Intrinsic value of Houston Wire&Cable - HWCC

Previous Close

$6.25

  Intrinsic Value

$16.07

stock screener

  Rating & Target

str. buy

+157%

Previous close

$6.25

 
Intrinsic value

$16.07

 
Up/down potential

+157%

 
Rating

str. buy

We calculate the intrinsic value of HWCC 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 0.1

 

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, %
  24.10
  22.19
  20.47
  18.92
  17.53
  16.28
  15.15
  14.14
  13.22
  12.40
  11.66
  10.99
  10.39
  9.85
  9.37
  8.93
  8.54
  8.19
  7.87
  7.58
  7.32
  7.09
  6.88
  6.69
  6.52
  6.37
  6.23
  6.11
  6.00
  5.90
Revenue, $m
  394
  482
  580
  690
  811
  943
  1,086
  1,240
  1,404
  1,578
  1,762
  1,955
  2,158
  2,371
  2,593
  2,825
  3,066
  3,317
  3,578
  3,849
  4,131
  4,424
  4,729
  5,045
  5,374
  5,717
  6,073
  6,444
  6,831
  7,234
Variable operating expenses, $m
  313
  382
  459
  545
  640
  744
  856
  977
  1,106
  1,242
  1,383
  1,535
  1,695
  1,862
  2,036
  2,218
  2,408
  2,605
  2,810
  3,023
  3,244
  3,474
  3,713
  3,961
  4,220
  4,489
  4,768
  5,060
  5,363
  5,680
Fixed operating expenses, $m
  61
  63
  64
  65
  67
  68
  70
  71
  73
  75
  76
  78
  80
  81
  83
  85
  87
  89
  91
  93
  95
  97
  99
  101
  103
  106
  108
  110
  113
  115
Total operating expenses, $m
  374
  445
  523
  610
  707
  812
  926
  1,048
  1,179
  1,317
  1,459
  1,613
  1,775
  1,943
  2,119
  2,303
  2,495
  2,694
  2,901
  3,116
  3,339
  3,571
  3,812
  4,062
  4,323
  4,595
  4,876
  5,170
  5,476
  5,795
Operating income, $m
  20
  37
  57
  79
  104
  131
  160
  191
  225
  261
  302
  342
  384
  428
  474
  522
  572
  624
  678
  734
  793
  854
  917
  983
  1,051
  1,122
  1,197
  1,274
  1,355
  1,439
EBITDA, $m
  26
  43
  64
  87
  112
  139
  169
  202
  236
  273
  312
  353
  396
  441
  488
  537
  588
  642
  697
  755
  815
  878
  942
  1,010
  1,080
  1,153
  1,230
  1,309
  1,392
  1,478
Interest expense (income), $m
  1
  4
  5
  7
  9
  11
  13
  15
  18
  20
  23
  26
  29
  33
  36
  40
  44
  48
  52
  57
  61
  66
  71
  76
  81
  87
  93
  99
  105
  112
  118
Earnings before tax, $m
  16
  32
  50
  71
  93
  118
  145
  174
  205
  238
  276
  313
  351
  392
  434
  478
  524
  572
  621
  673
  727
  783
  841
  901
  964
  1,030
  1,098
  1,169
  1,243
  1,320
Tax expense, $m
  4
  9
  14
  19
  25
  32
  39
  47
  55
  64
  75
  84
  95
  106
  117
  129
  141
  154
  168
  182
  196
  211
  227
  243
  260
  278
  296
  316
  336
  357
Net income, $m
  12
  23
  37
  52
  68
  86
  106
  127
  150
  174
  201
  228
  256
  286
  317
  349
  382
  417
  454
  491
  530
  571
  614
  658
  704
  752
  801
  853
  907
  964

