Intrinsic value of HD Supply Holdings, Inc. - HDS

Previous Close

$39.51

  Intrinsic Value

$48.56

stock screener

  Rating & Target

buy

+23%

Previous close

$39.51

 
Intrinsic value

$48.56

 
Up/down potential

+23%

 
Rating

buy

We calculate the intrinsic value of HDS 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 7.0

 

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, %
  17.70
  16.43
  15.29
  14.26
  13.33
  12.50
  11.75
  11.07
  10.47
  9.92
  9.43
  8.99
  8.59
  8.23
  7.91
  7.61
  7.35
  7.12
  6.91
  6.72
  6.54
  6.39
  6.25
  6.13
  6.01
  5.91
  5.82
  5.74
  5.66
  5.60
Revenue, $m
  6,027
  7,018
  8,091
  9,244
  10,477
  11,786
  13,171
  14,629
  16,161
  17,764
  19,439
  21,185
  23,004
  24,897
  26,866
  28,911
  31,037
  33,246
  35,542
  37,929
  40,411
  42,994
  45,681
  48,479
  51,394
  54,433
  57,601
  60,906
  64,356
  67,959
Variable operating expenses, $m
  5,166
  6,009
  6,923
  7,905
  8,955
  10,070
  11,249
  12,492
  13,796
  15,161
  16,555
  18,043
  19,592
  21,204
  22,880
  24,622
  26,433
  28,314
  30,270
  32,303
  34,417
  36,616
  38,904
  41,288
  43,770
  46,358
  49,056
  51,871
  54,809
  57,878
Fixed operating expenses, $m
  127
  130
  132
  135
  138
  141
  144
  148
  151
  154
  158
  161
  165
  168
  172
  176
  180
  183
  187
  192
  196
  200
  205
  209
  214
  218
  223
  228
  233
  238
Total operating expenses, $m
  5,293
  6,139
  7,055
  8,040
  9,093
  10,211
  11,393
  12,640
  13,947
  15,315
  16,713
  18,204
  19,757
  21,372
  23,052
  24,798
  26,613
  28,497
  30,457
  32,495
  34,613
  36,816
  39,109
  41,497
  43,984
  46,576
  49,279
  52,099
  55,042
  58,116
Operating income, $m
  735
  879
  1,035
  1,204
  1,383
  1,575
  1,777
  1,990
  2,214
  2,449
  2,726
  2,982
  3,248
  3,525
  3,814
  4,113
  4,425
  4,749
  5,085
  5,435
  5,799
  6,178
  6,572
  6,983
  7,411
  7,857
  8,322
  8,807
  9,314
  9,843
EBITDA, $m
  832
  987
  1,154
  1,335
  1,528
  1,733
  1,950
  2,179
  2,420
  2,671
  2,934
  3,209
  3,494
  3,792
  4,101
  4,423
  4,757
  5,105
  5,466
  5,841
  6,232
  6,638
  7,061
  7,502
  7,961
  8,439
  8,939
  9,459
  10,003
  10,571
Interest expense (income), $m
  296
  118
  146
  177
  210
  246
  284
  325
  368
  414
  462
  512
  564
  618
  675
  734
  795
  859
  925
  994
  1,066
  1,140
  1,217
  1,298
  1,382
  1,469
  1,560
  1,654
  1,753
  1,856
  1,964
Earnings before tax, $m
  617
  733
  859
  993
  1,137
  1,290
  1,452
  1,622
  1,800
  1,987
  2,215
  2,418
  2,630
  2,850
  3,080
  3,318
  3,566
  3,823
  4,091
  4,369
  4,659
  4,960
  5,274
  5,601
  5,942
  6,297
  6,667
  7,054
  7,458
  7,880
Tax expense, $m
  167
  198
  232
  268
  307
  348
  392
  438
  486
  536
  598
  653
  710
  770
  832
  896
  963
  1,032
  1,105
  1,180
  1,258
  1,339
  1,424
  1,512
  1,604
  1,700
  1,800
  1,905
  2,014
  2,128
Net income, $m
  451
  535
  627
  725
  830
  942
  1,060
  1,184
  1,314
  1,451
  1,617
  1,765
  1,920
  2,081
  2,248
  2,422
  2,603
  2,791
  2,986
  3,190
  3,401
  3,621
  3,850
  4,089
  4,338
  4,597
  4,867
  5,150
  5,444
  5,752

