Intrinsic value of Echo Global Logistics - ECHO

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$19.65

  Intrinsic Value

$20.18

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  Rating & Target

hold

+3%

Previous close

$19.65

 
Intrinsic value

$20.18

 
Up/down potential

+3%

 
Rating

hold

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of ECHO 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 2016), $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 0.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  13.49
  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
  1,716
  1,817
  1,923
  2,033
  2,148
  2,268
  2,394
  2,525
  2,662
  2,805
  2,955
  3,112
  3,277
  3,449
  3,629
  3,818
  4,016
  4,223
  4,441
  4,669
  4,908
  5,159
  5,422
  5,698
  5,987
  6,291
  6,610
  6,944
  7,295
  7,663
  8,049
Variable operating expenses, $m
 
  1,788
  1,890
  1,997
  2,108
  2,224
  2,345
  2,472
  2,605
  2,744
  2,889
  3,010
  3,169
  3,335
  3,510
  3,692
  3,884
  4,085
  4,295
  4,515
  4,747
  4,989
  5,244
  5,510
  5,790
  6,084
  6,392
  6,716
  7,055
  7,411
  7,785
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
  1,701
  1,788
  1,890
  1,997
  2,108
  2,224
  2,345
  2,472
  2,605
  2,744
  2,889
  3,010
  3,169
  3,335
  3,510
  3,692
  3,884
  4,085
  4,295
  4,515
  4,747
  4,989
  5,244
  5,510
  5,790
  6,084
  6,392
  6,716
  7,055
  7,411
  7,785
Operating income, $m
  16
  29
  33
  36
  40
  44
  48
  52
  57
  62
  66
  102
  108
  113
  119
  126
  132
  139
  146
  154
  161
  170
  178
  187
  197
  207
  217
  228
  240
  252
  265
EBITDA, $m
  48
  72
  77
  81
  86
  90
  95
  101
  106
  112
  118
  124
  130
  137
  145
  152
  160
  168
  177
  186
  195
  205
  216
  227
  238
  250
  263
  276
  290
  305
  321
Interest expense (income), $m
  7
  0
  1
  2
  3
  4
  5
  6
  7
  8
  9
  10
  12
  13
  14
  16
  18
  19
  21
  23
  25
  27
  29
  31
  33
  36
  38
  41
  44
  47
  50
Earnings before tax, $m
  1
  29
  32
  34
  37
  40
  43
  47
  50
  54
  57
  92
  96
  100
  105
  110
  115
  120
  125
  131
  137
  143
  150
  157
  164
  171
  179
  188
  196
  206
  215
Tax expense, $m
  -1
  8
  9
  9
  10
  11
  12
  13
  14
  14
  16
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
  39
  40
  42
  44
  46
  48
  51
  53
  55
  58
Net income, $m
  2
  21
  23
  25
  27
  29
  32
  34
  37
  39
  42
  67
  70
  73
  77
  80
  84
  87
  91
  96
  100
  104
  109
  114
  120
  125
  131
  137
  143
  150
  157

