Intrinsic value of Franklin Electric - FELE

Previous Close

$41.71

  Intrinsic Value

$21.47

stock screener

  Rating & Target

sell

-49%

Previous close

$41.71

 
Intrinsic value

$21.47

 
Up/down potential

-49%

 
Rating

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 1.9

 

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, %
  12.60
  11.84
  11.16
  10.54
  9.99
  9.49
  9.04
  8.64
  8.27
  7.94
  7.65
  7.38
  7.15
  6.93
  6.74
  6.56
  6.41
  6.27
  6.14
  6.03
  5.92
  5.83
  5.75
  5.67
  5.61
  5.55
  5.49
  5.44
  5.40
  5.36
Revenue, $m
  1,267
  1,417
  1,575
  1,741
  1,914
  2,096
  2,286
  2,483
  2,688
  2,902
  3,124
  3,355
  3,594
  3,843
  4,102
  4,372
  4,652
  4,943
  5,247
  5,563
  5,893
  6,236
  6,595
  6,969
  7,360
  7,768
  8,195
  8,640
  9,107
  9,595
Variable operating expenses, $m
  1,115
  1,243
  1,377
  1,519
  1,667
  1,821
  1,982
  2,150
  2,325
  2,507
  2,659
  2,856
  3,060
  3,272
  3,492
  3,721
  3,960
  4,208
  4,467
  4,736
  5,016
  5,309
  5,614
  5,933
  6,265
  6,613
  6,976
  7,355
  7,752
  8,168
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
  1,115
  1,243
  1,377
  1,519
  1,667
  1,821
  1,982
  2,150
  2,325
  2,507
  2,659
  2,856
  3,060
  3,272
  3,492
  3,721
  3,960
  4,208
  4,467
  4,736
  5,016
  5,309
  5,614
  5,933
  6,265
  6,613
  6,976
  7,355
  7,752
  8,168
Operating income, $m
  152
  174
  197
  222
  248
  275
  303
  332
  363
  395
  465
  499
  535
  572
  610
  650
  692
  735
  780
  827
  876
  928
  981
  1,037
  1,095
  1,155
  1,219
  1,285
  1,355
  1,427
EBITDA, $m
  218
  244
  271
  300
  330
  361
  393
  427
  463
  499
  538
  577
  619
  662
  706
  752
  801
  851
  903
  958
  1,014
  1,073
  1,135
  1,200
  1,267
  1,337
  1,410
  1,487
  1,567
  1,651
Interest expense (income), $m
  9
  12
  16
  19
  23
  27
  31
  35
  39
  44
  49
  54
  59
  64
  70
  75
  82
  88
  94
  101
  108
  116
  123
  131
  140
  148
  157
  167
  177
  187
  198
Earnings before tax, $m
  139
  158
  178
  199
  221
  244
  268
  293
  319
  346
  411
  440
  471
  502
  535
  569
  604
  641
  679
  719
  761
  804
  850
  897
  946
  998
  1,052
  1,108
  1,167
  1,229
Tax expense, $m
  38
  43
  48
  54
  60
  66
  72
  79
  86
  93
  111
  119
  127
  136
  144
  154
  163
  173
  183
  194
  205
  217
  229
  242
  256
  269
  284
  299
  315
  332
Net income, $m
  102
  116
  130
  146
  162
  178
  196
  214
  233
  253
  300
  321
  343
  366
  390
  415
  441
  468
  496
  525
  556
  587
  620
  655
  691
  729
  768
  809
  852
  897

