Intrinsic value of Deluxe Corporation - DLX

Previous Close

$41.54

  Intrinsic Value

$98.76

stock screener

  Rating & Target

str. buy

+138%

Previous close

$41.54

 
Intrinsic value

$98.76

 
Up/down potential

+138%

 
Rating

str. buy

We calculate the intrinsic value of DLX 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 1.8

 

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, %
  6.00
  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
Revenue, $m
  2,118
  2,243
  2,373
  2,509
  2,651
  2,799
  2,954
  3,116
  3,285
  3,462
  3,647
  3,841
  4,044
  4,256
  4,479
  4,712
  4,957
  5,213
  5,481
  5,763
  6,058
  6,367
  6,692
  7,032
  7,390
  7,764
  8,158
  8,570
  9,003
  9,458
Variable operating expenses, $m
  1,753
  1,847
  1,946
  2,049
  2,156
  2,268
  2,385
  2,507
  2,635
  2,769
  2,757
  2,903
  3,057
  3,217
  3,386
  3,562
  3,747
  3,940
  4,143
  4,356
  4,579
  4,813
  5,058
  5,316
  5,586
  5,869
  6,166
  6,478
  6,805
  7,149
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
  1,753
  1,847
  1,946
  2,049
  2,156
  2,268
  2,385
  2,507
  2,635
  2,769
  2,757
  2,903
  3,057
  3,217
  3,386
  3,562
  3,747
  3,940
  4,143
  4,356
  4,579
  4,813
  5,058
  5,316
  5,586
  5,869
  6,166
  6,478
  6,805
  7,149
Operating income, $m
  365
  395
  427
  460
  495
  531
  569
  609
  650
  693
  890
  938
  987
  1,039
  1,093
  1,150
  1,210
  1,273
  1,338
  1,407
  1,479
  1,554
  1,634
  1,717
  1,804
  1,895
  1,991
  2,092
  2,198
  2,309
EBITDA, $m
  591
  625
  662
  700
  739
  781
  824
  869
  916
  966
  1,017
  1,071
  1,128
  1,187
  1,249
  1,314
  1,382
  1,454
  1,529
  1,607
  1,689
  1,776
  1,866
  1,961
  2,061
  2,165
  2,275
  2,390
  2,511
  2,638
Interest expense (income), $m
  21
  49
  54
  58
  63
  68
  74
  79
  85
  91
  98
  104
  111
  118
  126
  134
  142
  151
  160
  170
  180
  191
  202
  213
  226
  238
  252
  266
  281
  296
  312
Earnings before tax, $m
  316
  342
  369
  397
  427
  458
  490
  523
  559
  596
  786
  827
  869
  913
  959
  1,008
  1,059
  1,112
  1,168
  1,227
  1,288
  1,353
  1,420
  1,491
  1,566
  1,644
  1,726
  1,812
  1,902
  1,997
Tax expense, $m
  85
  92
  100
  107
  115
  124
  132
  141
  151
  161
  212
  223
  235
  247
  259
  272
  286
  300
  315
  331
  348
  365
  383
  403
  423
  444
  466
  489
  513
  539
Net income, $m
  230
  249
  269
  290
  311
  334
  358
  382
  408
  435
  574
  603
  634
  667
  700
  736
  773
  812
  853
  896
  940
  987
  1,037
  1,089
  1,143
  1,200
  1,260
  1,322
  1,388
  1,457