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
  5,082
  5,917
  6,822
  7,794
  8,834
  9,938
  11,105
  12,335
  13,626
  14,978
  16,390
  17,863
  19,397
  20,993
  22,652
  24,377
  26,170
  28,032
  29,968
  31,981
  34,074
  36,251
  38,517
  40,876
  43,334
  45,896
  48,567
  51,354
  54,263
  57,301
Adjusted assets (=assets-cash), $m
  5,082
  5,917
  6,822
  7,794
  8,834
  9,938
  11,105
  12,335
  13,626
  14,978
  16,390
  17,863
  19,397
  20,993
  22,652
  24,377
  26,170
  28,032
  29,968
  31,981
  34,074
  36,251
  38,517
  40,876
  43,334
  45,896
  48,567
  51,354
  54,263
  57,301
Revenue / Adjusted assets
  1.186
  1.186
  1.186
  1.186
  1.186
  1.186
  1.186
  1.186
  1.186
  1.186
  1.186
  1.186
  1.186
  1.186
  1.186
  1.186
  1.186
  1.186
  1.186
  1.186
  1.186
  1.186
  1.186
  1.186
  1.186
  1.186
  1.186
  1.186
  1.186
  1.186
Average production assets, $m
  1,459
  1,698
  1,958
  2,237
  2,535
  2,852
  3,187
  3,540
  3,911
  4,299
  4,704
  5,127
  5,567
  6,025
  6,501
  6,997
  7,511
  8,046
  8,601
  9,179
  9,780
  10,404
  11,055
  11,732
  12,437
  13,173
  13,939
  14,739
  15,574
  16,446
Working capital, $m
  832
  968
  1,116
  1,276
  1,446
  1,626
  1,818
  2,019
  2,230
  2,451
  2,683
  2,924
  3,175
  3,436
  3,707
  3,990
  4,283
  4,588
  4,905
  5,234
  5,577
  5,933
  6,304
  6,690
  7,092
  7,512
  7,949
  8,405
  8,881
  9,378
Total debt, $m
  2,603
  3,154
  3,751
  4,393
  5,079
  5,808
  6,578
  7,390
  8,242
  9,134
  10,066
  11,038
  12,051
  13,104
  14,199
  15,338
  16,521
  17,750
  19,028
  20,356
  21,738
  23,175
  24,670
  26,227
  27,850
  29,540
  31,303
  33,143
  35,063
  37,068
Total liabilities, $m
  3,354
  3,905
  4,502
  5,144
  5,830
  6,559
  7,329
  8,141
  8,993
  9,885
  10,817
  11,789
  12,802
  13,855
  14,950
  16,089
  17,272
  18,501
  19,779
  21,107
  22,489
  23,926
  25,421
  26,978
  28,601
  30,291
  32,054
  33,894
  35,814
  37,819
Total equity, $m
  1,728
  2,012
  2,319
  2,650
  3,003
  3,379
  3,776
  4,194
  4,633
  5,092
  5,573
  6,073
  6,595
  7,138
  7,702
  8,288
  8,898
  9,531
  10,189
  10,874
  11,585
  12,325
  13,096
  13,898
  14,734
  15,605
  16,513
  17,460
  18,450
  19,482
Total liabilities and equity, $m
  5,082
  5,917
  6,821
  7,794
  8,833
  9,938
  11,105
  12,335
  13,626
  14,977
  16,390
  17,862
  19,397
  20,993
  22,652
  24,377
  26,170
  28,032
  29,968
  31,981
  34,074
  36,251
  38,517
  40,876
  43,335
  45,896
  48,567
  51,354
  54,264
  57,301
Debt-to-equity ratio
  1.510
  1.570
  1.620
  1.660
  1.690
  1.720
  1.740
  1.760
  1.780
  1.790
  1.810
  1.820
  1.830
  1.840
  1.840
  1.850
  1.860
  1.860
  1.870
  1.870
  1.880
  1.880
  1.880
  1.890
  1.890
  1.890
  1.900
  1.900
  1.900
  1.900
Adjusted equity ratio
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  451
  535
  627
  725
  830
  942
  1,060
  1,184
  1,314
  1,451
  1,617
  1,765
  1,920
  2,081
  2,248
  2,422
  2,603
  2,791
  2,986
  3,190
  3,401
  3,621
  3,850
  4,089
  4,338
  4,597
  4,867
  5,150
  5,444
  5,752
Depreciation, amort., depletion, $m
  97
  108
  119
  131
  145
  159
  174
  189
  206
  223
  208
  227
  246
  267
  288
  310
  332
  356
  381
  406
  433
  460
  489
  519
  550
  583
  617
  652
  689
  728
Funds from operations, $m
  548
  643
  746
  857
  975
  1,101
  1,233
  1,373
