,249
  3,419
  3,597
  3,784
  3,979
Variable operating expenses, $m
 
  248
  268
  289
  310
  333
  357
  381
  407
  433
  461
  489
  519
  550
  583
  616
  652
  688
  727
  767
  809
  853
  899
  947
  997
  1,050
  1,105
  1,163
  1,223
  1,286
  1,353
Fixed operating expenses, $m
 
  431
  441
  452
  464
  475
  487
  499
  512
  525
  538
  551
  565
  579
  593
  608
  623
  639
  655
  671
  688
  705
  723
  741
  760
  779
  798
  818
  839
  859
  881
Total operating expenses, $m
  638
  679
  709
  741
  774
  808
  844
  880
  919
  958
  999
  1,040
  1,084
  1,129
  1,176
  1,224
  1,275
  1,327
  1,382
  1,438
  1,497
  1,558
  1,622
  1,688
  1,757
  1,829
  1,903
  1,981
  2,062
  2,145
  2,234
Operating income, $m
  32
  50
  78
  108
  139
  171
  205
  241
  278
  316
  356
  399
  443
  489
  537
  588
  641
  697
  756
  817
  882
  950
  1,022
  1,097
  1,176
  1,259
  1,347
  1,439
  1,536
  1,638
  1,745
EBITDA, $m
  104
  128
  163
  199
  237
  276
  318
  361
  406
  452
  501
  553
  606
  662
  721
  782
  846
  914
  985
  1,059
  1,137
  1,219
  1,304
  1,395
  1,490
  1,589
  1,694
  1,805
  1,921
  2,043
  2,171
Interest expense (income), $m
  8
  7
  8
  10
  11
  12
  13
  15
  16
  18
  19
  21
  22
  24
  26
  28
  30
  32
  34
  36
  38
  41
  43
  46
  49
  52
  55
  58
  61
  65
  68
Earnings before tax, $m
  27
  43
  70
  99
  128
  159
  192
  226
  261
  298
  337
  378
  420
  465
  511
  560
  612
  665
  722
  781
  844
  909
  978
  1,051
  1,127
  1,207
  1,292
  1,381
  1,474
  1,573
  1,677
Tax expense, $m
  10
  12
  19
  27
  35
  43
  52
  61
  71
  81
  91
  102
  113
  126
  138
  151
  165
  180
  195
  211
  228
  245
  264
  284
  304
  326
  349
  373
  398
  425
  453
Net income, $m
  17
  31
  51
  72
  94
  116
  140
  165
  191
  218
  246
  276
  307
  339
  373
  409
  446
  486
  527
  570
  616
  664
  714
  767
  823
  881
  943
  1,008
  1,076
  1,148
  1,224

