Intrinsic value of Francesca's Holdings - FRAN

Previous Close

$6.42

  Intrinsic Value

$22.08

stock screener

  Rating & Target

str. buy

+244%

Previous close

$6.42

 
Intrinsic value

$22.08

 
Up/down potential

+244%

 
Rating

str. buy

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

We calculate the intrinsic value of FRAN 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 0.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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, %
  10.93
  4.30
  4.37
  4.43
  4.49
  4.54
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.80
  4.82
  4.84
  4.86
  4.87
  4.88
  4.89
  4.91
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
  4.96
  4.97
Revenue, $m
  487
  508
  530
  554
  578
  605
  633
  662
  693
  725
  759
  796
  834
  874
  916
  960
  1,007
  1,056
  1,107
  1,162
  1,219
  1,278
  1,341
  1,407
  1,477
  1,550
  1,627
  1,707
  1,792
  1,881
  1,974
Variable operating expenses, $m
 
  436
  455
  475
  496
  519
  543
  568
  594
  622
  652
  683
  715
  750
  786
  824
  864
  906
  950
  997
  1,045
  1,097
  1,151
  1,208
  1,267
  1,330
  1,396
  1,465
  1,538
  1,614
  1,694
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
  419
  436
  455
  475
  496
  519
  543
  568
  594
  622
  652
  683
  715
  750
  786
  824
  864
  906
  950
  997
  1,045
  1,097
  1,151
  1,208
  1,267
  1,330
  1,396
  1,465
  1,538
  1,614
  1,694
Operating income, $m
  68
  72
  75
  79
  82
  86
  90
  94
  98
  103
  108
  113
  118
  124
  130
  136
  143
  150
  157
  165
  173
  182
  190
  200
  210
  220
  231
  242
  254
  267
  280
EBITDA, $m
  87
  89
  92
  97
  101
  105
  110
  115
  121
  126
  132
  139
  145
  152
  160
  167
  176
  184
  193
  203
  213
  223
  234
  245
  258
  270
  284
  298
  313
  328
  344
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  4
  5
  5
  6
  6
  6
  7
  7
Earnings before tax, $m
  68
  72
  75
  78
  82
  85
  89
  93
  97
  102
  107
  112
  117
  122
  128
  134
  140
  147
  154
  162
  169
  178
  186
  195
  205
  215
  225
  236
  248
  260
  273
Tax expense, $m
  26
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  33
  35
  36
  38
  40
  42
  44
  46
  48
  50
  53
  55
  58
  61
  64
  67
  70
  74
Net income, $m
  42
  53
  55
  57
  60
  62
  65
  68
  71
  74
  78
  81
  85
  89
  93
  98
  103
  107
  113
  118
  124
  130
  136
  143
  150
  157
  165
  173
  181
  190
  199

