Intrinsic value of Donaldson Company, Inc. - DCI

Previous Close

$48.82

  Intrinsic Value

$32.37

stock screener

  Rating & Target

sell

-34%

Previous close

$48.82

 
Intrinsic value

$32.37

 
Up/down potential

-34%

 
Rating

sell

We calculate the intrinsic value of DCI 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 6.2

 

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, %
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.31
  5.28
  5.25
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.06
  5.06
  5.05
  5.05
  5.04
Revenue, $m
  2,895
  3,064
  3,239
  3,422
  3,614
  3,813
  4,022
  4,241
  4,469
  4,708
  4,958
  5,220
  5,495
  5,782
  6,083
  6,398
  6,729
  7,076
  7,439
  7,820
  8,219
  8,639
  9,078
  9,539
  10,023
  10,531
  11,063
  11,622
  12,209
  12,825
Variable operating expenses, $m
  2,483
  2,625
  2,774
  2,929
  3,092
  3,261
  3,438
  3,623
  3,817
  4,020
  4,205
  4,427
  4,659
  4,903
  5,158
  5,426
  5,706
  6,000
  6,308
  6,631
  6,970
  7,325
  7,698
  8,089
  8,499
  8,930
  9,381
  9,855
  10,353
  10,875
Fixed operating expenses, $m
  6
  6
  6
  7
  7
  7
  7
  7
  7
  7
  8
  8
  8
  8
  8
  8
  9
  9
  9
  9
  9
  10
  10
  10
  10
  11
  11
  11
  11
  12
Total operating expenses, $m
  2,489
  2,631
  2,780
  2,936
  3,099
  3,268
  3,445
  3,630
  3,824
  4,027
  4,213
  4,435
  4,667
  4,911
  5,166
  5,434
  5,715
  6,009
  6,317
  6,640
  6,979
  7,335
  7,708
  8,099
  8,509
  8,941
  9,392
  9,866
  10,364
  10,887
Operating income, $m
  407
  432
  459
  486
  515
  545
  577
  610
  645
  681
  746
  786
  827
  871
  916
  964
  1,014
  1,067
  1,122
  1,180
  1,240
  1,304
  1,370
  1,440
  1,513
  1,590
  1,671
  1,756
  1,845
  1,938
EBITDA, $m
  501
  530
  560
  592
  626
  660
  697
  735
  775
  816
  860
  906
  954
  1,004
  1,056
  1,111
  1,169
  1,229
  1,293
  1,359
  1,429
  1,502
  1,579
  1,659
  1,744
  1,832
  1,925
  2,023
  2,125
  2,233
Interest expense (income), $m
  20
  29
  33
  37
  40
  45
  49
  53
  58
  63
  68
  73
  78
  84
  90
  97
  103
  110
  118
  125
  133
  142
  151
  160
  170
  180
  190
  202
  213
  226
  239
Earnings before tax, $m
  377
  399
  422
  446
  471
  497
  524
  552
  582
  613
  673
  707
  743
  781
  820
  861
  904
  949
  997
  1,046
  1,098
  1,153
  1,210
  1,271
  1,334
  1,400
  1,469
  1,542
  1,619
  1,699
Tax expense, $m
  102
  108
  114
  120
  127
  134
  141
  149
  157
  166
  182
  191
  201
  211
  221
  232
  244
  256
  269
  282
  297
  311
  327
  343
  360
  378
  397
  416
  437
  459
Net income, $m
  275
  291
  308
  325
  344
  363
  382
  403
  425
  448
  491
  516
  542
  570
  598
  628
  660
  693
  727
  764
  802
  842
  884
  927
  974
  1,022
  1,073
  1,126
  1,182
  1,241

