Intrinsic value of Houston Wire&Cable - HWCC

Previous Close

$6.50

  Intrinsic Value

$13.23

stock screener

  Rating & Target

str. buy

+104%

Previous close

$6.50

 
Intrinsic value

$13.23

 
Up/down potential

+104%

 
Rating

str. buy

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

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 2016), $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
2016(a)
   2017
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -14.94
  22.60
  20.84
  19.26
  17.83
  16.55
  15.39
  14.35
  13.42
  12.58
  11.82
  11.14
  10.52
  9.97
  9.47
  9.03
  8.62
  8.26
  7.94
  7.64
  7.38
  7.14
  6.93
  6.73
  6.56
  6.40
  6.26
  6.14
  6.02
  5.92
  5.83
Revenue, $m
  262
  321
  388
  463
  545
  636
  734
  839
  951
  1,071
  1,198
  1,331
  1,471
  1,618
  1,771
  1,931
  2,097
  2,271
  2,451
  2,638
  2,833
  3,035
  3,245
  3,464
  3,691
  3,927
  4,173
  4,429
  4,696
  4,974
  5,264
Variable operating expenses, $m
 
  237
  286
  341
  401
  467
  539
  616
  698
  785
  878
  973
  1,076
  1,183
  1,295
  1,412
  1,534
  1,660
  1,792
  1,929
  2,071
  2,219
  2,373
  2,533
  2,699
  2,872
  3,051
  3,239
  3,434
  3,637
  3,849
Fixed operating expenses, $m
 
  78
  80
  82
  84
  86
  88
  90
  93
  95
  97
  100
  102
  105
  107
  110
  113
  116
  119
  121
  125
  128
  131
  134
  137
  141
  144
  148
  152
  156
  159
Total operating expenses, $m
  268
  315
  366
  423
  485
  553
  627
  706
  791
  880
  975
  1,073
  1,178
  1,288
  1,402
  1,522
  1,647
  1,776
  1,911
  2,050
  2,196
  2,347
  2,504
  2,667
  2,836
  3,013
  3,195
  3,387
  3,586
  3,793
  4,008
Operating income, $m
  -7
  6
  22
  40
  60
  83
  107
  133
  161
  191
  222
  258
  293
  330
  369
  409
  451
  495
  540
  588
  637
  688
  741
  797
  855
  915
  977
  1,042
  1,110
  1,181
  1,255
EBITDA, $m
  -4
  10
  27
  45
  66
  89
  113
  140
  169
  199
  232
  266
  302
  340
  379
  421
  464
  508
  555
  603
  654
  706
  761
  818
  877
  938
  1,002
  1,069
  1,139
  1,211
  1,287
Interest expense (income), $m
  1
  2
  3
  4
  5
  5
  7
  8
  9
  10
  12
  13
  15
  16
  18
  20
  21
  23
  25
  27
  30
  32
  34
  37
  39
  42
  44
  47
  50
  53
  56
Earnings before tax, $m
  -7
  4
  19
  37
  56
  77
  100
  125
  152
  180
  211
  245
  279
  314
  351
  389
  429
  471
  515
  560
  607
  656
  707
  760
  816
  873
  933
  995
  1,060
  1,128
  1,199
Tax expense, $m
  -1
  1
  5
  10
  15
  21
  27
  34
  41
  49
  57
  66
  75
  85
  95
  105
  116
  127
  139
  151
  164
  177
  191
  205
  220
  236
  252
  269
  286
  305
  324
Net income, $m
  -6
  3
  14
  27
  41
  56
  73
  91
  111
  132
  154
  179
  203
  229
  256
  284
  314
  344
  376
  409
  443
  479
  516
  555
  595
  637
  681
  727
  774
  824
  875

