Intrinsic value of Forward Air - FWRD

Previous Close

$58.34

  Intrinsic Value

$23.60

stock screener

  Rating & Target

str. sell

-60%

  Value-price divergence*

-45%

Previous close

$58.34

 
Intrinsic value

$23.60

 
Up/down potential

-60%

 
Rating

str. sell

 
Value-price divergence*

-45%

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

We calculate the intrinsic value of FWRD 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, %
  2.50
  2.50
  2.75
  2.97
  3.18
  3.36
  3.52
  3.67
  3.80
  3.92
  4.03
  4.13
  4.22
  4.29
  4.36
  4.43
  4.49
  4.54
  4.58
  4.62
  4.66
  4.70
  4.73
  4.75
  4.78
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
Revenue, $m
  983
  1,008
  1,035
  1,066
  1,100
  1,137
  1,177
  1,220
  1,267
  1,316
  1,369
  1,426
  1,486
  1,550
  1,617
  1,689
  1,765
  1,845
  1,929
  2,019
  2,113
  2,212
  2,317
  2,427
  2,543
  2,665
  2,793
  2,928
  3,070
  3,220
  3,377
Variable operating expenses, $m
 
  921
  946
  974
  1,004
  1,037
  1,073
  1,112
  1,154
  1,198
  1,246
  1,278
  1,332
  1,389
  1,450
  1,514
  1,582
  1,653
  1,729
  1,809
  1,893
  1,982
  2,076
  2,175
  2,279
  2,388
  2,503
  2,624
  2,752
  2,886
  3,027
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
  923
  921
  946
  974
  1,004
  1,037
  1,073
  1,112
  1,154
  1,198
  1,246
  1,278
  1,332
  1,389
  1,450
  1,514
  1,582
  1,653
  1,729
  1,809
  1,893
  1,982
  2,076
  2,175
  2,279
  2,388
  2,503
  2,624
  2,752
  2,886
  3,027
Operating income, $m
  60
  86
  89
  92
  96
  100
  104
  108
  113
  118
  124
  148
  154
  161
  168
  175
  183
  192
  200
  210
  219
  230
  241
  252
  264
  277
  290
  304
  319
  334
  351
EBITDA, $m
  98
  129
  132
  136
  140
  145
  150
  156
  162
  168
  175
  182
  190
  198
  206
  215
  225
  235
  246
  258
  270
  282
  296
  310
  324
  340
  356
  374
  392
  411
  431
Interest expense (income), $m
  2
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
Earnings before tax, $m
  58
  85
  88
  91
  95
  98
  102
  107
  111
  116
  121
  146
  151
  158
  165
  172
  179
  187
  196
  204
  214
  224
  234
  245
  256
  269
  281
  295
  309
  324
  339
Tax expense, $m
  30
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33
  39
  41
  43
  44
  46
  48
  51
  53
  55
  58
  60
  63
  66
  69
  73
  76
  80
  83
  87
  92
Net income, $m
  28
  62
  64
  67
  69
  72
  75
  78
  81
  85
  89
  106
  111
  115
  120
  125
  131
  137
  143
  149
  156
  163
  171
  179
  187
  196
  205
  215
  225
  236
  248

