Intrinsic value of Financial Engines - FNGN

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$44.95

  Intrinsic Value

$44.95

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  Rating & Target

hold

0%

Previous close

$44.95

 
Intrinsic value

$44.95

 
Up/down potential

0%

 
Rating

hold

Our model is not good at valuating stocks of financial companies, such as FNGN.

We calculate the intrinsic value of FNGN 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 2.8

 

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, %
  13.30
  12.47
  11.72
  11.05
  10.45
  9.90
  9.41
  8.97
  8.57
  8.22
  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
Revenue, $m
  545
  613
  685
  760
  840
  923
  1,010
  1,101
  1,195
  1,293
  1,395
  1,501
  1,611
  1,726
  1,845
  1,969
  2,098
  2,231
  2,371
  2,516
  2,667
  2,825
  2,989
  3,161
  3,339
  3,526
  3,722
  3,926
  4,139
  4,362
Variable operating expenses, $m
  190
  208
  226
  245
  266
  287
  309
  332
  356
  381
  356
  383
  411
  440
  470
  502
  535
  569
  604
  641
  680
  720
  762
  806
  851
  899
  949
  1,001
  1,055
  1,112
Fixed operating expenses, $m
  230
  235
  240
  245
  251
  256
  262
  268
  274
  280
  286
  292
  299
  305
  312
  319
  326
  333
  340
  348
  355
  363
  371
  379
  388
  396
  405
  414
  423
  432
Total operating expenses, $m
  420
  443
  466
  490
  517
  543
  571
  600
  630
  661
  642
  675
  710
  745
  782
  821
  861
  902
  944
  989
  1,035
  1,083
  1,133
  1,185
  1,239
  1,295
  1,354
  1,415
  1,478
  1,544
Operating income, $m
  125
  170
  219
  270
  323
  380
  439
  501
  565
  632
  754
  826
  902
  981
  1,063
  1,148
  1,237
  1,330
  1,426
  1,527
  1,632
  1,741
  1,856
  1,975
  2,100
  2,231
  2,368
  2,511
  2,661
  2,818
EBITDA, $m
  238
  291
  348
  407
  470
  536
  605
  677
  752
  830
  912
  996
  1,085
  1,176
  1,272
  1,371
  1,475
  1,583
  1,695
  1,812
  1,934
  2,062
  2,195
  2,334
  2,479
  2,631
  2,790
  2,956
  3,130
  3,312
Interest expense (income), $m
  0
  0
  1
  1
  2
  3
  3
  4
  5
  6
  7
  7
  8
  9
  10
  11
  12
  14
  15
  16
  17
  19
  20
  21
  23
  24
  26
  28
  30
  31
  33
Earnings before tax, $m
  125
  170
  217
  268
  321
  377
  435
  496
  559
  626
  746
  818
  893
  971
  1,052
  1,136
  1,224
  1,315
  1,410
  1,510
  1,613
  1,722
  1,835
  1,953
  2,076
  2,205
  2,340
  2,482
  2,630
  2,785
Tax expense, $m
  34
  46
  59
  72
  87
  102
  117
  134
  151
  169
  201
  221
  241
  262
  284
  307
  330
  355
  381
  408
  436
  465
  495
  527
  561
  595
  632
  670
  710
  752
Net income, $m
  91
  124
  159
  195
  234
  275
  317
  362
  408
  457
  545
  597
  652
  709
  768
  829
  893
  960
  1,030
  1,102
  1,178
  1,257
  1,339
  1,425
  1,516
  1,610
  1,708
  1,812
  1,920
  2,033