  1,520
  1,673
  1,825
  1,992
  2,166
  2,347
  2,536
  2,732
  2,935
  3,147
  3,367
  3,596
  3,834
  4,082
  4,339
  4,608
  4,888
  5,180
  5,484
  5,802
  6,133
  6,480
Change in working capital, $m
  125
  137
  148
  159
  170
  181
  191
  201
  211
  221
  231
  241
  251
  261
  272
  282
  293
  305
  317
  329
  343
  356
  371
  386
  402
  419
  437
  456
  476
  497
Cash from operations, $m
  423
  506
  598
  698
  805
  920
  1,042
  1,172
  1,308
  1,452
  1,594
  1,751
  1,915
  2,086
  2,264
  2,449
  2,642
  2,842
  3,050
  3,266
  3,491
  3,725
  3,969
  4,222
  4,486
  4,760
  5,047
  5,346
  5,657
  5,983
Maintenance CAPEX, $m
  -55
  -65
  -75
  -87
  -99
  -112
  -126
  -141
  -157
  -173
  -190
  -208
  -227
  -246
  -267
  -288
  -310
  -332
  -356
  -381
  -406
  -433
  -460
  -489
  -519
  -550
  -583
  -617
  -652
  -689
New CAPEX, $m
  -218
  -240
  -260
  -279
  -298
  -317
  -335
  -353
  -371
  -388
  -405
  -423
  -440
  -458
  -476
  -495
  -514
  -535
  -556
  -578
  -601
  -625
  -650
  -677
  -705
  -735
  -767
  -800
  -835
  -872
Cash from investing activities, $m
  -273
  -305
  -335
  -366
  -397
  -429
  -461
  -494
  -528
  -561
  -595
  -631
  -667
  -704
  -743
  -783
  -824
  -867
  -912
  -959
  -1,007
  -1,058
  -1,110
  -1,166
  -1,224
  -1,285
  -1,350
  -1,417
  -1,487
  -1,561
Free cash flow, $m
  150
  202
  263
  332
  408
  491
  581
  678
  781
  891
  998
  1,120
  1,248
  1,382
  1,521
  1,667
  1,818
  1,975
  2,139
  2,308
  2,485
  2,668
  2,858
  3,055
  3,261
  3,475
  3,697
  3,929
  4,170
  4,422
Issuance/(repayment) of debt, $m
  502
  551
  597
  642
  686
  729
  771
  812
  852
  892
  932
  972
  1,012
  1,053
  1,095
  1,138
  1,183
  1,229
  1,278
  1,328
  1,381
  1,437
  1,496
  1,557
  1,622
  1,691
  1,763
  1,839
  1,920
  2,005
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  
  502
  551
  597
  642
  686
  729
  771
  812
  852
  892
  932
  972
  1,012
  1,053
  1,095
  1,138
  1,183
  1,229
  1,278
  1,328
  1,381
  1,437
  1,496
  1,557
  1,622
  1,691
  1,763
  1,839
  1,920
  2,005
Total cash flow (excl. dividends), $m
  652
  753
  860
  974
  1,094
  1,219
  1,351
  1,489
  1,633
  1,783
  1,930
  2,092
  2,260
  2,435
  2,617
  2,805
  3,001
  3,205
  3,416
  3,637
  3,866
  4,105
  4,353
  4,613
  4,883
  5,166
  5,460
  5,768
  6,090
  6,427
Retained Cash Flow (-), $m
  -262
  -284
  -308
  -331
  -353
  -375
  -397
  -418
  -439
  -460
  -480
  -501
  -522
  -543
  -564
  -586
  -609
  -633
  -658
  -684
  -712
  -740
  -770
  -802
  -836
  -871
  -908
  -948
  -989
  -1,033
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
  390
  469
  553
  643
  740
  844
  954
  1,071
  1,194
  1,324
  1,450
  1,591
  1,739
  1,893
  2,052
  2,219
  2,392
  2,571
  2,758
  2,952
  3,154
  3,364
  3,583
  3,810
  4,048
  4,295
  4,552
  4,821
  5,101
  5,394
Discount rate, %
  6.30
  6.62
  6.95
  7.29
  7.66
  8.04
  8.44
  8.86
  9.31
  9.77
  10.26
  10.78
  11.31
  11.88
  12.47
  13.10
  13.75
  14.44
  15.16
  15.92
  16.72
  17.55
  18.43
  19.35
  20.32
  21.33
  22.40
  23.52
  24.70
  25.93
PV of cash for distribution, $m
  367
  413
  452
  485
  512
  531
  541
  543
  536
  521
  495
  466
  432
  393
  352
  310
  268
  227
  189
  154
  123
  96
  73
  55
  40
  28
  19
  13
  8
  5
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