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  9
  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
  641
  648
  666
  686
  707
  731
  757
  785
  815
  846
  881
  917
  956
  997
  1,040
  1,086
  1,135
  1,186
  1,241
  1,298
  1,359
  1,423
  1,490
  1,561
  1,635
  1,714
  1,796
  1,883
  1,975
  2,071
  2,172
Adjusted assets (=assets-cash), $m
  632
  648
  666
  686
  707
  731
  757
  785
  815
  846
  881
  917
  956
  997
  1,040
  1,086
  1,135
  1,186
  1,241
  1,298
  1,359
  1,423
  1,490
  1,561
  1,635
  1,714
  1,796
  1,883
  1,975
  2,071
  2,172
Revenue / Adjusted assets
  1.555
  1.556
  1.554
  1.554
  1.556
  1.555
  1.555
  1.554
  1.555
  1.556
  1.554
  1.555
  1.554
  1.555
  1.555
  1.555
  1.555
  1.556
  1.554
  1.555
  1.555
  1.554
  1.555
  1.555
  1.555
  1.555
  1.555
  1.555
  1.554
  1.555
  1.555
Average production assets, $m
  311
  318
  327
  337
  348
  359
  372
  386
  400
  416
  433
  451
  470
  490
  511
  534
  558
  583
  610
  638
  668
  699
  732
  767
  803
  842
  883
  925
  970
  1,018
  1,067
Working capital, $m
  58
  79
  81
  83
  86
  89
  92
  95
  99
  103
  107
  111
  116
  121
  126
  132
  138
  144
  150
  157
  165
  173
  181
  189
  198
  208
  218
  228
  239
  251
  263
Total debt, $m
  29
  23
  27
  31
  36
  41
  46
  52
  58
  65
  72
  80
  88
  96
  105
  115
  125
  136
  148
  160
  172
  186
  200
  215
  230
  247
  264
  282
  302
  322
  343
Total liabilities, $m
  142
  136
  140
  144
  149
  154
  159
  165
  171
  178
  185
  193
  201
  209
  218
  228
  238
  249
  261
  273
  285
  299
  313
  328
  343
  360
  377
  395
  415
  435
  456
Total equity, $m
  499
  512
  526
  542
  559
  578
  598
  620
  643
  669
  696
  724
  755
  787
  822
  858
  897
  937
  980
  1,026
  1,073
  1,124
  1,177
  1,233
  1,292
  1,354
  1,419
  1,488
  1,560
  1,636
  1,716
Total liabilities and equity, $m
  641
  648
  666
  686
  708
  732
  757
  785
  814
  847
  881
  917
  956
  996
  1,040
  1,086
  1,135
  1,186
  1,241
  1,299
  1,358
  1,423
  1,490
  1,561
  1,635
  1,714
  1,796
  1,883
  1,975
  2,071
  2,172
Debt-to-equity ratio
  0.058
  0.050
  0.050
  0.060
  0.060
  0.070
  0.080
  0.080
  0.090
  0.100
  0.100
  0.110
  0.120
  0.120
  0.130
  0.130
  0.140
  0.150
  0.150
  0.160
  0.160
  0.170
  0.170
  0.170
  0.180
  0.180
  0.190
  0.190
  0.190
  0.200
  0.200
Adjusted equity ratio
  0.775
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  28
  62
  64
  67
  69
  72
  75
  78
  81
  85
  89
  106
  111
  115
  120
  125
  131
  137
  143
  149
  156
  163
  171
  179
  187
  196
  205
  215
  225
  236
  248
Depreciation, amort., depletion, $m
  38
  42
  43
  44
  45
  46
  46
  47
  49
  50
  51
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  53
  55
  58
  60
  63
  66
  70
  73
  77
  80
Funds from operations, $m
  139
  105
  107
  110
  114
  117
  121
  125
  130
  135
  140
  140
  146
  152
  159
  165
  173
  180
  189
  197
  206
  216
  226
  236
  248
  259
  272
  285
  298
  313
  328
Change in working capital, $m
  9
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
Cash from operations, $m
  130
  103
  105
  108
  111
  114
  118
  122
  126
  131
  136
  136
  141
  147
  153
  160
  167
  174
  182
  190
  199
  208
  218
  228
  239
  250
  262
  274
  287
  301
  316
Maintenance CAPEX, $m
  0
  -23
  -24
  -25
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -53
  -55
  -58
  -60
  -63
  -66
  -70
  -73
  -77
New CAPEX, $m
  -42
  -7
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -50
Cash from investing activities, $m
  -52
  -30
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -53
  -55
  -58
  -61
  -64
  -67
  -71
  -74
  -78
  -81
  -86
  -90
  -95
  -99
  -104
  -109
  -115
  -120
  -127
Free cash flow, $m
  78
  72
  73
  74
  75
  77
  78
  80
  82
  85
  87
  85
  88
  92
  95
  99
  103
  107
  111
  116
  121
  127
  132
  138
  144
  151
  158
  165
  173
  181
  190
Issuance/(repayment) of debt, $m
  -56
  3
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
Issuance/(repurchase) of shares, $m
  -30
  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  
  -87
  3
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
Total cash flow (excl. dividends), $m
  -9
  75
  76
  78
  80
  82
  84
  86
  89
  92
  95
  93
  96
  100
  104
  108
  113
  118
  123
  128
  134
  140
  146
  153
  160
  167
  175
  183
  192
  201
  211
Retained Cash Flow (-), $m
  11
  -13
  -14
  -16
  -17
  -19
  -20
  -22
  -24
  -25
  -27
  -29
  -31
  -32
  -34
  -36
  -38
  -41
  -43
  -45
  -48
  -50
  -53
  -56
  -59
  -62
  -65
  -69
  -72
  -76
  -80
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
 
  62
  62
  62
  62
  63
  63
  64
  65
  66
  68
  64
  66
  68
  70
  72
  75
  77
  80
  83
  86
  90
  93
  97
  101
  105
  110
  115
  120
  125
  131
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
 