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  17
  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
  767
  794
  840
  889
  939
  991
  1,046
  1,103
  1,163
  1,226
  1,292
  1,360
  1,432
  1,507
  1,586
  1,669
  1,755
  1,846
  1,941
  2,041
  2,145
  2,255
  2,370
  2,490
  2,617
  2,750
  2,889
  3,035
  3,188
  3,349
  3,518
Adjusted assets (=assets-cash), $m
  750
  794
  840
  889
  939
  991
  1,046
  1,103
  1,163
  1,226
  1,292
  1,360
  1,432
  1,507
  1,586
  1,669
  1,755
  1,846
  1,941
  2,041
  2,145
  2,255
  2,370
  2,490
  2,617
  2,750
  2,889
  3,035
  3,188
  3,349
  3,518
Revenue / Adjusted assets
  2.288
  2.288
  2.289
  2.287
  2.288
  2.289
  2.289
  2.289
  2.289
  2.288
  2.287
  2.288
  2.288
  2.289
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
  2.288
Average production assets, $m
  183
  193
  204
  215
  228
  240
  254
  268
  282
  297
  313
  330
  347
  366
  385
  405
  426
  448
  471
  495
  520
  547
  575
  604
  635
  667
  701
  736
  773
  812
  853
Working capital, $m
  100
  87
  92
  98
  103
  109
  115
  121
  128
  135
  142
  149
  157
  166
  174
  183
  193
  203
  213
  224
  236
  248
  260
  273
  287
  302
  317
  333
  350
  368
  386
Total debt, $m
  0
  24
  49
  75
  103
  131
  161
  192
  225
  259
  295
  332
  371
  412
  455
  500
  548
  597
  649
  703
  760
  820
  883
  948
  1,017
  1,090
  1,165
  1,245
  1,329
  1,416
  1,508
Total liabilities, $m
  409
  433
  458
  484
  512
  540
  570
  601
  634
  668
  704
  741
  780
  821
  864
  909
  957
  1,006
  1,058
  1,112
  1,169
  1,229
  1,292
  1,357
  1,426
  1,499
  1,574
  1,654
  1,738
  1,825
  1,917
Total equity, $m
  358
  361
  382
  404
  427
  451
  476
  502
  529
  558
  588
  619
  652
  686
  722
  759
  799
  840
  883
  929
  976
  1,026
  1,078
  1,133
  1,191
  1,251
  1,314
  1,381
  1,451
  1,524
  1,601
Total liabilities and equity, $m
  767
  794
  840
  888
  939
  991
  1,046
  1,103
  1,163
  1,226
  1,292
  1,360
  1,432
  1,507
  1,586
  1,668
  1,756
  1,846
  1,941
  2,041
  2,145
  2,255
  2,370
  2,490
  2,617
  2,750
  2,888
  3,035
  3,189
  3,349
  3,518
Debt-to-equity ratio
  0.000
  0.070
  0.130
  0.190
  0.240
  0.290
  0.340
  0.380
  0.430
  0.460
  0.500
  0.540
  0.570
  0.600
  0.630
  0.660
  0.690
  0.710
  0.730
  0.760
  0.780
  0.800
  0.820
  0.840
  0.850
  0.870
  0.890
  0.900
  0.920
  0.930
  0.940
Adjusted equity ratio
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2
  21
  23
  25
  27
  29
  32
  34
  37
  39
  42
  67
  70
  73
  77
  80
  84
  87
  91
  96
  100
  104
  109
  114
  120
  125
  131
  137
  143
  150
  157
Depreciation, amort., depletion, $m
  32
  43
  44
  45
  46
  46
  47
  48
  49
  50
  51
  22
  23
  24
  25
  26
  28
  29
  31
  32
  34
  36
  38
  39
  41
  44
  46
  48
  51
  53
  56
Funds from operations, $m
  61
  65
  67
  70
  73
  76
  79
  82
  86
  89
  93
  89
  93
  97
  102
  106
  111
  117
  122
  128
  134
  140
  147
  154
  161
  169
  177
  185
  194
  203
  213
Change in working capital, $m
  1
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
Cash from operations, $m
  60
  60
  62
  65
  67
  70
  73
  76
  79
  82
  86
  81
  85
  89
  93
  97
  102
  107
  112
  117
  122
  128
  134
  140
  147
  154
  161
  169
  177
  185
  194
Maintenance CAPEX, $m
  0
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -39
  -41
  -44
  -46
  -48
  -51
  -53
New CAPEX, $m
  -47
  -10
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
Cash from investing activities, $m
  -47
  -22
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -50
  -52
  -55
  -57
  -61
  -64
  -67
  -70
  -73
  -78
  -81
  -85
  -90
  -94
Free cash flow, $m
  13
  38
  38
  40
  41
  42
  44
  46
  47
  49
  51
  44
  46
  48
  50
  52
  55
  57
  59
  62
  65
  68
  71
  74
  77
  80
  84
  88
  92
  96
  100
Issuance/(repayment) of debt, $m
  0
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
  63
  66
  69
  72
  76
  80
  84
  88
  92
Issuance/(repurchase) of shares, $m
  -48
  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  
  -53
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
  63
  66
  69
  72
  76
  80
  84
  88
  92
Total cash flow (excl. dividends), $m
  -40
  61
  63
  66
  68
  71
  74
  77
  80
  83
  86
  81
  85
  89
  93
  97
  102
  106
  111
  116
  122
  127
  133
  139
  146
  153
  160
  167
  175
  184
  192
Retained Cash Flow (-), $m
  37
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -34
  -36
  -38
  -39
  -41
  -43
  -45
  -48
  -50
  -52
  -55
  -58
  -60
  -63
  -66
  -70
  -73
  -77
Prev. year cash balance distribution, $m
 
