Intrinsic value of Graco Inc. - GGG

Previous Close

$49.46

  Intrinsic Value

$38.88

stock screener

  Rating & Target

sell

-21%

Previous close

$49.46

 
Intrinsic value

$38.88

 
Up/down potential

-21%

 
Rating

sell

We calculate the intrinsic value of GGG 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 8.2

 

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, %
  8.40
  8.06
  7.75
  7.48
  7.23
  7.01
  6.81
  6.63
  6.46
  6.32
  6.19
  6.07
  5.96
  5.86
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
  5.20
  5.18
  5.16
Revenue, $m
  1,792
  1,936
  2,086
  2,242
  2,405
  2,573
  2,748
  2,930
  3,120
  3,317
  3,522
  3,736
  3,958
  4,190
  4,433
  4,685
  4,949
  5,225
  5,512
  5,813
  6,128
  6,457
  6,802
  7,162
  7,540
  7,935
  8,349
  8,783
  9,238
  9,715
Variable operating expenses, $m
  1,211
  1,305
  1,403
  1,504
  1,609
  1,719
  1,833
  1,951
  2,074
  2,203
  2,290
  2,429
  2,574
  2,725
  2,882
  3,046
  3,218
  3,397
  3,584
  3,780
  3,984
  4,198
  4,422
  4,657
  4,902
  5,159
  5,429
  5,711
  6,006
  6,316
Fixed operating expenses, $m
  100
  102
  105
  107
  109
  112
  114
  117
  119
  122
  125
  127
  130
  133
  136
  139
  142
  145
  148
  151
  155
  158
  162
  165
  169
  173
  176
  180
  184
  188
Total operating expenses, $m
  1,311
  1,407
  1,508
  1,611
  1,718
  1,831
  1,947
  2,068
  2,193
  2,325
  2,415
  2,556
  2,704
  2,858
  3,018
  3,185
  3,360
  3,542
  3,732
  3,931
  4,139
  4,356
  4,584
  4,822
  5,071
  5,332
  5,605
  5,891
  6,190
  6,504
Operating income, $m
  481
  529
  579
  632
  686
  742
  801
  862
  926
  993
  1,108
  1,180
  1,255
  1,333
  1,415
  1,500
  1,589
  1,683
  1,780
  1,882
  1,989
  2,101
  2,218
  2,340
  2,469
  2,603
  2,745
  2,892
  3,048
  3,210
EBITDA, $m
  561
  612
  665
  720
  778
  838
  900
  964
  1,032
  1,102
  1,175
  1,251
  1,330
  1,413
  1,499
  1,590
  1,684
  1,782
  1,885
  1,993
  2,106
  2,224
  2,348
  2,477
  2,613
  2,755
  2,904
  3,060
  3,224
  3,396
Interest expense (income), $m
  18
  16
  19
  22
  26
  30
  34
  38
  42
  47
  51
  56
  61
  66
  72
  77
  83
  90
  96
  103
  110
  117
  125
  133
  141
  150
  159
  169
  179
  190
  201
Earnings before tax, $m
  465
  510
  557
  605
  656
  709
  763
  820
  879
  941
  1,051
  1,118
  1,188
  1,261
  1,337
  1,417
  1,500
  1,587
  1,678
  1,773
  1,872
  1,976
  2,085
  2,199
  2,319
  2,444
  2,576
  2,714
  2,858
  3,010
Tax expense, $m
  126
  138
  150
  163
  177
  191
  206
  221
  237
  254
  284
  302
  321
  341
  361
  383
  405
  428
  453
  479
  505
  534
  563
  594
  626
  660
  695
  733
  772
  813
Net income, $m
  340
  372
  406
  442
  479
  517
  557
  599
  642
  687
  768
  816
  867
  921
  976
  1,034
  1,095
  1,158
  1,225
  1,294
  1,367
  1,442
  1,522
  1,605
  1,693
  1,784
  1,880
  1,981
  2,086
  2,197