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  8
  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
  621
  665
  719
  775
  834
  895
  958
  1,024
  1,092
  1,163
  1,237
  1,314
  1,394
  1,478
  1,565
  1,655
  1,750
  1,849
  1,952
  2,060
  2,173
  2,291
  2,414
  2,543
  2,678
  2,819
  2,968
  3,123
  3,285
  3,455
  3,634
Adjusted assets (=assets-cash), $m
  613
  665
  719
  775
  834
  895
  958
  1,024
  1,092
  1,163
  1,237
  1,314
  1,394
  1,478
  1,565
  1,655
  1,750
  1,849
  1,952
  2,060
  2,173
  2,291
  2,414
  2,543
  2,678
  2,819
  2,968
  3,123
  3,285
  3,455
  3,634
Revenue / Adjusted assets
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
  1.095
Average production assets, $m
  460
  499
  539
  582
  626
  671
  719
  768
  819
  872
  928
  986
  1,046
  1,108
  1,174
  1,242
  1,313
  1,387
  1,464
  1,545
  1,630
  1,718
  1,811
  1,907
  2,009
  2,115
  2,226
  2,342
  2,464
  2,592
  2,726
Working capital, $m
  47
  71
  77
  83
  89
  96
  103
  110
  117
  125
  133
  141
  150
  159
  168
  178
  188
  198
  209
  221
  233
  246
  259
  273
  287
  303
  318
  335
  353
  371
  390
Total debt, $m
  216
  240
  273
  308
  344
  381
  420
  461
  503
  546
  592
  639
  688
  740
  793
  849
  907
  968
  1,032
  1,098
  1,167
  1,240
  1,316
  1,395
  1,478
  1,565
  1,656
  1,751
  1,851
  1,956
  2,066
Total liabilities, $m
  384
  409
  442
  477
  513
  550
  589
  630
  672
  715
  761
  808
  857
  909
  962
  1,018
  1,076
  1,137
  1,201
  1,267
  1,336
  1,409
  1,485
  1,564
  1,647
  1,734
  1,825
  1,920
  2,020
  2,125
  2,235
Total equity, $m
  236
  256
  277
  299
  321
  344
  369
  394
  420
  448
  476
  506
  537
  569
  602
  637
  674
  712
  752
  793
  837
  882
  929
  979
  1,031
  1,086
  1,143
  1,202
  1,265
  1,330
  1,399
Total liabilities and equity, $m
  620
  665
  719
  776
  834
  894
  958
  1,024
  1,092
  1,163
  1,237
  1,314
  1,394
  1,478
  1,564
  1,655
  1,750
  1,849
  1,953
  2,060
  2,173
  2,291
  2,414
  2,543
  2,678
  2,820
  2,968
  3,122
  3,285
  3,455
  3,634
Debt-to-equity ratio
  0.915
  0.940
  0.990
  1.030
  1.070
  1.110
  1.140
  1.170
  1.200
  1.220
  1.240
  1.260
  1.280
  1.300
  1.320
  1.330
  1.350
  1.360
  1.370
  1.380
  1.400
  1.410
  1.420
  1.420
  1.430
  1.440
  1.450
  1.460
  1.460
  1.470
  1.480
Adjusted equity ratio
  0.372
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  17
  31
  51
  72
  94
  116
  140
  165
  191
  218
  246
  276
  307
  339
  373
  409
  446
  486
  527
  570
  616
  664
  714
  767
  823
  881
  943
  1,008
  1,076
  1,148
  1,224
Depreciation, amort., depletion, $m
  72
  78
  84
  91
  98
  105
  112
  120
  128
  136
  145
  154
  163
  173
  183
  194
  205
  217
  229
  241
  255
  268
  283
  298
  314
  330
  348
  366
  385
  405
  426
Funds from operations, $m
  115
  109
  135
  163
  191
  221
  252
  285
  319
  354
  391
  430
  470
  512
  557
  603
  652
  702
  756
  812
  871
  932
  997
  1,065
  1,137
  1,212
  1,291
  1,374
  1,461
  1,553
  1,650
Change in working capital, $m
  13
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  17
  17
  18
  19
Cash from operations, $m
  102
  104
  130
  157
  185
  215
  246
  278
  311
  347
  383
  422
  462
  504
  547
  593
  641
  692
  745
  800
  858
  920
  984
  1,051
  1,122
  1,197
  1,275
  1,357
  1,444
  1,535
  1,631
Maintenance CAPEX, $m
  0
  -72
  -78
  -84
  -91
  -98
  -105
  -112
  -120
  -128
  -136
  -145
  -154
  -163
  -173
  -183
  -194
  -205
  -217
  -229
  -241
  -255
  -268
  -283
  -298
  -314
  -330
  -348
  -366
  -385
  -405
New CAPEX, $m
  -113
  -39
  -41
  -42
  -44
  -46
  -47
  -49
  -51
  -53
  -55
  -58
  -60
  -63
  -65
  -68
  -71
  -74
  -77
  -81
  -85
  -88
  -92
  -97
  -101
  -106
  -111
  -116
  -122
  -128
  -134
Cash from investing activities, $m
  -47
  -111
  -119
  -126
  -135
  -144
  -152
  -161
  -171
  -181
  -191
  -203
  -214
  -226
  -238
  -251
  -265
  -279
  -294
  -310
  -326
  -343
  -360
  -380
  -399
  -420
  -441
  -464
  -488
  -513
  -539
Free cash flow, $m
  55
  -7
  11
  30
  50
  71
  93
  116
  140
  165
  191
  219
  248
  278
  309
  342
  376
  413
  451
  491
  532
  576
  623
  671
  723
  777
  833
  893
  956
  1,022
  1,092
Issuance/(repayment) of debt, $m
  -51
  32
  33
  35
  36
  37
  39
  40
  42
  44
  45
  47
  49
  51
  54
  56
  58
  61
  63
  66
  69
  73
  76
  79
  83
  87
  91
  95
  100
  105
  110
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
  0
Cash from financing (excl. dividends), $m  
  -52
  32
  33
  35
  36
  37
  39
  40
  42
  44
  45
  47
  49
  51
  54
  56
  58
  61
  63
  66
  69
  73
  76
  79
  83
  87
  91
  95
  100
  105
  110
Total cash flow (excl. dividends), $m
  3
  24
  44
  65
  86
  109
  132
  157
  182
  209
  237
  266
  297
  329
  362
  398
  435
  473
  514
  557
  602
  649
  699
  751
  806
  864
  924
  988
  1,056
  1,127
  1,202
Retained Cash Flow (-), $m
  -34
  -20
  -21
  -22
  -23
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -32
  -34
  -35
  -36
  -38
  -40
  -42
  -43
  -45
  -47
  -50
  -52
  -54
  -57
  -60
  -63
  -66
  -69
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
 
  4
  23
  43
  64
  85
  108
  131
  156
  182
  208
  237
  266
  297
  329
  363
  398
  435
  474
  515
  558
  604
  651
  701
  754
  809
  867
  929
  993
  1,061
  1,133
Discount rate, %
 
