Intrinsic value of Heidrick&Struggles International - HSII

Previous Close

$34.65

  Intrinsic Value

$90.42

stock screener

  Rating & Target

str. buy

+161%

Previous close

$34.65

 
Intrinsic value

$90.42

 
Up/down potential

+161%

 
Rating

str. buy

We calculate the intrinsic value of HSII 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 0.7

 

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, %
  19.50
  18.05
  16.75
  15.57
  14.51
  13.56
  12.71
  11.94
  11.24
  10.62
  10.06
  9.55
  9.10
  8.69
  8.32
  7.99
  7.69
  7.42
  7.18
  6.96
  6.76
  6.59
  6.43
  6.29
  6.16
  6.04
  5.94
  5.84
  5.76
  5.68
Revenue, $m
  765
  903
  1,054
  1,218
  1,395
  1,584
  1,786
  1,999
  2,223
  2,459
  2,707
  2,965
  3,235
  3,516
  3,808
  4,112
  4,429
  4,757
  5,098
  5,453
  5,822
  6,206
  6,604
  7,020
  7,452
  7,902
  8,371
  8,860
  9,370
  9,903
Variable operating expenses, $m
  717
  845
  984
  1,135
  1,298
  1,473
  1,659
  1,855
  2,062
  2,280
  2,496
  2,734
  2,983
  3,242
  3,512
  3,792
  4,084
  4,386
  4,701
  5,028
  5,368
  5,722
  6,090
  6,473
  6,871
  7,286
  7,719
  8,170
  8,640
  9,131
Fixed operating expenses, $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 operating expenses, $m
  717
  845
  984
  1,135
  1,298
  1,473
  1,659
  1,855
  2,062
  2,280
  2,496
  2,734
  2,983
  3,242
  3,512
  3,792
  4,084
  4,386
  4,701
  5,028
  5,368
  5,722
  6,090
  6,473
  6,871
  7,286
  7,719
  8,170
  8,640
  9,131
Operating income, $m
  47
  58
  70
  83
  97
  111
  127
  144
  161
  180
  211
  231
  252
  274
  297
  320
  345
  371
  397
  425
  454
  483
  515
  547
  581
  616
  652
  690
  730
  772
EBITDA, $m
  70
  83
  97
  112
  128
  145
  164
  183
  204
  226
  248
  272
  297
  323
  349
  377
  406
  436
  468
  500
  534
  569
  606
  644
  684
  725
  768
  813
  860
  909
Interest expense (income), $m
  0
  0
  4
  8
  13
  18
  24
  30
  36
  43
  50
  58
  65
  74
  82
  91
  100
  110
  120
  130
  141
  152
  164
  176
  189
  202
  215
  230
  244
  260
  276
Earnings before tax, $m
  47
  54
  62
  70
  78
  87
  97
  107
  118
  129
  153
  166
  179
  192
  206
  220
  235
  251
  267
  284
  301
  320
  339
  358
  379
  400
  423
  446
  470
  496
Tax expense, $m
  13
  15
  17
  19
  21
  24
  26
  29
  32
  35
  41
  45
  48
  52
  56
  59
  64
  68
  72
  77
  81
  86
  91
  97
  102
  108
  114
  120
  127
  134
Net income, $m
  35
  40
  45
  51
  57
  64
  71
  78
  86
  95
  112
  121
  130
  140
  150
  161
  172
  183
  195
  207
  220
  233
  247
  262
  277
  292
  309
  326
  343
  362

