Intrinsic value of Hawkins - HWKN

Previous Close

$40.70

  Intrinsic Value

$31.00

stock screener

  Rating & Target

sell

-24%

  Value-price divergence*

-1%

Previous close

$40.70

 
Intrinsic value

$31.00

 
Up/down potential

-24%

 
Rating

sell

 
Value-price divergence*

-1%

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

We calculate the intrinsic value of HWKN 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 2017), $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 0.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  16.91
  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
  4.87
Revenue, $m
  484
  495
  508
  522
  538
  555
  574
  595
  617
  640
  666
  693
  722
  752
  785
  819
  855
  894
  935
  977
  1,023
  1,071
  1,121
  1,174
  1,230
  1,289
  1,351
  1,416
  1,484
  1,557
  1,632
Variable operating expenses, $m
 
  438
  449
  462
  476
  491
  507
  525
  544
  564
  586
  600
  625
  651
  679
  709
  741
  774
  809
  846
  885
  927
  970
  1,016
  1,065
  1,116
  1,169
  1,226
  1,285
  1,348
  1,413
Fixed operating expenses, $m
 
  16
  17
  17
  18
  18
  19
  19
  19
  20
  20
  21
  22
  22
  23
  23
  24
  24
  25
  26
  26
  27
  28
  28
  29
  30
  30
  31
  32
  33
  34
Total operating expenses, $m
  445
  454
  466
  479
  494
  509
  526
  544
  563
  584
  606
  621
  647
  673
  702
  732
  765
  798
  834
  872
  911
  954
  998
  1,044
  1,094
  1,146
  1,199
  1,257
  1,317
  1,381
  1,447
Operating income, $m
  39
  40
  42
  43
  45
  47
  49
  51
  54
  56
  59
  72
  75
  79
  83
  87
  91
  96
  101
  106
  111
  117
  123
  129
  136
  143
  151
  159
  167
  176
  186
EBITDA, $m
  60
  65
  66
  68
  70
  73
  75
  78
  81
  85
  88
  92
  96
  101
  106
  111
  116
  122
  128
  134
  141
  148
  156
  164
  172
  181
  190
  200
  211
  222
  233
Interest expense (income), $m
  2
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  16
  17
  18
Earnings before tax, $m
  36
  37
  38
  39
  41
  43
  44
  46
  49
  51
  54
  66
  69
  72
  76
  79
  83
  87
  91
  96
  101
  106
  111
  117
  123
  130
  136
  143
  151
  159
  167
Tax expense, $m
  13
  10
  10
  11
  11
  11
  12
  13
  13
  14
  14
  18
  19
  20
  20
  21
  22
  24
  25
  26
  27
  29
  30
  32
  33
  35
  37
  39
  41
  43
  45
Net income, $m
  23
  27
  28
  29
  30
  31
  32
  34
  35
  37
  39
  48
  50
  53
  55
  58
  61
  64
  67
  70
  74
  77
  81
  85
  90
  95
  99
  105
  110
  116
  122

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  7
  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
  419
  421
  432
  444
  458
  473
  489
  506
  525
  545
  567
  590
  614
  640
  668
  697
  728
  761
  795
  832
  870
  911
  954
  999
  1,047
  1,097
  1,149
  1,205
  1,263
  1,325
  1,389
Adjusted assets (=assets-cash), $m
  412
  421
  432
  444
  458
  473
  489
  506
  525
  545
  567
  590
  614
  640
  668
  697
  728
  761
  795
  832
  870
  911
  954
  999
  1,047
  1,097
  1,149
  1,205
  1,263
  1,325
  1,389
Revenue / Adjusted assets
  1.175
  1.176
  1.176
  1.176
  1.175
  1.173
  1.174
  1.176
  1.175
  1.174
  1.175
  1.175
  1.176
  1.175
  1.175
  1.175
  1.174
  1.175
  1.176
  1.174
  1.176
  1.176
  1.175
  1.175
  1.175
  1.175
  1.176
  1.175
  1.175
  1.175
  1.175
Average production assets, $m
  199
  203
  209
  215
  221
  228
  236
  244
  253
  263
  274
  285
  297
  309
  322
  337
  352
  367
  384
  402
  420
  440
  461
  483
  505
  530
  555
  582
  610
  640
  671
Working capital, $m
  65
  67
  69
  71
  73
  76
  78
  81
  84
  87
  91
  94
  98
  102
  107
  111
  116
  122
  127
  133
  139
  146
  152
  160
  167
  175
  184
  193
  202
  212
  222
Total debt, $m
  103
  100
  106
  111
  118
  125
  132
  140
  149
  159
  169
  180
  191
  203
  217
  230
  245
  260
  277
  294
  312
  331
  351
  373
  395
  419
  443
  470
  497
  526
  556
Total liabilities, $m
  201
  198
  204
  209
  216
  223
  230
  238
  247
  257
  267
  278
  289
  301
  315
  328
  343
  358
  375
  392
  410
  429
  449
  471
  493
  517
  541
  568
  595
  624
  654
Total equity, $m
  218
  223
  229
  235
  242
  250
  259
  268
  278
  288
  300
  312
  325
  339
  353
  369
  385
  402
  421
  440
  460
  482
  505
  529
  554
  580
  608
  637
  668
  701
  735
Total liabilities and equity, $m
  419
  421
  433
  444
  458
  473
  489
  506
  525
  545
  567
  590
  614
  640
  668
  697
  728
  760
  796
  832
  870
  911
  954
  1,000
  1,047
  1,097
  1,149
  1,205
  1,263
  1,325
  1,389
Debt-to-equity ratio
  0.472
  0.450
  0.460
  0.470
  0.490
  0.500
  0.510
  0.520
  0.540
  0.550
  0.560
  0.580
  0.590
  0.600
  0.610
  0.620
  0.640
  0.650
  0.660
  0.670
  0.680
  0.690
  0.700
  0.700
  0.710
  0.720
  0.730
  0.740
  0.740
  0.750
  0.760
Adjusted equity ratio
  0.512
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529
  0.529

