Intrinsic value of Financial Engines - FNGN

Previous Close

$28.25

  Intrinsic Value

$11.68

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  Rating & Target

str. sell

-59%

Previous close

$28.25

 
Intrinsic value

$11.68

 
Up/down potential

-59%

 
Rating

str. sell

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

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

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 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 1.8

 

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, %
  36.33
  11.30
  10.67
  10.10
  9.59
  9.13
  8.72
  8.35
  8.01
  7.71
  7.44
  7.20
  6.98
  6.78
  6.60
  6.44
  6.30
  6.17
  6.05
  5.95
  5.85
  5.77
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.37
  5.33
  5.30
Revenue, $m
  424
  472
  522
  575
  630
  688
  748
  810
  875
  943
  1,013
  1,086
  1,161
  1,240
  1,322
  1,407
  1,496
  1,588
  1,684
  1,784
  1,888
  1,997
  2,111
  2,230
  2,354
  2,483
  2,618
  2,760
  2,908
  3,063
  3,225
Variable operating expenses, $m
 
  394
  433
  473
  515
  560
  606
  654
  704
  755
  809
  834
  892
  953
  1,016
  1,081
  1,149
  1,220
  1,294
  1,371
  1,451
  1,535
  1,622
  1,713
  1,809
  1,908
  2,012
  2,121
  2,235
  2,354
  2,478
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
  374
  394
  433
  473
  515
  560
  606
  654
  704
  755
  809
  834
  892
  953
  1,016
  1,081
  1,149
  1,220
  1,294
  1,371
  1,451
  1,535
  1,622
  1,713
  1,809
  1,908
  2,012
  2,121
  2,235
  2,354
  2,478
Operating income, $m
  50
  78
  90
  102
  115
  128
  142
  156
  171
  187
  203
  251
  269
  287
  306
  326
  346
  368
  390
  413
  437
  463
  489
  516
  545
  575
  606
  639
  673
  709
  747
EBITDA, $m
  74
  121
  134
  148
  162
  177
  192
  208
  225
  242
  260
  279
  299
  319
  340
  362
  384
  408
  433
  459
  485
  513
  543
  573
  605
  638
  673
  709
  748
  787
  829
Interest expense (income), $m
  0
  0
  0
  1
  1
  2
  2
  2
  3
  3
  4
  5
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
Earnings before tax, $m
  49
  78
  89
  101
  114
  126
  140
  154
  168
  184
  199
  247
  264
  281
  300
  319
  339
  359
  381
  403
  427
  451
  477
  503
  531
  560
  591
  622
  656
  690
  727
Tax expense, $m
  20
  21
  24
  27
  31
  34
  38
  42
  45
  50
  54
  67
  71
  76
  81
  86
  91
  97
  103
  109
  115
  122
  129
  136
  143
  151
  159
  168
  177
  186
  196
Net income, $m
  29
  57
  65
  74
  83
  92
  102
  112
  123
  134
  146
  180
  193
  205
  219
  233
  247
  262
  278
  295
  312
  329
  348
  367
  388
  409
  431
  454
  479
  504
  530

