Intrinsic value of Farmer Brothers Company - FARM

Previous Close

$23.54

  Intrinsic Value

$21.71

stock screener

  Rating & Target

hold

-8%

Previous close

$23.54

 
Intrinsic value

$21.71

 
Up/down potential

-8%

 
Rating

hold

We calculate the intrinsic value of FARM 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 0.4

 

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, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  619
  633
  650
  668
  688
  710
  735
  761
  789
  819
  852
  886
  923
  962
  1,004
  1,048
  1,094
  1,143
  1,195
  1,250
  1,308
  1,369
  1,434
  1,502
  1,573
  1,649
  1,728
  1,811
  1,899
  1,991
Variable operating expenses, $m
  574
  587
  602
  618
  636
  656
  678
  701
  727
  754
  764
  795
  828
  863
  900
  940
  982
  1,026
  1,073
  1,122
  1,174
  1,229
  1,286
  1,347
  1,412
  1,479
  1,550
  1,625
  1,704
  1,786
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
  574
  587
  602
  618
  636
  656
  678
  701
  727
  754
  764
  795
  828
  863
  900
  940
  982
  1,026
  1,073
  1,122
  1,174
  1,229
  1,286
  1,347
  1,412
  1,479
  1,550
  1,625
  1,704
  1,786
Operating income, $m
  45
  46
  48
  50
  52
  54
  57
  60
  62
  66
  88
  91
  95
  99
  103
  108
  112
  118
  123
  129
  135
  141
  147
  154
  162
  169
  178
  186
  195
  205
EBITDA, $m
  91
  93
  96
  98
  101
  105
  108
  112
  116
  121
  126
  131
  136
  142
  148
  154
  161
  169
  176
  184
  193
  202
  211
  221
  232
  243
  255
  267
  280
  294
Interest expense (income), $m
  2
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  22
  23
  24
  26
  28
  29
  31
  33
Earnings before tax, $m
  40
  41
  43
  44
  46
  48
  50
  52
  54
  57
  78
  81
  84
  87
  91
  94
  98
  102
  106
  111
  116
  121
  126
  131
  137
  143
  150
  157
  164
  172
Tax expense, $m
  11
  11
  12
  12
  12
  13
  13
  14
  15
  15
  21
  22
  23
  24
  24
  25
  26
  28
  29
  30
  31
  33
  34
  35
  37
  39
  40
  42
  44
  46
Net income, $m
  29
  30
  31
  32
  33
  35
  36
  38
  40
  41
  57
  59
  61
  64
  66
  69
  72
  74
  78
  81
  84
  88
  92
  96
  100
  105
  109
  114
  120
  125