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  53
  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
  190
  143
  149
  156
  163
  170
  178
  186
  195
  204
  214
  224
  234
  246
  258
  270
  283
  297
  311
  327
  343
  360
  377
  396
  415
  436
  458
  480
  504
  529
  555
Adjusted assets (=assets-cash), $m
  137
  143
  149
  156
  163
  170
  178
  186
  195
  204
  214
  224
  234
  246
  258
  270
  283
  297
  311
  327
  343
  360
  377
  396
  415
  436
  458
  480
  504
  529
  555
Revenue / Adjusted assets
  3.555
  3.552
  3.557
  3.551
  3.546
  3.559
  3.556
  3.559
  3.554
  3.554
  3.547
  3.554
  3.564
  3.553
  3.550
  3.556
  3.558
  3.556
  3.559
  3.554
  3.554
  3.550
  3.557
  3.553
  3.559
  3.555
  3.552
  3.556
  3.556
  3.556
  3.557
Average production assets, $m
  79
  82
  86
  90
  94
  98
  102
  107
  112
  117
  123
  129
  135
  142
  148
  156
  163
  171
  179
  188
  197
  207
  217
  228
  239
  251
  264
  277
  290
  305
  320
Working capital, $m
  65
  13
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  34
  35
  37
  39
  41
  43
  45
  47
  49
Total debt, $m
  0
  3
  6
  10
  14
  18
  22
  26
  31
  36
  41
  46
  52
  58
  64
  71
  78
  85
  93
  101
  110
  119
  128
  138
  148
  159
  171
  183
  196
  209
  223
Total liabilities, $m
  73
  76
  79
  83
  87
  91
  95
  99
  104
  109
  114
  119
  125
  131
  137
  144
  151
  158
  166
  174
  183
  192
  201
  211
  221
  232
  244
  256
  269
  282
  296
Total equity, $m
  117
  67
  70
  73
  76
  79
  83
  87
  91
  95
  100
  105
  110
  115
  120
  126
  132
  139
  145
  153
  160
  168
  176
  185
  194
  204
  214
  224
  235
  247
  259
Total liabilities and equity, $m
  190
  143
  149
  156
  163
  170
  178
  186
  195
  204
  214
  224
  235
  246
  257
  270
  283
  297
  311
  327
  343
  360
  377
  396
  415
  436
  458
  480
  504
  529
  555
Debt-to-equity ratio
  0.000
  0.050
  0.090
  0.140
  0.180
  0.220
  0.260
  0.300
  0.340
  0.380
  0.410
  0.440
  0.470
  0.510
  0.530
  0.560
  0.590
  0.610
  0.640
  0.660
  0.690
  0.710
  0.730
  0.750
  0.770
  0.780
  0.800
  0.820
  0.830
  0.850
  0.860
Adjusted equity ratio
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  42
  53
  55
  57
  60
  62
  65
  68
  71
  74
  78
  81
  85
  89
  93
  98
  103
  107
  113
  118
  124
  130
  136
  143
  150
  157
  165
  173
  181
  190
  199
Depreciation, amort., depletion, $m
  19
  16
  17
  18
  19
  20
  20
  21
  22
  23
  25
  26
  27
  28
  30
  31
  33
  34
  36
  38
  39
  41
  43
  46
  48
  50
  53
  55
  58
  61
  64
Funds from operations, $m
  86
  69
  72
  75
  78
  82
  86
  89
  94
  98
  102
  107
  112
  118
  123
  129
  135
  142
  148
  156
  163
  171
  179
  188
  197
  207
  217
  228
  239
  251
  263
Change in working capital, $m
  14
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
Cash from operations, $m
  72
  69
  71
  75
  78
  81
  85
  89
  93
  97
  102
  106
  111
  117
  122
  128
  134
  140
  147
  154
  162
  170
  178
  187
  196
  205
  215
  226
  237
  249
  261
Maintenance CAPEX, $m
  0
  -16
  -16
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -38
  -39
  -41
  -43
  -46
  -48
  -50
  -53
  -55
  -58
  -61
New CAPEX, $m
  -22
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
Cash from investing activities, $m
  -22
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -31
  -32
  -33
  -35
  -37
  -39
  -41
  -42
  -45
  -47
  -49
  -51
  -54
  -57
  -60
  -62
  -66
  -69
  -72
  -76
Free cash flow, $m
  50
  50
  51
  54
  56
  58
  61
  64
  66
  69
  73
  76
  79
  83
  87
  91
  95
  100
  105
  110
  115
  120
  126
  132
  139
  146
  153
  160
  168
  176
  185
Issuance/(repayment) of debt, $m
  0
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  12
  12
  13
  13
  14
Issuance/(repurchase) of shares, $m
  -53
  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  
  -53
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  12
  12
  13
  13
  14
Total cash flow (excl. dividends), $m
  -3
  53
  55
  57
  60
  62
  65
  68
  71
  74
  78
  81
  85
  89
  93
  98
  102
  107
  112
  118
  123
  129
  136
  142
  149
  157
  164
  172
  181
  190
  199
Retained Cash Flow (-), $m
  9
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
Prev. year cash balance distribution, $m
 
  53
  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
 
  103
  52
  54
  56
  59
  61
  64
  67
  70
  73
  77
  80
  84
  88
  92
  96
  101
  106
  111
  116
  122
  127
  134
  140
  147
  154
  162
  170
  178
  187
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
 
