Intrinsic value of Federal Signal - FSS

Previous Close

$24.13

  Intrinsic Value

$24.44

stock screener

  Rating & Target

hold

+1%

Previous close

$24.13

 
Intrinsic value

$24.44

 
Up/down potential

+1%

 
Rating

hold

We calculate the intrinsic value of FSS 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 1.5

 

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, %
  29.70
  27.23
  25.01
  23.01
  21.21
  19.59
  18.13
  16.81
  15.63
  14.57
  13.61
  12.75
  11.98
  11.28
  10.65
  10.09
  9.58
  9.12
  8.71
  8.34
  8.00
  7.70
  7.43
  7.19
  6.97
  6.77
  6.60
  6.44
  6.29
  6.16
Revenue, $m
  1,165
  1,483
  1,853
  2,280
  2,763
  3,305
  3,904
  4,560
  5,273
  6,041
  6,863
  7,738
  8,665
  9,642
  10,669
  11,745
  12,870
  14,044
  15,267
  16,539
  17,863
  19,239
  20,669
  22,155
  23,699
  25,304
  26,973
  28,709
  30,516
  32,397
Variable operating expenses, $m
  1,055
  1,328
  1,647
  2,014
  2,430
  2,895
  3,410
  3,975
  4,588
  5,249
  5,903
  6,656
  7,453
  8,293
  9,177
  10,102
  11,070
  12,079
  13,131
  14,226
  15,364
  16,548
  17,778
  19,056
  20,384
  21,765
  23,200
  24,693
  26,247
  27,865
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
  1,055
  1,328
  1,647
  2,014
  2,430
  2,895
  3,410
  3,975
  4,588
  5,249
  5,903
  6,656
  7,453
  8,293
  9,177
  10,102
  11,070
  12,079
  13,131
  14,226
  15,364
  16,548
  17,778
  19,056
  20,384
  21,765
  23,200
  24,693
  26,247
  27,865
Operating income, $m
  110
  154
  206
  266
  334
  409
  493
  585
  685
  792
  960
  1,082
  1,212
  1,349
  1,492
  1,643
  1,800
  1,965
  2,136
  2,314
  2,499
  2,691
  2,891
  3,099
  3,315
  3,540
  3,773
  4,016
  4,269
  4,532
EBITDA, $m
  188
  239
  298
  367
  445
  532
  628
  734
  848
  972
  1,104
  1,245
  1,394
  1,552
  1,717
  1,890
  2,071
  2,260
  2,457
  2,662
  2,875
  3,096
  3,326
  3,565
  3,814
  4,072
  4,341
  4,620
  4,911
  5,213
Interest expense (income), $m
  1
  15
  24
  34
  46
  59
  75
  92
  112
  133
  156
  180
  207
  235
  264
  296
  329
  363
  400
  437
  477
  517
  560
  604
  650
  698
  747
  799
  853
  908
  966
Earnings before tax, $m
  95
  131
  173
  220
  274
  334
  401
  473
  552
  637
  780
  876
  977
  1,084
  1,197
  1,314
  1,437
  1,565
  1,698
  1,837
  1,981
  2,131
  2,287
  2,449
  2,617
  2,792
  2,974
  3,163
  3,360
  3,565
Tax expense, $m
  26
  35
  47
  59
  74
  90
  108
  128
  149
  172
  211
  236
  264
  293
  323
  355
  388
  423
  459
  496
  535
  575
  618
  661
  707
  754
  803
  854
  907
  963
Net income, $m
  69
  96
  126
  161
  200
  244
  293
  346
  403
  465
  569
  639
  714
  792
  874
  959
  1,049
  1,142
  1,240
  1,341
  1,446
  1,556
  1,670
  1,788
  1,911
  2,038
  2,171
  2,309
  2,453
  2,603

