Intrinsic value of Franklin Electric Co., Inc. - FELE

Previous Close

$46.43

  Intrinsic Value

$23.07

stock screener

  Rating & Target

str. sell

-50%

Previous close

$46.43

 
Intrinsic value

$23.07

 
Up/down potential

-50%

 
Rating

str. sell

We calculate the intrinsic value of FELE 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 2.1

 

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, %
  9.90
  9.41
  8.97
  8.57
  8.21
  7.89
  7.60
  7.34
  7.11
  6.90
  6.71
  6.54
  6.38
  6.25
  6.12
  6.01
  5.91
  5.82
  5.74
  5.66
  5.60
  5.54
  5.48
  5.43
  5.39
  5.35
  5.32
  5.28
  5.26
  5.23
Revenue, $m
  1,427
  1,561
  1,701
  1,847
  1,998
  2,156
  2,320
  2,490
  2,667
  2,851
  3,043
  3,241
  3,448
  3,664
  3,888
  4,122
  4,365
  4,619
  4,884
  5,161
  5,449
  5,751
  6,066
  6,396
  6,741
  7,101
  7,479
  7,874
  8,288
  8,722
Variable operating expenses, $m
  1,220
  1,333
  1,451
  1,574
  1,701
  1,834
  1,972
  2,115
  2,264
  2,419
  2,559
  2,726
  2,900
  3,081
  3,270
  3,466
  3,671
  3,885
  4,108
  4,340
  4,583
  4,837
  5,102
  5,379
  5,669
  5,973
  6,290
  6,623
  6,971
  7,335
Fixed operating expenses, $m
  55
  56
  58
  59
  60
  62
  63
  64
  66
  67
  69
  70
  72
  73
  75
  76
  78
  80
  82
  83
  85
  87
  89
  91
  93
  95
  97
  99
  102
  104
Total operating expenses, $m
  1,275
  1,389
  1,509
  1,633
  1,761
  1,896
  2,035
  2,179
  2,330
  2,486
  2,628
  2,796
  2,972
  3,154
  3,345
  3,542
  3,749
  3,965
  4,190
  4,423
  4,668
  4,924
  5,191
  5,470
  5,762
  6,068
  6,387
  6,722
  7,073
  7,439
Operating income, $m
  151
  171
  192
  214
  237
  260
  285
  311
  338
  365
  415
  445
  476
  509
  543
  579
  616
  654
  695
  737
  781
  827
  875
  926
  978
  1,034
  1,092
  1,152
  1,216
  1,283
EBITDA, $m
  200
  223
  247
  272
  298
  325
  353
  382
  412
  444
  477
  511
  546
  583
  622
  662
  704
  748
  794
  841
  891
  943
  998
  1,055
  1,115
  1,178
  1,243
  1,312
  1,384
  1,459
Interest expense (income), $m
  9
  11
  14
  16
  19
  21
  24
  27
  30
  33
  37
  40
  44
  47
  51
  55
  59
  64
  68
  73
  78
  83
  88
  94
  100
  106
  113
  119
  126
  134
  141
Earnings before tax, $m
  140
  157
  176
  195
  215
  236
  258
  281
  304
  329
  375
  401
  429
  458
  488
  519
  552
  586
  622
  659
  698
  738
  781
  826
  872
  921
  972
  1,026
  1,082
  1,141
Tax expense, $m
  38
  43
  48
  53
  58
  64
  70
  76
  82
  89
  101
  108
  116
  124
  132
  140
  149
  158
  168
  178
  188
  199
  211
  223
  236
  249
  263
  277
  292
  308
Net income, $m
  102
  115
  128
  143
  157
  172
  188
  205
  222
  240
  274
  293
  313
  334
  356
  379
  403
  428
  454
  481
  509
  539
  570
  603
  637
  672
  710
  749
  790
  833