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
  875
  984
  1,099
  1,221
  1,348
  1,482
  1,621
  1,766
  1,918
  2,075
  2,239
  2,410
  2,587
  2,770
  2,962
  3,160
  3,367
  3,582
  3,806
  4,039
  4,281
  4,534
  4,798
  5,073
  5,360
  5,660
  5,974
  6,301
  6,644
  7,002
Adjusted assets (=assets-cash), $m
  875
  984
  1,099
  1,221
  1,348
  1,482
  1,621
  1,766
  1,918
  2,075
  2,239
  2,410
  2,587
  2,770
  2,962
  3,160
  3,367
  3,582
  3,806
  4,039
  4,281
  4,534
  4,798
  5,073
  5,360
  5,660
  5,974
  6,301
  6,644
  7,002
Revenue / Adjusted assets
  0.623
  0.623
  0.623
  0.622
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
  0.623
Average production assets, $m
  617
  694
  776
  862
  952
  1,046
  1,144
  1,247
  1,354
  1,465
  1,581
  1,701
  1,826
  1,956
  2,090
  2,231
  2,377
  2,528
  2,686
  2,851
  3,022
  3,200
  3,387
  3,581
  3,784
  3,995
  4,217
  4,448
  4,689
  4,942
Working capital, $m
  -34
  -38
  -42
  -47
  -52
  -57
  -63
  -68
  -74
  -80
  -86
  -93
  -100
  -107
  -114
  -122
  -130
  -138
  -147
  -156
  -165
  -175
  -185
  -196
  -207
  -219
  -231
  -243
  -257
  -270
Total debt, $m
  11
  22
  35
  47
  61
  75
  89
  105
  120
  137
  154
  172
  191
  210
  230
  251
  273
  295
  319
  343
  369
  395
  423
  452
  482
  513
  546
  581
  617
  654
Total liabilities, $m
  92
  103
  115
  128
  142
  156
  170
  185
  201
  218
  235
  253
  272
  291
  311
  332
  354
  376
  400
  424
  450
  476
  504
  533
  563
  594
  627
  662
  698
  735
Total equity, $m
  783
  881
  984
  1,092
  1,207
  1,326
  1,451
  1,581
  1,717
  1,858
  2,004
  2,157
  2,315
  2,480
  2,651
  2,828
  3,013
  3,206
  3,406
  3,614
  3,832
  4,058
  4,294
  4,540
  4,797
  5,066
  5,346
  5,640
  5,946
  6,267
Total liabilities and equity, $m
  875
  984
  1,099
  1,220
  1,349
  1,482
  1,621
  1,766
  1,918
  2,076
  2,239
  2,410
  2,587
  2,771
  2,962
  3,160
  3,367
  3,582
  3,806
  4,038
  4,282
  4,534
  4,798
  5,073
  5,360
  5,660
  5,973
  6,302
  6,644
  7,002
Debt-to-equity ratio
  0.010
  0.030
  0.040
  0.040
  0.050
  0.060
  0.060
  0.070
  0.070
  0.070
  0.080
  0.080
  0.080
  0.080
  0.090
  0.090
  0.090
  0.090
  0.090
  0.090
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
Adjusted equity ratio
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895
  0.895

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  91
  124
  159
  195
  234
  275
  317
  362
  408
  457
  545
  597
  652
  709
  768
  829
  893
  960
  1,030
  1,102
  1,178
  1,257
  1,339
  1,425
  1,516
  1,610
  1,708
  1,812
  1,920
  2,033
Depreciation, amort., depletion, $m
  113
  121
  129
  138
  147
  156
  166
  176
  187
  198
  158
  170
  183
  196
  209
  223
  238
  253
  269
  285
  302
  320
  339
  358
  378
  400
  422
  445
  469
  494
Funds from operations, $m
  204
  245
  288
  333
  381
  431
  483
  538
  595
  655
  703
  767
  834
  904
  977
  1,052
  1,131
  1,213
  1,298
  1,387
  1,480
  1,577
  1,678
  1,784
  1,894
  2,009
  2,130
  2,256
  2,388
  2,527
Change in working capital, $m
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
Cash from operations, $m
  208
  249
  292
  338
  386
  436
  489
  544
  601
  661
  709
  774
  841
  911
  984
  1,060
  1,139
  1,221
  1,307
  1,396
  1,489
  1,587
  1,688
  1,794
  1,905
  2,021
  2,142
  2,269
  2,402
  2,541
Maintenance CAPEX, $m
  -54
  -62
  -69
  -78
  -86
  -95
  -105
  -114
  -125
  -135
  -146
  -158
  -170
  -183
  -196
  -209
  -223
  -238
  -253
  -269
  -285
  -302
  -320
  -339
  -358
  -378
  -400
  -422
  -445
  -469
New CAPEX, $m
  -73
  -77
  -81
  -86
  -90
  -94
  -98
  -103
  -107
  -111
  -116
  -120
  -125
  -130
  -135
  -140
  -146
  -152
  -158
  -164
  -171
  -179
  -186
  -194
  -203
  -212
  -221
  -231
  -242
  -253
Cash from investing activities, $m
  -127
  -139
  -150
  -164
  -176
  -189
  -203
  -217
  -232
  -246
  -262
  -278
  -295
  -313
  -331
  -349
  -369
  -390
  -411
  -433
  -456
  -481
  -506
  -533
  -561
  -590
  -621
  -653
  -687
  -722
Free cash flow, $m
  81
  110
  141
  174
  210
  247
  286
  327
  370
  414
  447
  496
  546
  599
  654
  711
  770
  832
  896
  963
  1,033
  1,106
  1,182
  1,261
  1,344
  1,431
  1,521
  1,616
  1,715
  1,819
Issuance/(repayment) of debt, $m
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  23
  24
  25
  27
  28
  29
  30
  31
  33
  34
  36
  38
Issuance/(repurchase) of shares, $m
  2
  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  
  13
  11
  12
  13
  13
  14
  15
  15
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  23
  24
  25
  27
  28
  29
  30
  31
  33
  34
  36
  38
Total cash flow (excl. dividends), $m
  93
  122
  153
  187
  223
  261
  300
  342
  385
  431
  464
  513
  565
  618
  674
  731
  792
  854
  920
  988
  1,058
  1,132
  1,210
  1,290
  1,374
  1,462
  1,554
  1,651
  1,751
  1,857
Retained Cash Flow (-), $m
  -93
  -98
  -103
  -109
  -114
  -119
  -125
  -130
  -136
  -141
  -147
  -152
  -158
  -165
  -171
  -178
  -185
  -192
  -200
  -208
  -217
  -226
  -236
  -246
  -257
  -268
  -280
  -293
  -306
  -321
Prev. year cash balance distribution, $m
  155
  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
  37
  41
  47
  52
  58
  64
  70
  77
  84
  91
  98
  106
  114
  122
  131
  140
  150
  159
  170
  180
  191
  203
  215
  227
  240
  254
  268
  283
  298
  315
Cash available for distribution, $m
  156
  24
  50
  79
  109
  141
  176
  212
  250
  290
  318
  361
  406
  454
  503
  554
  607
  662
  719
  779
  841
  906
  973
  1,044
  1,117
  1,194
  1,274
  1,357
  1,445
  1,536
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
  149
  22
  44
  65
  84
  103
  119
  132
  144
  152
  151
  154
  154
  152
  148
  141
  132
  122
  111
  99
  87
  75
  64
  53
  43
  35
  27
  21
  16
  12
Current shareholders' claim on cash, %
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9

