Intrinsic value of Ducommun Incorporated - DCO

Previous Close

$43.90

  Intrinsic Value

$34.12

stock screener

  Rating & Target

sell

-22%

Previous close

$43.90

 
Intrinsic value

$34.12

 
Up/down potential

-22%

 
Rating

sell

We calculate the intrinsic value of DCO 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 0.5

 

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, %
  15.40
  14.36
  13.42
  12.58
  11.82
  11.14
  10.53
  9.97
  9.48
  9.03
  8.63
  8.26
  7.94
  7.64
  7.38
  7.14
  6.93
  6.73
  6.56
  6.40
  6.26
  6.14
  6.02
  5.92
  5.83
  5.75
  5.67
  5.60
  5.54
  5.49
Revenue, $m
  726
  830
  942
  1,060
  1,185
  1,317
  1,456
  1,601
  1,753
  1,911
  2,076
  2,248
  2,426
  2,612
  2,804
  3,005
  3,213
  3,429
  3,654
  3,888
  4,132
  4,385
  4,649
  4,925
  5,212
  5,511
  5,824
  6,150
  6,491
  6,848
Variable operating expenses, $m
  640
  728
  823
  923
  1,029
  1,141
  1,259
  1,382
  1,511
  1,645
  1,760
  1,905
  2,056
  2,214
  2,377
  2,547
  2,723
  2,906
  3,097
  3,295
  3,502
  3,717
  3,941
  4,174
  4,417
  4,671
  4,936
  5,213
  5,502
  5,804
Fixed operating expenses, $m
  50
  51
  52
  53
  55
  56
  57
  58
  60
  61
  62
  64
  65
  66
  68
  69
  71
  72
  74
  76
  77
  79
  81
  83
  84
  86
  88
  90
  92
  94
Total operating expenses, $m
  690
  779
  875
  976
  1,084
  1,197
  1,316
  1,440
  1,571
  1,706
  1,822
  1,969
  2,121
  2,280
  2,445
  2,616
  2,794
  2,978
  3,171
  3,371
  3,579
  3,796
  4,022
  4,257
  4,501
  4,757
  5,024
  5,303
  5,594
  5,898
Operating income, $m
  36
  51
  66
  83
  101
  120
  140
  161
  183
  206
  254
  279
  305
  332
  360
  389
  419
  450
  483
  517
  552
  589
  628
  668
  710
  754
  800
  847
  897
  950
EBITDA, $m
  80
  97
  116
  136
  157
  180
  203
  228
  254
  281
  309
  338
  369
  401
  434
  468
  504
  541
  579
  619
  661
  705
  751
  798
  847
  899
  953
  1,010
  1,069
  1,130
Interest expense (income), $m
  7
  13
  17
  21
  25
  29
  33
  38
  43
  48
  54
  60
  66
  72
  78
  85
  92
  99
  107
  114
  123
  131
  140
  149
  159
  168
  179
  190
  201
  213
  225
Earnings before tax, $m
  22
  34
  46
  59
  72
  87
  102
  118
  134
  152
  195
  213
  233
  253
  275
  297
  320
  344
  368
  394
  421
  450
  479
  510
  542
  575
  610
  646
  685
  725
Tax expense, $m
  6
  9
  12
  16
  20
  23
  28
  32
  36
  41
  53
  58
  63
  68
  74
  80
  86
  93
  99
  106
  114
  121
  129
  138
  146
  155
  165
  175
  185
  196
Net income, $m
  16
  25
  33
  43
  53
  63
  74
  86
  98
  111
  142
  156
  170
  185
  200
  217
  233
  251
  269
  288
  308
  328
  350
  372
  395
  420
  445
  472
  500
  529