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
  702
  828
  967
  1,118
  1,280
  1,453
  1,638
  1,834
  2,040
  2,256
  2,483
  2,720
  2,968
  3,226
  3,494
  3,773
  4,063
  4,364
  4,677
  5,003
  5,341
  5,693
  6,059
  6,440
  6,836
  7,249
  7,680
  8,129
  8,597
  9,085
Adjusted assets (=assets-cash), $m
  702
  828
  967
  1,118
  1,280
  1,453
  1,638
  1,834
  2,040
  2,256
  2,483
  2,720
  2,968
  3,226
  3,494
  3,773
  4,063
  4,364
  4,677
  5,003
  5,341
  5,693
  6,059
  6,440
  6,836
  7,249
  7,680
  8,129
  8,597
  9,085
Revenue / Adjusted assets
  1.090
  1.091
  1.090
  1.089
  1.090
  1.090
  1.090
  1.090
  1.090
  1.090
  1.090
  1.090
  1.090
  1.090
  1.090
  1.090
  1.090
  1.090
  1.090
  1.090
  1.090
  1.090
  1.090
  1.090
  1.090
  1.090
  1.090
  1.090
  1.090
  1.090
Average production assets, $m
  132
  156
  182
  211
  241
  274
  309
  346
  385
  425
  468
  513
  560
  608
  659
  711
  766
  823
  882
  943
  1,007
  1,074
  1,143
  1,214
  1,289
  1,367
  1,448
  1,533
  1,621
  1,713
Working capital, $m
  -155
  -182
  -213
  -246
  -282
  -320
  -361
  -404
  -449
  -497
  -547
  -599
  -653
  -710
  -769
  -831
  -895
  -961
  -1,030
  -1,102
  -1,176
  -1,254
  -1,334
  -1,418
  -1,505
  -1,596
  -1,691
  -1,790
  -1,893
  -2,000
Total debt, $m
  73
  154
  242
  339
  442
  553
  671
  795
  927
  1,065
  1,210
  1,361
  1,519
  1,683
  1,855
  2,033
  2,218
  2,410
  2,610
  2,817
  3,033
  3,258
  3,491
  3,734
  3,987
  4,251
  4,525
  4,811
  5,110
  5,422
Total liabilities, $m
  448
  529
  617
  713
  817
  927
  1,045
  1,170
  1,301
  1,440
  1,584
  1,736
  1,893
  2,058
  2,229
  2,407
  2,592
  2,784
  2,984
  3,192
  3,408
  3,632
  3,866
  4,109
  4,362
  4,625
  4,900
  5,186
  5,485
  5,796
Total equity, $m
  254
  300
  350
  405
  463
  526
  593
  664
  738
  817
  899
  985
  1,074
  1,168
  1,265
  1,366
  1,471
  1,580
  1,693
  1,811
  1,934
  2,061
  2,193
  2,331
  2,475
  2,624
  2,780
  2,943
  3,112
  3,289
Total liabilities and equity, $m
  702
  829
  967
  1,118
  1,280
  1,453
  1,638
  1,834
  2,039
  2,257
  2,483
  2,721
  2,967
  3,226
  3,494
  3,773
  4,063
  4,364
  4,677
  5,003
  5,342
  5,693
  6,059
  6,440
  6,837
  7,249
  7,680
  8,129
  8,597
  9,085
Debt-to-equity ratio
  0.290
  0.510
  0.690
  0.840
  0.950
  1.050
  1.130
  1.200
  1.260
  1.300
  1.350
  1.380
  1.410
  1.440
  1.470
  1.490
  1.510
  1.530
  1.540
  1.560
  1.570
  1.580
  1.590
  1.600
  1.610
  1.620
  1.630
  1.640
  1.640
  1.650
Adjusted equity ratio
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  35
  40
  45
  51
  57
  64
  71
  78
  86
  95
  112
  121
  130
  140
  150
  161
  172
  183
  195
  207
  220
  233
  247
  262
  277
  292
  309
  326
  343
  362
Depreciation, amort., depletion, $m
  23
  25
  27
  29
  31
  34
  37
  40
  43
  46
  37
  41
  45
  49
  53
  57
  61
  66
  71
  75
  81
  86
  91