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
  0
Total assets, $m
  176
  216
  261
  311
  366
  427
  493
  563
  639
  719
  804
  894
  988
  1,086
  1,189
  1,297
  1,409
  1,525
  1,646
  1,772
  1,902
  2,038
  2,179
  2,326
  2,479
  2,637
  2,803
  2,975
  3,154
  3,341
  3,535
Adjusted assets (=assets-cash), $m
  176
  216
  261
  311
  366
  427
  493
  563
  639
  719
  804
  894
  988
  1,086
  1,189
  1,297
  1,409
  1,525
  1,646
  1,772
  1,902
  2,038
  2,179
  2,326
  2,479
  2,637
  2,803
  2,975
  3,154
  3,341
  3,535
Revenue / Adjusted assets
  1.489
  1.486
  1.487
  1.489
  1.489
  1.489
  1.489
  1.490
  1.488
  1.490
  1.490
  1.489
  1.489
  1.490
  1.489
  1.489
  1.488
  1.489
  1.489
  1.489
  1.489
  1.489
  1.489
  1.489
  1.489
  1.489
  1.489
  1.489
  1.489
  1.489
  1.489
Average production assets, $m
  21
  26
  31
  37
  44
  51
  59
  67
  76
  86
  96
  106
  118
  129
  142
  154
  168
  182
  196
  211
  227
  243
  260
  277
  295
  314
  334
  354
  376
  398
  421
Working capital, $m
  102
  129
  156
  186
  219
  255
  294
  336
  382
  429
  480
  534
  590
  649
  710
  774
  841
  911
  983
  1,058
  1,136
  1,217
  1,301
  1,389
  1,480
  1,575
  1,673
  1,776
  1,883
  1,995
  2,111
Total debt, $m
  64
  83
  105
  130
  157
  187
  219
  253
  290
  330
  371
  415
  461
  509
  560
  612
  667
  724
  783
  844
  908
  975
  1,044
  1,115
  1,190
  1,268
  1,348
  1,433
  1,520
  1,612
  1,707
Total liabilities, $m
  86
  105
  127
  152
  179
  209
  241
  275
  312
  352
  393
  437
  483
  531
  582
  634
  689
  746
  805
  866
  930
  997
  1,066
  1,137
  1,212
  1,290
  1,370
  1,455
  1,542
  1,634
  1,729
Total equity, $m
  90
  110
  133
  159
  187
  218
  252
  288
  326
  368
  411
  457
  505
  555
  608
  663
  720
  779
  841
  905
  972
  1,042
  1,114
  1,189
  1,267
  1,348
  1,432
  1,520
  1,612
  1,707
  1,807
Total liabilities and equity, $m
  176
  215
  260
  311
  366
  427
  493
  563
  638
  720
  804
  894
  988
  1,086
  1,190
  1,297
  1,409
  1,525
  1,646
  1,771
  1,902
  2,039
  2,180
  2,326
  2,479
  2,638
  2,802
  2,975
  3,154
  3,341
  3,536
Debt-to-equity ratio
  0.711
  0.760
  0.790
  0.820
  0.840
  0.860
  0.870
  0.880
  0.890
  0.900
  0.900
  0.910
  0.910
  0.920
  0.920
  0.920
  0.930
  0.930
  0.930
  0.930
  0.930
  0.940
  0.940
  0.940
  0.940
  0.940
  0.940
  0.940
  0.940
  0.940
  0.940
Adjusted equity ratio
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -6
  3
  14
  27
  41
  56
  73
  91
  111
  132
  154
  179
  203
  229
  256
  284
  314
  344
  376
  409
  443
  479
  516
  555
  595
  637
  681
  727
  774
  824
  875
Depreciation, amort., depletion, $m
  3
  4
  5
  5
  6
  6
  7
  7
  8
  9
  10
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  24
  25
  27
  28
  30
  32
Funds from operations, $m
  34
  7
  19
  32
  46
  62
  80
  99
  119
  140
  163
  187
  212
  239
  267
  296
  326
  358
  391
  425
  460
  497
  536
  576
  618
  661
  706
  753
  802
  854
  907
Change in working capital, $m
  17
  24
  27
  30
  33
  36
  39
  42
  45
  48
  51
  53
  56
  59
  61
  64
  67
  69
  72
  75
  78
  81
  84
  88
  91
  95
  99
  103
  107
  112
  116
Cash from operations, $m
  17
  -17
  -8
  2
  13
  26
  41
  56
  74
  93
  113
  133
  156
  180
  205
  232
  259
  288
  318
  350
  382
  416
  452
  488
  526
  566
  607
  650
  695
  742
  791
Maintenance CAPEX, $m
  0
  -2
  -2
  -2
  -3
  -3
  -4
  -4
  -5
  -6
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -20
  -21
  -22
  -24
  -25
  -27
  -28
  -30
New CAPEX, $m
  -1
  -5
  -5
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
Cash from investing activities, $m
  -34
  -7
  -7
  -8
  -10
  -10
  -12
  -12
  -14
  -16
  -16
  -18
  -19
  -21
  -22
  -24
  -25
  -27
  -28
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -44
  -45
  -48
  -50
  -53
Free cash flow, $m
  -17
  -23
  -15
  -6
  4
  16
  29
  44
  60
  77
  96
  116
  137
  159
  183
  208
  234
  262
  290
  320
  351
  383
  416
  451
  487
  525
  564
  605
  647
  692
  738
Issuance/(repayment) of debt, $m
  21
  19
  22
  25
  27
  30
  32
  35
  37
  39
  42
  44
  46
  48
  50
  52
  55
  57
  59
  62
  64
  66
  69
  72
  75
  78
  81
  84
  88
  91
  95
Issuance/(repurchase) of shares, $m
  -2
  17
  9
  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  
  19
  36
  31
  25
  27
  30
  32
  35
  37
  39
  42
  44
  46
  48
  50
  52
  55
  57
  59
  62
  64
  66
  69
  72
  75
  78
  81
  84
  88
  91
  95
Total cash flow (excl. dividends), $m
  3
  14
  15
  18
  31
  45
  61
  78
  97
  117
  138
  159
  183
  208
  234
  261
  289
  319
  349
  381
  415
  449
  485
  523
  562
  603
  645
  689
  735
  783
  833
Retained Cash Flow (-), $m
  10
  -20
  -23
  -26
  -28
  -31
  -34
  -36
  -39
  -41
  -43
  -46
  -48
  -50
  -53
  -55
  -57
  -59
  -62
  -64
  -67
  -69
  -72
  -75
  -78
  -81
  -84
  -88
  -92
  -95
  -100
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
 