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
  2,443
  2,587
  2,737
  2,894
  3,058
  3,229
  3,407
  3,594
  3,789
  3,993
  4,207
  4,430
  4,664
  4,909
  5,166
  5,435
  5,717
  6,012
  6,322
  6,647
  6,987
  7,344
  7,718
  8,111
  8,523
  8,955
  9,409
  9,885
  10,384
  10,908
Adjusted assets (=assets-cash), $m
  2,443
  2,587
  2,737
  2,894
  3,058
  3,229
  3,407
  3,594
  3,789
  3,993
  4,207
  4,430
  4,664
  4,909
  5,166
  5,435
  5,717
  6,012
  6,322
  6,647
  6,987
  7,344
  7,718
  8,111
  8,523
  8,955
  9,409
  9,885
  10,384
  10,908
Revenue / Adjusted assets
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
Average production assets, $m
  898
  951
  1,006
  1,064
  1,124
  1,187
  1,253
  1,321
  1,393
  1,468
  1,546
  1,629
  1,715
  1,805
  1,899
  1,998
  2,102
  2,210
  2,324
  2,443
  2,568
  2,700
  2,837
  2,982
  3,133
  3,292
  3,459
  3,634
  3,817
  4,010
Working capital, $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 debt, $m
  995
  1,082
  1,173
  1,267
  1,366
  1,469
  1,577
  1,689
  1,807
  1,930
  2,059
  2,194
  2,335
  2,483
  2,637
  2,800
  2,969
  3,148
  3,334
  3,530
  3,735
  3,951
  4,176
  4,413
  4,662
  4,922
  5,196
  5,483
  5,784
  6,100
Total liabilities, $m
  1,473
  1,560
  1,651
  1,745
  1,844
  1,947
  2,055
  2,167
  2,285
  2,408
  2,537
  2,671
  2,813
  2,960
  3,115
  3,277
  3,447
  3,625
  3,812
  4,008
  4,213
  4,428
  4,654
  4,891
  5,139
  5,400
  5,674
  5,961
  6,262
  6,578
Total equity, $m
  970
  1,027
  1,087
  1,149
  1,214
  1,282
  1,353
  1,427
  1,504
  1,585
  1,670
  1,759
  1,852
  1,949
  2,051
  2,158
  2,270
  2,387
  2,510
  2,639
  2,774
  2,916
  3,064
  3,220
  3,384
  3,555
  3,735
  3,924
  4,123
  4,331
Total liabilities and equity, $m
  2,443
  2,587
  2,738
  2,894
  3,058
  3,229
  3,408
  3,594
  3,789
  3,993
  4,207
  4,430
  4,665
  4,909
  5,166
  5,435
  5,717
  6,012
  6,322
  6,647
  6,987
  7,344
  7,718
  8,111
  8,523
  8,955
  9,409
  9,885
  10,385
  10,909
Debt-to-equity ratio
  1.030
  1.050
  1.080
  1.100
  1.130
  1.150
  1.170
  1.180
  1.200
  1.220
  1.230
  1.250
  1.260
  1.270
  1.290
  1.300
  1.310
  1.320
  1.330
  1.340
  1.350
  1.360
  1.360
  1.370
  1.380
  1.380
  1.390
  1.400
  1.400
  1.410
Adjusted equity ratio
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  230
  249
  269
  290
  311
  334
  358
  382
  408
  435
  574
  603
  634
  667
  700
  736
  773
  812
  853
  896
  940
  987
  1,037
  1,089
  1,143
  1,200
  1,260
  1,322
  1,388
  1,457
Depreciation, amort., depletion, $m
  226
  230
  235
  239
  244
  249
  255
  260
  266
  272
  127
  133
  141
  148
  156
  164
  172
  181
  190
  200
  211
  221
  233
  244
  257
  270
  284
  298
  313
  329
Funds from operations, $m
  456
  479
  504
  529
  556
  583
  612
  642
  674
  707
  701
  737
  775
  814
  856
  900
  945
  993
  1,043
  1,096
  1,151
  1,209
  1,269
  1,333
  1,400
  1,470
  1,543
  1,620
  1,701
  1,786
Change in working capital, $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 operations, $m
  456
  479
  504
  529
  556
  583
  612
  642
  674
  707
  701
  737
  775
  814
  856
  900
  945
  993
  1,043
  1,096
  1,151
  1,209
  1,269
  1,333
  1,400
  1,470
  1,543
  1,620
  1,701
  1,786
Maintenance CAPEX, $m
  -69
  -74
  -78
  -82
  -87
  -92
  -97
  -103
  -108
  -114
  -120
  -127
  -133
  -141
  -148
  -156
  -164
  -172
  -181
  -190
  -200
  -211
  -221
  -233
  -244
  -257
  -270
  -284
  -298
  -313
New CAPEX, $m
  -52
  -53
  -55
  -58
  -60
  -63
  -66
  -69
  -72
  -75
  -79
  -82
  -86
  -90
  -94
  -99
  -104
  -109
  -114
  -119
  -125
  -131
  -138
  -144
  -151
  -159
  -167
  -175
  -184
  -193
Cash from investing activities, $m
  -121
  -127
  -133
  -140
  -147
  -155
  -163
  -172
  -180
  -189
  -199
  -209
  -219
  -231
  -242
  -255
  -268
  -281
  -295
  -309
  -325
  -342
  -359
  -377
  -395
  -416
  -437
  -459
  -482
  -506
Free cash flow, $m
  335
  353
  371
  389
  408
  428
  449
  471
  494
  518
  502
  528
  555
  584
  614
  645
  678
  712
  748
  786
  826
  867
  910
  956
  1,004
  1,054
  1,107
  1,162
  1,220
  1,281
Issuance/(repayment) of debt, $m
  83
  87
  91
  95
  99
  103
  108
  113
  118
  123
  129
  135
  141
  148
  155
  162
  170
  178
  187
  196
  205
  215
  226
  237
  248
  261
  273
  287
  301
  316
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  
  83
  87
  91
  95
  99
  103
  108
  113
  118
  123
  129
  135
  141
  148
  155
  162
  170
  178
  187
  196
  205
  215
  226
  237
  248
  261
  273
  287
  301
  316
Total cash flow (excl. dividends), $m
  419
  440
  461
  484
  507
  531
  557
  584
  612
  641
  631
  663
  696
  732
  769
  807
  848
  890
  935
  982
  1,031
  1,082
  1,136
  1,193
  1,252
  1,315
  1,380
  1,449
  1,521
  1,597
Retained Cash Flow (-), $m
  -54
  -57
  -60
  -62
  -65
  -68
  -71
  -74
  -77
  -81
  -85
  -89
  -93
  -97
  -102
  -107
  -112
  -117
  -123
  -129
  -135
  -142
  -149
  -156
  -164
  -172
  -180
  -189
  -198
  -208
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
  364
  383
  402
  421
  442
  464
  486
  510
  534
  560
  546
  574
  603
  634
  667
  700
  736
  773
  812
  853
  896
  941
  988
  1,037
  1,089
  1,143
  1,200
  1,260
  1,323
  1,389
Discount rate, %
  6.00
  6.30
  6.62
  6.95
  7.29
  7.66
  8.04
  8.44
  8.86
  9.31
  9.77
  10.26
  10.78
  11.31
  11.88
  12.47
  13.10
  13.75
  14.44
  15.16
  15.92
  16.72
  17.55
  18.43
  19.35
  20.32
  21.33
  22.40
  23.52
  24.70
PV of cash for distribution, $m
  344
  339
  331
  322
  311
  298
  283
  266
  249
  230
  196
  178
  160
  141
  124
  107
  91
  76
  63
  51
  40
  31
  24
  18
  13
  9
  6
  4
  3
  2
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

