Intrinsic value of Harsco Corporation - HSC

Previous Close

$26.66

  Intrinsic Value

$20.70

stock screener

  Rating & Target

sell

-22%

Previous close

$26.66

 
Intrinsic value

$20.70

 
Up/down potential

-22%

 
Rating

sell

We calculate the intrinsic value of HSC 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 2.1

 

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, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  1,756
  1,797
  1,843
  1,895
  1,952
  2,015
  2,084
  2,158
  2,238
  2,324
  2,416
  2,514
  2,619
  2,730
  2,847
  2,972
  3,104
  3,244
  3,391
  3,547
  3,712
  3,885
  4,068
  4,260
  4,463
  4,677
  4,902
  5,138
  5,387
  5,649
Variable operating expenses, $m
  1,065
  1,089
  1,115
  1,145
  1,178
  1,215
  1,255
  1,298
  1,344
  1,394
  1,398
  1,454
  1,515
  1,579
  1,647
  1,719
  1,796
  1,877
  1,962
  2,052
  2,147
  2,247
  2,353
  2,465
  2,582
  2,705
  2,835
  2,972
  3,116
  3,268
Fixed operating expenses, $m
  508
  519
  531
  542
  554
  566
  579
  592
  605
  618
  631
  645
  660
  674
  689
  704
  719
  735
  751
  768
  785
  802
  820
  838
  856
  875
  894
  914
  934
  955
Total operating expenses, $m
  1,573
  1,608
  1,646
  1,687
  1,732
  1,781
  1,834
  1,890
  1,949
  2,012
  2,029
  2,099
  2,175
  2,253
  2,336
  2,423
  2,515
  2,612
  2,713
  2,820
  2,932
  3,049
  3,173
  3,303
  3,438
  3,580
  3,729
  3,886
  4,050
  4,223
Operating income, $m
  183
  189
  197
  207
  220
  234
  251
  269
  290
  313
  387
  414
  444
  477
  511
  549
  589
  632
  678
  727
  780
  835
  895
  958
  1,025
  1,096
  1,172
  1,252
  1,336
  1,426
EBITDA, $m
  334
  342
  353
  366
  382
  400
  420
  443
  469
  496
  527
  560
  596
  635
  676
  721
  769
  820
  874
  933
  994
  1,060
  1,130
  1,205
  1,283
  1,367
  1,455
  1,549
  1,648
  1,753
Interest expense (income), $m
  50
  39
  40
  42
  45
  47
  50
  53
  57
  61
  65
  69
  74
  79
  84
  90
  96
  102
  109
  116
  123
  131
  139
  148
  158
  167
  178
  188
  200
  212
  224
Earnings before tax, $m
  145
  149
  155
  163
  172
  184
  197
  212
  229
  248
  318
  341
  366
  393
  422
  453
  487
  523
  562
  604
  648
  696
  747
  800
  858
  919
  983
  1,052
  1,125
  1,202
Tax expense, $m
  39
  40
  42
  44
  47
  50
  53
  57
  62
  67
  86
  92
  99
  106
  114
  122
  131
  141
  152
  163
  175
  188
  202
  216
  232
  248
  265
  284
  304
  324
Net income, $m
  106
  109
  113
  119
  126
  134
  144
  155
  167
  181
  232
  249
  267
  287
  308
  331
  356
  382
  410
  441
  473
  508
  545
  584
  626
  671
  718
  768
  821
  877

