Intrinsic value of Griffon Corporation - GFF

Previous Close

$16.13

  Intrinsic Value

$25.65

stock screener

  Rating & Target

str. buy

+59%

Previous close

$16.13

 
Intrinsic value

$25.65

 
Up/down potential

+59%

 
Rating

str. buy

We calculate the intrinsic value of GFF 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 0.8

 

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, %
  16.70
  15.53
  14.48
  13.53
  12.68
  11.91
  11.22
  10.60
  10.04
  9.53
  9.08
  8.67
  8.30
  7.97
  7.68
  7.41
  7.17
  6.95
  6.76
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
  5.76
  5.68
  5.61
  5.55
Revenue, $m
  2,308
  2,667
  3,053
  3,466
  3,905
  4,370
  4,861
  5,376
  5,915
  6,479
  7,067
  7,680
  8,318
  8,981
  9,671
  10,387
  11,132
  11,905
  12,710
  13,546
  14,416
  15,322
  16,264
  17,246
  18,269
  19,336
  20,449
  21,611
  22,824
  24,091
Variable operating expenses, $m
  2,154
  2,476
  2,823
  3,194
  3,588
  4,006
  4,446
  4,909
  5,393
  5,899
  6,347
  6,897
  7,470
  8,066
  8,685
  9,328
  9,997
  10,692
  11,414
  12,165
  12,946
  13,760
  14,606
  15,488
  16,407
  17,365
  18,364
  19,408
  20,497
  21,635
Fixed operating expenses, $m
  26
  26
  27
  27
  28
  28
  29
  30
  30
  31
  32
  32
  33
  34
  35
  35
  36
  37
  38
  39
  39
  40
  41
  42
  43
  44
  45
  46
  47
  48
Total operating expenses, $m
  2,180
  2,502
  2,850
  3,221
  3,616
  4,034
  4,475
  4,939
  5,423
  5,930
  6,379
  6,929
  7,503
  8,100
  8,720
  9,363
  10,033
  10,729
  11,452
  12,204
  12,985
  13,800
  14,647
  15,530
  16,450
  17,409
  18,409
  19,454
  20,544
  21,683
Operating income, $m
  129
  165
  204
  245
  289
  336
  385
  437
  492
  548
  689
  751
  815
  882
  951
  1,024
  1,099
  1,177
  1,258
  1,342
  1,430
  1,522
  1,617
  1,716
  1,819
  1,927
  2,040
  2,157
  2,280
  2,408
EBITDA, $m
  252
  295
  341
  390
  442
  497
  556
  617
  681
  748
  819
  892
  968
  1,047
  1,129
  1,214
  1,303
  1,395
  1,491
  1,591
  1,695
  1,803
  1,916
  2,033
  2,155
  2,282
  2,415
  2,554
  2,699
  2,850
Interest expense (income), $m
  48
  70
  86
  104
  124
  144
  167
  190
  215
  241
  268
  296
  326
  357
  389
  423
  457
  494
  531
  570
  611
  653
  697
  742
  790
  839
  891
  945
  1,001
  1,060
  1,121
Earnings before tax, $m
  59
  79
  99
  121
  145
  169
  195
  222
  251
  280
  392
  424
  458
  493
  529
  566
  605
  646
  688
  732
  777
  825
  874
  926
  980
  1,036
  1,095
  1,156
  1,220
  1,287
Tax expense, $m
  16
  21
  27
  33
  39
  46
  53
  60
  68
  76
  106
  115
  124
  133
  143
  153
  163
  174
  186
  198
  210
  223
  236
  250
  265
  280
  296
  312
  329
  348
Net income, $m
  43
  57
  73
  89
  106
  124
  143
  162
  183
  205
  286
  310
  334
  360
  386
  413
  442
  471
  502
  534
  567
  602
  638
  676
  715
  756
  799
  844
  891
  940