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
  1,597
  1,726
  1,860
  1,999
  2,143
  2,293
  2,449
  2,612
  2,781
  2,956
  3,139
  3,329
  3,528
  3,735
  3,951
  4,176
  4,411
  4,656
  4,913
  5,181
  5,462
  5,755
  6,062
  6,384
  6,720
  7,072
  7,442
  7,828
  8,234
  8,659
Adjusted assets (=assets-cash), $m
  1,597
  1,726
  1,860
  1,999
  2,143
  2,293
  2,449
  2,612
  2,781
  2,956
  3,139
  3,329
  3,528
  3,735
  3,951
  4,176
  4,411
  4,656
  4,913
  5,181
  5,462
  5,755
  6,062
  6,384
  6,720
  7,072
  7,442
  7,828
  8,234
  8,659
Revenue / Adjusted assets
  1.122
  1.122
  1.122
  1.122
  1.122
  1.122
  1.122
  1.122
  1.122
  1.122
  1.122
  1.122
  1.122
  1.122
  1.122
  1.122
  1.122
  1.122
  1.122
  1.122
  1.122
  1.122
  1.122
  1.122
  1.122
  1.122
  1.122
  1.122
  1.122
  1.122
Average production assets, $m
  486
  525
  565
  608
  652
  697
  745
  794
  845
  899
  954
  1,012
  1,073
  1,136
  1,201
  1,270
  1,341
  1,416
  1,494
  1,575
  1,661
  1,750
  1,843
  1,941
  2,043
  2,150
  2,263
  2,380
  2,504
  2,633
Working capital, $m
  328
  354
  382
  410
  440
  471
  503
  536
  571
  607
  645
  684
  724
  767
  811
  857
  906
  956
  1,009
  1,064
  1,121
  1,182
  1,245
  1,311
  1,380
  1,452
  1,528
  1,607
  1,691
  1,778
Total debt, $m
  338
  400
  466
  534
  605
  678
  754
  834
  916
  1,002
  1,092
  1,185
  1,282
  1,383
  1,488
  1,599
  1,714
  1,834
  1,959
  2,090
  2,227
  2,371
  2,521
  2,678
  2,843
  3,015
  3,196
  3,385
  3,583
  3,791
Total liabilities, $m
  781
  844
  909
  977
  1,048
  1,121
  1,198
  1,277
  1,360
  1,446
  1,535
  1,628
  1,725
  1,826
  1,932
  2,042
  2,157
  2,277
  2,402
  2,534
  2,671
  2,814
  2,964
  3,122
  3,286
  3,458
  3,639
  3,828
  4,026
  4,234
Total equity, $m
  816
  882
  950
  1,021
  1,095
  1,172
  1,252
  1,335
  1,421
  1,511
  1,604
  1,701
  1,803
  1,908
  2,019
  2,134
  2,254
  2,379
  2,511
  2,648
  2,791
  2,941
  3,098
  3,262
  3,434
  3,614
  3,803
  4,000
  4,207
  4,425
Total liabilities and equity, $m
  1,597
  1,726
  1,859
  1,998
  2,143
  2,293
  2,450
  2,612
  2,781
  2,957
  3,139
  3,329
  3,528
  3,734
  3,951
  4,176
  4,411
  4,656
  4,913
  5,182
  5,462
  5,755
  6,062
  6,384
  6,720
  7,072
  7,442
  7,828
  8,233
  8,659
Debt-to-equity ratio
  0.410
  0.450
  0.490
  0.520
  0.550
  0.580
  0.600
  0.620
  0.640
  0.660
  0.680
  0.700
  0.710
  0.720
  0.740
  0.750
  0.760
  0.770
  0.780
  0.790
  0.800
  0.810
  0.810
  0.820
  0.830
  0.830
  0.840
  0.850
  0.850
  0.860
Adjusted equity ratio
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  340
  372
  406
  442
  479
  517
  557
  599
  642
  687
  768
  816
  867
  921
  976
  1,034
  1,095
  1,158
  1,225
  1,294
  1,367
  1,442
  1,522
  1,605
  1,693
  1,784
  1,880
  1,981
  2,086
  2,197
Depreciation, amort., depletion, $m
  80
  83
  86
  89
  92
  95
  98
  102
  106
  109
  67
  71
  76
  80
  85
  89
  94
  100
  105
  111
  117
  123
  130
  137
  144
  151
  159
  168
  176
  185