  17
  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
 
  58
  42
  44
  46
  47
  49
  51
  53
  54
  56
  50
  52
  55
  57
  60
  62
  65
  68
  71
  74
  77
  81
  85
  88
  92
  97
  101
  106
  110
  115
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
 
  56
  39
  38
  38
  37
  35
  34
  33
  31
  30
  24
  22
  21
  19
  18
  16
  14
  13
  11
  9
  8
  7
  6
  4
  4
  3
  2
  2
  1
  1
Current shareholders' claim on cash, %
  100
  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

Echo Global Logistics, Inc. is a provider of technology-enabled transportation and supply chain management solutions. The Company utilizes a technology platform to compile and analyze data from its multi-modal network of transportation providers to facilitate its transportation and logistics services. The Company focuses primarily on arranging transportation by truckload (TL) and less than truckload (LTL) carriers. It also offers intermodal (which involves moving a shipment by rail and truck), small parcel, domestic air, expedited and international transportation services. The Company's core logistics services include rate negotiation, shipment execution and tracking, carrier selection and management, routing compliance freight bill payment and audit, payment and performance management and reporting functions.

FINANCIAL RATIOS  of  Echo Global Logistics (ECHO)

Valuation Ratios
P/E Ratio 276.4
Price to Sales 0.3
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 9.2
Price to Free Cash Flow 42.5
Growth Rates
Sales Growth Rate 13.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 213.3%
Cap. Spend. - 3 Yr. Gr. Rate 39.2%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 1
Management Effectiveness
Return On Assets 2.1%
Ret/ On Assets - 3 Yr. Avg. 3.4%
Return On Total Capital 0.5%
Ret/ On T. Cap. - 3 Yr. Avg. 4.4%
Return On Equity 0.5%
Return On Equity - 3 Yr. Avg. 4.4%
Asset Turnover 2.3
Profitability Ratios
Gross Margin 18.6%
Gross Margin - 3 Yr. Avg. 18.5%
EBITDA Margin 2.3%
EBITDA Margin - 3 Yr. Avg. 2.8%
Operating Margin 0.9%
Oper. Margin - 3 Yr. Avg. 1.6%
Pre-Tax Margin 0.1%
Pre-Tax Margin - 3 Yr. Avg. 1.1%
Net Profit Margin 0.1%
Net Profit Margin - 3 Yr. Avg. 0.7%
Effective Tax Rate -100%
Eff/ Tax Rate - 3 Yr. Avg. -9.9%
Payout Ratio 0%

ECHO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ECHO stock intrinsic value calculation we used $1716 million for the last fiscal year's total revenue generated by Echo Global Logistics. The default revenue input number comes from 2016 income statement of Echo Global Logistics. 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 ECHO 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 ECHO is calculated based on our internal credit rating of Echo Global Logistics, 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 Echo Global Logistics.
    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 ECHO stock the variable cost ratio is equal to 98.5%.

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 ECHO 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 3.5% for Echo Global Logistics.

Corporate tax rate of 27% is the nominal tax rate for Echo Global Logistics. 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 ECHO 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 ECHO are equal to 10.6%.

Life of production assets of 15.3 years is the average useful life of capital assets used in Echo Global Logistics 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 ECHO is equal to 4.8%. 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 - $358 million for Echo Global Logistics - 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 28.534 million for Echo Global Logistics 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 Echo Global Logistics at the current share price and the inputted number of shares is $0.6 billion.

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COMPANY NEWS

▶ Echo Global Logistics reports 2Q loss   [Jul-27-17 10:07PM  Associated Press]
▶ New Strong Sell Stocks for May 25th   [May-25-17 10:12AM  Zacks]
▶ Echo Global Logistics reports 1Q loss   [Apr-26-17 05:18PM  Associated Press]
▶ AT&T Spends $1.6B to Upgrade Its 5G Wireless Plan   [Apr-10-17 04:54PM  TheStreet.com]
▶ Echo Global Logistics reports 4Q loss   [05:08PM  Associated Press]
▶ What Smart Money Thinks about Echo Global Logistics, Inc. (ECHO)?   [Dec-20-16 03:19PM  at Insider Monkey]
▶ [$$] Sharing the Wealth   [Sep-10-16 12:01AM  at Barrons.com]
▶ Echo Logistics Back on the Acquisition Hunt   [01:44PM  at The Wall Street Journal]
▶ A. Duie Pyle Receives Northeast Regional Platinum Award   [May-18-16 09:41AM  Marketwired]
Financial statements of ECHO
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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