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
  241
  294
  354
  421
  495
  576
  663
  756
  856
  963
  1,075
  1,193
  1,317
  1,447
  1,582
  1,724
  1,871
  2,024
  2,183
  2,349
  2,521
  2,699
  2,885
  3,078
  3,279
  3,488
  3,705
  3,932
  4,168
  4,414
Adjusted assets (=assets-cash), $m
  241
  294
  354
  421
  495
  576
  663
  756
  856
  963
  1,075
  1,193
  1,317
  1,447
  1,582
  1,724
  1,871
  2,024
  2,183
  2,349
  2,521
  2,699
  2,885
  3,078
  3,279
  3,488
  3,705
  3,932
  4,168
  4,414
Revenue / Adjusted assets
  1.635
  1.639
  1.638
  1.639
  1.638
  1.637
  1.638
  1.640
  1.640
  1.639
  1.639
  1.639
  1.639
  1.639
  1.639
  1.639
  1.639
  1.639
  1.639
  1.639
  1.639
  1.639
  1.639
  1.639
  1.639
  1.639
  1.639
  1.639
  1.639
  1.639
Average production assets, $m
  36
  44
  53
  63
  74
  86
  99
  113
  128
  144
  160
  178
  196
  216
  236
  257
  279
  302
  326
  350
  376
  403
  430
  459
  489
  520
  553
  586
  622
  658
Working capital, $m
  152
  186
  224
  266
  313
  364
  419
  479
  542
  609
  680
  755
  833
  915
  1,001
  1,090
  1,184
  1,280
  1,381
  1,486
  1,595
  1,708
  1,825
  1,947
  2,074
  2,207
  2,344
  2,487
  2,637
  2,792
Total debt, $m
  101
  130
  162
  197
  237
  279
  326
  376
  429
  485
  545
  608
  674
  743
  815
  890
  969
  1,050
  1,135
  1,223
  1,314
  1,409
  1,508
  1,611
  1,718
  1,829
  1,945
  2,065
  2,190
  2,321
Total liabilities, $m
  128
  156
  188
  224
  263
  306
  353
  402
  456
  512
  572
  635
  701
  770
  842
  917
  995
  1,077
  1,161
  1,249
  1,341
  1,436
  1,535
  1,638
  1,744
  1,856
  1,971
  2,092
  2,217
  2,348
Total equity, $m
  113
  138
  166
  197
  232
  269
  310
  354
  401
  450
  503
  558
  616
  677
  741
  807
  876
  947
  1,022
  1,099
  1,180
  1,263
  1,350
  1,441
  1,535
  1,632
  1,734
  1,840
  1,950
  2,066
Total liabilities and equity, $m
  241
  294
  354
  421
  495
  575
  663
  756
  857
  962
  1,075
  1,193
  1,317
  1,447
  1,583
  1,724
  1,871
  2,024
  2,183
  2,348
  2,521
  2,699
  2,885
  3,079
  3,279
  3,488
  3,705
  3,932
  4,167
  4,414
Debt-to-equity ratio
  0.900
  0.940
  0.980
  1.000
  1.020
  1.040
  1.050
  1.060
  1.070
  1.080
  1.080
  1.090
  1.090
  1.100
  1.100
  1.100
  1.110
  1.110
  1.110
  1.110
  1.110
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
Adjusted equity ratio
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  12
  23
  37
  52
  68
  86
  106
  127
  150
  174
  201
  228
  256
  286
  317
  349
  382
  417
  454
  491
  530
  571
  614
  658
  704
  752
  801
  853
  907
  964
Depreciation, amort., depletion, $m
  6
  6
  7
  7
  8
  9
  9
  10
  11
  12
  10
  11
  12
  13
  14
  15
  17
  18
  19
  21
  22
  24
  26
  27
  29
  31
  33
  35
  37
  39
Funds from operations, $m
  17
  29
  43
  59
  76
  95
  115
  137
  161
  186
  211
  239
  268
  299
  331
  364
  399
  435
  473