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
  2,432
  2,810
  3,217
  3,652
  4,115
  4,605
  5,122
  5,665
  6,233
  6,827
  7,447
  8,093
  8,765
  9,464
  10,190
  10,945
  11,730
  12,545
  13,393
  14,274
  15,191
  16,145
  17,138
  18,173
  19,251
  20,375
  21,548
  22,772
  24,050
  25,385
Adjusted assets (=assets-cash), $m
  2,432
  2,810
  3,217
  3,652
  4,115
  4,605
  5,122
  5,665
  6,233
  6,827
  7,447
  8,093
  8,765
  9,464
  10,190
  10,945
  11,730
  12,545
  13,393
  14,274
  15,191
  16,145
  17,138
  18,173
  19,251
  20,375
  21,548
  22,772
  24,050
  25,385
Revenue / Adjusted assets
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
  0.949
Average production assets, $m
  725
  837
  959
  1,088
  1,226
  1,372
  1,526
  1,688
  1,857
  2,034
  2,219
  2,412
  2,612
  2,820
  3,037
  3,262
  3,495
  3,738
  3,991
  4,254
  4,527
  4,811
  5,107
  5,415
  5,737
  6,072
  6,421
  6,786
  7,167
  7,564
Working capital, $m
  540
  624
  714
  811
  914
  1,023
  1,137
  1,258
  1,384
  1,516
  1,654
  1,797
  1,946
  2,102
  2,263
  2,431
  2,605
  2,786
  2,974
  3,170
  3,373
  3,585
  3,806
  4,036
  4,275
  4,525
  4,785
  5,057
  5,341
  5,637
Total debt, $m
  1,388
  1,680
  1,994
  2,330
  2,687
  3,066
  3,465
  3,884
  4,322
  4,781
  5,260
  5,758
  6,277
  6,817
  7,378
  7,960
  8,566
  9,196
  9,850
  10,530
  11,238
  11,975
  12,741
  13,540
  14,372
  15,240
  16,146
  17,091
  18,077
  19,108
Total liabilities, $m
  1,878
  2,169
  2,483
  2,819
  3,177
  3,555
  3,954
  4,373
  4,812
  5,271
  5,749
  6,248
  6,767
  7,306
  7,867
  8,450
  9,056
  9,685
  10,339
  11,020
  11,727
  12,464
  13,231
  14,029
  14,862
  15,730
  16,635
  17,580
  18,567
  19,597
Total equity, $m
  555
  641
  733
  833
  938
  1,050
  1,168
  1,292
  1,421
  1,557
  1,698
  1,845
  1,998
  2,158
  2,323
  2,496
  2,674
  2,860
  3,054
  3,255
  3,464
  3,681
  3,908
  4,143
  4,389
  4,646
  4,913
  5,192
  5,483
  5,788
Total liabilities and equity, $m
  2,433
  2,810
  3,216
  3,652
  4,115
  4,605
  5,122
  5,665
  6,233
  6,828
  7,447
  8,093
  8,765
  9,464
  10,190
  10,946
  11,730
  12,545
  13,393
  14,275
  15,191
  16,145
  17,139
  18,172
  19,251
  20,376
  21,548
  22,772
  24,050
  25,385
Debt-to-equity ratio
  2.500
  2.620
  2.720
  2.800
  2.860
  2.920
  2.970
  3.010
  3.040
  3.070
  3.100
  3.120
  3.140
  3.160
  3.180
  3.190
  3.200
  3.210
  3.230
  3.240
  3.240
  3.250
  3.260
  3.270
  3.270
  3.280
  3.290
  3.290
  3.300
  3.300
Adjusted equity ratio
  0.228
  0.228
  0.228
  0.228
  0.228
  0.228
  0.228
  0.228
  0.228
  0.228
  0.228
  0.228
  0.228
  0.228
  0.228
  0.228
  0.228
  0.228
  0.228
  0.228
  0.228
  0.228
  0.228
  0.228
  0.228
  0.228
  0.228
  0.228
  0.228
  0.228