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
  748
  856
  971
  1,093
  1,222
  1,358
  1,501
  1,651
  1,807
  1,970
  2,140
  2,317
  2,501
  2,692
  2,891
  3,098
  3,312
  3,535
  3,767
  4,008
  4,259
  4,521
  4,793
  5,077
  5,373
  5,682
  6,004
  6,341
  6,692
  7,060
Adjusted assets (=assets-cash), $m
  748
  856
  971
  1,093
  1,222
  1,358
  1,501
  1,651
  1,807
  1,970
  2,140
  2,317
  2,501
  2,692
  2,891
  3,098
  3,312
  3,535
  3,767
  4,008
  4,259
  4,521
  4,793
  5,077
  5,373
  5,682
  6,004
  6,341
  6,692
  7,060
Revenue / Adjusted assets
  0.971
  0.970
  0.970
  0.970
  0.970
  0.970
  0.970
  0.970
  0.970
  0.970
  0.970
  0.970
  0.970
  0.970
  0.970
  0.970
  0.970
  0.970
  0.970
  0.970
  0.970
  0.970
  0.970
  0.970
  0.970
  0.970
  0.970
  0.970
  0.970
  0.970
Average production assets, $m
  264
  302
  343
  386
  431
  480
  530
  583
  638
  696
  756
  818
  883
  951
  1,021
  1,094
  1,169
  1,248
  1,330
  1,415
  1,504
  1,596
  1,692
  1,793
  1,897
  2,006
  2,120
  2,239
  2,363
  2,493
Working capital, $m
  176
  202
  229
  258
  288
  320
  354
  389
  426
  464
  505
  546
  590
  635
  681
  730
  781
  833
  888
  945
  1,004
  1,066
  1,130
  1,197
  1,266
  1,339
  1,415
  1,495
  1,577
  1,664
Total debt, $m
  290
  355
  424
  498
  576
  658
  745
  835
  930
  1,028
  1,131
  1,238
  1,349
  1,464
  1,584
  1,709
  1,838
  1,973
  2,113
  2,259
  2,411
  2,569
  2,733
  2,905
  3,083
  3,270
  3,464
  3,668
  3,880
  4,102
Total liabilities, $m
  452
  517
  586
  660
  738
  820
  907
  997
  1,092
  1,190
  1,293
  1,400
  1,511
  1,626
  1,746
  1,871
  2,001
  2,135
  2,275
  2,421
  2,573
  2,731
  2,895
  3,067
  3,245
  3,432
  3,627
  3,830
  4,042
  4,264
Total equity, $m
  296
  339
  384
  433
  484
  538
  594
  654
  716
  780
  848
  918
  990
  1,066
  1,145
  1,227
  1,312
  1,400
  1,492
  1,587
  1,687
  1,790
  1,898
  2,011
  2,128
  2,250
  2,378
  2,511
  2,650
  2,796
Total liabilities and equity, $m
  748
  856
  970
  1,093
  1,222
  1,358
  1,501
  1,651
  1,808
  1,970
  2,141
  2,318
  2,501
  2,692
  2,891
  3,098
  3,313
  3,535
  3,767
  4,008
  4,260
  4,521
  4,793
  5,078
  5,373
  5,682
  6,005
  6,341
  6,692
  7,060
Debt-to-equity ratio
  0.980
  1.050
  1.100
  1.150
  1.190
  1.220
  1.250
  1.280
  1.300
  1.320
  1.330
  1.350
  1.360
  1.370
  1.380
  1.390
  1.400
  1.410
  1.420
  1.420
  1.430
  1.430
  1.440
  1.440
  1.450
  1.450
  1.460
  1.460
  1.460
  1.470
Adjusted equity ratio
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  16
  25
  33
  43
  53
  63
  74
  86
  98
  111
  142
  156
  170
  185
  200
  217
  233
  251
  269
  288
  308
  328
  350
  372
  395
  420
  445
  472
  500
  529
Depreciation, amort., depletion, $m
  44
  47
  50
  53
  56
  60
  63
  67
  71
  75
  55
  59
  64
  69
  74
  79
  85
  90
  96
  103
  109
  116
  123
  130
  137
  145
  154
  162
  171
  181
Funds from operations, $m
  60
  71
  83
  96
  109
  123
  138
  153
  169
  186
  197
  215
  234
  254
  274
  296
  318