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
  1,335
  1,493
  1,659
  1,834
  2,017
  2,209
  2,408
  2,616
  2,833
  3,058
  3,292
  3,535
  3,787
  4,050
  4,323
  4,607
  4,902
  5,209
  5,529
  5,862
  6,209
  6,572
  6,949
  7,344
  7,755
  8,185
  8,635
  9,105
  9,596
  10,110
Adjusted assets (=assets-cash), $m
  1,335
  1,493
  1,659
  1,834
  2,017
  2,209
  2,408
  2,616
  2,833
  3,058
  3,292
  3,535
  3,787
  4,050
  4,323
  4,607
  4,902
  5,209
  5,529
  5,862
  6,209
  6,572
  6,949
  7,344
  7,755
  8,185
  8,635
  9,105
  9,596
  10,110
Revenue / Adjusted assets
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
Average production assets, $m
  429
  480
  534
  590
  649
  711
  775
  842
  911
  984
  1,059
  1,137
  1,218
  1,303
  1,391
  1,482
  1,577
  1,676
  1,779
  1,886
  1,998
  2,114
  2,236
  2,363
  2,495
  2,633
  2,778
  2,929
  3,087
  3,253
Working capital, $m
  424
  475
  528
  583
  641
  702
  766
  832
  901
  972
  1,046
  1,124
  1,204
  1,288
  1,374
  1,465
  1,558
  1,656
  1,758
  1,864
  1,974
  2,089
  2,209
  2,335
  2,466
  2,602
  2,745
  2,895
  3,051
  3,214
Total debt, $m
  287
  352
  420
  492
  566
  645
  726
  811
  900
  992
  1,088
  1,187
  1,290
  1,398
  1,509
  1,625
  1,746
  1,872
  2,003
  2,139
  2,281
  2,429
  2,584
  2,745
  2,913
  3,089
  3,273
  3,465
  3,666
  3,877
Total liabilities, $m
  546
  611
  679
  750
  825
  903
  985
  1,070
  1,159
  1,251
  1,346
  1,446
  1,549
  1,656
  1,768
  1,884
  2,005
  2,131
  2,261
  2,398
  2,540
  2,688
  2,842
  3,004
  3,172
  3,348
  3,532
  3,724
  3,925
  4,135
Total equity, $m
  789
  882
  981
  1,084
  1,192
  1,305
  1,423
  1,546
  1,674
  1,807
  1,945
  2,089
  2,238
  2,394
  2,555
  2,723
  2,897
  3,079
  3,268
  3,465
  3,670
  3,884
  4,107
  4,340
  4,583
  4,838
  5,103
  5,381
  5,671
  5,975
Total liabilities and equity, $m
  1,335
  1,493
  1,660
  1,834
  2,017
  2,208
  2,408
  2,616
  2,833
  3,058
  3,291
  3,535
  3,787
  4,050
  4,323
  4,607
  4,902
  5,210
  5,529
  5,863
  6,210
  6,572
  6,949
  7,344
  7,755
  8,186
  8,635
  9,105
  9,596
  10,110
Debt-to-equity ratio
  0.360
  0.400
  0.430
  0.450
  0.480
  0.490
  0.510
  0.520
  0.540
  0.550
  0.560
  0.570
  0.580
  0.580
  0.590
  0.600
  0.600
  0.610
  0.610
  0.620
  0.620
  0.630
  0.630
  0.630
  0.640
  0.640
  0.640
  0.640
  0.650
  0.650
Adjusted equity ratio
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  102
  116
  130
  146
  162
  178
  196
  214
  233
  253
  300
  321
  343
  366
  390
  415
  441
  468
  496
  525
  556
  587
  620
  655
  691
  729
  768
  809
  852
  897
Depreciation, amort., depletion, $m
  66
  70
  74
  78
  82
  86
  90
  95
  100
  105
  73
  78
  84
  90
  96
  102
  109
  116
  123
  130
  138
  146
  154
  163
  172
  182
  192
  202
  213
  224
Funds from operations, $m
  168
  186
  204
  223
  243
  264
  286
  309
  333
  357
  373
  400
  428
  456
  486
  517
  550
  583
  619
  655
  693
  733
  775
  818
  863
  910
  960
  1,011
  1,065
  1,122
Change in working capital, $m
  47
  50
  53
  56
  58
  61
  63
  66
  69
  72
  74
  77
  80
  83
  87
  90
  94
  98
  102
  106
  110
  115
  120
  125
  131
  137
  143
  149
  156
  163
Cash from operations, $m
  121
  135
  151
  167
  185
  203
  223
  243
  264
  286
  299
  323
  347
  373
  399
  427
  456
  486
  517
  549
  583
  618
  654
  692
  732
  773
  817
  862
  909
  958
Maintenance CAPEX, $m
  -26
  -30
  -33
  -37
  -41
  -45
  -49
  -53
  -58
  -63
  -68
  -73
  -78
  -84
  -90
  -96
  -102
  -109
  -116
  -123
  -130
  -138
  -146
  -154
  -163
  -172
  -182
  -192
  -202
  -213
New CAPEX, $m
  -48
  -51
  -54
  -56
  -59
  -62
  -64
  -67
  -70
  -72
  -75
  -78
  -81
  -84
  -88
  -91
  -95
  -99
  -103
  -107
  -112
  -116
  -122
  -127
  -132
  -138
  -145
  -151
  -158
  -165
Cash from investing activities, $m
  -74
  -81
  -87
  -93
  -100
  -107
  -113
  -120
  -128
  -135
  -143
  -151
  -159
  -168
  -178
  -187
  -197
  -208
  -219
  -230
  -242
  -254
  -268
  -281
  -295
  -310
  -327
  -343
  -360
  -378
Free cash flow, $m
  47
  55
  64
  74
  85
  97
  109
  122
  136
  151
  156
  171
  187
  204
  222
  240
  259
  278
  298
  319
  341
  364
  387
  411
  437
  463
  490
  519
  549
  580
Issuance/(repayment) of debt, $m
  61
  65
  68
  72
  75
  78
  82
  85
  89
  92
  96
  99
  103
  107
  112
  116
  121
  126
  131
  136
  142
  148
  155
  161
  168
  176
  184
  192
  201
  210
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  
  61
  65
  68
  72
  75
  78
  82
  85
  89
  92
  96
  99
  103
  107
  112
  116
  121
  126
  131
  136
  142
  148
  155
  161
  168
  176
  184
  192
  201
  210
Total cash flow (excl. dividends), $m
  108
  119
  132
  146
  160
  175
  191
  208
  225
  243
  251
  271
  291
  312
  333
  356
  379
  404
  429
  456
  483
  512
  542
  573
  605
  639
  674
  711
  750
  790
Retained Cash Flow (-), $m
  -88
  -93
  -98
  -103
  -108
  -113
  -118
  -123
  -128
  -133
  -138
  -144
  -149
  -155
  -161
  -168
  -174
  -182
  -189
  -197
  -205
  -214
  -223
  -233
  -243
  -254
  -266
  -278
  -290
  -304
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
  20
  26
  34
  43
  52
  62
  73
  85
  97
  110
  113
  127
  142
  157
  172
  188
  205
  222
  240
  259
  278
  298
  318
  340
  362
  385
  409
  433
  459
  486
Discount rate, %
  4.40
  4.62
  4.85
  5.09
  5.35
  5.62
  5.90
  6.19
  6.50
  6.83
  7.17
  7.53
  7.90
  8.30
  8.71
  9.15
  9.60
  10.08
  10.59
  11.12
  11.67
  12.26
  12.87
  13.51
  14.19
  14.90
  15.64
  16.43
  17.25
  18.11
PV of cash for distribution, $m
  19
  24
  29
  35
  40
  45
  49
  52
  55
  57
  53
  53
  53
  51
  49
  46
  43
  39
  35
  31
  27
  23
  20
  16
  13
  10
  8
  6
  5
  3
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 (FELE)