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
  485
  496
  509
  523
  539
  557
  576
  596
  618
  642
  667
  695
  723
  754
  787
  821
  858
  896
  937
  980
  1,025
  1,073
  1,124
  1,177
  1,233
  1,292
  1,354
  1,419
  1,488
  1,560
Adjusted assets (=assets-cash), $m
  485
  496
  509
  523
  539
  557
  576
  596
  618
  642
  667
  695
  723
  754
  787
  821
  858
  896
  937
  980
  1,025
  1,073
  1,124
  1,177
  1,233
  1,292
  1,354
  1,419
  1,488
  1,560
Revenue / Adjusted assets
  1.276
  1.276
  1.277
  1.277
  1.276
  1.275
  1.276
  1.277
  1.277
  1.276
  1.277
  1.275
  1.277
  1.276
  1.276
  1.276
  1.275
  1.276
  1.275
  1.276
  1.276
  1.276
  1.276
  1.276
  1.276
  1.276
  1.276
  1.276
  1.276
  1.276
Average production assets, $m
  210
  215
  220
  226
  233
  241
  249
  258
  267
  278
  289
  300
  313
  326
  340
  355
  371
  388
  405
  424
  444
  464
  486
  509
  533
  559
  586
  614
  644
  675
Working capital, $m
  84
  86
  88
  91
  94
  97
  100
  103
  107
  111
  116
  121
  126
  131
  136
  142
  149
  156
  163
  170
  178
  186
  195
  204
  214
  224
  235
  246
  258
  271
Total debt, $m
  95
  101
  107
  115
  123
  132
  142
  152
  164
  176
  189
  203
  218
  234
  251
  269
  288
  308
  329
  351
  375
  399
  426
  453
  482
  513
  545
  579
  614
  652
Total liabilities, $m
  251
  257
  264
  271
  279
  288
  298
  309
  320
  333
  346
  360
  375
  391
  407
  425
  444
  464
  485
  508
  531
  556
  582
  610
  639
  669
  701
  735
  771
  808
Total equity, $m
  234
  239
  245
  252
  260
  268
  277
  287
  298
  309
  322
  335
  349
  363
  379
  396
  413
  432
  452
  472
  494
  517
  542
  567
  594
  623
  653
  684
  717
  752
Total liabilities and equity, $m
  485
  496
  509
  523
  539
  556
  575
  596
  618
  642
  668
  695
  724
  754
  786
  821
  857
  896
  937
  980
  1,025
  1,073
  1,124
  1,177
  1,233
  1,292
  1,354
  1,419
  1,488
  1,560
Debt-to-equity ratio
  0.410
  0.420
  0.440
  0.450
  0.470
  0.490
  0.510
  0.530
  0.550
  0.570
  0.590
  0.610
  0.630
  0.640
  0.660
  0.680
  0.700
  0.710
  0.730
  0.740
  0.760
  0.770
  0.790
  0.800
  0.810
  0.820
  0.830
  0.850
  0.860
  0.870
Adjusted equity ratio
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  29
  30
  31
  32
  33
  35
  36
  38
  40
  41
  57
  59
  61
  64
  66
  69
  72
  74
  78
  81
  84
  88
  92
  96
  100
  105
  109
  114
  120
  125
Depreciation, amort., depletion, $m
  46
  47
  48
  48
  49
  50
  51
  53
  54
  55
  38
  40
  41
  43
  45
  47
  49
  51
  53
  56
  58
  61
  64
  67
  70
  74
  77
  81
  85
  89
Funds from operations, $m
  76
  77
  79
  81
  83
  85
  88
  90
  93
  97
  95
  99
  102
  107
  111
  115
  120
  125
  131
  137
  143
  149
  156
  163
  170
  178
  187
  195
  204
  214
Change in working capital, $m
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
Cash from operations, $m
  74
  75
  77
  78
  80
  82
  84
  87
  90
  93
  91
  94
  97
  101
  105
  109
  114
  119
  124
  129
  135
  141
  147
  154
  161
  168
  176
  184
  192
  201
Maintenance CAPEX, $m
  -27
  -28
  -28
  -29
  -30
  -31
  -32
  -33
  -34
  -35
  -37
  -38
  -40
  -41
  -43
  -45
  -47
  -49
  -51
  -53
  -56
  -58
  -61
  -64
  -67
  -70
  -74
  -77
  -81
  -85
New CAPEX, $m
  -4
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -31
Cash from investing activities, $m
  -31
  -33
  -34
  -35
  -37
  -39
  -40
  -42
  -44
  -45
  -48
  -50
  -52
  -54
  -57
  -60
  -63
  -66
  -69
  -72
  -76
  -79
  -83
  -87
  -91
  -96
  -101
  -105
  -111
  -116
Free cash flow, $m
  43
  43
  43
  43
  43
  44
  45
  45
  46
  47
  43
  44
  45
  47
  48
  50
  51
  53
  55
  57
  59
  62
  64
  67
  69
  72
  75
  79
  82
  86
Issuance/(repayment) of debt, $m
  5
  6
  7
  7
  8
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  28
  29
  31
  32
  34
  36
  37
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  
  5
  6
  7
  7
  8
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  28
  29
  31
  32
  34
  36
  37
Total cash flow (excl. dividends), $m
  48
  48
  49
  51
  52
  53
  54
  56
  58
  59
  56
  58
  60
  63
  65
  68
  70
  73
  76
  80
  83
  87
  90
  94
  98
  103
  108
  112
  118
  123
Retained Cash Flow (-), $m
  -5
  -5
  -6
  -7
  -8
  -8
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -31
  -33
  -35
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
  43
  43
  43
  44
  44
  45
  45
  46
  47
  48
  44
  45
  46
  48
  49
  51
  53
  55
  57
  59
  61
  63
  66
  69
  71
  74
  78
  81
  84
  88
Discount rate, %
  6.70
  7.04
  7.39
  7.76
  8.14
  8.55
  8.98
  9.43
  9.90
  10.39
  10.91
  11.46
  12.03
  12.63
  13.27
  13.93
  14.63
  15.36
  16.12
  16.93
  17.78
  18.67
  19.60
  20.58
  21.61
  22.69
  23.82
  25.01
  26.26
  27.58
PV of cash for distribution, $m
  40
  38
  35
  32
  30
  27
  25
  22
  20
  18
  14
  12
  11
  9
  8
  6
  5
  4
  3
  3
  2
  1
  1
  1
  1
  0
  0
  0
  0
  0
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