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
  1,299
  1,421
  1,549
  1,682
  1,820
  1,963
  2,113
  2,268
  2,429
  2,597
  2,771
  2,952
  3,141
  3,337
  3,541
  3,754
  3,976
  4,207
  4,448
  4,700
  4,963
  5,238
  5,525
  5,825
  6,139
  6,468
  6,811
  7,171
  7,548
  7,943
Adjusted assets (=assets-cash), $m
  1,299
  1,421
  1,549
  1,682
  1,820
  1,963
  2,113
  2,268
  2,429
  2,597
  2,771
  2,952
  3,141
  3,337
  3,541
  3,754
  3,976
  4,207
  4,448
  4,700
  4,963
  5,238
  5,525
  5,825
  6,139
  6,468
  6,811
  7,171
  7,548
  7,943
Revenue / Adjusted assets
  1.099
  1.099
  1.098
  1.098
  1.098
  1.098
  1.098
  1.098
  1.098
  1.098
  1.098
  1.098
  1.098
  1.098
  1.098
  1.098
  1.098
  1.098
  1.098
  1.098
  1.098
  1.098
  1.098
  1.098
  1.098
  1.098
  1.098
  1.098
  1.098
  1.098
Average production assets, $m
  439
  481
  524
  569
  615
  664
  715
  767
  822
  878
  937
  998
  1,062
  1,128
  1,198
  1,269
  1,344
  1,423
  1,504
  1,589
  1,678
  1,771
  1,868
  1,970
  2,076
  2,187
  2,304
  2,425
  2,553
  2,686
Working capital, $m
  414
  453
  493
  535
  579
  625
  673
  722
  774
  827
  882
  940
  1,000
  1,062
  1,128
  1,195
  1,266
  1,340
  1,416
  1,497
  1,580
  1,668
  1,759
  1,855
  1,955
  2,059
  2,169
  2,284
  2,404
  2,529
Total debt, $m
  250
  297
  345
  395
  448
  502
  559
  617
  679
  742
  808
  877
  948
  1,022
  1,100
  1,181
  1,265
  1,352
  1,444
  1,539
  1,639
  1,743
  1,852
  1,966
  2,085
  2,209
  2,339
  2,476
  2,619
  2,768
Total liabilities, $m
  492
  539
  587
  637
  690
  744
  801
  860
  921
  984
  1,050
  1,119
  1,190
  1,265
  1,342
  1,423
  1,507
  1,594
  1,686
  1,781
  1,881
  1,985
  2,094
  2,208
  2,327
  2,451
  2,582
  2,718
  2,861
  3,010
Total equity, $m
  807
  883
  962
  1,044
  1,130
  1,219
  1,312
  1,408
  1,509
  1,613
  1,721
  1,833
  1,950
  2,072
  2,199
  2,331
  2,469
  2,612
  2,762
  2,919
  3,082
  3,253
  3,431
  3,617
  3,812
  4,016
  4,230
  4,453
  4,688
  4,933
Total liabilities and equity, $m
  1,299
  1,422
  1,549
  1,681
  1,820
  1,963
  2,113
  2,268
  2,430
  2,597
  2,771
  2,952
  3,140
  3,337
  3,541
  3,754
  3,976
  4,206
  4,448
  4,700
  4,963
  5,238
  5,525
  5,825
  6,139
  6,467
  6,812
  7,171
  7,549
  7,943
Debt-to-equity ratio
  0.310
  0.340
  0.360
  0.380
  0.400
  0.410
  0.430
  0.440
  0.450
  0.460
  0.470
  0.480
  0.490
  0.490
  0.500
  0.510
  0.510
  0.520
  0.520
  0.530
  0.530
  0.540
  0.540
  0.540
  0.550
  0.550
  0.550
  0.560
  0.560
  0.560
Adjusted equity ratio
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  102
  115
  128
  143
  157
  172
  188
  205
  222
  240
  274
  293
  313
  334
  356
  379
  403
  428
  454
  481
  509
  539
  570
  603
  637
  672
  710
  749
  790
  833
Depreciation, amort., depletion, $m
  50
  52
  55
  58
  61
  64
  68
  71
  75
  78
  62
  66
  70
  74
  79
  84
  88
  94
  99
  105
  110
  117
  123
  130
  137
  144
  152
  160
  168
  177
Funds from operations, $m
  152
  167
  184
  201
  218
  237
  256
  276
  297
  318
  335
  359
  383
  409
  435
  463
  491
  521
  553
  586
  620
  656
  693
  732
  773
  816
  861
  909
  958
  1,010
Change in working capital, $m
  37
  39
  41
  42
  44
  46
  48
  49
  51
  53
  55
  58
  60
  62
  65
  68
  71
  74
  77
  80
  84
  87
  91
  96
  100
  105
  109
  115
  120
  126
Cash from operations, $m
  114
  128
  143
  158
  174
  191
  209
  227
  245
  265
  280
  301
  323
  346
  370
  395
  421
  448
  476
  505
  536
  568
  602
  637
  673
  712
  752
  794
  838
  884
Maintenance CAPEX, $m
  -26
  -29
  -32
  -34
  -37
  -40
  -44
  -47
  -50
  -54
  -58
  -62
  -66
  -70
  -74
  -79
  -84
  -88
  -94
  -99
  -105
  -110
  -117
  -123
  -130
  -137
  -144
  -152
  -160
  -168
New CAPEX, $m
  -40
  -41
  -43
  -45
  -47
  -49
  -50
  -52
  -55
  -57
  -59
  -61
  -64
  -66
  -69
  -72
  -75
  -78
  -82
  -85
  -89
  -93
  -97
  -102
  -106
  -111
  -116
  -122
  -127
  -134
Cash from investing activities, $m
  -66
  -70
  -75
  -79
  -84
  -89
  -94
  -99
  -105
  -111
  -117
  -123
  -130
  -136
  -143
  -151
  -159
  -166
  -176
  -184
  -194
  -203
  -214
  -225
  -236
  -248
  -260
  -274
  -287
  -302
Free cash flow, $m
  48
  58
  68
  79
  90
  102
  114
  127
  141
  154
  163
  178
  194
  210
  227
  244
  262
  281
  301
  321
  343
  365
  388
  412
  438
  464
  492
  521
  551
  583
Issuance/(repayment) of debt, $m
  44
  46
  48
  50
  52
  54
  57
  59
  61
  64
  66
  69
  71
  74
  77
  81
  84
  88
  91
  95
  100
  104
  109
  114
  119
  125
  130
  136
  143
  150
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  
  44
  46
  48
  50
  52
  54
  57
  59
  61
  64
  66
  69
  71
  74
  77
  81
  84
  88
  91
  95
  100
  104
  109
  114
  119
  125
  130
  136
  143
  150
Total cash flow (excl. dividends), $m
  92
  104
  117
  129
  143
  157
  171
  186
  202
  218
  229
  247
  265
  284
  304
  325
  346
  369
  392
  417
  442
  469
  497
  526
  557
  589
  622
  657
  694
  732
Retained Cash Flow (-), $m
  -73
  -76
  -79
  -82
  -86
  -89
  -93
  -96
  -100
  -104
  -108
  -112
  -117
  -122
  -127
  -132
  -138
  -144
  -150
  -156
  -163
  -171
  -178
  -186
  -195
  -204
  -214
  -224
  -234
  -245
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
  19
  29
  37
  47
  57
  67
  78
  90
  101
  114
  121
  134
  148
  162
  177
  193
  209
  225
  242
  260
  279
  298
  318
  340
  362
  384
  408
  433
  460
  487
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
  18
  26
  33
  39
  44
  49
  53
  56
  58
  60
  57
  57
  56
  55
  52
  49
  45
  41
  37
  33
  29
  25
  21
  17
  14
  11
  9
  7
  5
  4
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