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  134
  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
  840
  785
  869
  957
  1,049
  1,144
  1,244
  1,348
  1,456
  1,568
  1,685
  1,806
  1,932
  2,063
  2,199
  2,341
  2,489
  2,642
  2,802
  2,968
  3,142
  3,323
  3,512
  3,710
  3,916
  4,132
  4,357
  4,592
  4,839
  5,097
  5,367
Adjusted assets (=assets-cash), $m
  706
  785
  869
  957
  1,049
  1,144
  1,244
  1,348
  1,456
  1,568
  1,685
  1,806
  1,932
  2,063
  2,199
  2,341
  2,489
  2,642
  2,802
  2,968
  3,142
  3,323
  3,512
  3,710
  3,916
  4,132
  4,357
  4,592
  4,839
  5,097
  5,367
Revenue / Adjusted assets
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
Average production assets, $m
  129
  143
  158
  174
  191
  208
  227
  245
  265
  286
  307
  329
  352
  376
  401
  426
  453
  481
  510
  541
  572
  605
  640
  676
  713
  752
  793
  836
  881
  928
  977
Working capital, $m
  170
  40
  44
  49
  54
  58
  64
  69
  74
  80
  86
  92
  99
  105
  112
  120
  127
  135
  143
  152
  161
  170
  179
  190
  200
  211
  223
  235
  247
  260
  274
Total debt, $m
  0
  11
  22
  33
  45
  58
  71
  85
  99
  114
  129
  145
  162
  179
  197
  216
  235
  256
  277
  299
  322
  346
  371
  397
  424
  452
  482
  513
  546
  580
  615
Total liabilities, $m
  93
  104
  115
  126
  138
  151
  164
  178
  192
  207
  222
  238
  255
  272
  290
  309
  328
  349
  370
  392
  415
  439
  464
  490
  517
  545
  575
  606
  639
  673
  708
Total equity, $m
  747
  682
  754
  830
  910
  993
  1,080
  1,170
  1,264
  1,361
  1,463
  1,568
  1,677
  1,791
  1,909
  2,032
  2,160
  2,293
  2,432
  2,577
  2,727
  2,885
  3,049
  3,220
  3,399
  3,586
  3,782
  3,986
  4,200
  4,424
  4,658
Total liabilities and equity, $m
  840
  786
  869
  956
  1,048
  1,144
  1,244
  1,348
  1,456
  1,568
  1,685
  1,806
  1,932
  2,063
  2,199
  2,341
  2,488
  2,642
  2,802
  2,969
  3,142
  3,324
  3,513
  3,710
  3,916
  4,131
  4,357
  4,592
  4,839
  5,097
  5,366
Debt-to-equity ratio
  0.000
  0.020
  0.030
  0.040
  0.050
  0.060
  0.070
  0.070
  0.080
  0.080
  0.090
  0.090
  0.100
  0.100
  0.100
  0.110
  0.110
  0.110
  0.110
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
Adjusted equity ratio
  0.868
  0.868
  0.868
  0.868
  0.868
  0.868
  0.868
  0.868
  0.868
  0.868
  0.868
  0.868
  0.868
  0.868
  0.868
  0.868
  0.868
  0.868
  0.868
  0.868
  0.868
  0.868
  0.868
  0.868
  0.868
  0.868
  0.868
  0.868
  0.868
  0.868
  0.868