Farmer Bros. Co. is a national coffee roaster, wholesaler and distributor of coffee, tea and culinary products. The Company offers private brand and consumer-branded coffee products to small independent restaurants and foodservice operators, and institutional buyers. Its product line includes organic, Direct Trade, Direct Trade Verified Sustainable (DTVS) coffees and other coffees, iced and hot teas, cappuccino, spices, and baking/biscuit mixes. Its primary brands include Farmer Brothers, Artisan Collection by Farmer Brothers, Superior and Metropolitan. Its Artisan coffee products include Direct Trade, Fair Trade Certified, Rainforest Alliance Certified organic blends. It sells whole bean and roast and ground flavored and unflavored coffee products under the Un Momento, Collaborative Coffee, Cain's and McGarvey brands at retail. Its roast and ground coffee products are sold in traditional packaging, including bags and fractional packages, as well as single-serve packaging.

FINANCIAL RATIOS  of  Farmer Brothers Company (FARM)

Valuation Ratios
P/E Ratio 16.5
Price to Sales 0.7
Price to Book 1.8
Price to Tangible Book
Price to Cash Flow 9.4
Price to Free Cash Flow -9.2
Growth Rates
Sales Growth Rate -0.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 70%
Cap. Spend. - 3 Yr. Gr. Rate 27.7%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 13.5%
Interest Coverage 21
Management Effectiveness
Return On Assets 6.6%
Ret/ On Assets - 3 Yr. Avg. 12.3%
Return On Total Capital 11.2%
Ret/ On T. Cap. - 3 Yr. Avg. 25.4%
Return On Equity 12.1%
Return On Equity - 3 Yr. Avg. 26.3%
Asset Turnover 1.4
Profitability Ratios
Gross Margin 39.5%
Gross Margin - 3 Yr. Avg. 37.9%
EBITDA Margin 12%
EBITDA Margin - 3 Yr. Avg. 7.5%
Operating Margin 7.9%
Oper. Margin - 3 Yr. Avg. 3.3%
Pre-Tax Margin 7.4%
Pre-Tax Margin - 3 Yr. Avg. 3.1%
Net Profit Margin 4.4%
Net Profit Margin - 3 Yr. Avg. 7.1%
Effective Tax Rate 40%
Eff/ Tax Rate - 3 Yr. Avg. -253.3%
Payout Ratio 0%

FARM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FARM stock intrinsic value calculation we used $607 million for the last fiscal year's total revenue generated by Farmer Brothers Company. The default revenue input number comes from 0001 income statement of Farmer Brothers Company. 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 FARM stock valuation model: a) initial revenue growth rate of 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 6.7%, whose default value for FARM is calculated based on our internal credit rating of Farmer Brothers Company, 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 Farmer Brothers Company.
    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 FARM stock the variable cost ratio is equal to 92.8%.

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 FARM 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 Farmer Brothers Company.

Corporate tax rate of 27% is the nominal tax rate for Farmer Brothers Company. 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 FARM 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 FARM are equal to 33.9%.

Life of production assets of 7.6 years is the average useful life of capital assets used in Farmer Brothers Company 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 FARM is equal to 13.6%. 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 - $229.055 million for Farmer Brothers Company - 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 17.003 million for Farmer Brothers Company 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 Farmer Brothers Company at the current share price and the inputted number of shares is $0.4 billion.

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