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  23
  27
  28
  29
  30
  31
  32
  34
  35
  37
  39
  48
  50
  53
  55
  58
  61
  64
  67
  70
  74
  77
  81
  85
  90
  95
  99
  105
  110
  116
  122
Depreciation, amort., depletion, $m
  21
  24
  25
  25
  25
  26
  27
  27
  28
  28
  29
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  33
  34
  36
  38
  39
  41
  43
  45
  48
Funds from operations, $m
  44
  51
  52
  54
  55
  57
  59
  61
  63
  66
  68
  68
  71
  75
  78
  82
  86
  90
  94
  99
  103
  109
  114
  120
  126
  132
  139
  146
  153
  161
  170
Change in working capital, $m
  -1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
Cash from operations, $m
  45
  50
  51
  52
  53
  55
  56
  58
  60
  62
  65
  65
  68
  70
  74
  77
  81
  84
  88
  93
  97
  102
  107
  112
  118
  124
  130
  137
  144
  152
  159
Maintenance CAPEX, $m
  0
  -14
  -14
  -15
  -15
  -16
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -38
  -39
  -41
  -43
  -45
New CAPEX, $m
  -22
  -4
  -5
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -30
  -31
Cash from investing activities, $m
  -23
  -18
  -19
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -50
  -52
  -55
  -57
  -60
  -63
  -66
  -69
  -73
  -76
Free cash flow, $m
  22
  31
  31
  31
  31
  32
  32
  33
  34
  35
  36
  34
  36
  37
  38
  40
  42
  44
  46
  48
  50
  53
  55
  58
  61
  64
  67
  71
  75
  79
  83
Issuance/(repayment) of debt, $m
  -27
  4
  5
  6
  6
  7
  8
  8
  9
  9
  10
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  27
  29
  30
Issuance/(repurchase) of shares, $m
  1
  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  
  -26
  4
  5
  6
  6
  7
  8
  8
  9
  9
  10
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  27
  29
  30
Total cash flow (excl. dividends), $m
  -4
  36
  36
  37
  38
  39
  40
  41
  43
  44
  46
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
  72
  75
  79
  83
  88
  92
  97
  102
  108
  113
Retained Cash Flow (-), $m
  -17
  -5
  -6
  -6
  -7
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -34
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
 
  31
  30
  30
  31
  31
  31
  32
  33
  34
  35
  33
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  53
  55
  58
  61
  64
  68
  71
  75
  79
Discount rate, %
 
  5.00
  5.25
  5.51
  5.79
  6.08
  6.38
  6.70
  7.04
  7.39
  7.76
  8.14
  8.55
  8.98
  9.43
  9.90
  10.39
  10.91
  11.46
  12.03
  12.63
  13.27
  13.93
  14.63
  15.36
  16.13
  16.93
  17.78
  18.67
  19.60
  20.58
PV of cash for distribution, $m
 
  29
  27
  26
  24
  23
  22
  20
  19
  18
  16
  14
  13
  12
  10
  9
  8
  7
  6
  5
  4
  4
  3
  2
  2
  1
  1
  1
  1
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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Hawkins, Inc. distributes, blends and manufactures chemicals and specialty ingredients for its customers in a range of industries. The Company conducts its business in three segments: Industrial, Water Treatment, and Health and Nutrition. Its Industrial segment is engaged in providing industrial chemicals, products and services to various industries, such as agriculture, chemical processing, electronics and energy. Its Water Treatment segment is engaged in providing chemicals, equipment and solutions for potable water, municipal and industrial wastewater, industrial process water and non-residential swimming pool water. The Health and Nutrition segment is engaged in providing ingredient distribution, processing and formulation solutions to manufacturers of nutraceutical, functional food and beverage, personal care, dietary supplement and other nutritional food, and health and wellness products.

