Intrinsic value of DSW Inc. - DSW

Previous Close

$25.36

  Intrinsic Value

$13.19

stock screener

  Rating & Target

sell

-48%

Previous close

$25.36

 
Intrinsic value

$13.19

 
Up/down potential

-48%

 
Rating

sell

We calculate the intrinsic value of DSW 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 2.0

 

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, %
  17.20
  15.98
  14.88
  13.89
  13.00
  12.20
  11.48
  10.84
  10.25
  9.73
  9.25
  8.83
  8.45
  8.10
  7.79
  7.51
  7.26
  7.03
  6.83
  6.65
  6.48
  6.33
  6.20
  6.08
  5.97
  5.88
  5.79
  5.71
  5.64
  5.57
Revenue, $m
  3,282
  3,806
  4,372
  4,980
  5,628
  6,314
  7,039
  7,802
  8,602
  9,439
  10,312
  11,222
  12,170
  13,156
  14,181
  15,247
  16,354
  17,504
  18,700
  19,943
  21,236
  22,581
  23,981
  25,440
  26,959
  28,543
  30,196
  31,920
  33,719
  35,599
Variable operating expenses, $m
  3,065
  3,554
  4,082
  4,649
  5,253
  5,894
  6,571
  7,283
  8,029
  8,810
  9,622
  10,471
  11,356
  12,276
  13,232
  14,226
  15,259
  16,332
  17,448
  18,608
  19,814
  21,070
  22,376
  23,737
  25,155
  26,633
  28,175
  29,783
  31,462
  33,216
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
  3,065
  3,554
  4,082
  4,649
  5,253
  5,894
  6,571
  7,283
  8,029
  8,810
  9,622
  10,471
  11,356
  12,276
  13,232
  14,226
  15,259
  16,332
  17,448
  18,608
  19,814
  21,070
  22,376
  23,737
  25,155
  26,633
  28,175
  29,783
  31,462
  33,216
Operating income, $m
  217
  252
  290
  331
  374
  420
  469
  520
  573
  629
  690
  751
  815
  881
  949
  1,020
  1,095
  1,172
  1,252
  1,335
  1,421
  1,511
  1,605
  1,703
  1,804
  1,910
  2,021
  2,136
  2,257
  2,383
EBITDA, $m
  307
  356
  408
  465
  526
  590
  658
  729
  804
  882
  963
  1,048
  1,137
  1,229
  1,325
  1,424
  1,528
  1,635
  1,747
  1,863
  1,984
  2,109
  2,240
  2,376
  2,518
  2,666
  2,821
  2,982
  3,150
  3,325
Interest expense (income), $m
  0
  0
  4
  9
  14
  20
  25
  32
  38
  45
  52
  60
  68
  76
  84
  93
  102
  112
  122
  132
  143
  154
  166
  178
  190
  204
  217
  231
  246
  262
  278
Earnings before tax, $m
  217
  248
  281
  317
  354
  395
  437
  481
  528
  577
  630
  684
  739
  796
  856
  918
  983
  1,050
  1,119
  1,192
  1,267
  1,346
  1,427
  1,512
  1,601
  1,693
  1,789
  1,890
  1,995
  2,105
Tax expense, $m
  59
  67
  76
  85
  96
  107
  118
  130
  143
  156
  170
  185
  199
  215
  231
  248
  265
  283
  302
  322
  342
  363
  385
  408
  432
  457
  483
  510
  539
  568
Net income, $m
  158
  181
  205
  231
  259
  288
  319
  351
  386
  421
  460
  499
  539
  581
  625
  670
  717
  766
  817
  870
  925
  982
  1,042
  1,104
  1,169
  1,236
  1,306
  1,380
  1,456
  1,536