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
  1,286
  1,637
  2,046
  2,516
  3,050
  3,647
  4,309
  5,033
  5,820
  6,668
  7,575
  8,541
  9,564
  10,643
  11,776
  12,964
  14,206
  15,501
  16,851
  18,255
  19,716
  21,235
  22,813
  24,453
  26,158
  27,930
  29,772
  31,688
  33,682
  35,758
Adjusted assets (=assets-cash), $m
  1,286
  1,637
  2,046
  2,516
  3,050
  3,647
  4,309
  5,033
  5,820
  6,668
  7,575
  8,541
  9,564
  10,643
  11,776
  12,964
  14,206
  15,501
  16,851
  18,255
  19,716
  21,235
  22,813
  24,453
  26,158
  27,930
  29,772
  31,688
  33,682
  35,758
Revenue / Adjusted assets
  0.906
  0.906
  0.906
  0.906
  0.906
  0.906
  0.906
  0.906
  0.906
  0.906
  0.906
  0.906
  0.906
  0.906
  0.906
  0.906
  0.906
  0.906
  0.906
  0.906
  0.906
  0.906
  0.906
  0.906
  0.906
  0.906
  0.906
  0.906
  0.906
  0.906
Average production assets, $m
  427
  543
  678
  834
  1,011
  1,209
  1,429
  1,669
  1,930
  2,211
  2,512
  2,832
  3,171
  3,529
  3,905
  4,299
  4,710
  5,140
  5,588
  6,053
  6,538
  7,041
  7,565
  8,109
  8,674
  9,261
  9,872
  10,508
  11,169
  11,857
Working capital, $m
  193
  246
  308
  378
  459
  549
  648
  757
  875
  1,003
  1,139
  1,285
  1,438
  1,601
  1,771
  1,950
  2,136
  2,331
  2,534
  2,746
  2,965
  3,194
  3,431
  3,678
  3,934
  4,201
  4,478
  4,766
  5,066
  5,378
Total debt, $m
  436
  625
  845
  1,099
  1,387
  1,709
  2,065
  2,456
  2,880
  3,337
  3,826
  4,346
  4,898
  5,479
  6,090
  6,730
  7,400
  8,098
  8,825
  9,582
  10,370
  11,189
  12,039
  12,923
  13,842
  14,797
  15,790
  16,823
  17,897
  19,016
Total liabilities, $m
  693
  882
  1,103
  1,356
  1,644
  1,966
  2,322
  2,713
  3,137
  3,594
  4,083
  4,604
  5,155
  5,736
  6,347
  6,988
  7,657
  8,355
  9,083
  9,840
  10,627
  11,446
  12,296
  13,180
  14,099
  15,054
  16,047
  17,080
  18,155
  19,274
Total equity, $m
  593
  754
  943
  1,160
  1,406
  1,681
  1,986
  2,320
  2,683
  3,074
  3,492
  3,937
  4,409
  4,906
  5,429
  5,976
  6,549
  7,146
  7,768
  8,416
  9,089
  9,789
  10,517
  11,273
  12,059
  12,876
  13,725
  14,608
  15,527
  16,484
Total liabilities and equity, $m
  1,286
  1,636
  2,046
  2,516
  3,050
  3,647
  4,308
  5,033
  5,820
  6,668
  7,575
  8,541
  9,564
  10,642
  11,776
  12,964
  14,206
  15,501
  16,851
  18,256
  19,716
  21,235
  22,813
  24,453
  26,158
  27,930
  29,772
  31,688
  33,682
  35,758
Debt-to-equity ratio
  0.740
  0.830
  0.900
  0.950
  0.990
  1.020
  1.040
  1.060
  1.070
  1.090
  1.100
  1.100
  1.110
  1.120
  1.120
  1.130
  1.130
  1.130
  1.140
  1.140
  1.140
  1.140
  1.140
  1.150
  1.150
  1.150
  1.150
  1.150
  1.150
  1.150
Adjusted equity ratio
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  69
  96
  126
  161
  200
  244
  293
  346
  403
  465
  569
  639
  714
  792
  874
  959
  1,049
  1,142
  1,240
  1,341
  1,446
  1,556
  1,670
  1,788
  1,911
  2,038
  2,171
  2,309
  2,453
  2,603
Depreciation, amort., depletion, $m
  77
  84
  92
  101
  111
  122
  135
  149
  164
  180
  144
  163
  182
  203
  224
  247
  271
  295
  321
  348
  376
  405
  435
  466
  498
  532
  567
  604
  642
  681
Funds from operations, $m
  147
  180
  218
  262
  311
  367
  428
  494
  567
  645
  714
  802
  896
  994
  1,098
  1,206
  1,320
  1,438
  1,561
  1,689