  97
  103
  109
  116
  123
  130
  137
Funds from operations, $m
  57
  64
  72
  80
  89
  98
  108
  118
  129
  141
  149
  162
  175
  189
  203
  218
  233
  249
  266
  283
  301
  319
  339
  359
  380
  402
  424
  448
  473
  499
Change in working capital, $m
  -25
  -28
  -31
  -33
  -36
  -38
  -41
  -43
  -45
  -48
  -50
  -52
  -54
  -57
  -59
  -61
  -64
  -66
  -69
  -72
  -74
  -77
  -81
  -84
  -87
  -91
  -95
  -99
  -103
  -108
Cash from operations, $m
  83
  92
  102
  113
  124
  136
  148
  161
  175
  188
  199
  214
  230
  246
  262
  279
  297
  315
  335
  354
  375
  397
  419
  443
  467
  493
  519
  547
  576
  606
Maintenance CAPEX, $m
  -9
  -11
  -12
  -15
  -17
  -19
  -22
  -25
  -28
  -31
  -34
  -37
  -41
  -45
  -49
  -53
  -57
  -61
  -66
  -71
  -75
  -81
  -86
  -91
  -97
  -103
  -109
  -116
  -123
  -130
New CAPEX, $m
  -22
  -24
  -26
  -28
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -59
  -61
  -64
  -66
  -69
  -72
  -75
  -78
  -81
  -85
  -88
  -92
Cash from investing activities, $m
  -31
  -35
  -38
  -43
  -48
  -52
  -57
  -62
  -67
  -72
  -77
  -82
  -88
  -94
  -100
  -106
  -112
  -118
  -125
  -132
  -139
  -147
  -155
  -163
  -172
  -181
  -190
  -201
  -211
  -222
Free cash flow, $m
  52
  58
  64
  70
  77
  84
  92
  100
  108
  117
  123
  132
  142
  152
  163
  174
  185
  197
  210
  222
  236
  250
  264
  279
  295
  312
  329
  346
  365
  385
Issuance/(repayment) of debt, $m
  73
  81
  88
  96
  103
  111
  118
  125
  132
  138
  145
  151
  158
  164
  171
  178
  185
  192
  200
  208
  216
  224
  233
  243
  253
  263
  275
  286
  299
  312
Issuance/(repurchase) of shares, $m
  7
  6
  5
  4
  2
  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  
  80
  87
  93
  100
  105
  111
  118
  125
  132
  138
  145
  151
  158
  164
  171
  178
  185
  192
  200
  208
  216
  224
  233
  243
  253
  263
  275
  286
  299
  312
Total cash flow (excl. dividends), $m
  132
  145
  157
  170
  182
  195
  209
  224
  240
  255
  267
  283
  300
  317
  334
  352
  370
  390
  409
  430
  452
  474
  498
  522
  548
  575
  603
  633
  664
  696
Retained Cash Flow (-), $m
  -41
  -46
  -50
  -55
  -59
  -63
  -67
  -71
  -75
  -78
  -82
  -86
  -90
  -93
  -97
  -101
  -105
  -109
  -113
  -118
  -122
  -127
  -132
  -138
  -144
  -149
  -156
  -162
  -169
  -177
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
  91
  99
  107
  115
  123
  132
  143
  154
  165
  177
  185
  197
  210
  223
  237
  251
  265
  280
  296
  312
  329
  347
  365
  385
  405
  426
  447
  470
  494
  519
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
  87
  90
  93
  95
  95
  96
  96
  96
  95
  93
  88
  84
  80
  75
  70
  64
  58
  52
  46
  40
  34
  29
  24
  20
  16
  12
  10
  7
  5
  4
Current shareholders' claim on cash, %
  99.0
  98.2
  97.7
  97.3
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2
  97.2