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  29
  57
  65
  74
  83
  92
  102
  112
  123
  134
  146
  180
  193
  205
  219
  233
  247
  262
  278
  295
  312
  329
  348
  367
  388
  409
  431
  454
  479
  504
  530
Depreciation, amort., depletion, $m
  24
  43
  44
  46
  47
  49
  50
  52
  53
  55
  57
  28
  30
  32
  34
  36
  38
  40
  43
  45
  48
  51
  54
  57
  60
  63
  67
  70
  74
  78
  82
Funds from operations, $m
  78
  100
  110
  120
  130
  141
  152
  164
  176
  189
  202
  208
  222
  237
  253
  269
  285
  303
  321
  340
  360
  380
  402
  424
  448
  472
  498
  525
  553
  582
  613
Change in working capital, $m
  3
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
Cash from operations, $m
  75
  96
  105
  115
  125
  136
  147
  159
  171
  183
  197
  202
  216
  230
  246
  261
  278
  295
  313
  331
  351
  371
  392
  414
  437
  461
  486
  513
  540
  569
  599
Maintenance CAPEX, $m
  0
  -11
  -12
  -13
  -15
  -16
  -18
  -19
  -21
  -22
  -24
  -26
  -28
  -30
  -32
  -34
  -36
  -38
  -40
  -43
  -45
  -48
  -51
  -54
  -57
  -60
  -63
  -67
  -70
  -74
  -78
New CAPEX, $m
  -14
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -38
  -39
  -41
  -43
  -45
  -47
  -49
Cash from investing activities, $m
  -249
  -25
  -27
  -29
  -32
  -33
  -36
  -38
  -41
  -42
  -45
  -48
  -51
  -54
  -57
  -60
  -63
  -66
  -69
  -73
  -77
  -81
  -85
  -90
  -95
  -99
  -104
  -110
  -115
  -121
  -127
Free cash flow, $m
  -174
  71
  78
  86
  94
  103
  112
  121
  131
  141
  151
  154
  165
  177
  189
  202
  215
  229
  243
  258
  274
  290
  307
  324
  343
  362
  382
  403
  425
  448
  472
Issuance/(repayment) of debt, $m
  0
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  33
  34
  36
Issuance/(repurchase) of shares, $m
  7
  12
  7
  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
Cash from financing (excl. dividends), $m  
  20
  23
  18
  14
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  33
  34
  36
Total cash flow (excl. dividends), $m
  -154
  93
  97
  100
  106
  115
  125
  135
  145
  156
  167
  170
  182
  194
  207
  221
  235
  249
  264
  280
  297
  314
  332
  351
  370
  390
  412
  434
  457
  482
  507
Retained Cash Flow (-), $m
  -332
  -69
  -73
  -76
  -80
  -83
  -87
  -90
  -94
  -97
  -101
  -105
  -109
  -114
  -118
  -123
  -128
  -133
  -139
  -145
  -151
  -157
  -164
  -171
  -179
  -187
  -196
  -204
  -214
  -224
  -234
Prev. year cash balance distribution, $m
 
  134
  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
 
  159
  24
  24
  27
  32
  38
  44
  51
  58
  65
  65
  72
  81
  89
  98
  107
  116
  126
  136
  146
  157
  168
  179
  191
  203
  216
  230
  243
  258
  273
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
 
  152
  22
  21
  22
  25
  28
  30
  32
  33
  34
  31
  31
  31
  30
  29
  27
  25
  23
  21
  19
  16
  14
  12
  10
  8
  6
  5
  4
  3
  2
Current shareholders' claim on cash, %
  100
  99.2
  98.8
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6

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 60.6
Price to Sales 4.1
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 23.4
Price to Free Cash Flow 28.8
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 $424 million for the last fiscal year's total revenue generated by Financial Engines. The default revenue input number comes from 2016 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 11.3% 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 84.2%.

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 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 3.5% 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 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 FNGN are equal to 30.3%.

Life of production assets of 11.9 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 8.5%. 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 - $747 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 63.243 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 $1.8 billion.

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COMPANY NEWS

▶ Financial Engines tops 3Q profit forecasts   [Nov-02-17 06:37PM  Associated Press]
▶ Your Confidence About Your Retirement Planning Is Probably Misplaced   [Sep-07-17 11:56AM  The Wall Street Journal]
▶ Financial Engines Names New Chief Financial Officer   [Aug-10-17 05:00PM  Business Wire]
▶ Financial Engines misses Street 2Q forecasts   [Aug-08-17 11:17PM  Associated Press]
▶ Coursera hires CEO who helped his last company go public   [Jun-14-17 03:19PM  American City Business Journals]
▶ Which Stocks Are Showing Rising Relative Strength?   [Jun-08-17 04:50PM  Investor's Business Daily]
▶ Americans: Yep, We Want Fiduciary   [May-25-17 02:00PM  Barrons.com]
▶ Financial Engines beats 1Q profit forecasts   [May-04-17 06:35PM  Associated Press]
▶ Survey: 9 of 10 Investors Want Fiduciary Rule   [Apr-19-17 05:29PM  Barrons.com]
▶ [$$] More 401(k) Plans Turn to Managed Accounts for Autoenrolled Workers   [Apr-04-17 11:08AM  The Wall Street Journal]
Financial statements of FNGN
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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