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
  1,665
  1,703
  1,747
  1,796
  1,851
  1,910
  1,975
  2,046
  2,122
  2,203
  2,290
  2,383
  2,482
  2,587
  2,699
  2,817
  2,942
  3,075
  3,215
  3,362
  3,518
  3,683
  3,856
  4,038
  4,231
  4,433
  4,646
  4,870
  5,106
  5,354
Adjusted assets (=assets-cash), $m
  1,665
  1,703
  1,747
  1,796
  1,851
  1,910
  1,975
  2,046
  2,122
  2,203
  2,290
  2,383
  2,482
  2,587
  2,699
  2,817
  2,942
  3,075
  3,215
  3,362
  3,518
  3,683
  3,856
  4,038
  4,231
  4,433
  4,646
  4,870
  5,106
  5,354
Revenue / Adjusted assets
  1.055
  1.055
  1.055
  1.055
  1.055
  1.055
  1.055
  1.055
  1.055
  1.055
  1.055
  1.055
  1.055
  1.055
  1.055
  1.055
  1.055
  1.055
  1.055
  1.055
  1.055
  1.055
  1.055
  1.055
  1.055
  1.055
  1.055
  1.055
  1.055
  1.055
Average production assets, $m
  722
  739
  757
  779
  802
  828
  857
  887
  920
  955
  993
  1,033
  1,076
  1,122
  1,170
  1,222
  1,276
  1,333
  1,394
  1,458
  1,525
  1,597
  1,672
  1,751
  1,834
  1,922
  2,015
  2,112
  2,214
  2,322
Working capital, $m
  141
  144
  147
  152
  156
  161
  167
  173
  179
  186
  193
  201
  209
  218
  228
  238
  248
  260
  271
  284
  297
  311
  325
  341
  357
  374
  392
  411
  431
  452
Total debt, $m
  629
  661
  698
  739
  785
  835
  889
  948
  1,011
  1,079
  1,152
  1,230
  1,313
  1,401
  1,494
  1,593
  1,697
  1,808
  1,925
  2,049
  2,179
  2,316
  2,461
  2,614
  2,774
  2,944
  3,122
  3,309
  3,506
  3,714
Total liabilities, $m
  1,392
  1,424
  1,460
  1,502
  1,547
  1,597
  1,651
  1,710
  1,774
  1,842
  1,915
  1,992
  2,075
  2,163
  2,256
  2,355
  2,460
  2,570
  2,687
  2,811
  2,941
  3,079
  3,223
  3,376
  3,537
  3,706
  3,884
  4,071
  4,269
  4,476
Total equity, $m
  273
  279
  286
  295
  303
  313
  324
  336
  348
  361
  376
  391
  407
  424
  443
  462
  483
  504
  527
  551
  577
  604
  632
  662
  694
  727
  762
  799
  837
  878
Total liabilities and equity, $m
  1,665
  1,703
  1,746
  1,797
  1,850
  1,910
  1,975
  2,046
  2,122
  2,203
  2,291
  2,383
  2,482
  2,587
  2,699
  2,817
  2,943
  3,074
  3,214
  3,362
  3,518
  3,683
  3,855
  4,038
  4,231
  4,433
  4,646
  4,870
  5,106
  5,354
Debt-to-equity ratio
  2.310
  2.370
  2.440
  2.510
  2.590
  2.660
  2.740
  2.830
  2.910
  2.990
  3.070
  3.150
  3.220
  3.300
  3.380
  3.450
  3.520
  3.590
  3.650
  3.710
  3.780
  3.840
  3.890
  3.950
  4.000
  4.050
  4.100
  4.140
  4.190
  4.230
Adjusted equity ratio
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  106
  109
  113
  119
  126
  134
  144
  155
  167
  181
  232
  249
  267
  287
  308
  331
  356
  382
  410
  441
  473
  508
  545
  584
  626
  671
  718
  768
  821
  877
Depreciation, amort., depletion, $m
  151
  153
  156
  159
  162
  166
  170
  174
  179
  184
  140
  146
  152
  158
  165
  172
  180
  188
  196
  205
  215
  225
  235
  247
  258
  271
  284
  297
  312
  327
Funds from operations, $m
  256
  262
  269
  278
  288
  300
  314
  329
  346
  365
  372
  394
  418
  445
  473
  503
  535
  570
  607
  646
  688
  733
  780
  831
  885
  941
  1,002
  1,065
  1,133
  1,204
Change in working capital, $m
  3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
Cash from operations, $m
  254
  259
  265
  273
  283
  295
  308
  323
  340
  358
  365
  386
  410
  436
  463
  493
  525
  559
  595
  634
  675
  719
  766
  816
  868
  924
  984
  1,046
  1,113
  1,183
Maintenance CAPEX, $m
  -100
  -102
  -104
  -107
  -110
  -113
  -117
  -121
  -125
  -130
  -135
  -140
  -146
  -152
  -158
  -165
  -172
  -180
  -188
  -196
  -205
  -215
  -225
  -235
  -247
  -258
  -271
  -284
  -297
  -312
New CAPEX, $m
  -14
  -17
  -19
  -21
  -24
  -26
  -28
  -31
  -33
  -35
  -38
  -40
  -43
  -46
  -48
  -51
  -54
  -57
  -61
  -64
  -68
  -71
  -75
  -79
  -83
  -88
  -92
  -97
  -102
  -108
Cash from investing activities, $m
  -114
  -119
  -123
  -128
  -134
  -139
  -145
  -152
  -158
  -165
  -173
  -180
  -189
  -198
  -206
  -216
  -226
  -237
  -249
  -260
  -273
  -286
  -300
  -314
  -330
  -346
  -363
  -381
  -399
  -420
Free cash flow, $m
  140
  140
  142
  145
  150
  156
  163
  172
  182
  193
  192
  206
  222
  238
  257
  277
  298
  322
  347
  373
  402
  433
  466
  501
  538
  578
  620
  665
  713
  764
Issuance/(repayment) of debt, $m
  27
  32
  37
  41
  46
  50
  54
  59
  63
  68
  73
  78
  83
  88
  93
  99
  105
  111
  117
  123
  130
  137
  145
  153
  161
  169
  178
  187
  197
  207
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  
  27
  32
  37
  41
  46
  50
  54
  59
  63
  68
  73
  78
  83
  88
  93
  99
  105
  111
  117
  123
  130
  137
  145
  153
  161
  169
  178
  187
  197
  207
Total cash flow (excl. dividends), $m
  167
  172
  179
  187
  196
  206
  218
  231
  245
  261
  265
  284
  304
  326
  350
  376
  403
  432
  464
  497
  532
  570
  611
  654
  699
  747
  799
  853
  910
  971
Retained Cash Flow (-), $m
  -5
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -32
  -33
  -35
  -37
  -39
  -41
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
  162
  166
  172
  178
  187
  196
  207
  219
  233
  248
  251
  269
  288
  309
  332
  356
  382
  411
  441
  473
  507
  543
  582
  624
  667
  714
  764
  816
  872
  931
Discount rate, %
  7.30
  7.67
  8.05
  8.45
  8.87
  9.32
  9.78
  10.27
  10.79
  11.32
  11.89
  12.49
  13.11
  13.77
  14.45
  15.18
  15.93
  16.73
  17.57
  18.45
  19.37
  20.34
  21.35
  22.42
  23.54
  24.72
  25.96
  27.25
  28.62
  30.05
PV of cash for distribution, $m
  151
  143
  136
  129
  122
  115
  108
  100
  93
  85
  73
  65
  58
  51
  44
  37
  31
  25
  20
  16
  12
  9
  7
  5
  3
  2
  2
  1
  1
  0
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