Valuation Ratios
P/E Ratio 24.5
Price to Sales 2
Price to Book 3.2
Price to Tangible Book
Price to Cash Flow 16.8
Price to Free Cash Flow 25.5
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 $1124.909 million for the last fiscal year's total revenue generated by Franklin Electric. The default revenue input number comes from 0001 income statement of Franklin Electric. 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 12.6% 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 4.4%, whose default value for FELE is calculated based on our internal credit rating of Franklin Electric, 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.
    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 88.4%.

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 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.

Corporate tax rate of 27% is the nominal tax rate for Franklin Electric. 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 33.9%.

Life of production assets of 14.5 years is the average useful life of capital assets used in Franklin Electric 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 33.5%. 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 - $700.657 million for Franklin Electric - 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 46.518 million for Franklin Electric 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 at the current share price and the inputted number of shares is $1.9 billion.

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COMPANY NEWS

▶ Is This Reliable Dividend Stock a Buy Today?   [Oct-12-18 08:16PM  Motley Fool]
▶ Has Franklin Electric Co Inc (NASDAQ:FELE) Got Enough Cash?   [Oct-11-18 12:43PM  Simply Wall St.]
▶ Franklin Electric: 2Q Earnings Snapshot   [08:22AM  Associated Press]
▶ 2 Embarrassingly Low-Yield Dividend Stocks   [Jul-19-18 08:17AM  Motley Fool]
▶ Franklin Electric Acquires Industrias Rotor Pump S.A.   [Jul-03-18 03:02PM  GlobeNewswire]
▶ Franklin Electric: 1Q Earnings Snapshot   [May-01-18 09:43AM  Associated Press]
▶ Franklin Electric misses 4Q profit forecasts   [Feb-20-18 08:23AM  Associated Press]
▶ Why Franklin Electric Co Inc (FELE) Could Be A Buy   [Oct-28-17 07:21AM  Simply Wall St.]
▶ Franklin Electric beats 3Q profit forecasts   [Oct-24-17 08:07AM  Associated Press]
▶ Housing Rally Should Keep Water Stocks Afloat   [Aug-31-17 02:51PM  Barrons.com]

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