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
  2,093
  2,215
  2,342
  2,475
  2,613
  2,757
  2,908
  3,066
  3,232
  3,404
  3,585
  3,775
  3,973
  4,181
  4,398
  4,626
  4,866
  5,116
  5,379
  5,654
  5,943
  6,246
  6,564
  6,898
  7,247
  7,614
  8,000
  8,404
  8,828
  9,273
Adjusted assets (=assets-cash), $m
  2,093
  2,215
  2,342
  2,475
  2,613
  2,757
  2,908
  3,066
  3,232
  3,404
  3,585
  3,775
  3,973
  4,181
  4,398
  4,626
  4,866
  5,116
  5,379
  5,654
  5,943
  6,246
  6,564
  6,898
  7,247
  7,614
  8,000
  8,404
  8,828
  9,273
Revenue / Adjusted assets
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
  1.383
Average production assets, $m
  672
  711
  751
  794
  838
  885
  933
  984
  1,037
  1,092
  1,150
  1,211
  1,275
  1,341
  1,411
  1,484
  1,561
  1,642
  1,726
  1,814
  1,907
  2,004
  2,106
  2,213
  2,325
  2,443
  2,567
  2,696
  2,832
  2,975
Working capital, $m
  524
  554
  586
  619
  654
  690
  728
  768
  809
  852
  897
  945
  995
  1,047
  1,101
  1,158
  1,218
  1,281
  1,346
  1,415
  1,488
  1,564
  1,643
  1,727
  1,814
  1,906
  2,002
  2,104
  2,210
  2,321
Total debt, $m
  609
  678
  750
  825
  903
  985
  1,070
  1,160
  1,253
  1,351
  1,454
  1,561
  1,673
  1,791
  1,914
  2,043
  2,178
  2,320
  2,469
  2,625
  2,788
  2,960
  3,140
  3,328
  3,526
  3,734
  3,952
  4,181
  4,421
  4,673
Total liabilities, $m
  1,185
  1,254
  1,326
  1,401
  1,479
  1,561
  1,646
  1,736
  1,829
  1,927
  2,029
  2,136
  2,249
  2,366
  2,490
  2,619
  2,754
  2,896
  3,044
  3,200
  3,364
  3,535
  3,715
  3,904
  4,102
  4,310
  4,528
  4,756
  4,997
  5,249
Total equity, $m
  909
  961
  1,016
  1,074
  1,134
  1,197
  1,262
  1,331
  1,402
  1,478
  1,556
  1,638
  1,724
  1,814
  1,909
  2,008
  2,112
  2,220
  2,334
  2,454
  2,579
  2,711
  2,849
  2,994
  3,145
  3,305
  3,472
  3,647
  3,831
  4,024
Total liabilities and equity, $m
  2,094
  2,215
  2,342
  2,475
  2,613
  2,758
  2,908
  3,067
  3,231
  3,405
  3,585
  3,774
  3,973
  4,180
  4,399
  4,627
  4,866
  5,116
  5,378
  5,654
  5,943
  6,246
  6,564
  6,898
  7,247
  7,615
  8,000
  8,403
  8,828
  9,273
Debt-to-equity ratio
  0.670
  0.710
  0.740
  0.770
  0.800
  0.820
  0.850
  0.870
  0.890
  0.910
  0.930
  0.950
  0.970
  0.990
  1.000
  1.020
  1.030
  1.040
  1.060
  1.070
  1.080
  1.090
  1.100
  1.110
  1.120
  1.130
  1.140
  1.150
  1.150
  1.160
Adjusted equity ratio
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  275
  291
  308
  325
  344
  363
  382
  403
  425
  448
  491
  516
  542
  570
  598
  628
  660
  693
  727
  764
  802
  842
  884
  927
  974
  1,022
  1,073
  1,126
  1,182
  1,241
Depreciation, amort., depletion, $m
  94
  98
  102
  106
  110
  115
  120
  125
  130
  136
  114
  120
  126
  133
  140
  147
  155
  163
  171
  180
  189
  198
  209
  219
  230
  242
  254
  267
  280
  295
Funds from operations, $m
  369
  389
  410
  431
  454
  478
  502
  528
  555
  583
  605
  636
  669
  703
  738
  775
  814
  855
  898
  943
  991
  1,040
  1,092
  1,147
  1,204
  1,264
  1,327
  1,393
  1,462
  1,535
Change in working capital, $m
  29
  30
  32
  33
  35
  36
  38
  40
  41
  43
  45
  47
  50
  52
  54
  57
  60
  63
  66
  69
  72
  76
  80
  83
  88
  92
  96
  101
  106
  111
Cash from operations, $m
  340
  359
  378
  398
  419
  441
  464
  488
  514
  540
  560
  589
  619
  651
  684
  718
  755
  793
  833
  874
  918
  964
  1,013
  1,063
  1,116
  1,172
  1,230
  1,292
  1,356
  1,424
Maintenance CAPEX, $m
  -63
  -67
  -70
  -74
  -79
  -83
  -88
  -92
  -97
  -103
  -108
  -114
  -120
  -126
  -133
  -140
  -147
  -155
  -163
  -171
  -180
  -189
  -198
  -209
  -219
  -230
  -242
  -254
  -267
  -280
New CAPEX, $m
  -37
  -39
  -41
  -43
  -44
  -46
  -48
  -51
  -53
  -55
  -58
  -61
  -64
  -67
  -70
  -73
  -77
  -80
  -84
  -88
  -93
  -97
  -102
  -107
  -112
  -118
  -124
  -130
  -136
  -143
Cash from investing activities, $m
  -100
  -106
  -111
  -117
  -123
  -129
  -136
  -143
  -150
  -158
  -166
  -175
  -184
  -193
  -203
  -213
  -224
  -235
  -247
  -259
  -273
  -286
  -300
  -316
  -331
  -348
  -366
  -384
  -403
  -423
Free cash flow, $m
  241
  253
  267
  281
  296
  312
  328
  345
  363
  382
  394
  414
  435
  458
  481
  505
  531
  558
  586
  615
  646
  678
  712
  748
  785
  824
  865
  908
  953
  1,000
Issuance/(repayment) of debt, $m
  66
  69
  72
  75
  78
  82
  85
  89
  94
  98
  102
  107
  112
  118
  123
  129
  135
  142
  149
  156
  164
  172
  180
  189
  198
  208
  218
  229
  240
  252
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  
  66
  69
  72
  75
  78
  82
  85
  89
  94
  98
  102
  107
  112
  118
  123
  129
  135
  142
  149
  156
  164
  172
  180
  189
  198
  208
  218
  229
  240
  252
Total cash flow (excl. dividends), $m
  307
  322
  339
  356
  375
  394
  414
  435
  457
  480
  496
  521
  548
  575
  604
  634
  666
  700
  734
  771
  809
  850
  892
  936
  983
  1,032
  1,083
  1,137
  1,193
  1,252
Retained Cash Flow (-), $m
  -51
  -53
  -55
  -57
  -60
  -63
  -66
  -69
  -72
  -75
  -79
  -82
  -86
  -90
  -94
  -99
  -104
  -109
  -114
  -120
  -125
  -132
  -138
  -145
  -152
  -159
  -167
  -175
  -184
  -193
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
  256
  269
  284
  299
  315
  331
  348
  366
  385
  405
  418
  439
  462
  485
  510
  536
  563
  591
  620
  652
  684
  718
  754
  792
  831
  872
  916
  961
  1,009
  1,059
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
  245
  246
  247
  246
  244
  240
  235
  229
  221
  212
  198
  187
  176
  163
  150
  136
  122
  109
  96
  83
  71
  60
  49
  40
  32
  25
  20
  15
  11
  8
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