  -6
  -8
  -8
  3
  14
  28
  42
  58
  75
  94
  114
  135
  157
  181
  206
  232
  259
  288
  317
  348
  380
  413
  448
  484
  522
  561
  601
  643
  687
  733
Discount rate, %
 
  9.00
  9.45
  9.92
  10.42
  10.94
  11.49
  12.06
  12.66
  13.30
  13.96
  14.66
  15.39
  16.16
  16.97
  17.82
  18.71
  19.65
  20.63
  21.66
  22.74
  23.88
  25.07
  26.33
  27.64
  29.03
  30.48
  32.00
  33.60
  35.28
  37.05
PV of cash for distribution, $m
 
  -6
  -6
  -6
  2
  9
  14
  19
  22
  25
  25
  25
  24
  22
  20
  18
  15
  12
  10
  8
  6
  4
  3
  2
  1
  1
  1
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  86.0
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6
  80.6

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 -17.8
Price to Sales 0.4
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 6.3
Price to Free Cash Flow 6.7
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 $262 million for the last fiscal year's total revenue generated by Houston Wire&Cable. The default revenue input number comes from 2016 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 22.6% 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%, 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 74%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $76 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 3.5% 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 8%.

Life of production assets of 13.3 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 40.1%. 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 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 16.488 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.

RELATED COMPANIES Price Int.Val. Rating
WCC Wesco Internat 64.10 56.92  hold
AXE Anixter Intern 70.10 139.60  str.buy
GWW W.W. Grainger 223.54 178.97  hold
HDS HD Supply Hold 38.97 27.97  sell
GPC Genuine Parts 93.49 89.41  hold

COMPANY NEWS

▶ 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]
Financial statements of HWCC
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.