  341
  365
  390
  417
  444
  472
  502
  533
  565
  599
  634
  671
  710
Change in working capital, $m
  24
  25
  27
  29
  30
  32
  34
  35
  37
  38
  40
  42
  43
  45
  47
  49
  51
  53
  55
  57
  59
  62
  64
  67
  70
  73
  76
  79
  83
  87
Cash from operations, $m
  37
  46
  56
  67
  78
  91
  104
  118
  132
  148
  157
  173
  191
  209
  228
  247
  268
  289
  311
  334
  357
  382
  408
  435
  463
  492
  523
  555
  588
  623
Maintenance CAPEX, $m
  -17
  -19
  -22
  -25
  -28
  -31
  -35
  -38
  -42
  -46
  -50
  -55
  -59
  -64
  -69
  -74
  -79
  -85
  -90
  -96
  -103
  -109
  -116
  -123
  -130
  -137
  -145
  -154
  -162
  -171
New CAPEX, $m
  -35
  -38
  -41
  -43
  -46
  -48
  -50
  -53
  -55
  -58
  -60
  -62
  -65
  -68
  -70
  -73
  -76
  -79
  -82
  -85
  -89
  -92
  -96
  -100
  -105
  -109
  -114
  -119
  -124
  -130
Cash from investing activities, $m
  -52
  -57
  -63
  -68
  -74
  -79
  -85
  -91
  -97
  -104
  -110
  -117
  -124
  -132
  -139
  -147
  -155
  -164
  -172
  -181
  -192
  -201
  -212
  -223
  -235
  -246
  -259
  -273
  -286
  -301
Free cash flow, $m
  -15
  -11
  -6
  -1
  5
  11
  19
  26
  35
  44
  46
  56
  67
  77
  89
  100
  113
  125
  138
  152
  166
  181
  196
  212
  229
  246
  264
  282
  302
  322
Issuance/(repayment) of debt, $m
  61
  65
  69
  74
  78
  82
  86
  90
  94
  99
  103
  107
  111
  115
  120
  125
  130
  135
  140
  146
  152
  158
  164
  171
  179
  186
  195
  203
  212
  222
Issuance/(repurchase) of shares, $m
  23
  18
  12
  6
  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  
  84
  83
  81
  80
  78
  82
  86
  90
  94
  99
  103
  107
  111
  115
  120
  125
  130
  135
  140
  146
  152
  158
  164
  171
  179
  186
  195
  203
  212
  222
Total cash flow (excl. dividends), $m
  69
  72
  75
  78
  83
  94
  105
  117
  129
  142
  149
  163
  178
  193
  209
  225
  242
  260
  278
  298
  318
  339
  361
  384
  407
  432
  458
  486
  514
  544
Retained Cash Flow (-), $m
  -40
  -43
  -45
  -48
  -51
  -54
  -57
  -59
  -62
  -65
  -67
  -70
  -73
  -76
  -79
  -82
  -85
  -88
  -92
  -96
  -99
  -104
  -108
  -112
  -117
  -122
  -128
  -133
  -139
  -145
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
  29
  29
  29
  30
  32
  40
  48
  58
  67
  78
  82
  93
  105
  117
  130
  143
  157
  172
  187
  202
  218
  235
  253
  271
  290
  310
  331
  352
  375
  398
Discount rate, %
  7.20
  7.56
  7.94
  8.33
  8.75
  9.19
  9.65
  10.13
  10.64
  11.17
  11.73
  12.31
  12.93
  13.58
  14.26
  14.97
  15.72
  16.50
  17.33
  18.19
  19.10
  20.06
  21.06
  22.11
  23.22
  24.38
  25.60
  26.88
  28.22
  29.64
PV of cash for distribution, $m
  27
  25
  23
  22
  21
  23
  25
  27
  27
  27
  24
  23
  22
  20
  18
  15
  13
  11
  9
  7
  6
  4
  3
  2
  2
  1
  1
  0
  0
  0
Current shareholders' claim on cash, %
  95.6
  92.7
  91.1
  90.4
  90.4
  90.4
  90.4
  90.4
  90.4
  90.4
  90.4
  90.4
  90.4
  90.4
  90.4
  90.4
  90.4
  90.4
  90.4
  90.4
  90.4
  90.4
  90.4
  90.4
  90.4
  90.4
  90.4
  90.4
  90.4
  90.4

