Intrinsic value of Hardinge - HDNG

Previous Close

$18.50

  Intrinsic Value

$7.71

stock screener

  Rating & Target

str. sell

-58%

Previous close

$18.50

 
Intrinsic value

$7.71

 
Up/down potential

-58%

 
Rating

str. sell

We calculate the intrinsic value of HDNG 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 2017), $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 0.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  8.90
  8.51
  8.16
  7.84
  7.56
  7.30
  7.07
  6.87
  6.68
  6.51
  6.36
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.59
  5.53
  5.47
  5.43
  5.38
  5.35
  5.31
  5.28
  5.25
  5.23
  5.20
  5.18
Revenue, $m
  346
  376
  406
  438
  471
  506
  542
  579
  617
  658
  700
  743
  788
  836
  885
  936
  990
  1,046
  1,104
  1,165
  1,229
  1,296
  1,365
  1,438
  1,515
  1,595
  1,679
  1,766
  1,858
  1,954
Variable operating expenses, $m
  281
  305
  329
  355
  381
  409
  437
  467
  498
  531
  561
  596
  632
  670
  709
  750
  793
  838
  885
  934
  985
  1,039
  1,095
  1,153
  1,214
  1,278
  1,346
  1,416
  1,490
  1,567
Fixed operating expenses, $m
  53
  54
  56
  57
  58
  59
  61
  62
  63
  65
  66
  68
  69
  71
  72
  74
  75
  77
  79
  80
  82
  84
  86
  88
  90
  92
  94
  96
  98
  100
Total operating expenses, $m
  334
  359
  385
  412
  439
  468
  498
  529
  561
  596
  627
  664
  701
  741
  781
  824
  868
  915
  964
  1,014
  1,067
  1,123
  1,181
  1,241
  1,304
  1,370
  1,440
  1,512
  1,588
  1,667
Operating income, $m
  12
  17
  22
  27
  32
  38
  44
  50
  56
  63
  73
  80
  87
  95
  103
  112
  121
  131
  140
  151
  162
  173
  185
  198
  211
  225
  239
  255
  271
  288
EBITDA, $m
  25
  31
  36
  42
  48
  55
  62
  69
  76
  84
  92
  100
  109
  118
  128
  138
  148
  159
  171
  183
  195
  209
  222
  237
  252
  268
  285
  303
  322
  341
Interest expense (income), $m
  0
  0
  2
  4
  6
  8
  10
  12
  14
  16
  19
  21
  24
  27
  29
  32
  35
  39
  42
  46
  49
  53
  57
  61
  65
  70
  75
  80
  85
  91
  96
Earnings before tax, $m
  12
  15
  18
  21
  25
  28
  32
  36
  40
  44
  51
  56
  61
  66
  71
  77
  82
  88
  95
  102
  109
  116
  124
  132
  141
  150
  160
  170
  180
  192
Tax expense, $m
  3
  4
  5
  6
  7
  8
  9
  10
  11
  12
  14
  15
  16
  18
  19
  21
  22
  24
  26
  27
  29
  31
  33
  36
  38
  40
  43
  46
  49
  52
Net income, $m
  9
  11
  13
  16
  18
  21
  23
  26
  29
  32
  38
  41
  44
  48
  52
  56
  60
  65
  69
  74
  79
  85
  90
  96
  103
  109
  116
  124
  132
  140