Financial Engines, Inc. is a provider of independent, technology-enabled financial advisory services, discretionary portfolio management, personalized investment advice, financial and retirement income planning, and financial education and guidance. The Company offers personalized plans for saving, investing, and generating retirement income, as well as by providing assessments of retirement income needs and readiness. The Company's advice and planning services cover employer-sponsored defined contribution (DC) accounts (401(k), 457, and 403(b) plans), individual retirement account (IRA) accounts, and taxable accounts. For individuals, the Company provides discretionary portfolio management, personalized investment advice, financial and retirement income planning, financial education and guidance. The Company maintains two types of relationships with individuals: DC plan participants in the workplace and Individuals outside the workplace.

FINANCIAL RATIOS  of  Financial Engines (FNGN)

Valuation Ratios
P/E Ratio 96.4
Price to Sales 6.6
Price to Book 3.7
Price to Tangible Book
Price to Cash Flow 37.3
Price to Free Cash Flow 45.8
Growth Rates
Sales Growth Rate 36.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 27.3%
Cap. Spend. - 3 Yr. Gr. Rate 7%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 4.4%
Ret/ On Assets - 3 Yr. Avg. 6.8%
Return On Total Capital 5%
Ret/ On T. Cap. - 3 Yr. Avg. 7.9%
Return On Equity 5%
Return On Equity - 3 Yr. Avg. 7.9%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 56.1%
Gross Margin - 3 Yr. Avg. 58%
EBITDA Margin 17.2%
EBITDA Margin - 3 Yr. Avg. 20.7%
Operating Margin 11.8%
Oper. Margin - 3 Yr. Avg. 16.4%
Pre-Tax Margin 11.6%
Pre-Tax Margin - 3 Yr. Avg. 16.3%
Net Profit Margin 6.8%
Net Profit Margin - 3 Yr. Avg. 10.1%
Effective Tax Rate 40.8%
Eff/ Tax Rate - 3 Yr. Avg. 38.3%
Payout Ratio 58.6%

FNGN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FNGN stock intrinsic value calculation we used $481 million for the last fiscal year's total revenue generated by Financial Engines. The default revenue input number comes from 2017 income statement of Financial Engines. 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 FNGN stock valuation model: a) initial revenue growth rate of 13.3% 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 FNGN is calculated based on our internal credit rating of Financial Engines, 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 Financial Engines.
    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 FNGN stock the variable cost ratio is equal to 36.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $225 million in the base year in the intrinsic value calculation for FNGN 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 Financial Engines.

Corporate tax rate of 27% is the nominal tax rate for Financial Engines. 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 FNGN stock is equal to 7.6%.

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 FNGN are equal to 113.3%.

Life of production assets of 10 years is the average useful life of capital assets used in Financial Engines 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 FNGN is equal to -6.2%. 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 - $845 million for Financial Engines - 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 63 million for Financial Engines 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 Financial Engines at the current share price and the inputted number of shares is $2.8 billion.

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