Intrinsic value of DXP Enterprises - DXPE

Previous Close

$46.40

  Intrinsic Value

$29.98

stock screener

  Rating & Target

sell

-35%

Previous close

$46.40

 
Intrinsic value

$29.98

 
Up/down potential

-35%

 
Rating

sell

We calculate the intrinsic value of DXPE 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 2017), $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 0.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  4.70
  4.73
  4.76
  4.78
  4.80
  4.82
  4.84
  4.86
  4.87
  4.88
  4.90
  4.91
  4.92
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
  4.96
  4.97
  4.97
  4.97
  4.98
  4.98
  4.98
  4.98
  4.98
  4.99
Revenue, $m
  1,054
  1,104
  1,157
  1,212
  1,270
  1,332
  1,396
  1,464
  1,535
  1,610
  1,689
  1,772
  1,859
  1,950
  2,046
  2,148
  2,254
  2,365
  2,482
  2,606
  2,735
  2,871
  3,013
  3,163
  3,321
  3,486
  3,660
  3,842
  4,034
  4,235
Variable operating expenses, $m
  718
  750
  785
  821
  859
  900
  942
  986
  1,033
  1,082
  1,107
  1,161
  1,219
  1,279
  1,342
  1,408
  1,478
  1,551
  1,627
  1,708
  1,793
  1,882
  1,976
  2,074
  2,177
  2,285
  2,399
  2,519
  2,644
  2,776
Fixed operating expenses, $m
  298
  305
  312
  319
  326
  333
  340
  348
  355
  363
  371
  379
  387
  396
  405
  414
  423
  432
  442
  451
  461
  471
  482
  492
  503
  514
  525
  537
  549
  561
Total operating expenses, $m
  1,016
  1,055
  1,097
  1,140
  1,185
  1,233
  1,282
  1,334
  1,388
  1,445
  1,478
  1,540
  1,606
  1,675
  1,747
  1,822
  1,901
  1,983
  2,069
  2,159
  2,254
  2,353
  2,458
  2,566
  2,680
  2,799
  2,924
  3,056
  3,193
  3,337
Operating income, $m
  38
  49
  60
  72
  85
  99
  114
  130
  147
  165
  211
  231
  253
  276
  300
  326
  353
  383
  413
  446
  481
  517
  556
  597
  641
  686
  735
  786
  840
  898
EBITDA, $m
  99
  112
  125
  139
  154
  170
  187
  205
  224
  244
  266
  289
  314
  340
  367
  397
  428
  460
  495
  532
  571
  612
  655
  701
  750
  801
  855
  913
  973
  1,037
Interest expense (income), $m
  14
  18
  19
  20
  22
  23
  25
  26
  28
  30
  32
  34
  36
  38
  41
  43
  46
  48
  51
  54
  57
  61
  64
  68
  72
  76
  80
  84
  89
  94
  99
Earnings before tax, $m
  20
  30
  40
  51
  62
  74
  88
  102
  117
  133
  177
  195
  214
  235
  257
  280
  305
  331
  359
  389
  420
  453
  488
  526
  565
  606
  651
  697
  746
  798
Tax expense, $m
  6
  8
  11
  14
  17
  20
  24
  27
  32
  36
  48
  53
  58
  63
  69
  76
  82
  89
  97
  105
  113
  122
  132
  142
  153
  164
  176
  188
  202
  216
Net income, $m
  15
  22
  29
  37
  45
  54
  64
  74
  85
  97
  129
  142
  157
  172
  188
  205
  223
  242
  262
  284
  307
  331
  356
  384
  412
  443
  475
  509
  545
  583