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  43
  57
  73
  89
  106
  124
  143
  162
  183
  205
  286
  310
  334
  360
  386
  413
  442
  471
  502
  534
  567
  602
  638
  676
  715
  756
  799
  844
  891
  940
Depreciation, amort., depletion, $m
  123
  130
  137
  145
  153
  161
  170
  180
  190
  200
  130
  141
  153
  165
  178
  191
  204
  219
  233
  249
  265
  281
  299
  317
  335
  355
  376
  397
  419
  442
Funds from operations, $m
  167
  187
  210
  233
  258
  285
  313
  342
  373
  405
  416
  451
  487
  524
  563
  604
  646
  690
  736
  783
  832
  884
  937
  993
  1,051
  1,112
  1,175
  1,241
  1,310
  1,382
Change in working capital, $m
  77
  84
  90
  97
  103
  109
  115
  121
  126
  132
  138
  143
  149
  155
  161
  168
  174
  181
  188
  196
  204
  212
  221
  230
  239
  250
  260
  272
  284
  296
Cash from operations, $m
  89
  104
  119
  137
  156
  176
  198
  222
  246
  273
  279
  307
  338
  369
  402
  436
  472
  509
  547
  587
  629
  672
  716
  763
  811
  862
  914
  969
  1,026
  1,086
Maintenance CAPEX, $m
  -36
  -42
  -49
  -56
  -64
  -72
  -80
  -89
  -99
  -109
  -119
  -130
  -141
  -153
  -165
  -178
  -191
  -204
  -219
  -233
  -249
  -265
  -281
  -299
  -317
  -335
  -355
  -376
  -397
  -419
New CAPEX, $m
  -104
  -113
  -121
  -130
  -138
  -146
  -154
  -162
  -169
  -177
  -185
  -192
  -200
  -208
  -216
  -225
  -234
  -243
  -253
  -263
  -273
  -284
  -296
  -308
  -321
  -335
  -349
  -365
  -381
  -398
Cash from investing activities, $m
  -140
  -155
  -170
  -186
  -202
  -218
  -234
  -251
  -268
  -286
  -304
  -322
  -341
  -361
  -381
  -403
  -425
  -447
  -472
  -496
  -522
  -549
  -577
  -607
  -638
  -670
  -704
  -741
  -778
  -817
Free cash flow, $m
  -51
  -51
  -51
  -49
  -46
  -42
  -36
  -29
  -22
  -13
  -25
  -15
  -4
  8
  21
  34
  47
  62
  76
  91
  107
  123
  139
  156
  173
  191
  210
  229
  248
  269
Issuance/(repayment) of debt, $m
  267
  292
  314
  336
  357
  378
  399
  419
  439
  459
  479
  499
  519
  540
  561
  583
  606
  629
  654
  680
  708
  737
  767
  799
  832
  868
  905
  945
  987
  1,031
Issuance/(repurchase) of shares, $m
  37
  29
  20
  11
  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  
  304
  321
  334
  347
  357
  378
  399
  419
  439
  459
  479
  499
  519
  540
  561
  583
  606
  629
  654
  680
  708
  737
  767
  799
  832
  868
  905
  945
  987
  1,031
Total cash flow (excl. dividends), $m
  253
  269
  283
  297
  311
  337
  363
  390
  417
  446
  453
  484
  515
  548
  582
  617
  653
  691
  730
  772
  814
  859
  906
  955
  1,006
  1,059
  1,115
  1,174
  1,235
  1,299
Retained Cash Flow (-), $m
  -80
  -86
  -93
  -99
  -106
  -112
  -118
  -124
  -130
  -135
  -141
  -147
  -153
  -159
  -166
  -172
  -179
  -186
  -193
  -201
  -209
  -218
  -226
  -236
  -246
  -256
  -267
  -279
  -291
  -304
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
  173
  183
  191
  198
  206
  225
  245
  266
  288
  310
  312
  337
  362
  388
  416
  445
  474
  505
  537
  571
  605
  642
  679
  719
  760
  803
  848
  895
  944
  995
Discount rate, %
  11.00
  11.55
  12.13
  12.73
  13.37
  14.04
  14.74
  15.48
  16.25
  17.06
  17.92
  18.81
  19.75
  20.74
  21.78
  22.87
  24.01
  25.21
  26.47
  27.80
  29.19
  30.65
  32.18
  33.79
  35.48
  37.25
  39.11
  41.07
  43.12
  45.28
PV of cash for distribution, $m
  156
  147
  135
  123
  110
  102
  94
  84
  74
  64
  51
  43
  35
  28
  22
  16
  12
  9
  6
  4
  3
  2
  1
  1
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  95.3
  92.3
  90.5
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7