  512
  553
  595
  639
  685
  733
  783
  834
  888
  944
  1,003
Change in working capital, $m
  30
  34
  38
  42
  47
  51
  55
  59
  63
  67
  71
  75
  78
  82
  86
  89
  93
  97
  101
  105
  109
  113
  118
  122
  127
  132
  138
  143
  149
  156
Cash from operations, $m
  -12
  -4
  5
  16
  29
  44
  60
  78
  97
  118
  140
  164
  190
  217
  245
  275
  306
  338
  372
  407
  444
  482
  522
  563
  606
  650
  697
  745
  795
  848
Maintenance CAPEX, $m
  -2
  -2
  -3
  -3
  -4
  -4
  -5
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -17
  -18
  -19
  -21
  -22
  -24
  -26
  -27
  -29
  -31
  -33
  -35
  -37
New CAPEX, $m
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -32
  -34
  -35
  -37
Cash from investing activities, $m
  -9
  -10
  -12
  -13
  -15
  -16
  -18
  -20
  -22
  -24
  -26
  -28
  -29
  -31
  -33
  -35
  -37
  -40
  -42
  -44
  -47
  -49
  -52
  -55
  -57
  -60
  -63
  -67
  -70
  -74
Free cash flow, $m
  -21
  -15
  -6
  3
  14
  27
  42
  58
  76
  95
  115
  137
  161
  186
  212
  240
  269
  299
  330
  363
  398
  433
  470
  509
  549
  590
  633
  678
  725
  774
Issuance/(repayment) of debt, $m
  25
  28
  32
  36
  39
  43
  46
  50
  53
  56
  60
  63
  66
  69
  72
  75
  78
  81
  85
  88
  91
  95
  99
  103
  107
  111
  116
  120
  125
  131
Issuance/(repurchase) of shares, $m
  10
  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
  0
  0
  0
Cash from financing (excl. dividends), $m  
  35
  30
  32
  36
  39
  43
  46
  50
  53
  56
  60
  63
  66
  69
  72
  75
  78
  81
  85
  88
  91
  95
  99
  103
  107
  111
  116
  120
  125
  131
Total cash flow (excl. dividends), $m
  14
  16
  26
  39
  54
  70
  88
  108
  129
  151
  174
  200
  227
  255
  284
  315
  347
  380
  415
  451
  489
  528
  569
  611
  655
  701
  749
  799
  851
  905
Retained Cash Flow (-), $m
  -22
  -25
  -28
  -31
  -35
  -38
  -41
  -44
  -47
  -50
  -53
  -55
  -58
  -61
  -63
  -66
  -69
  -72
  -75
  -77
  -80
  -84
  -87
  -90
  -94
  -98
  -102
  -106
  -110
  -115
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
  -8
  -9
  -3
  8
  19
  32
  47
  64
  82
  102
  122
  144
  168
  194
  221
  249
  278
  309
  341
  374
  409
  445
  482
  521
  561
  604
  647
  693
  740
  790
Discount rate, %
  9.10
  9.56
  10.03
  10.53
  11.06
  11.61
  12.19
  12.80
  13.44
  14.12
  14.82
  15.56
  16.34
  17.16
  18.02
  18.92
  19.86
  20.86
  21.90
  23.00
  24.15
  25.35
  26.62
  27.95
  29.35
  30.82
  32.36
  33.97
  35.67
  37.46
PV of cash for distribution, $m
  -7
  -8
  -2
  5
  11
  17
  21
  24
  26
  27
  27
  25
  24
  21
  18
  16
  13
  10
  8
  6
  4
  3
  2
  1
  1
  1
  0
  0
  0
  0
Current shareholders' claim on cash, %
  90.9
  89.8
  89.8
  89.8
  89.8
  89.8
  89.8
  89.8
  89.8
  89.8
  89.8
  89.8
  89.8
  89.8
  89.8
  89.8
  89.8
  89.8
  89.8
  89.8
  89.8
  89.8
  89.8
  89.8
  89.8
  89.8
  89.8
  89.8
  89.8
  89.8

