Intrinsic value of Hackett Group - HCKT

Previous Close

$15.13

  Intrinsic Value

$48.62

stock screener

  Rating & Target

str. buy

+221%

  Value-price divergence*

+65%

Previous close

$15.13

 
Intrinsic value

$48.62

 
Up/down potential

+221%

 
Rating

str. buy

 
Value-price divergence*

+65%

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

We calculate the intrinsic value of HCKT 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 0.4

 

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, %
  10.73
  10.70
  10.13
  9.62
  9.16
  8.74
  8.37
  8.03
  7.73
  7.45
  7.21
  6.99
  6.79
  6.61
  6.45
  6.30
  6.17
  6.06
  5.95
  5.86
  5.77
  5.69
  5.62
  5.56
  5.51
  5.45
  5.41
  5.37
  5.33
  5.30
  5.27
Revenue, $m
  289
  320
  352
  386
  422
  458
  497
  537
  578
  621
  666
  713
  761
  811
  864
  918
  975
  1,034
  1,095
  1,159
  1,226
  1,296
  1,369
  1,445
  1,525
  1,608
  1,695
  1,786
  1,881
  1,980
  2,085
Variable operating expenses, $m
 
  171
  187
  205
  223
  241
  261
  281
  303
  325
  348
  364
  389
  415
  441
  469
  498
  528
  560
  592
  627
  662
  700
  739
  779
  822
  866
  913
  961
  1,012
  1,066
Fixed operating expenses, $m
 
  104
  106
  109
  111
  114
  117
  120
  123
  126
  129
  133
  136
  139
  143
  146
  150
  154
  158
  161
  166
  170
  174
  178
  183
  187
  192
  197
  202
  207
  212
Total operating expenses, $m
  254
  275
  293
  314
  334
  355
  378
  401
  426
  451
  477
  497
  525
  554
  584
  615
  648
  682
  718
  753
  793
  832
  874
  917
  962
  1,009
  1,058
  1,110
  1,163
  1,219
  1,278
Operating income, $m
  35
  46
  59
  73
  87
  103
  119
  135
  152
  170
  189
  216
  236
  257
  279
  303
  327
  352
  378
  405
  434
  464
  495
  528
  563
  599
  637
  676
  718
  762
  807
EBITDA, $m
  38
  54
  67
  81
  95
  111
  127
  143
  161
  179
  198
  217
  238
  259
  281
  304
  329
  354
  380
  408
  436
  467
  498
  531
  566
  602
  640
  680
  722
  766
  812
Interest expense (income), $m
  0
  0
  1
  1
  1
  1
  2
  2
  2
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  10
  11
  12
  13
  13
  14
  15
Earnings before tax, $m
  34
  45
  58
  72
  86
  101
  117
  133
  150
  168
  186
  212
  232
  253
  275
  297
  321
  345
  371
  398
  426
  455
  486
  518
  552
  588
  625
  664
  704
  747
  792
Tax expense, $m
  12
  12
  16
  19
  23
  27
  32
  36
  40
  45
  50
  57
  63
  68
  74
  80
  87
  93
  100
  107
  115
  123
  131
  140
  149
  159
  169
  179
  190
  202
  214
Net income, $m
  22
  33
  43
  53
  63
  74
  85
  97
  109
  122
  136
  155
  169
  185
  200
  217
  234
  252
  271
  291
  311
  332
  355
  378
  403
  429
  456
  484
  514
  546
  578