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
  669
  701
  734
  770
  807
  845
  886
  929
  975
  1,022
  1,072
  1,125
  1,180
  1,238
  1,299
  1,364
  1,431
  1,502
  1,576
  1,654
  1,736
  1,823
  1,913
  2,008
  2,108
  2,213
  2,324
  2,439
  2,561
  2,689
Adjusted assets (=assets-cash), $m
  669
  701
  734
  770
  807
  845
  886
  929
  975
  1,022
  1,072
  1,125
  1,180
  1,238
  1,299
  1,364
  1,431
  1,502
  1,576
  1,654
  1,736
  1,823
  1,913
  2,008
  2,108
  2,213
  2,324
  2,439
  2,561
  2,689
Revenue / Adjusted assets
  1.575
  1.575
  1.576
  1.574
  1.574
  1.576
  1.576
  1.576
  1.574
  1.575
  1.576
  1.575
  1.575
  1.575
  1.575
  1.575
  1.575
  1.575
  1.575
  1.576
  1.575
  1.575
  1.575
  1.575
  1.575
  1.575
  1.575
  1.575
  1.575
  1.575
Average production assets, $m
  347
  363
  381
  399
  418
  438
  459
  482
  505
  530
  556
  583
  612
  642
  673
  707
  741
  778
  817
  857
  900
  944
  991
  1,041
  1,093
  1,147
  1,204
  1,264
  1,327
  1,393
Working capital, $m
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  19
  20
  21
  23
  24
  25
  26
  27
  29
  30
  32
  33
  35
  37
  38
  40
  42
  44
  47
Total debt, $m
  260
  278
  298
  318
  340
  362
  386
  411
  437
  465
  494
  524
  557
  590
  626
  663
  702
  743
  787
  832
  880
  930
  983
  1,038
  1,096
  1,157
  1,221
  1,288
  1,359
  1,433
Total liabilities, $m
  389
  407
  427
  447
  469
  491
  515
  540
  566
  594
  623
  654
  686
  719
  755
  792
  831
  873
  916
  961
  1,009
  1,059
  1,112
  1,167
  1,225
  1,286
  1,350
  1,417
  1,488
  1,562
Total equity, $m
  280
  294
  308
  322
  338
  354
  371
  389
  408
  428
  449
  471
  494
  519
  544
  571
  600
  629
  660
  693
  728
  764
  802
  842
  883
  927
  974
  1,022
  1,073
  1,127
Total liabilities and equity, $m
  669
  701
  735
  769
  807
  845
  886
  929
  974
  1,022
  1,072
  1,125
  1,180
  1,238
  1,299
  1,363
  1,431
  1,502
  1,576
  1,654
  1,737
  1,823
  1,914
  2,009
  2,108
  2,213
  2,324
  2,439
  2,561
  2,689
Debt-to-equity ratio
  0.930
  0.950
  0.970
  0.990
  1.000
  1.020
  1.040
  1.060
  1.070
  1.090
  1.100
  1.110
  1.130
  1.140
  1.150
  1.160
  1.170
  1.180
  1.190
  1.200
  1.210
  1.220
  1.230
  1.230
  1.240
  1.250
  1.250
  1.260
  1.270
  1.270
Adjusted equity ratio
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  15
  22
  29
  37
  45
  54
  64
  74
  85
  97
  129
  142
  157
  172
  188
  205
  223
  242
  262
  284
  307
  331
  356
  384
  412
  443
  475
  509
  545
  583
Depreciation, amort., depletion, $m
  61
  63
  65
  66
  68
  70
  73
  75
  77
  80
  56
  58
  61
  64
  67
  71
  74
  78
  82
  86
  90
  94
  99
  104
  109
  115
  120
  126
  133
  139
Funds from operations, $m
  76
  85
  94
  103
  114
  125
  137
  149
  162
  177
  185
  201
  218
  236
  255
  275
  297
  320
  344
  370
  397
  425
  456
  488
  522
  557
  595
  635
  678
  722
Change in working capital, $m
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
Cash from operations, $m
  76
  84
  93
  103
  113
  124
  136
  148
  162
  176
  184
  200
  217
  235
  254
  274
  296
  318
  343
  368
  395
  424
  454
  486
  520
  556
  593
  633
  675
  720
Maintenance CAPEX, $m
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -53
  -56
  -58
  -61
  -64
  -67
  -71
  -74
  -78
  -82
  -86
  -90
  -94
  -99
  -104
  -109
  -115
  -120
  -126
  -133
New CAPEX, $m
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
  -60
  -63
  -66
Cash from investing activities, $m
  -49
  -51
  -53
  -56
  -59
  -62
  -65
  -68
  -71
  -76
  -79
  -83
  -87
  -91
  -96
  -100
  -106
  -111
  -117
  -123
  -129
  -135
  -141
  -148
  -156
  -163
  -172
  -180
  -189
  -199
Free cash flow, $m
  27
  33
  40
  47
  54
  62
  71
  80
  90
  101
  105
  117
  130
  144
  158
  174
  190
  208
  226
  246
  267
  289
  313
  338
  364
  392
  422
  453
  486
  521
Issuance/(repayment) of debt, $m
  18
  18
  19
  20
  21
  23
  24
  25
  26
  28
  29
  31
  32
  34
  35
  37
  39
  41
  43
  45
  48
  50
  53
  55
  58
  61
  64
  67
  71
  74
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  
  18
  18
  19
  20
  21
  23
  24
  25
  26
  28
  29
  31
  32
  34
  35
  37
  39
  41
  43
  45
  48
  50
  53
  55
  58
  61
  64
  67
  71
  74
Total cash flow (excl. dividends), $m
  45
  51
  59
  67
  76
  85
  95
  105
  116
  128
  134
  147
  162
  177
  194
  211
  229
  249
  269
  291
  315
  339
  365
  393
  422
  453
  486
  520
  557
  595
Retained Cash Flow (-), $m
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -49
  -51
  -54
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
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
Cash available for distribution, $m
  32
  38
  45
  52
  60
  68
  77
  87
  97
  108
  113
  125
  139
  153
  168
  184
  201
  219
  238
  259
  280
  303
  327
  353
  380
  409
  439
  472
  506
  542
Discount rate, %
  8.50
  8.93
  9.37
  9.84
  10.33
  10.85
  11.39
  11.96
  12.56
  13.19
  13.85
  14.54
  15.26
  16.03
  16.83
  17.67
  18.55
  19.48
  20.46
  21.48
  22.55
  23.68
  24.86
  26.11
  27.41
  28.78
  30.22
  31.73
  33.32
  34.99
PV of cash for distribution, $m
  30
  32
  34
  36
  37
  37
  36
  35
  34
  31
  27
  25
  22
  19
  16
  14
  11
  9
  7
  5
  4
  3
  2
  1
  1
  1
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100.0
  100.0
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DXP Enterprises, Inc. (DXP) is engaged in the business of distributing maintenance, repair and operating (MRO) products, equipment and service to industrial customers. The Company operates through three segments: Service Centers, Supply Chain Services and Innovative Pumping Solutions. The Service Centers segment provides MRO products, equipment and services, including technical expertise and logistics capabilities to industrial customers. The Supply Chain Services segment manages all or part of a customer's supply chain, including procurement and inventory management. The Innovative Pumping Solutions segment provides source for engineering, systems design and fabrication. It operates from approximately 190 locations in over 40 states in the United States, approximately 10 provinces in Canada, Dubai and one state in Mexico. The Company's product categories include rotating equipment, bearings & power transmission, industrial supplies, metal working and safety products & services.