Houston Wire & Cable Company is a holding company. The Company is engaged in provision of electrical and mechanical wire and cable, hardware and related services. It operates through sales of wire and cable, hardware and related services segment in the United States market. Its cable management program includes purchasing and storing inventory for product availability. The Company offers products in categories of wire and cable, including continuous and interlocked armor cable; control and power cable; electronic wire and cable; flexible and portable cord; instrumentation and thermocouple cable; lead and high temperature cable; medium voltage cable; premise and category wire and cable; primary and secondary aluminum distribution cable, and synthetic fiber rope slings, chain, shackles, and other related hardware. The Company also offers private branded products, including its brand LifeGuard, a low smoke zero halogen (LSZH) cable. Its products are used in repair and replacement work.

FINANCIAL RATIOS  of  Houston Wire&Cable (HWCC)

Valuation Ratios
P/E Ratio -17.1
Price to Sales 0.4
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow 6.1
Price to Free Cash Flow 6.4
Growth Rates
Sales Growth Rate -14.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -66.7%
Cap. Spend. - 3 Yr. Gr. Rate -19.7%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 67.8%
Total Debt to Equity 71.1%
Interest Coverage -6
Management Effectiveness
Return On Assets -3.1%
Ret/ On Assets - 3 Yr. Avg. 2.1%
Return On Total Capital -4%
Ret/ On T. Cap. - 3 Yr. Avg. 2.1%
Return On Equity -6.3%
Return On Equity - 3 Yr. Avg. 3%
Asset Turnover 1.6
Profitability Ratios
Gross Margin 20.2%
Gross Margin - 3 Yr. Avg. 21.2%
EBITDA Margin -1.1%
EBITDA Margin - 3 Yr. Avg. 3%
Operating Margin -2.3%
Oper. Margin - 3 Yr. Avg. 2%
Pre-Tax Margin -2.7%
Pre-Tax Margin - 3 Yr. Avg. 1.7%
Net Profit Margin -2.3%
Net Profit Margin - 3 Yr. Avg. 0.7%
Effective Tax Rate 14.3%
Eff/ Tax Rate - 3 Yr. Avg. 37.3%
Payout Ratio -50%

HWCC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HWCC stock intrinsic value calculation we used $317.697 million for the last fiscal year's total revenue generated by Houston Wire&Cable. The default revenue input number comes from 0001 income statement of Houston Wire&Cable. 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 HWCC stock valuation model: a) initial revenue growth rate of 24.1% 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 9.1%, whose default value for HWCC is calculated based on our internal credit rating of Houston Wire&Cable, 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 Houston Wire&Cable.
    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 HWCC stock the variable cost ratio is equal to 79.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $60 million in the base year in the intrinsic value calculation for HWCC 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 Houston Wire&Cable.

Corporate tax rate of 27% is the nominal tax rate for Houston Wire&Cable. 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 HWCC 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 HWCC are equal to 9.1%.

Life of production assets of 16.8 years is the average useful life of capital assets used in Houston Wire&Cable 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 HWCC is equal to 38.6%. 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 - $90.744 million for Houston Wire&Cable - 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 16.526 million for Houston Wire&Cable 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 Houston Wire&Cable at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ Houston Wire: 3Q Earnings Snapshot   [Nov-09-18 05:04AM  Associated Press]
▶ Houston Wire: 2Q Earnings Snapshot   [Aug-09-18 07:59AM  Associated Press]
▶ Houston Wire: 1Q Earnings Snapshot   [May-10-18 08:14AM  Associated Press]
▶ 5 of the Best Stocks Under $10 for 2018   [07:30AM  InvestorPlace]
▶ 5 of the Best Stocks Under $10 for 2018   [Apr-05-18 02:32PM  Zacks]
▶ Is It Time To Buy Houston Wire & Cable Company (NASDAQ:HWCC)?   [Mar-30-18 06:07PM  Simply Wall St.]
▶ Houston Wire posts 4Q profit   [07:57AM  Associated Press]
▶ David Nierenberg: Informational Advantages   [Jan-09-18 03:44PM  GuruFocus.com]
▶ Houston Wire reports 3Q loss   [08:03AM  Associated Press]
▶ Houston Wire posts 2Q loss   [Aug-09-17 10:31PM  Associated Press]
▶ Jacob Boyd Joins HWC as the New Chicago Regional Manager   [Jun-22-17 12:00PM  GlobeNewswire]
▶ Houston Wire reports 1Q loss   [07:54AM  Associated Press]
▶ Houston Wire reports 4Q loss   [07:44AM  Associated Press]

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