Harsco Corporation is a provider of industrial services and engineered products. The Company operates in three segments: Harsco Metals & Minerals, Harsco Industrial and Harsco Rail. The Harsco Metals & Minerals segment provides outsourced on-site services to the global metals industry, with the operations focused in the United States, the United Kingdom, France and Brazil. The Harsco Industrial segment includes manufacturing businesses: the Harsco Industrial IKG, Harsco Industrial Air-X-Changers and Harsco Industrial Patterson-Kelley. The Harsco Rail segment is a provider of equipment, after-market parts and services for the maintenance, repair and construction of railway track. The Company's principal lines of business include outsourced, on-site services of material logistics and resource recovery for iron, steel and metals manufacturing, as well as environmental solutions for industrial co-products, and railway track maintenance services and equipment.

FINANCIAL RATIOS  of  Harsco Corporation (HSC)

Valuation Ratios
P/E Ratio -24.9
Price to Sales 1.5
Price to Book 22.3
Price to Tangible Book
Price to Cash Flow 13.4
Price to Free Cash Flow 23.5
Growth Rates
Sales Growth Rate -15.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -44.4%
Cap. Spend. - 3 Yr. Gr. Rate -22.4%
Financial Strength
Quick Ratio 2
Current Ratio 0.1
LT Debt to Equity 655.2%
Total Debt to Equity 686.5%
Interest Coverage -1
Management Effectiveness
Return On Assets -1.7%
Ret/ On Assets - 3 Yr. Avg. -1.4%
Return On Total Capital -8.9%
Ret/ On T. Cap. - 3 Yr. Avg. -3.4%
Return On Equity -46.7%
Return On Equity - 3 Yr. Avg. -16.6%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 19.4%
Gross Margin - 3 Yr. Avg. 20.4%
EBITDA Margin 7.7%
EBITDA Margin - 3 Yr. Avg. 10.9%
Operating Margin 1.9%
Oper. Margin - 3 Yr. Avg. 3.5%
Pre-Tax Margin -5.4%
Pre-Tax Margin - 3 Yr. Avg. -0.9%
Net Profit Margin -5.9%
Net Profit Margin - 3 Yr. Avg. -2.2%
Effective Tax Rate -8.9%
Eff/ Tax Rate - 3 Yr. Avg. 95.1%
Payout Ratio -4.7%

HSC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HSC stock intrinsic value calculation we used $1722 million for the last fiscal year's total revenue generated by Harsco Corporation. The default revenue input number comes from 0001 income statement of Harsco 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 HSC stock valuation model: a) initial revenue growth rate of 2% 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 7.3%, whose default value for HSC is calculated based on our internal credit rating of Harsco 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 Harsco 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 HSC stock the variable cost ratio is equal to 60.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $497 million in the base year in the intrinsic value calculation for HSC 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 6.4% for Harsco Corporation.

Corporate tax rate of 27% is the nominal tax rate for Harsco 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 HSC 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 HSC are equal to 41.1%.

Life of production assets of 7.1 years is the average useful life of capital assets used in Harsco 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 HSC is equal to 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 - $268.263 million for Harsco 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 79.467 million for Harsco 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 Harsco Corporation at the current share price and the inputted number of shares is $2.1 billion.

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