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
  1,666
  1,932
  2,219
  2,528
  2,857
  3,205
  3,573
  3,960
  4,366
  4,791
  5,235
  5,697
  6,178
  6,678
  7,199
  7,739
  8,301
  8,885
  9,492
  10,123
  10,780
  11,462
  12,173
  12,914
  13,685
  14,489
  15,328
  16,203
  17,116
  18,071
Adjusted assets (=assets-cash), $m
  1,666
  1,932
  2,219
  2,528
  2,857
  3,205
  3,573
  3,960
  4,366
  4,791
  5,235
  5,697
  6,178
  6,678
  7,199
  7,739
  8,301
  8,885
  9,492
  10,123
  10,780
  11,462
  12,173
  12,914
  13,685
  14,489
  15,328
  16,203
  17,116
  18,071
Revenue / Adjusted assets
  1.970
  1.970
  1.970
  1.970
  1.970
  1.970
  1.970
  1.970
  1.970
  1.970
  1.970
  1.970
  1.970
  1.970
  1.970
  1.970
  1.970
  1.970
  1.970
  1.970
  1.970
  1.970
  1.970
  1.970
  1.970
  1.970
  1.970
  1.970
  1.970
  1.970
Average production assets, $m
  469
  544
  625
  712
  805
  903
  1,007
  1,116
  1,230
  1,350
  1,475
  1,605
  1,740
  1,881
  2,028
  2,180
  2,339
  2,503
  2,674
  2,852
  3,037
  3,229
  3,429
  3,638
  3,855
  4,082
  4,318
  4,564
  4,822
  5,091
Working capital, $m
  285
  331
  380
  433
  490
  549
  612
  679
  748
  821
  897
  976
  1,059
  1,145
  1,234
  1,326
  1,423
  1,523
  1,627
  1,735
  1,848
  1,965
  2,086
  2,213
  2,345
  2,483
  2,627
  2,777
  2,934
  3,097
Total debt, $m
  80
  167
  262
  363
  471
  585
  706
  833
  966
  1,105
  1,251
  1,402
  1,560
  1,724
  1,895
  2,072
  2,257
  2,448
  2,647
  2,854
  3,069
  3,293
  3,527
  3,769
  4,022
  4,286
  4,561
  4,848
  5,148
  5,461
Total liabilities, $m
  546
  634
  728
  829
  937
  1,051
  1,172
  1,299
  1,432
  1,572
  1,717
  1,869
  2,026
  2,190
  2,361
  2,539
  2,723
  2,914
  3,113
  3,320
  3,536
  3,760
  3,993
  4,236
  4,489
  4,752
  5,027
  5,315
  5,614
  5,927
Total equity, $m
  1,119
  1,298
  1,492
  1,699
  1,920
  2,154
  2,401
  2,661
  2,934
  3,220
  3,518
  3,828
  4,151
  4,488
  4,837
  5,201
  5,578
  5,971
  6,379
  6,803
  7,244
  7,703
  8,180
  8,678
  9,196
  9,737
  10,300
  10,888
  11,502
  12,143
Total liabilities and equity, $m
  1,665
  1,932
  2,220
  2,528
  2,857
  3,205
  3,573
  3,960
  4,366
  4,792
  5,235
  5,697
  6,177
  6,678
  7,198
  7,740
  8,301
  8,885
  9,492
  10,123
  10,780
  11,463
  12,173
  12,914
  13,685
  14,489
  15,327
  16,203
  17,116
  18,070
Debt-to-equity ratio
  0.070
  0.130
  0.180
  0.210
  0.250
  0.270
  0.290
  0.310
  0.330
  0.340
  0.360
  0.370
  0.380
  0.380
  0.390
  0.400
  0.400
  0.410
  0.410
  0.420
  0.420
  0.430
  0.430
  0.430
  0.440
  0.440
  0.440
  0.450
  0.450
  0.450
Adjusted equity ratio
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  158
  181
  205
  231
  259
  288
  319
  351
  386
  421
  460
  499
  539
  581
  625
  670
  717
  766
  817
  870
  925
  982
  1,042
  1,104
  1,169
  1,236
  1,306
  1,380
  1,456
  1,536
Depreciation, amort., depletion, $m
  90
  103
  118
  134
  152
  170
  189
  209
  230
  253
  273
  297
  322
  348
  376
  404
  433
  464
  495
  528
  562
  598
  635
  674
  714
  756
  800
  845
  893
  943
Funds from operations, $m
  248
  284
  324
  366
  410
  458
  508
  561
  616
  674
  733
  796
  862
  930
  1,000
  1,074
  1,150
  1,230
  1,312
  1,398
  1,487
  1,580
  1,677
  1,778
  1,883
  1,992
  2,106
  2,225
  2,349
  2,479
Change in working capital, $m
  42
  46
  49
  53
  56
  60
  63
  66
  70
  73
  76
  79
  82
  86
  89
  93
  96
  100
  104
  108
  112
  117
  122
  127
  132
  138
  144
  150
  157
  164
Cash from operations, $m
  206
  239
  274
  313
  354
  398
  445
  494
  546
  601
  657
  717
  779
  844
  911
  981
  1,054
  1,130
  1,208
  1,290
  1,375
  1,463
  1,555
  1,651
  1,750
  1,854
  1,962
  2,075
  2,193
  2,316
Maintenance CAPEX, $m
  -74
  -87
  -101
  -116
  -132
  -149
  -167
  -186
  -207
  -228
  -250
  -273
  -297
  -322
  -348
  -376
  -404
  -433
  -464
  -495
  -528
  -562
  -598
  -635
  -674
  -714
  -756
  -800
  -845
  -893
New CAPEX, $m
  -69
  -75
  -81
  -87
  -93
  -98
  -104
  -109
  -114
  -120
  -125
  -130
  -136
  -141
  -147
  -152
  -158
  -165
  -171
  -178
  -185
  -192
  -200
  -209
  -217
  -227
  -236
  -247
  -257
  -269
Cash from investing activities, $m
  -143
  -162
  -182
  -203
  -225
  -247
  -271
  -295
  -321
  -348
  -375
  -403
  -433
  -463
  -495
  -528
  -562
  -598
  -635
  -673
  -713
  -754
  -798
  -844
  -891
  -941
  -992
  -1,047
  -1,102
  -1,162
Free cash flow, $m
  63
  77
  92
  110
  130
  151
  174
  199
  225
  253
  282
  314
  346
  381
  416
  453
  492
  532
  574
  617
  662
  708
  757
  807
  859
  914
  970
  1,029
  1,090
  1,154
Issuance/(repayment) of debt, $m
  80
  87
  94
  101
  108
  114
  121
  127
  133
  139
  145
  152
  158
  164
  171
  177
  184
  192
  199
  207
  215
  224
  233
  243
  253
  264
  275
  287
  300
  313
Issuance/(repurchase) of shares, $m
  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
  0
  0
  0
Cash from financing (excl. dividends), $m  
  86
  87
  94
  101
  108
  114
  121
  127
  133
  139
  145
  152
  158
  164
  171
  177
  184
  192
  199
  207
  215
  224
  233
  243
  253
  264
  275
  287
  300
  313
Total cash flow (excl. dividends), $m
  149
  164
  187
  211
  237
  265
  295
  326
  359
  393
  428
  465
  504
  545
  587
  631
  676
  724
  773
  824
  877
  932
  990
  1,050
  1,112
  1,177
  1,245
  1,316
  1,390
  1,467
Retained Cash Flow (-), $m
  -164
  -179
  -193
  -207
  -221
  -234
  -247
  -260
  -273
  -285
  -298
  -311
  -323
  -336
  -350
  -363
  -378
  -392
  -408
  -424
  -441
  -459
  -478
  -497
  -518
  -540
  -564
  -588
  -614
  -641
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
  -15
  -15
  -6
  4
  16
  31
  47
  66
  86
  107
  130
  155
  181
  208
  237
  267
  299
  331
  365
  400
  436
  474
  512
  552
  594
  637
  682
  728
  776
  826
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
  -15
  -14
  -6
  3
  13
  22
  32
  41
  49
  56
  62
  66
  69
  70
  70
  68
  65
  61
  56
  51
  45
  39
  34
  28
  23
  19
  15
  11
  8
  6
Current shareholders' claim on cash, %
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7