Griffon Corporation is a management and holding company that conducts business through its subsidiaries. The Company operates through three segments: Home & Building Products (HBP), Telephonics Corporation (Telephonics) and Clopay Plastic Products Company, Inc. (PPC). The HBP segment consists of two companies: The AMES Companies, Inc. (AMES) and Clopay Building Products Company, Inc. (CBP). AMES is a provider of non-powered landscaping products for homeowners and professionals. CBP is a manufacturer and marketer of residential, commercial and industrial garage doors to professional dealers and home center retail chains. The Telephonics segment designs, develops and manufactures integrated information, communication and sensor system solutions for military and commercial markets across the world. The PPC segment is engaged in the development and production of embossed, laminated and printed specialty plastic films used in a range of hygienic, healthcare and industrial applications.

FINANCIAL RATIOS  of  Griffon Corporation (GFF)

Valuation Ratios
P/E Ratio 50.7
Price to Sales 0.5
Price to Book 1.9
Price to Tangible Book
Price to Cash Flow 7.9
Price to Free Cash Flow 12.5
Growth Rates
Sales Growth Rate 3.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -40.7%
Cap. Spend. - 3 Yr. Gr. Rate -14.6%
Financial Strength
Quick Ratio 4
Current Ratio 1.4
LT Debt to Equity 242.6%
Total Debt to Equity 245.4%
Interest Coverage 1
Management Effectiveness
Return On Assets 3.6%
Ret/ On Assets - 3 Yr. Avg. 3.4%
Return On Total Capital 1.1%
Ret/ On T. Cap. - 3 Yr. Avg. 2%
Return On Equity 3.7%
Return On Equity - 3 Yr. Avg. 6%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 26.8%
Gross Margin - 3 Yr. Avg. 26.8%
EBITDA Margin 7.4%
EBITDA Margin - 3 Yr. Avg. 7.6%
Operating Margin 4.5%
Oper. Margin - 3 Yr. Avg. 4.9%
Pre-Tax Margin 1.1%
Pre-Tax Margin - 3 Yr. Avg. 1.5%
Net Profit Margin 1%
Net Profit Margin - 3 Yr. Avg. 1.8%
Effective Tax Rate -5.9%
Eff/ Tax Rate - 3 Yr. Avg. 22.8%
Payout Ratio 66.7%

GFF stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GFF stock intrinsic value calculation we used $1978 million for the last fiscal year's total revenue generated by Griffon Corporation. The default revenue input number comes from 0001 income statement of Griffon Corporation. 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 GFF stock valuation model: a) initial revenue growth rate of 16.7% 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 11%, whose default value for GFF is calculated based on our internal credit rating of Griffon Corporation, 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 Griffon Corporation.
    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 GFF stock the variable cost ratio is equal to 93.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $25 million in the base year in the intrinsic value calculation for GFF 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 6.2% for Griffon Corporation.

Corporate tax rate of 27% is the nominal tax rate for Griffon Corporation. 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 GFF 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 GFF are equal to 31.4%.

Life of production assets of 17.1 years is the average useful life of capital assets used in Griffon Corporation 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 GFF is equal to 23.4%. 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 - $474.391 million for Griffon Corporation - 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 46.763 million for Griffon Corporation 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 Griffon Corporation at the current share price and the inputted number of shares is $0.8 billion.

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