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
  347
  377
  408
  440
  473
  507
  543
  581
  619
  660
  702
  745
  791
  838
  888
  939
  993
  1,049
  1,107
  1,169
  1,233
  1,300
  1,369
  1,443
  1,519
  1,600
  1,684
  1,772
  1,864
  1,960
Adjusted assets (=assets-cash), $m
  347
  377
  408
  440
  473
  507
  543
  581
  619
  660
  702
  745
  791
  838
  888
  939
  993
  1,049
  1,107
  1,169
  1,233
  1,300
  1,369
  1,443
  1,519
  1,600
  1,684
  1,772
  1,864
  1,960
Revenue / Adjusted assets
  0.997
  0.997
  0.995
  0.995
  0.996
  0.998
  0.998
  0.997
  0.997
  0.997
  0.997
  0.997
  0.996
  0.998
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
Average production assets, $m
  95
  103
  111
  120
  129
  139
  148
  159
  169
  180
  192
  204
  216
  229
  242
  257
  271
  287
  303
  319
  337
  355
  374
  394
  415
  437
  460
  484
  509
  536
Working capital, $m
  85
  92
  100
  108
  116
  124
  133
  142
  152
  162
  172
  183
  194
  206
  218
  230
  243
  257
  272
  287
  302
  319
  336
  354
  373
  392
  413
  434
  457
  481
Total debt, $m
  13
  26
  39
  53
  68
  83
  99
  115
  132
  150
  168
  187
  207
  228
  250
  272
  296
  321
  346
  373
  401
  431
  461
  493
  527
  562
  599
  638
  678
  721
Total liabilities, $m
  152
  165
  179
  193
  208
  223
  238
  255
  272
  290
  308
  327
  347
  368
  390
  412
  436
  460
  486
  513
  541
  570
  601
  633
  667
  702
  739
  778
  818
  861
Total equity, $m
  195
  211
  229
  247
  265
  285
  305
  326
  347
  370
  394
  418
  444
  470
  498
  527
  557
  588
  621
  656
  692
  729
  768
  809
  852
  897
  944
  994
  1,046
  1,100
Total liabilities and equity, $m
  347
  376
  408
  440
  473
  508
  543
  581
  619
  660
  702
  745
  791
  838
  888
  939
  993
  1,048
  1,107
  1,169
  1,233
  1,299
  1,369
  1,442
  1,519
  1,599
  1,683
  1,772
  1,864
  1,961
Debt-to-equity ratio
  0.060
  0.120
  0.170
  0.220
  0.250
  0.290
  0.320
  0.350
  0.380
  0.400
  0.430
  0.450
  0.470
  0.480
  0.500
  0.520
  0.530
  0.540
  0.560
  0.570
  0.580
  0.590
  0.600
  0.610
  0.620
  0.630
  0.630
  0.640
  0.650
  0.660
Adjusted equity ratio
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  9
  11
  13
  16
  18
  21
  23
  26
  29
  32
  38
  41
  44
  48
  52
  56
  60
  65
  69
  74
  79
  85
  90
  96
  103
  109
  116
  124
  132
  140
Depreciation, amort., depletion, $m
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  19
  20
  22
  23
  24
  26
  27
  29
  30
  32
  34
  36
  37
  39
  42
  44
  46
  48
  51
  54
Funds from operations, $m
  22
  25
  28
  31
  34
  38
  41
  45
  49
  53
  57
  61
  66
  71
  76
  82
  87
  93
  100
  106
  113
  120
  128
  136
  144
  153
  162
  172
  183
  193
Change in working capital, $m
  7
  7
  8
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
Cash from operations, $m
  15
  17
  20
  23
  26
  29
  33
  36
  40
  43
  46
  51
  55
  59
  64
  69
  74
  79
  85
  91
  97
  104
  111
  118
  126
  133
  142
  151
  160
  170
Maintenance CAPEX, $m
  -9
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -26
  -27
  -29
  -30
  -32
  -34
  -36
  -37
  -39
  -42
  -44
  -46
  -48
  -51
New CAPEX, $m
  -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
  -25
  -26
Cash from investing activities, $m
  -17
  -17
  -18
  -20
  -21
  -22
  -24
  -25
  -27
  -28
  -29
  -31
  -32
  -35
  -36
  -38
  -41
  -42
  -45
  -47
  -49
  -52
  -55
  -57
  -60
  -64
  -67
  -70
  -73
  -77
Free cash flow, $m
  -2
  0
  1
  3
  5
  7
  9
  11
  13
  15
  17
  19
  22
  25
  28
  31
  34
  37
  41
  44
  48
  52
  56
  61
  65
  70
  75
  81
  86
  92
Issuance/(repayment) of debt, $m
  13
  13
  13
  14
  15
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  34
  35
  37
  39
  40
  42
Issuance/(repurchase) of shares, $m
  7
  6
  4
  2
  1
  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  
  20
  19
  17
  16
  16
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  34
  35
  37
  39
  40
  42
Total cash flow (excl. dividends), $m
  18
  18
  19
  20
  20
  22
  25
  27
  30
  33
  35
  39
  42
  46
  49
  53
  57
  62
  66
  71
  76
  81
  87
  93
  99
  105
  112
  119
  127
  135
Retained Cash Flow (-), $m
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -24
  -26
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -36
  -38
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -54
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
  2
  2
  2
  2
  2
  3
  5
  6
  8
  11
  12
  14
  17
  19
  22
  24
  27
  30
  33
  37
  40
  44
  48
  52
  56
  60
  65
  70
  75
  81
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
  2
  2
  1
  1
  1
  2
  3
  4
  5
  6
  6
  6
  6
  6
  6
  6
  6
  6
  5
  5
  4
  4
  3
  3
  2
  2
  1
  1
  1
  1
Current shareholders' claim on cash, %
  97.2
  95.2
  93.9
  93.2
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0