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  20
  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
  159
  154
  169
  186
  203
  220
  239
  258
  278
  299
  320
  343
  366
  390
  415
  442
  469
  497
  527
  558
  590
  623
  658
  695
  733
  773
  815
  859
  905
  953
  1,003
Adjusted assets (=assets-cash), $m
  139
  154
  169
  186
  203
  220
  239
  258
  278
  299
  320
  343
  366
  390
  415
  442
  469
  497
  527
  558
  590
  623
  658
  695
  733
  773
  815
  859
  905
  953
  1,003
Revenue / Adjusted assets
  2.079
  2.078
  2.083
  2.075
  2.079
  2.082
  2.079
  2.081
  2.079
  2.077
  2.081
  2.079
  2.079
  2.079
  2.082
  2.077
  2.079
  2.080
  2.078
  2.077
  2.078
  2.080
  2.081
  2.079
  2.080
  2.080
  2.080
  2.079
  2.078
  2.078
  2.079
Average production assets, $m
  18
  20
  21
  24
  26
  28
  30
  33
  35
  38
  41
  43
  46
  49
  53
  56
  59
  63
  67
  71
  75
  79
  83
  88
  93
  98
  103
  109
  115
  121
  127
Working capital, $m
  13
  -8
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -21
  -22
  -23
  -25
  -26
  -28
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -48
  -50
Total debt, $m
  7
  15
  23
  32
  40
  50
  59
  70
  80
  91
  102
  114
  126
  139
  152
  166
  180
  195
  211
  227
  244
  261
  280
  299
  319
  340
  362
  385
  409
  434
  460
Total liabilities, $m
  73
  81
  89
  98
  106
  116
  125
  136
  146
  157
  168
  180
  192
  205
  218
  232
  246
  261
  277
  293
  310
  327
  346
  365
  385
  406
  428
  451
  475
  500
  526
Total equity, $m
  86
  73
  80
  88
  96
  105
  113
  123
  132
  142
  152
  163
  174
  185
  197
  210
  223
  236
  250
  265
  280
  296
  313
  330
  348
  367
  387
  408
  430
  452
  476
Total liabilities and equity, $m
  159
  154
  169
  186
  202
  221
  238
  259
  278
  299
  320
  343
  366
  390
  415
  442
  469
  497
  527
  558
  590
  623
  659
  695
  733
  773
  815
  859
  905
  952
  1,002
Debt-to-equity ratio
  0.081
  0.200
  0.290
  0.360
  0.420
  0.480
  0.520
  0.570
  0.610
  0.640
  0.670
  0.700
  0.730
  0.750
  0.770
  0.790
  0.810
  0.830
  0.840
  0.860
  0.870
  0.880
  0.890
  0.910
  0.920
  0.930
  0.930
  0.940
  0.950
  0.960
  0.970
Adjusted equity ratio
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  22
  33
  43
  53
  63
  74
  85
  97
  109
  122
  136
  155
  169
  185
  200
  217
  234
  252
  271
  291
  311
  332
  355
  378
  403
  429
  456
  484
  514
  546
  578
Depreciation, amort., depletion, $m
  3
  8
  8
  8
  8
  8
  8
  8
  8
  8
  9
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
Funds from operations, $m
  30
  41
  51
  61
  71
  82
  93
  105
  118
  131
  144
  156
  171
  186
  202
  219
  236
  254
  273
  293
  314
  335
  358
  381
  406
  432
  459
  488
  518
  550
  583
Change in working capital, $m
  -3
  -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
  -2
  -2
  -3
Cash from operations, $m
  33
  42
  51
  61
  72
  83
  94
  106
  119
  132
  145
  158
  172
  188
  203
  220
  237
  256
  275
  294
  315
  337
  359
  383
  408
  434
  462
  490
  520
  552
  585
Maintenance CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
New CAPEX, $m
  -3
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
Cash from investing activities, $m
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -8
  -8
  -8
  -8
  -9
  -10
  -10
  -10
Free cash flow, $m
  30
  39
  49
  59
  69
  80
  91
  103
  115
  128
  141
  153
  168
  183
  199
  215
  232
  250
  269
  288
  309
  330
  352
  376
  400
  426
  453
  481
  511
  542
  575
Issuance/(repayment) of debt, $m
  7
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
Issuance/(repurchase) of shares, $m
  -33
  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  
  -27
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
Total cash flow (excl. dividends), $m
  3
  47
  57
  67
  78
  89
  101
  113
  126
  139
  153
  165
  180
  196
  212
  229
  246
  265
  284
  304
  326
  348
  371
  395
  420
  447
  475
  504
  535
  567
  601
Retained Cash Flow (-), $m
  16
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
Prev. year cash balance distribution, $m
 
  20
  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
 
  60
  49
  59
  70
  81
  92
  104
  116
  129
  142
  154
  169
  184
  200
  216
  234
  251
  270
  290
  310
  332
  354
  378
  402
  428
  455
  483
  513
  544
  577
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
 