Franklin Electric Co., Inc. designs, manufactures and distributes water and fuel pumping systems, consisting of submersible motors, pumps, electronic controls and related parts and equipment. Its segments include Water Systems segment, the Fueling Systems segment and Other. Its Water Systems segment is engaged in the production and marketing of water pumping systems and offers motors, pumps, drives, electronic controls and monitoring devices. It also designs, manufactures and sells motors, pumps, electronic controls and related parts and equipment for use in groundwater, wastewater and fuel transfer applications. Its Fueling Systems is engaged in the production and marketing of fuel pumping systems, fuel containment systems, and monitoring and control systems. It also designs, manufactures and sells pumps, pipe, sumps, fittings, vapor recovery components, electronic controls, monitoring devices and related parts and equipment for use in submersible fueling system applications.

FINANCIAL RATIOS  of  Franklin Electric Co., Inc. (FELE)

Valuation Ratios
P/E Ratio 27.3
Price to Sales 2.3
Price to Book 3.5
Price to Tangible Book
Price to Cash Flow 18.7
Price to Free Cash Flow 28.3
Growth Rates
Sales Growth Rate 2.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 50%
Cap. Spend. - 3 Yr. Gr. Rate -10.5%
Financial Strength
Quick Ratio 3
Current Ratio 0.2
LT Debt to Equity 25.4%
Total Debt to Equity 31%
Interest Coverage 13
Management Effectiveness
Return On Assets 8.4%
Ret/ On Assets - 3 Yr. Avg. 7.9%
Return On Total Capital 10%
Ret/ On T. Cap. - 3 Yr. Avg. 9.5%
Return On Equity 13.5%
Return On Equity - 3 Yr. Avg. 12.6%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 34.8%
Gross Margin - 3 Yr. Avg. 33.3%
EBITDA Margin 15.7%
EBITDA Margin - 3 Yr. Avg. 14.3%
Operating Margin 11.7%
Oper. Margin - 3 Yr. Avg. 10.3%
Pre-Tax Margin 10.9%
Pre-Tax Margin - 3 Yr. Avg. 9.6%
Net Profit Margin 8.3%
Net Profit Margin - 3 Yr. Avg. 7.6%
Effective Tax Rate 24%
Eff/ Tax Rate - 3 Yr. Avg. 19.7%
Payout Ratio 24.1%

FELE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FELE stock intrinsic value calculation we used $1298 million for the last fiscal year's total revenue generated by Franklin Electric Co., Inc.. The default revenue input number comes from 0001 income statement of Franklin Electric Co., 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 FELE stock valuation model: a) initial revenue growth rate of 9.9% 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 FELE is calculated based on our internal credit rating of Franklin Electric Co., 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 Franklin Electric Co., 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 FELE stock the variable cost ratio is equal to 85.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $54 million in the base year in the intrinsic value calculation for FELE 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 Franklin Electric Co., Inc..

Corporate tax rate of 27% is the nominal tax rate for Franklin Electric Co., 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 FELE 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 FELE are equal to 30.8%.

Life of production assets of 15.2 years is the average useful life of capital assets used in Franklin Electric Co., 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 FELE is equal to 29%. 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 - $733.872 million for Franklin Electric Co., 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 46.302 million for Franklin Electric Co., 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 Franklin Electric Co., Inc. at the current share price and the inputted number of shares is $2.1 billion.

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