Ducommun Incorporated is a global provider of engineering and manufacturing services for various products and failure applications used primarily in the aerospace, defense, industrial, natural resources, medical and other industries. The Company is a solution-based provider, offering a range of value-added products and services in its primary businesses of electronics, structures and integrated solutions. The Company operates through two segments: Electronic Systems (ES) and Structural Systems (SS). The ES has over three product offerings in electronics manufacturing for various applications, including complex cable assemblies and interconnect systems, printed circuit board assemblies, and electronic, electromechanical and mechanical assemblies. The SS segment offers over three product offerings to support a customer base, including commercial aircraft, military fixed-wing aircraft, and military and commercial rotary-wing aircraft.

FINANCIAL RATIOS  of  Ducommun Incorporated (DCO)

Valuation Ratios
P/E Ratio 19.6
Price to Sales 0.9
Price to Book 2.3
Price to Tangible Book
Price to Cash Flow 11.4
Price to Free Cash Flow 18.9
Growth Rates
Sales Growth Rate -17.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 6.3%
Cap. Spend. - 3 Yr. Gr. Rate 7.2%
Financial Strength
Quick Ratio NaN
Current Ratio 0.3
LT Debt to Equity 78.8%
Total Debt to Equity 78.8%
Interest Coverage 6
Management Effectiveness
Return On Assets 5.5%
Ret/ On Assets - 3 Yr. Avg. 0.7%
Return On Total Capital 6.2%
Ret/ On T. Cap. - 3 Yr. Avg. -1.9%
Return On Equity 12.6%
Return On Equity - 3 Yr. Avg. -4.4%
Asset Turnover 1
Profitability Ratios
Gross Margin 19.2%
Gross Margin - 3 Yr. Avg. 17.8%
EBITDA Margin 12.3%
EBITDA Margin - 3 Yr. Avg. 5.1%
Operating Margin 8.5%
Oper. Margin - 3 Yr. Avg. 0.7%
Pre-Tax Margin 6.9%
Pre-Tax Margin - 3 Yr. Avg. -1.9%
Net Profit Margin 4.5%
Net Profit Margin - 3 Yr. Avg. -1.3%
Effective Tax Rate 34.2%
Eff/ Tax Rate - 3 Yr. Avg. 29.1%
Payout Ratio 0%

DCO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DCO stock intrinsic value calculation we used $629 million for the last fiscal year's total revenue generated by Ducommun Incorporated. The default revenue input number comes from 0001 income statement of Ducommun Incorporated. 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 DCO stock valuation model: a) initial revenue growth rate of 15.4% 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 7.2%, whose default value for DCO is calculated based on our internal credit rating of Ducommun Incorporated, 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 Ducommun Incorporated.
    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 DCO stock the variable cost ratio is equal to 88.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $49 million in the base year in the intrinsic value calculation for DCO 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 5.8% for Ducommun Incorporated.

Corporate tax rate of 27% is the nominal tax rate for Ducommun Incorporated. 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 DCO 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 DCO are equal to 36.4%.

Life of production assets of 13.8 years is the average useful life of capital assets used in Ducommun Incorporated 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 DCO is equal to 24.3%. 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 - $256.825 million for Ducommun Incorporated - 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 11.426 million for Ducommun Incorporated 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 Ducommun Incorporated at the current share price and the inputted number of shares is $0.5 billion.

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