  1,822
  1,961
  2,104
  2,254
  2,409
  2,571
  2,739
  2,913
  3,095
  3,284
Change in working capital, $m
  44
  53
  62
  71
  80
  90
  99
  109
  118
  128
  137
  145
  154
  162
  170
  179
  187
  195
  203
  211
  220
  228
  237
  247
  256
  266
  277
  288
  300
  312
Cash from operations, $m
  103
  127
  156
  191
  231
  277
  328
  385
  449
  517
  577
  657
  742
  832
  927
  1,028
  1,133
  1,243
  1,358
  1,478
  1,602
  1,732
  1,867
  2,007
  2,153
  2,304
  2,461
  2,625
  2,795
  2,972
Maintenance CAPEX, $m
  -19
  -25
  -31
  -39
  -48
  -58
  -70
  -82
  -96
  -111
  -127
  -144
  -163
  -182
  -203
  -224
  -247
  -271
  -295
  -321
  -348
  -376
  -405
  -435
  -466
  -498
  -532
  -567
  -604
  -642
New CAPEX, $m
  -97
  -116
  -136
  -156
  -177
  -198
  -219
  -240
  -261
  -281
  -301
  -320
  -339
  -358
  -376
  -394
  -412
  -430
  -448
  -466
  -484
  -504
  -523
  -544
  -565
  -587
  -611
  -635
  -661
  -688
Cash from investing activities, $m
  -116
  -141
  -167
  -195
  -225
  -256
  -289
  -322
  -357
  -392
  -428
  -464
  -502
  -540
  -579
  -618
  -659
  -701
  -743
  -787
  -832
  -880
  -928
  -979
  -1,031
  -1,085
  -1,143
  -1,202
  -1,265
  -1,330
Free cash flow, $m
  -13
  -14
  -11
  -4
  6
  21
  39
  63
  92
  125
  149
  192
  240
  292
  349
  410
  474
  543
  615
  691
  770
  853
  939
  1,029
  1,122
  1,218
  1,318
  1,422
  1,530
  1,642
Issuance/(repayment) of debt, $m
  158
  189
  221
  254
  288
  322
  356
  390
  424
  457
  489
  521
  551
  581
  611
  640
  669
  698
  727
  757
  787
  819
  851
  884
  919
  955
  993
  1,033
  1,075
  1,119
Issuance/(repurchase) of shares, $m
  66
  66
  63
  56
  46
  31
  12
  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  
  224
  255
  284
  310
  334
  353
  368
  390
  424
  457
  489
  521
  551
  581
  611
  640
  669
  698
  727
  757
  787
  819
  851
  884
  919
  955
  993
  1,033
  1,075
  1,119
Total cash flow (excl. dividends), $m
  211
  241
  273
  306
  339
  374
  408
  454
  516
  582
  638
  713
  791
  874
  960
  1,050
  1,143
  1,241
  1,342
  1,448
  1,558
  1,671
  1,790
  1,913
  2,040
  2,173
  2,311
  2,455
  2,605
  2,761
Retained Cash Flow (-), $m
  -136
  -161
  -189
  -217
  -246
  -275
  -305
  -334
  -363
  -391
  -418
  -445
  -472
  -497
  -523
  -548
  -572
  -597
  -622
  -648
  -674
  -700
  -728
  -756
  -786
  -817
  -849
  -883
  -919
  -957
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
  76
  80
  84
  89
  94
  98
  103
  120
  153
  191
  220
  268
  320
  376
  437
  502
  571
  644
  720
  800
  884
  971
  1,062
  1,156
  1,255
  1,356
  1,462
  1,572
  1,685
  1,804
Discount rate, %
  5.70
  5.99
  6.28
  6.60
  6.93
  7.27
  7.64
  8.02
  8.42
  8.84
  9.28
  9.75
  10.24
  10.75
  11.29
  11.85
  12.44
  13.06
  13.72
  14.40
  15.12
  15.88
  16.67
  17.51
  18.38
  19.30
  20.27
  21.28
  22.34
  23.46
PV of cash for distribution, $m
  71
  71
  70
  69
  67
  65
  62
  65
  74
  82
  83
  88
  90
  90
  88
  84
  78
  71
  63
  54
  46
  38
  31
  24
  18
  14
  10
  7
  5
  3
Current shareholders' claim on cash, %
  95.6
  92.4
  90.1
  88.4
  87.3
  86.7
  86.5
  86.5
  86.5
  86.5
  86.5
  86.5
  86.5
  86.5
  86.5
  86.5
  86.5
  86.5
  86.5
  86.5
  86.5
  86.5
  86.5
  86.5
  86.5
  86.5
  86.5
  86.5
  86.5
  86.5