Heidrick & Struggles International, Inc. is an advisory firm providing executive search, leadership consulting and culture shaping services to businesses and business leaders around the world. Its segments include Executive Search, Leadership Consulting and Culture Shaping. It operates its executive search services in three geographic regions: the Americas (which includes the countries in North and South America); Europe (which includes the continents of Europe and Africa), and Asia Pacific (which includes Asia and the region generally known as the Middle East). Its Leadership Consulting segment operates globally. Its Culture Shaping segment operates in the Americas and Europe. In addition to executive search, it provides leadership consulting expertise and culture shaping services including executive leadership assessment; leadership, team and board development; succession planning; talent strategy; people performance; inter-team collaboration, and organizational transformation.

FINANCIAL RATIOS  of  Heidrick&Struggles International (HSII)

Valuation Ratios
P/E Ratio 42.9
Price to Sales 1.1
Price to Book 2.5
Price to Tangible Book
Price to Cash Flow 25.8
Price to Free Cash Flow 32.2
Growth Rates
Sales Growth Rate 9.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -68.8%
Cap. Spend. - 3 Yr. Gr. Rate 4.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 2.6%
Ret/ On Assets - 3 Yr. Avg. 2.3%
Return On Total Capital 5.8%
Ret/ On T. Cap. - 3 Yr. Avg. 4.9%
Return On Equity 5.8%
Return On Equity - 3 Yr. Avg. 5.2%
Asset Turnover 1
Profitability Ratios
Gross Margin 96.8%
Gross Margin - 3 Yr. Avg. 96.7%
EBITDA Margin 9%
EBITDA Margin - 3 Yr. Avg. 8.4%
Operating Margin 5.8%
Oper. Margin - 3 Yr. Avg. 5.7%
Pre-Tax Margin 6.3%
Pre-Tax Margin - 3 Yr. Avg. 5.6%
Net Profit Margin 2.5%
Net Profit Margin - 3 Yr. Avg. 2.3%
Effective Tax Rate 60.5%
Eff/ Tax Rate - 3 Yr. Avg. 59.4%
Payout Ratio 66.7%

HSII stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HSII stock intrinsic value calculation we used $640.056 million for the last fiscal year's total revenue generated by Heidrick&Struggles International. The default revenue input number comes from 0001 income statement of Heidrick&Struggles International. 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 HSII stock valuation model: a) initial revenue growth rate of 19.5% 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 HSII is calculated based on our internal credit rating of Heidrick&Struggles International, 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 Heidrick&Struggles International.
    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 HSII stock the variable cost ratio is equal to 94.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for HSII 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 5.4% for Heidrick&Struggles International.

Corporate tax rate of 27% is the nominal tax rate for Heidrick&Struggles International. 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 HSII 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 HSII are equal to 17.3%.

Life of production assets of 12.5 years is the average useful life of capital assets used in Heidrick&Struggles International 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 HSII is equal to -20.2%. 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 - $212.705 million for Heidrick&Struggles International - 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 18.959 million for Heidrick&Struggles International 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 Heidrick&Struggles International at the current share price and the inputted number of shares is $0.7 billion.

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COMPANY NEWS

▶ S&P Reaches New High as Rally Continues   [Aug-22-18 09:15AM  Zacks]
▶ Heidrick & Struggles: 2Q Earnings Snapshot   [04:51PM  Associated Press]
▶ Women Board Director Appointments Hit Record High   [Jul-19-18 08:00AM  PR Newswire]
▶ Heidrick & Struggles: 1Q Earnings Snapshot   [Apr-23-18 07:36PM  Associated Press]
▶ Heidrick & Struggles Launches Disruptive Innovators Team   [Apr-17-18 09:11AM  PR Newswire]
▶ Heidrick & Struggles reports 4Q loss   [Feb-26-18 04:57PM  Associated Press]
▶ 8 Stocks Hotchkis & Wiley Continues to Buy   [Feb-14-18 02:57PM  GuruFocus.com]
▶ Heidrick & Struggles Declares Quarterly Cash Dividend   [Jan-23-18 10:50AM  PR Newswire]
▶ [$$] Employee Mentorship Program Gets a Reboot   [Dec-28-17 12:40AM  The Wall Street Journal]
▶ [$$] Fundraising Boom Gives Junior Talent the Upper Hand   [Nov-28-17 07:00AM  The Wall Street Journal]

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