  6.10
  6.41
  6.73
  7.06
  7.41
  7.79
  8.17
  8.58
  9.01
  9.46
  9.94
  10.43
  10.95
  11.50
  12.08
  12.68
  13.32
  13.98
  14.68
  15.41
  16.19
  16.99
  17.84
  18.74
  19.67
  20.66
  21.69
  22.77
  23.91
  25.11
PV of cash for distribution, $m
 
  4
  21
  36
  49
  60
  69
  76
  81
  84
  84
  83
  81
  77
  72
  66
  59
  52
  45
  38
  32
  26
  21
  16
  12
  9
  7
  5
  3
  2
  1
Current shareholders' claim on cash, %
  100
  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

Covenant Transportation Group, Inc. is a provider of expedited long haul freight transportation, primarily using two-person driver teams in transcontinental lanes. The Company's services also include refrigerated, dedicated, cross-border, regional and brokerage. The Company's segments include Truckload and Other. The Truckload segment includes the operations of Covenant Transport, Inc. (Covenant Transport), its flagship operation, which provides expedited long haul, dedicated, temperature-controlled and regional solo-driver service; Southern Refrigerated Transport, Inc. (SRT), which provides primarily long haul, regional, dedicated and intermodal temperature-controlled service, and Star Transportation, Inc. (Star), which provides regional solo-driver and dedicated services, primarily in the southeastern United States. The Company provides truckload transportation services throughout the continental United States, into and out of Mexico, and into and out of portions of Canada.

FINANCIAL RATIOS  of  Covenant Transportation Group Cl A (CVTI)

Valuation Ratios
P/E Ratio 30.9
Price to Sales 0.8
Price to Book 2.2
Price to Tangible Book
Price to Cash Flow 5.1
Price to Free Cash Flow -47.7
Growth Rates
Sales Growth Rate -7.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -37.9%
Cap. Spend. - 3 Yr. Gr. Rate -3.6%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 80.1%
Total Debt to Equity 91.5%
Interest Coverage 4
Management Effectiveness
Return On Assets 3.5%
Ret/ On Assets - 3 Yr. Avg. 5.4%
Return On Total Capital 3.7%
Ret/ On T. Cap. - 3 Yr. Avg. 6.3%
Return On Equity 7.8%
Return On Equity - 3 Yr. Avg. 14.6%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 56.3%
Gross Margin - 3 Yr. Avg. 56.4%
EBITDA Margin 15.9%
EBITDA Margin - 3 Yr. Avg. 15.8%
Operating Margin 4.9%
Oper. Margin - 3 Yr. Avg. 6.6%
Pre-Tax Margin 4%
Pre-Tax Margin - 3 Yr. Avg. 5.8%
Net Profit Margin 2.5%
Net Profit Margin - 3 Yr. Avg. 3.6%
Effective Tax Rate 37%
Eff/ Tax Rate - 3 Yr. Avg. 39%
Payout Ratio 0%

CVTI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CVTI stock intrinsic value calculation we used $671 million for the last fiscal year's total revenue generated by Covenant Transportation Group Cl A. The default revenue input number comes from 2016 income statement of Covenant Transportation Group Cl A. 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 CVTI stock valuation model: a) initial revenue growth rate of 8.5% 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 6.1%, whose default value for CVTI is calculated based on our internal credit rating of Covenant Transportation Group Cl A, 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 Covenant Transportation Group Cl A.
    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 CVTI stock the variable cost ratio is equal to 34%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $420 million in the base year in the intrinsic value calculation for CVTI 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 3.5% for Covenant Transportation Group Cl A.

Corporate tax rate of 27% is the nominal tax rate for Covenant Transportation Group Cl A. 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 CVTI 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 CVTI are equal to 68.5%.

Life of production assets of 6.4 years is the average useful life of capital assets used in Covenant Transportation Group Cl A 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 CVTI is equal to 9.8%. 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 - $236 million for Covenant Transportation Group Cl A - 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 18.287 million for Covenant Transportation Group Cl A 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 Covenant Transportation Group Cl A at the current share price and the inputted number of shares is $0.5 billion.

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COMPANY NEWS

▶ Covenant Transportation posts 3Q profit   [Oct-19-17 04:09PM  Associated Press]
▶ Transportation Stocks Keep Trucking Higher   [Oct-13-17 01:19PM  Zacks]
▶ Covenant Transportation posts 2Q profit   [Jul-25-17 04:48PM  Associated Press]
▶ Covenant Transportation posts 1Q profit   [Apr-20-17 04:14PM  Associated Press]
▶ Orders for New Big-Rigs Jump in January   [Feb-03-17 04:38PM  at The Wall Street Journal]
▶ Covenant Transportation posts 4Q profit   [Jan-26-17 05:00AM  Associated Press]
▶ Is Trevena Inc (TRVN) A Good Stock To Buy?   [Dec-15-16 11:02AM  at Insider Monkey]
Financial statements of CVTI
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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