FINANCIAL RATIOS  of  Hawkins (HWKN)

Valuation Ratios
P/E Ratio 18.7
Price to Sales 0.9
Price to Book 2
Price to Tangible Book
Price to Cash Flow 9.6
Price to Free Cash Flow 18.7
Growth Rates
Sales Growth Rate 16.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -8.3%
Cap. Spend. - 3 Yr. Gr. Rate 12.9%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 43.6%
Total Debt to Equity 47.2%
Interest Coverage 19
Management Effectiveness
Return On Assets 5.7%
Ret/ On Assets - 3 Yr. Avg. 6.3%
Return On Total Capital 7.1%
Ret/ On T. Cap. - 3 Yr. Avg. 8%
Return On Equity 11%
Return On Equity - 3 Yr. Avg. 10.1%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 20.2%
Gross Margin - 3 Yr. Avg. 19.2%
EBITDA Margin 12.2%
EBITDA Margin - 3 Yr. Avg. 11.8%
Operating Margin 8.1%
Oper. Margin - 3 Yr. Avg. 7.9%
Pre-Tax Margin 7.4%
Pre-Tax Margin - 3 Yr. Avg. 7.6%
Net Profit Margin 4.8%
Net Profit Margin - 3 Yr. Avg. 4.8%
Effective Tax Rate 36.1%
Eff/ Tax Rate - 3 Yr. Avg. 37.6%
Payout Ratio 39.1%

HWKN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HWKN stock intrinsic value calculation we used $484 million for the last fiscal year's total revenue generated by Hawkins. The default revenue input number comes from 2017 income statement of Hawkins. 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 HWKN stock valuation model: a) initial revenue growth rate of 2.3% 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 5%, whose default value for HWKN is calculated based on our internal credit rating of Hawkins, 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 Hawkins.
    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 HWKN stock the variable cost ratio is equal to 88.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $16 million in the base year in the intrinsic value calculation for HWKN 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 Hawkins.

Corporate tax rate of 27% is the nominal tax rate for Hawkins. 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 HWKN 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 HWKN are equal to 41.1%.

Life of production assets of 14.1 years is the average useful life of capital assets used in Hawkins 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 HWKN is equal to 13.6%. 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 - $218 million for Hawkins - 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 10.663 million for Hawkins 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 Hawkins at the current share price and the inputted number of shares is $0.4 billion.

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COMPANY NEWS

▶ ETFs with exposure to Hawkins, Inc. : September 25, 2017   [Sep-25-17 10:39AM  Capital Cube]
▶ ETFs with exposure to Hawkins, Inc. : September 1, 2017   [Sep-01-17 07:59PM  Capital Cube]
▶ Hawkins posts 1Q profit   [Aug-09-17 10:31PM  Associated Press]
▶ Hawkins, Inc. Reports First Quarter Fiscal 2018 Results   [Aug-08-17 06:18PM  PR Newswire]
▶ ETFs with exposure to Hawkins, Inc. : June 6, 2017   [Jun-06-17 11:43AM  Capital Cube]
▶ Hawkins posts 4Q profit   [May-31-17 05:12PM  Associated Press]
▶ ETFs with exposure to Hawkins, Inc. : April 5, 2017   [Apr-05-17 04:53PM  Capital Cube]
▶ Hawkins posts 3Q profit   [Feb-08-17 06:58PM  Associated Press]
▶ Hawkins Inc (HWKN): Royce & Associates Lowers Its Stake   [Jan-04-17 10:53AM  Insider Monkey]
▶ Hedge Funds Are Betting On Ring Energy Inc (REI)   [Dec-14-16 08:23AM  Insider Monkey]
▶ CFO of the Year: Kathleen Pepski | Hawkins Inc.   [Nov-28-16 04:01PM  at bizjournals.com]
▶ Best Materials Stocks of 2016   [Jan-06-16 04:40PM  at Motley Fool]
▶ Met Council files Hawkins antitrust lawsuit; more could follow   [Dec-07  05:35PM  at bizjournals.com]
▶ Rochester files antitrust suit against Hawkins Inc.   [Dec-01  06:09PM  at bizjournals.com]
▶ Is Concert Pharmaceuticals Inc (CNCE) A Good Stock To Buy?   [Nov-29  08:35AM  at Insider Monkey]
▶ Is Metro Bancorp Inc (METR) A Good Stock To Buy?   [Nov-26  04:12AM  at Insider Monkey]
▶ Hawkins and BASF sign exclusive distribution agreement   [Aug-24  03:08PM  PR Newswire]
▶ Horizons Exchange Traded Funds Opens the Market   [Aug-13  12:12PM  CNW Group]
Financial statements of HWKN
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.

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