  99
  47
  47
  46
  46
  45
  43
  42
  40
  38
  36
  34
  32
  29
  27
  24
  22
  19
  17
  15
  13
  11
  9
  7
  6
  4
  3
  3
  2
  1
Current shareholders' claim on cash, %
  100
  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
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Francesca's Holdings Corporation is a holding company. The Company is a specialty retailer, which operates a chain of boutiques across the United States. The Company offers a mix of apparel, jewelry, accessories and gifts. As of January 28, 2017, the Company operated 671 boutiques in 48 states and the District of Columbia, and also served its customers through www.francescas.com, its e-commerce Website. The Company offers apparel, such as dresses, fashion tops, sweaters, cardigans and wraps, bottoms, outerwear and jackets, tees and tanks, and intimates. The Company provides jewelry, such as necklaces, earrings, bracelets and rings. The Company offers accessories, such as handbags, clutches, wallets, shoes, belts, hats, scarves, sunglasses, watches and hair accessories. The Company provides gifts, such as fragrance, candles, bath and body, home accessories, books, wall art, nail polish and miscellaneous items. The Company operates its boutiques under the francesca's brand.

FINANCIAL RATIOS  of  Francesca's Holdings (FRAN)

Valuation Ratios
P/E Ratio 5.7
Price to Sales 0.5
Price to Book 2.1
Price to Tangible Book
Price to Cash Flow 3.4
Price to Free Cash Flow 4.8
Growth Rates
Sales Growth Rate 10.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -8.3%
Cap. Spend. - 3 Yr. Gr. Rate -2.5%
Financial Strength
Quick Ratio NaN
Current Ratio 0.2
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 21.9%
Ret/ On Assets - 3 Yr. Avg. 21.1%
Return On Total Capital 34.6%
Ret/ On T. Cap. - 3 Yr. Avg. 32.4%
Return On Equity 34.6%
Return On Equity - 3 Yr. Avg. 33.7%
Asset Turnover 2.5
Profitability Ratios
Gross Margin 47%
Gross Margin - 3 Yr. Avg. 47.3%
EBITDA Margin 17.9%
EBITDA Margin - 3 Yr. Avg. 17.7%
Operating Margin 14%
Oper. Margin - 3 Yr. Avg. 14%
Pre-Tax Margin 14%
Pre-Tax Margin - 3 Yr. Avg. 13.9%
Net Profit Margin 8.6%
Net Profit Margin - 3 Yr. Avg. 8.6%
Effective Tax Rate 38.2%
Eff/ Tax Rate - 3 Yr. Avg. 38.5%
Payout Ratio 0%

FRAN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FRAN stock intrinsic value calculation we used $487 million for the last fiscal year's total revenue generated by Francesca's Holdings. The default revenue input number comes from 2017 income statement of Francesca's Holdings. 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 FRAN stock valuation model: a) initial revenue growth rate of 4.3% 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 FRAN is calculated based on our internal credit rating of Francesca's Holdings, 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 Francesca's Holdings.
    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 FRAN stock the variable cost ratio is equal to 85.8%.

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 FRAN 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 Francesca's Holdings.

Corporate tax rate of 27% is the nominal tax rate for Francesca's Holdings. 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 FRAN 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 FRAN are equal to 16.2%.

Life of production assets of 4.2 years is the average useful life of capital assets used in Francesca's Holdings 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 FRAN is equal to 2.5%. 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 - $117 million for Francesca's Holdings - 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 36.735 million for Francesca's Holdings 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 Francesca's Holdings at the current share price and the inputted number of shares is $0.2 billion.

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COMPANY NEWS

▶ Fed Chair Decision Boosts Markets   [11:41AM  GuruFocus.com]
▶ Francesca's Holdings misses Street 3Q forecasts   [07:39AM  Associated Press]
▶ Francescas names new C-level exec from J.C. Penney amid strategy changes   [Nov-14-17 01:00PM  American City Business Journals]
▶ Francesca's, Conn's expect a drop in sales after Harvey's devastation   [Sep-07-17 02:15PM  American City Business Journals]
▶ Francesca's Holdings beats Street 2Q forecasts   [Sep-06-17 10:25PM  Associated Press]
▶ C-suite exec leaves Francesca's after less than 2 years   [02:10PM  American City Business Journals]
▶ New Strong Sell Stocks for June 27th   [Jun-27-17 10:09AM  Zacks]
▶ Why Francesca's Holdings Corp. Stock Plunged Today   [Jun-06-17 01:48PM  Motley Fool]
▶ Why Macy's is Getting Walloped   [11:40AM  Barrons.com]
▶ Francesca's Holdings misses Street 1Q forecasts   [07:36AM  Associated Press]
▶ Francesca's Holdings tops Street 4Q forecasts   [07:46AM  Associated Press]
Financial statements of FRAN
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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