Federal Signal Corporation designs, manufactures and supplies a suite of products and integrated solutions for municipal, governmental, industrial and commercial customers. The Company's segments include the Environmental Solutions Group and the Safety and Security Systems Group. Its Environmental Solutions Group manufactures and supplies a range of street sweeper vehicles, sewer cleaner and vacuum loader trucks, hydro-excavation trucks and waterblasting equipment. The products are sold to both municipal and industrial customers under the Elgin, Vactor, Guzzler and Jetstream brand names. Safety and Security Systems is a manufacturer and supplier of systems and products that law enforcement, fire rescue, emergency medical services, campuses military facilities and industrial sites use to protect people and property. It offers systems for campus and community alerting, emergency vehicles, first responder interoperable communications and industrial communications, among others.

FINANCIAL RATIOS  of  Federal Signal (FSS)

Valuation Ratios
P/E Ratio 32.7
Price to Sales 2
Price to Book 3.7
Price to Tangible Book
Price to Cash Flow 57.5
Price to Free Cash Flow 75.7
Growth Rates
Sales Growth Rate -7.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -40%
Cap. Spend. - 3 Yr. Gr. Rate -12.9%
Financial Strength
Quick Ratio 51
Current Ratio 0
LT Debt to Equity 16%
Total Debt to Equity 16.2%
Interest Coverage 58
Management Effectiveness
Return On Assets 6.8%
Ret/ On Assets - 3 Yr. Avg. 8.9%
Return On Total Capital 9.7%
Ret/ On T. Cap. - 3 Yr. Avg. 13.1%
Return On Equity 11%
Return On Equity - 3 Yr. Avg. 15.1%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 25.8%
Gross Margin - 3 Yr. Avg. 27.4%
EBITDA Margin 10.9%
EBITDA Margin - 3 Yr. Avg. 12.8%
Operating Margin 8.1%
Oper. Margin - 3 Yr. Avg. 11%
Pre-Tax Margin 8.1%
Pre-Tax Margin - 3 Yr. Avg. 10.6%
Net Profit Margin 6.2%
Net Profit Margin - 3 Yr. Avg. 7.6%
Effective Tax Rate 31.6%
Eff/ Tax Rate - 3 Yr. Avg. 31.1%
Payout Ratio 38.6%

FSS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FSS stock intrinsic value calculation we used $898.5 million for the last fiscal year's total revenue generated by Federal Signal. The default revenue input number comes from 0001 income statement of Federal Signal. 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 FSS stock valuation model: a) initial revenue growth rate of 29.7% 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 5.7%, whose default value for FSS is calculated based on our internal credit rating of Federal Signal, 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 Federal Signal.
    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 FSS stock the variable cost ratio is equal to 91.9%.

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 FSS 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 Federal Signal.

Corporate tax rate of 27% is the nominal tax rate for Federal Signal. 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 FSS 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 FSS are equal to 36.6%.

Life of production assets of 17.4 years is the average useful life of capital assets used in Federal Signal 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 FSS is equal to 16.6%. 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 - $457.4 million for Federal Signal - 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 60.2 million for Federal Signal 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 Federal Signal at the current share price and the inputted number of shares is $1.5 billion.

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COMPANY NEWS

▶ Federal Signal: 3Q Earnings Snapshot   [Nov-06-18 08:48AM  Associated Press]
▶ Federal Signal: 2Q Earnings Snapshot   [08:49AM  Associated Press]
▶ General Electric (GE) Secures Order for 50 New Locomotives   [Jun-22-18 02:45PM  InvestorPlace]
▶ Federal Signal: 1Q Earnings Snapshot   [May-08-18 09:16AM  Associated Press]
▶ Newest Polaris Rangers come pre-kitted for fire, police and rescue buyers (slideshow)   [Apr-25-18 03:48PM  American City Business Journals]
▶ Federal Signal tops Street 4Q forecasts   [Feb-28-18 10:13AM  Associated Press]

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