  57
  45
  52
  57
  63
  67
  70
  73
  74
  75
  73
  72
  70
  67
  64
  59
  55
  50
  45
  39
  34
  29
  25
  20
  17
  13
  10
  8
  6
  4
Current shareholders' claim on cash, %
  100
  100.0
  100.0
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The Hackett Group, Inc. is an advisory and technology consulting company. The Company's services include business transformation, enterprise performance management, working capital management and global business services. The Company is engaged in providing business and technology consulting services. It focuses on business strategy, operations, finance, human capital management, strategic sourcing, procurement, and information technology, including Oracle Enterprise Performance Management (EPM) and SAP practices. It offers a range of services, including executive advisory programs, benchmarking, business transformation and technology consulting services. Its advisory programs include a mix of the deliverables, such as Best Practice Intelligence Center, Best Practice Accelerators, Advisor Inquiry, Best Practice Research and Peer Interaction. Its Business Transformation programs help clients develop a coordinated strategy for achieving performance improvements across the enterprise.

FINANCIAL RATIOS  of  Hackett Group (HCKT)

Valuation Ratios
P/E Ratio 19.7
Price to Sales 1.5
Price to Book 5
Price to Tangible Book
Price to Cash Flow 13.1
Price to Free Cash Flow 14.4
Growth Rates
Sales Growth Rate 10.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 8.4%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 8.1%
Total Debt to Equity 8.1%
Interest Coverage 0
Management Effectiveness
Return On Assets 13.8%
Ret/ On Assets - 3 Yr. Avg. 10%
Return On Total Capital 22.6%
Ret/ On T. Cap. - 3 Yr. Avg. 15%
Return On Equity 23.4%
Return On Equity - 3 Yr. Avg. 16.3%
Asset Turnover 1.8
Profitability Ratios
Gross Margin 33.2%
Gross Margin - 3 Yr. Avg. 32.1%
EBITDA Margin 12.8%
EBITDA Margin - 3 Yr. Avg. 10.1%
Operating Margin 12.1%
Oper. Margin - 3 Yr. Avg. 8.7%
Pre-Tax Margin 11.8%
Pre-Tax Margin - 3 Yr. Avg. 8.4%
Net Profit Margin 7.6%
Net Profit Margin - 3 Yr. Avg. 5.7%
Effective Tax Rate 35.3%
Eff/ Tax Rate - 3 Yr. Avg. 29.4%
Payout Ratio 31.8%

HCKT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HCKT stock intrinsic value calculation we used $289 million for the last fiscal year's total revenue generated by Hackett Group. The default revenue input number comes from 2016 income statement of Hackett Group. 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 HCKT stock valuation model: a) initial revenue growth rate of 10.7% 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 4.3%, whose default value for HCKT is calculated based on our internal credit rating of Hackett Group, 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 Hackett Group.
    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 HCKT stock the variable cost ratio is equal to 53.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $101 million in the base year in the intrinsic value calculation for HCKT 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 Hackett Group.

Corporate tax rate of 27% is the nominal tax rate for Hackett Group. 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 HCKT 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 HCKT are equal to 6.1%.

Life of production assets of 30.3 years is the average useful life of capital assets used in Hackett Group 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 HCKT is equal to -2.4%. 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 - $86 million for Hackett Group - 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 28.87 million for Hackett Group 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 Hackett Group at the current share price and the inputted number of shares is $0.4 billion.

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COMPANY NEWS

▶ [$$] Companies Leave Bean Counting to the Robots   [Oct-19-17 06:00AM  The Wall Street Journal]
▶ These are the highest-paid tech executives in South Florida   [Oct-04-17 02:20PM  American City Business Journals]
▶ The Hackett Group and ADP Expand Strategic Alliance   [Aug-21-17 09:30AM  Business Wire]
▶ [$$] CFOs Want to Free up Working Capital   [07:00AM  The Wall Street Journal]
▶ [$$] Hackett Plans Heavy Investments With His New Oklahoma Shale Play   [Aug-17-17 05:20PM  The Wall Street Journal]
▶ The Hackett Group Achieves Oracle Cloud Premier Status   [Aug-15-17 09:30AM  Business Wire]
▶ Hackett Group meets 2Q profit forecasts   [Aug-08-17 11:45PM  Associated Press]
▶ [$$] Jim Hackett, Ford's philosopher-in-chief   [May-26-17 07:40AM  Financial Times]
▶ Hackett Group meets 1Q profit forecasts   [May-09-17 07:22PM  Associated Press]
▶ Top Ranked Growth Stocks to Buy for March 1st   [Mar-01-17 09:52AM  Zacks]
Financial statements of HCKT
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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