  60
  57
  54
  51
  49
  46
  43
  41
  38
  35
  30
  28
  26
  23
  21
  19
  17
  15
  13
  11
  9
  8
  6
  5
  4
  3
  2
  2
  1
  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
  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

Forward Air Corporation is a freight and logistics company. The Company provides less-than-truckload (LTL), truckload, intermodal and pool distribution services across the United States and in Canada. The Company's segments include Expedited LTL, Truckload Premium Services (TLS), Intermodal and Pool Distribution. Expedited LTL segment provides expedited regional, inter-regional and national LTL services. TLS segment is a provider of transportation management services, including, but not limited to, expedited truckload brokerage, fleet services, as well as security and temperature-controlled logistics services in the United States and Canada. Intermodal offers first- and last-mile transportation of freight both to and from seaports and railheads through fleet and third party transportation providers. Pool distribution involves managing high-frequency handling and distribution of time-sensitive product to numerous destinations in specific geographic regions.

FINANCIAL RATIOS  of  Forward Air (FWRD)

Valuation Ratios
P/E Ratio 62.7
Price to Sales 1.8
Price to Book 3.5
Price to Tangible Book
Price to Cash Flow 13.5
Price to Free Cash Flow 19.9
Growth Rates
Sales Growth Rate 2.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 5%
Cap. Spend. - 3 Yr. Gr. Rate 3.7%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 0.2%
Total Debt to Equity 5.8%
Interest Coverage 30
Management Effectiveness
Return On Assets 4.3%
Ret/ On Assets - 3 Yr. Avg. 8.4%
Return On Total Capital 5%
Ret/ On T. Cap. - 3 Yr. Avg. 9.7%
Return On Equity 5.6%
Return On Equity - 3 Yr. Avg. 10.2%
Asset Turnover 1.5
Profitability Ratios
Gross Margin 50.4%
Gross Margin - 3 Yr. Avg. 49.8%
EBITDA Margin 10%
EBITDA Margin - 3 Yr. Avg. 12.9%
Operating Margin 6.1%
Oper. Margin - 3 Yr. Avg. 9%
Pre-Tax Margin 5.9%
Pre-Tax Margin - 3 Yr. Avg. 8.8%
Net Profit Margin 2.8%
Net Profit Margin - 3 Yr. Avg. 5.5%
Effective Tax Rate 51.7%
Eff/ Tax Rate - 3 Yr. Avg. 39.4%
Payout Ratio 57.1%

FWRD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FWRD stock intrinsic value calculation we used $983 million for the last fiscal year's total revenue generated by Forward Air. The default revenue input number comes from 2016 income statement of Forward Air. 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 FWRD stock valuation model: a) initial revenue growth rate of 2.5% 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 FWRD is calculated based on our internal credit rating of Forward Air, 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 Forward Air.
    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 FWRD stock the variable cost ratio is equal to 91.5%.

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 FWRD 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 Forward Air.

Corporate tax rate of 27% is the nominal tax rate for Forward Air. 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 FWRD 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 FWRD are equal to 31.6%.

Life of production assets of 13.3 years is the average useful life of capital assets used in Forward Air 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 FWRD is equal to 7.8%. 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 - $499 million for Forward Air - 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 30.606 million for Forward Air 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 Forward Air at the current share price and the inputted number of shares is $1.8 billion.

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COMPANY NEWS

▶ Forward Air tops Street 2Q forecasts   [Jul-26-17 11:23PM  Associated Press]
▶ ETFs with exposure to Forward Air Corp. : July 10, 2017   [Jul-10-17 02:32PM  Capital Cube]
▶ ETFs with exposure to Forward Air Corp. : June 22, 2017   [Jun-22-17 03:44PM  Capital Cube]
▶ Top Ranked Momentum Stocks to Buy for June 13th   [Jun-13-17 10:14AM  Zacks]
▶ Forward Air Corporation Closes Acquisition of Atlantic   [May-18-17 05:00PM  Business Wire]
▶ Forward Air tops Street 1Q forecasts   [Apr-26-17 05:24PM  Associated Press]
▶ Forward Air Corporation Announces Acquisition of Atlantic   [Apr-10-17 05:00PM  Business Wire]
▶ Forward Air tops Street 4Q forecasts   [Feb-08-17 04:46PM  Associated Press]
▶ Is Forward Air Corporation (FWRD) a Good Stock to Invest in?   [Dec-05-16 03:37PM  at Insider Monkey]
▶ Forward Air Corporation Announces 25% Dividend Increase   [Oct-26-16 04:00PM  Business Wire]
▶ Forward Air Corporation Revises Third Quarter 2016 Guidance   [Sep-19-16 08:15PM  Business Wire]
Financial statements of FWRD
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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