Donaldson Company, Inc. is a manufacturer of filtration systems and replacement parts. The Company's segments include Engine Products, Industrial Products and Corporate. The Company's products are manufactured at approximately 44 plants around the world and through three joint ventures. The Company offers its products under the Ultra-Web, PowerCore and Donaldson brands. The Engine Products segment sells its products to original equipment manufacturers (OEMs) in the construction, mining, agriculture, aerospace, defense and truck end-markets and to independent distributors, OEM dealer networks, private label accounts and large equipment fleets. The Industrial Products segment sells to various industrial dealers, distributors, OEMs of gas-fired turbines and OEMs and end users requiring clean air. Its products include dust, fume and mist collectors, compressed air purification systems, air filtration systems for gas turbines and polytetrafluoroethylene (PTFE) membrane-based products.

FINANCIAL RATIOS  of  Donaldson Company, Inc. (DCI)

Valuation Ratios
P/E Ratio 27.4
Price to Sales 2.7
Price to Book 7.5
Price to Tangible Book
Price to Cash Flow 20.6
Price to Free Cash Flow 26.1
Growth Rates
Sales Growth Rate 6.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -9.6%
Cap. Spend. - 3 Yr. Gr. Rate -7.4%
Financial Strength
Quick Ratio 4
Current Ratio 0
LT Debt to Equity 63.2%
Total Debt to Equity 71.9%
Interest Coverage 17
Management Effectiveness
Return On Assets 13.1%
Ret/ On Assets - 3 Yr. Avg. 12.1%
Return On Total Capital 16.7%
Ret/ On T. Cap. - 3 Yr. Avg. 15.3%
Return On Equity 28.8%
Return On Equity - 3 Yr. Avg. 25.7%
Asset Turnover 1.3
Profitability Ratios
Gross Margin 34.7%
Gross Margin - 3 Yr. Avg. 34.3%
EBITDA Margin 17.6%
EBITDA Margin - 3 Yr. Avg. 16.5%
Operating Margin 13.9%
Oper. Margin - 3 Yr. Avg. 12.8%
Pre-Tax Margin 13.6%
Pre-Tax Margin - 3 Yr. Avg. 12.4%
Net Profit Margin 9.8%
Net Profit Margin - 3 Yr. Avg. 9.1%
Effective Tax Rate 27.6%
Eff/ Tax Rate - 3 Yr. Avg. 27.1%
Payout Ratio 39.5%

DCI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DCI stock intrinsic value calculation we used $2734 million for the last fiscal year's total revenue generated by Donaldson Company, Inc.. The default revenue input number comes from 0001 income statement of Donaldson Company, Inc.. 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 DCI stock valuation model: a) initial revenue growth rate of 5.9% 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 DCI is calculated based on our internal credit rating of Donaldson Company, Inc., 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 Donaldson Company, Inc..
    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 DCI stock the variable cost ratio is equal to 85.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $6 million in the base year in the intrinsic value calculation for DCI 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 Donaldson Company, Inc..

Corporate tax rate of 27% is the nominal tax rate for Donaldson Company, Inc.. 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 DCI 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 DCI are equal to 23.2%.

Life of production assets of 10.1 years is the average useful life of capital assets used in Donaldson Company, Inc. 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 DCI is equal to 18.1%. 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 - $857.8 million for Donaldson Company, Inc. - 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 127.712 million for Donaldson Company, Inc. 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 Donaldson Company, Inc. at the current share price and the inputted number of shares is $6.2 billion.

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