Funds from operations, $m
  420
  455
  492
  531
  571
  612
  656
  701
  748
  796
  835
  888
  943
  1,001
  1,061
  1,124
  1,189
  1,258
  1,330
  1,405
  1,483
  1,566
  1,652
  1,742
  1,837
  1,936
  2,040
  2,148
  2,263
  2,382
Change in working capital, $m
  25
  26
  27
  29
  30
  31
  32
  33
  35
  36
  38
  39
  41
  42
  44
  46
  48
  50
  53
  55
  58
  60
  63
  66
  69
  72
  76
  79
  83
  87
Cash from operations, $m
  394
  429
  465
  502
  541
  582
  624
  667
  713
  760
  797
  849
  902
  958
  1,017
  1,077
  1,141
  1,208
  1,277
  1,350
  1,426
  1,505
  1,589
  1,676
  1,768
  1,863
  1,964
  2,069
  2,179
  2,295
Maintenance CAPEX, $m
  -31
  -34
  -37
  -40
  -43
  -46
  -49
  -52
  -56
  -60
  -63
  -67
  -71
  -76
  -80
  -85
  -89
  -94
  -100
  -105
  -111
  -117
  -123
  -130
  -137
  -144
  -151
  -159
  -168
  -176
New CAPEX, $m
  -38
  -39
  -41
  -42
  -44
  -46
  -47
  -49
  -51
  -53
  -56
  -58
  -60
  -63
  -66
  -68
  -71
  -75
  -78
  -82
  -85
  -89
  -93
  -98
  -102
  -107
  -112
  -118
  -123
  -129
Cash from investing activities, $m
  -69
  -73
  -78
  -82
  -87
  -92
  -96
  -101
  -107
  -113
  -119
  -125
  -131
  -139
  -146
  -153
  -160
  -169
  -178
  -187
  -196
  -206
  -216
  -228
  -239
  -251
  -263
  -277
  -291
  -305
Free cash flow, $m
  325
  356
  387
  420
  454
  490
  527
  566
  606
  647
  678
  724
  771
  820
  871
  924
  980
  1,038
  1,099
  1,163
  1,230
  1,299
  1,372
  1,449
  1,529
  1,612
  1,700
  1,792
  1,889
  1,990
Issuance/(repayment) of debt, $m
  60
  63
  65
  68
  71
  73
  76
  79
  83
  86
  89
  93
  97
  101
  106
  110
  115
  120
  125
  131
  137
  143
  150
  157
  165
  172
  181
  189
  198
  208
Issuance/(repurchase) of shares, $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 from financing (excl. dividends), $m  
  60
  63
  65
  68
  71
  73
  76
  79
  83
  86
  89
  93
  97
  101
  106
  110
  115
  120
  125
  131
  137
  143
  150
  157
  165
  172
  181
  189
  198
  208
Total cash flow (excl. dividends), $m
  385
  419
  453
  488
  525
  563
  603
  645
  688
  733
  768
  817
  868
  921
  977
  1,035
  1,095
  1,159
  1,225
  1,294
  1,367
  1,443
  1,522
  1,606
  1,693
  1,785
  1,881
  1,981
  2,087
  2,197
Retained Cash Flow (-), $m
  -64
  -66
  -68
  -71
  -74
  -77
  -80
  -83
  -86
  -90
  -93
  -97
  -101
  -106
  -110
  -115
  -120
  -125
  -131
  -137
  -143
  -150
  -157
  -164
  -172
  -180
  -189
  -198
  -207
  -217
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
  320
  353
  384
  417
  451
  487
  524
  562
  602
  643
  674
  719
  766
  815
  866
  919
  975
  1,033
  1,094
  1,157
  1,223
  1,293
  1,365
  1,442
  1,521
  1,605
  1,692
  1,784
  1,880
  1,980
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
  307
  323
  334
  343
  350
  353
  354
  351
  346
  337
  320
  307
  291
  274
  254
  234
  212
  190
  168
  147
  127
  107
  89
  73
  59
  47
  36
  28
  21
  15
Current shareholders' claim on cash, %
  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