DSW Inc. is a footwear retailer. The Company offers an assortment of brand name dress, casual and athletic footwear and accessories for women, men and kids. The Company operates through two segments: the DSW segment (DSW), which includes DSW stores and dsw.com, and the Affiliated Business Group (ABG) segment. As of January 28, 2017, the Company operated 501 DSW stores, dsw.com and shoe departments in 288 Stein Mart stores and Steinmart.com, 106 Gordmans stores and Gordmans.com, and one Frugal Fannie's store. DSW separates its merchandise into three primary categories: women's footwear; men's footwear, and accessories and other (which includes kids' footwear). Other primarily includes Ebuys and its investment in Town Shoes. The ABG segment partners with three other retailers to help build and optimize their in-store and online footwear businesses.

FINANCIAL RATIOS  of  DSW Inc. (DSW)

Valuation Ratios
P/E Ratio 16.3
Price to Sales 0.8
Price to Book 2.2
Price to Tangible Book
Price to Cash Flow 9.5
Price to Free Cash Flow 16.3
Growth Rates
Sales Growth Rate 3.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -15.4%
Cap. Spend. - 3 Yr. Gr. Rate 0.5%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 8.9%
Ret/ On Assets - 3 Yr. Avg. 9.8%
Return On Total Capital 13.6%
Ret/ On T. Cap. - 3 Yr. Avg. 14.3%
Return On Equity 13.6%
Return On Equity - 3 Yr. Avg. 14.3%
Asset Turnover 1.9
Profitability Ratios
Gross Margin 28.5%
Gross Margin - 3 Yr. Avg. 29.3%
EBITDA Margin 10.5%
EBITDA Margin - 3 Yr. Avg. 11.4%
Operating Margin 7.4%
Oper. Margin - 3 Yr. Avg. 8.4%
Pre-Tax Margin 7.5%
Pre-Tax Margin - 3 Yr. Avg. 8.6%
Net Profit Margin 4.6%
Net Profit Margin - 3 Yr. Avg. 5.3%
Effective Tax Rate 38.9%
Eff/ Tax Rate - 3 Yr. Avg. 38.8%
Payout Ratio 52%

DSW stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DSW stock intrinsic value calculation we used $2800 million for the last fiscal year's total revenue generated by DSW Inc.. The default revenue input number comes from 0001 income statement of DSW 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 DSW stock valuation model: a) initial revenue growth rate of 17.2% 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 DSW is calculated based on our internal credit rating of DSW 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 DSW 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 DSW stock the variable cost ratio is equal to 93.4%.

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 DSW 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 DSW Inc..

Corporate tax rate of 27% is the nominal tax rate for DSW 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 DSW 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 DSW are equal to 14.3%.

Life of production assets of 5.4 years is the average useful life of capital assets used in DSW 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 DSW is equal to 8.7%. 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 - $955.251 million for DSW 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 80.315 million for DSW 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 DSW Inc. at the current share price and the inputted number of shares is $2.0 billion.

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