Hardinge Inc. (Hardinge) is a designer, manufacturer and distributor of machine tools, specializing in precision computer numerically controlled metalcutting machines and workholding technology solutions. The Company supplies high precision computer controlled metalcutting turning machines, grinding machines, machining centers and repair parts related to those machines. It also engineers and supplies high precision, standard and specialty workholding devices, and other machine tool accessories. It operates through two segments: Metalcutting Machine Solutions (MMS), and Aftermarket Tooling and Accessories (ATA). The MMS segment includes high precision computer controlled metalcutting turning machines, vertical machining centers, horizontal machining centers, and grinding machines. The ATA segment includes products, primarily collets and chucks that are purchased by manufacturers throughout the lives of their Hardinge or other branded machines.

FINANCIAL RATIOS  of  Hardinge (HDNG)

Valuation Ratios
P/E Ratio 238.5
Price to Sales 0.8
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 47.7
Price to Free Cash Flow 79.5
Growth Rates
Sales Growth Rate -7.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -50%
Cap. Spend. - 3 Yr. Gr. Rate -12.9%
Financial Strength
Quick Ratio 9
Current Ratio 0.1
LT Debt to Equity 1.9%
Total Debt to Equity 3.8%
Interest Coverage 0
Management Effectiveness
Return On Assets 0.3%
Ret/ On Assets - 3 Yr. Avg. 0.4%
Return On Total Capital 0.6%
Ret/ On T. Cap. - 3 Yr. Avg. 0.4%
Return On Equity 0.6%
Return On Equity - 3 Yr. Avg. 0.5%
Asset Turnover 1
Profitability Ratios
Gross Margin 33.6%
Gross Margin - 3 Yr. Avg. 33.1%
EBITDA Margin 4.1%
EBITDA Margin - 3 Yr. Avg. 3.8%
Operating Margin 1%
Oper. Margin - 3 Yr. Avg. 0.9%
Pre-Tax Margin 1%
Pre-Tax Margin - 3 Yr. Avg. 0.7%
Net Profit Margin 0.3%
Net Profit Margin - 3 Yr. Avg. 0.2%
Effective Tax Rate 66.7%
Eff/ Tax Rate - 3 Yr. Avg. -2.8%
Payout Ratio 100%

HDNG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HDNG stock intrinsic value calculation we used $318 million for the last fiscal year's total revenue generated by Hardinge. The default revenue input number comes from 2017 income statement of Hardinge. 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 HDNG stock valuation model: a) initial revenue growth rate of 8.9% 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 HDNG is calculated based on our internal credit rating of Hardinge, 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 Hardinge.
    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 HDNG stock the variable cost ratio is equal to 81.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $52 million in the base year in the intrinsic value calculation for HDNG 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 14.2% for Hardinge.

Corporate tax rate of 27% is the nominal tax rate for Hardinge. 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 HDNG 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 HDNG are equal to 27.4%.

Life of production assets of 10 years is the average useful life of capital assets used in Hardinge 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 HDNG is equal to 24.6%. 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 - $179 million for Hardinge - 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 13 million for Hardinge 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 Hardinge at the current share price and the inputted number of shares is $0.2 billion.

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