Graco Inc. designs, manufactures and markets systems and equipment used to move, measure, control, dispense and spray fluid and powder materials. The Company specializes in equipment for applications that involve materials with viscosities, materials with abrasive or corrosive properties, and multiple-component materials that require ratio control. The Company operates through three segments: Industrial, Process and Contractor. The Industrial segment markets equipment and pre-engineered packages for moving and applying paints, coatings, sealants, adhesives and other fluids. The Process segment markets pumps, valves, meters and accessories to move and dispense chemicals, oil and natural gas, water, wastewater, petroleum, food, lubricants and other fluids. The Contractor segment markets sprayers for architectural coatings for painting, corrosion control, texture and line striping. Its equipment is used in the manufacturing, processing, construction and maintenance industries.

FINANCIAL RATIOS  of  Graco Inc. (GGG)

Valuation Ratios
P/E Ratio 202.1
Price to Sales 6.2
Price to Book 14.4
Price to Tangible Book
Price to Cash Flow 30.8
Price to Free Cash Flow 36.5
Growth Rates
Sales Growth Rate 3.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 12.8%
Financial Strength
Quick Ratio 6
Current Ratio 0.1
LT Debt to Equity 53.3%
Total Debt to Equity 54.9%
Interest Coverage 6
Management Effectiveness
Return On Assets 3.7%
Ret/ On Assets - 3 Yr. Avg. 14.9%
Return On Total Capital 4.2%
Ret/ On T. Cap. - 3 Yr. Avg. 18.3%
Return On Equity 6.8%
Return On Equity - 3 Yr. Avg. 33.2%
Asset Turnover 1
Profitability Ratios
Gross Margin 53.3%
Gross Margin - 3 Yr. Avg. 53.7%
EBITDA Margin 12.3%
EBITDA Margin - 3 Yr. Avg. 28.1%
Operating Margin 8.6%
Oper. Margin - 3 Yr. Avg. 19.1%
Pre-Tax Margin 7.3%
Pre-Tax Margin - 3 Yr. Avg. 23.3%
Net Profit Margin 3.1%
Net Profit Margin - 3 Yr. Avg. 16.2%
Effective Tax Rate 57.7%
Eff/ Tax Rate - 3 Yr. Avg. 37.7%
Payout Ratio 178%

GGG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GGG stock intrinsic value calculation we used $1653 million for the last fiscal year's total revenue generated by Graco Inc.. The default revenue input number comes from 0001 income statement of Graco Inc.. 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 GGG stock valuation model: a) initial revenue growth rate of 8.4% 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 GGG is calculated based on our internal credit rating of Graco Inc., 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 Graco Inc..
    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 GGG stock the variable cost ratio is equal to 67.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $98 million in the base year in the intrinsic value calculation for GGG 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 5.6% for Graco Inc..

Corporate tax rate of 27% is the nominal tax rate for Graco Inc.. 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 GGG 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 GGG are equal to 27.1%.

Life of production assets of 14.2 years is the average useful life of capital assets used in Graco Inc. 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 GGG is equal to 18.3%. 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 - $751.873 million for Graco Inc. - 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 165.369 million for Graco Inc. 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 Graco Inc. at the current share price and the inputted number of shares is $8.2 billion.

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