FINANCIAL RATIOS  of  DXP Enterprises (DXPE)

Valuation Ratios
P/E Ratio 99.8
Price to Sales 0.8
Price to Book 3.2
Price to Tangible Book
Price to Cash Flow 16.6
Price to Free Cash Flow 18.6
Growth Rates
Sales Growth Rate -22.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -64.3%
Cap. Spend. - 3 Yr. Gr. Rate -9%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 69%
Total Debt to Equity 89.3%
Interest Coverage 2
Management Effectiveness
Return On Assets 2.8%
Ret/ On Assets - 3 Yr. Avg. -1.4%
Return On Total Capital 1.6%
Ret/ On T. Cap. - 3 Yr. Avg. -4.3%
Return On Equity 3.6%
Return On Equity - 3 Yr. Avg. -10.3%
Asset Turnover 1.5
Profitability Ratios
Gross Margin 27.5%
Gross Margin - 3 Yr. Avg. 28.2%
EBITDA Margin 5.6%
EBITDA Margin - 3 Yr. Avg. 2.5%
Operating Margin 2%
Oper. Margin - 3 Yr. Avg. -0.4%
Pre-Tax Margin 1%
Pre-Tax Margin - 3 Yr. Avg. -1.3%
Net Profit Margin 0.8%
Net Profit Margin - 3 Yr. Avg. -1.8%
Effective Tax Rate 30%
Eff/ Tax Rate - 3 Yr. Avg. -14.4%
Payout Ratio 0%

DXPE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DXPE stock intrinsic value calculation we used $1007 million for the last fiscal year's total revenue generated by DXP Enterprises. The default revenue input number comes from 2017 income statement of DXP Enterprises. 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 DXPE stock valuation model: a) initial revenue growth rate of 4.7% 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 8.5%, whose default value for DXPE is calculated based on our internal credit rating of DXP Enterprises, 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 DXP Enterprises.
    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 DXPE stock the variable cost ratio is equal to 68.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $292 million in the base year in the intrinsic value calculation for DXPE 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 7.3% for DXP Enterprises.

Corporate tax rate of 27% is the nominal tax rate for DXP Enterprises. 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 DXPE stock is equal to 0.2%.

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 DXPE are equal to 32.9%.

Life of production assets of 10 years is the average useful life of capital assets used in DXP Enterprises 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 DXPE is equal to 1.1%. 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 - $268 million for DXP Enterprises - 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 17 million for DXP Enterprises 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 DXP Enterprises at the current share price and the inputted number of shares is $0.8 billion.

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COMPANY NEWS

▶ DXP Enterprises: 2Q Earnings Snapshot   [04:10PM  Associated Press]
▶ Small Caps And Blue Chips Lead; Stocks Attempt Breakouts   [May-18-18 12:08PM  Investor's Business Daily]
▶ DXP Enterprises: 1Q Earnings Snapshot   [May-08-18 04:46PM  Associated Press]
▶ DXP Enterprises posts 4Q profit   [Mar-20-18 10:45PM  Associated Press]
▶ DXP Enterprises Inc (DXPE): Time For A Financial Health Check   [Nov-13-17 08:25AM  Simply Wall St.]
▶ DXP Enterprises misses 3Q profit forecasts   [05:38AM  Associated Press]
▶ DXP Enterprises Reports 2017 Third Quarter Results   [Nov-02-17 06:24PM  Business Wire]
▶ DXP Enterprises Announces New ABL Revolver and Term Loan B   [Aug-29-17 04:00PM  Business Wire]
▶ DXP Enterprises posts 2Q profit   [Jul-25-17 09:16PM  Associated Press]
▶ 5 Stocks Set to Soar on New Analyst Coverage   [May-31-17 09:05AM  Zacks]
▶ DXP Enterprises posts 1Q profit   [04:06PM  Associated Press]
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