HD Supply Holdings, Inc. is an industrial distributor in North America. The Company's segments include Facilities Maintenance, Construction & Industrial-White Cap, and Corporate. As of January 29, 2017, the Company operated through approximately 500 locations across 48 states in the United States and six Canadian provinces. It serves contractors, government entities, maintenance professionals, home builders and industrial businesses. As of January 29, 2017, its range of product lines and services included approximately 845,000 stock-keeping units (SKUs) of products, brands, as well as value-add services supporting the entire life-cycle of a project from infrastructure and construction to maintenance, repair and operations. The Company's value-add services include customer training, material and product fabrication, kitting, jobsite delivery, will-call pickup options, as well as onsite managed inventory, online material management and emergency response capabilities.

FINANCIAL RATIOS  of  HD Supply Holdings, Inc. (HDS)

Valuation Ratios
P/E Ratio 40.5
Price to Sales 1.1
Price to Book 8.3
Price to Tangible Book
Price to Cash Flow 15.5
Price to Free Cash Flow 18.4
Growth Rates
Sales Growth Rate 4.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -5.8%
Cap. Spend. - 3 Yr. Gr. Rate -9.2%
Financial Strength
Quick Ratio 5
Current Ratio 0
LT Debt to Equity 395.6%
Total Debt to Equity 397.1%
Interest Coverage 2
Management Effectiveness
Return On Assets 6.3%
Ret/ On Assets - 3 Yr. Avg. 69.4%
Return On Total Capital 4%
Ret/ On T. Cap. - 3 Yr. Avg. 11.7%
Return On Equity 23%
Return On Equity - 3 Yr. Avg. -6125.8%
Asset Turnover 1.3
Profitability Ratios
Gross Margin 34%
Gross Margin - 3 Yr. Avg. 33.5%
EBITDA Margin 10%
EBITDA Margin - 3 Yr. Avg. 10.3%
Operating Margin 8.2%
Oper. Margin - 3 Yr. Avg. 8%
Pre-Tax Margin 4.6%
Pre-Tax Margin - 3 Yr. Avg. 2.7%
Net Profit Margin 2.6%
Net Profit Margin - 3 Yr. Avg. 7.8%
Effective Tax Rate 40.5%
Eff/ Tax Rate - 3 Yr. Avg. -735.8%
Payout Ratio 0%

HDS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HDS stock intrinsic value calculation we used $5121 million for the last fiscal year's total revenue generated by HD Supply Holdings, Inc.. The default revenue input number comes from 0001 income statement of HD Supply Holdings, 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 HDS stock valuation model: a) initial revenue growth rate of 17.7% 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 6.3%, whose default value for HDS is calculated based on our internal credit rating of HD Supply Holdings, 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 HD Supply Holdings, 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 HDS stock the variable cost ratio is equal to 85.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $124 million in the base year in the intrinsic value calculation for HDS 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 HD Supply Holdings, Inc..

Corporate tax rate of 27% is the nominal tax rate for HD Supply Holdings, 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 HDS 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 HDS are equal to 24.2%.

Life of production assets of 22.6 years is the average useful life of capital assets used in HD Supply Holdings, 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 HDS is equal to 13.8%. 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 - $1466 million for HD Supply Holdings, 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 178.181 million for HD Supply Holdings, 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 HD Supply Holdings, Inc. at the current share price and the inputted number of shares is $7.0 billion.

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