Deluxe Corporation is a provider of payment solutions. The Company provides a suite of customer life cycle management solutions to its customers across multiple channels. The Company operates in three segments: Small Business Services segment, Financial Services segment and Direct Checks segment. The Company's product and service offerings consist of checks, forms and accessories, and other products. The forms offered by the Company include deposit tickets and check registers. Its accessories and other products include checkbook covers and stamps. The Small Business Services segment is a provider of printed forms to small businesses. The Financial Services segment provides products and services to financial institution clients and offers a suite of financial technology (FinTech) solutions. The Direct Checks segment is a direct-to-consumer check supplier. It also offers fraud protection and security services, online and offline payroll services, and electronic checks (e-checks).

FINANCIAL RATIOS  of  Deluxe Corporation (DLX)

Valuation Ratios
P/E Ratio 8.8
Price to Sales 1.1
Price to Book 2.3
Price to Tangible Book
Price to Cash Flow 6.3
Price to Free Cash Flow 7.4
Growth Rates
Sales Growth Rate 4.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 9.3%
Cap. Spend. - 3 Yr. Gr. Rate 4.9%
Financial Strength
Quick Ratio 2
Current Ratio 0.3
LT Debt to Equity 82.1%
Total Debt to Equity 86.2%
Interest Coverage 17
Management Effectiveness
Return On Assets 12.1%
Ret/ On Assets - 3 Yr. Avg. 13.3%
Return On Total Capital 15.2%
Ret/ On T. Cap. - 3 Yr. Avg. 16.3%
Return On Equity 28.2%
Return On Equity - 3 Yr. Avg. 31%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 63.9%
Gross Margin - 3 Yr. Avg. 63.9%
EBITDA Margin 25.6%
EBITDA Margin - 3 Yr. Avg. 25.6%
Operating Margin 19.5%
Oper. Margin - 3 Yr. Avg. 19.6%
Pre-Tax Margin 18.4%
Pre-Tax Margin - 3 Yr. Avg. 18.2%
Net Profit Margin 12.4%
Net Profit Margin - 3 Yr. Avg. 12.2%
Effective Tax Rate 32.6%
Eff/ Tax Rate - 3 Yr. Avg. 32.8%
Payout Ratio 25.8%

DLX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DLX stock intrinsic value calculation we used $1998 million for the last fiscal year's total revenue generated by Deluxe Corporation. The default revenue input number comes from 0001 income statement of Deluxe 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 DLX stock valuation model: a) initial revenue growth rate of 6% 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%, whose default value for DLX is calculated based on our internal credit rating of Deluxe 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 Deluxe 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 DLX stock the variable cost ratio is equal to 83.2%.

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 DLX 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 Deluxe Corporation.

Corporate tax rate of 27% is the nominal tax rate for Deluxe 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 DLX 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 DLX are equal to 42.4%.

Life of production assets of 12.2 years is the average useful life of capital assets used in Deluxe 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 DLX is equal to 0%. 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 - $915.413 million for Deluxe 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 43.659 million for Deluxe 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 Deluxe Corporation at the current share price and the inputted number of shares is $1.8 billion.

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