Intrinsic value of Kadant - KAI

Previous Close

$101.65

  Intrinsic Value

$62.68

stock screener

  Rating & Target

sell

-38%

  Value-price divergence*

-52%

Previous close

$101.65

 
Intrinsic value

$62.68

 
Up/down potential

-38%

 
Rating

sell

 
Value-price divergence*

-52%

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

We calculate the intrinsic value of KAI 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 1.1

 

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, %
  6.15
  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
  414
  422
  432
  443
  456
  469
  485
  501
  519
  538
  559
  581
  604
  630
  656
  685
  715
  746
  780
  815
  853
  892
  934
  978
  1,024
  1,073
  1,124
  1,178
  1,235
  1,295
  1,358
Variable operating expenses, $m
 
  368
  376
  385
  396
  407
  420
  434
  449
  465
  482
  485
  505
  526
  548
  572
  597
  624
  652
  681
  713
  746
  780
  817
  856
  897
  939
  985
  1,032
  1,082
  1,135
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
  369
  368
  376
  385
  396
  407
  420
  434
  449
  465
  482
  485
  505
  526
  548
  572
  597
  624
  652
  681
  713
  746
  780
  817
  856
  897
  939
  985
  1,032
  1,082
  1,135
Operating income, $m
  46
  54
  56
  58
  60
  62
  65
  67
  70
  73
  77
  96
  99
  104
  108
  113
  118
  123
  128
  134
  140
  147
  154
  161
  168
  176
  185
  194
  203
  213
  223
EBITDA, $m
  60
  75
  77
  79
  81
  84
  86
  89
  92
  96
  99
  103
  108
  112
  117
  122
  127
  133
  139
  145
  152
  159
  166
  174
  182
  191
  200
  210
  220
  230
  242
Interest expense (income), $m
  1
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  13
  13
  14
  15
  16
Earnings before tax, $m
  45
  52
  54
  55
  57
  59
  61
  64
  67
  69
  73
  91
  95
  98
  102
  106
  111
  116
  121
  126
  132
  138
  144
  150
  157
  165
  172
  180
  189
  198
  207
Tax expense, $m
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  25
  26
  27
  28
  29
  30
  31
  33
  34
  36
  37
  39
  41
  42
  44
  47
  49
  51
  53
  56
Net income, $m
  32
  38
  39
  40
  42
  43
  45
  47
  49
  51
  53
  66
  69
  72
  75
  78
  81
  84
  88
  92
  96
  100
  105
  110
  115
  120
  126
  132
  138
  144
  151

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  71
  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
  471
  408
  417
  428
  440
  453
  468
  484
  501
  520
  540
  561
  584
  608
  634
  661
  690
  721
  753
  788
  824
  862
  902
  945
  990
  1,037
  1,086
  1,139
  1,194
  1,251
  1,312
Adjusted assets (=assets-cash), $m
  400
  408
  417
  428
  440
  453
  468
  484
  501
  520
  540
  561
  584
  608
  634
  661
  690
  721
  753
  788
  824
  862
  902
  945
  990
  1,037
  1,086
  1,139
  1,194
  1,251
  1,312
Revenue / Adjusted assets
  1.035
  1.034
  1.036
  1.035
  1.036
  1.035
  1.036
  1.035
  1.036
  1.035
  1.035
  1.036
  1.034
  1.036
  1.035
  1.036
  1.036
  1.035
  1.036
  1.034
  1.035
  1.035
  1.035
  1.035
  1.034
  1.035
  1.035
  1.034
  1.034
  1.035
  1.035
Average production assets, $m
  90
  92
  94
  96
  99
  102
  105
  109
  113
  117
  121
  126
  131
  137
  142
  149
  155
  162
  169
  177
  185
  194
  203
  212
  222
  233
  244
  256
  268
  281
  295
Working capital, $m
  118
  49
  50
  51
  53
  54
  56
  58
  60
  62
  65
  67
  70
  73
  76
  79
  83
  87
  90
  95
  99
  104
  108
  113
  119
  124
  130
  137
  143
  150
  158
Total debt, $m
  66
  69
  73
  78
  84
  90
  97
  104
  112
  121
  130
  140
  151
  162
  174
  187
  200
  215
  230
  246
  263
  281
  299
  319
  340
  362
  385
  410
  435
  462
  491
Total liabilities, $m
  188
  191
  195
  200
  206
  212
  219
  226
  234
  243
  252
  262
  273
  284
  296
  309
  322
  337
  352
  368
  385
  403
  421
  441
  462
  484
  507
  532
  557
  584
  613
Total equity, $m
  283
  217
  222
  228
  235
  242
  250
  258
  267
  277
  288
  299
  311
  324
  338
  353
  368
  384
  402
  420
  439
  460
  481
  504
  527
  553
  579
  607
  636
  667
  699
Total liabilities and equity, $m
  471
  408
  417
  428
  441
  454
  469
  484
  501
  520
  540
  561
  584
  608
  634
  662
  690
  721
  754
  788
  824
  863
  902
  945
  989
  1,037
  1,086
  1,139
  1,193
  1,251
  1,312
Debt-to-equity ratio
  0.233
  0.320
  0.330
  0.340
  0.360
  0.370
  0.390
  0.400
  0.420
  0.440
  0.450
  0.470
  0.480
  0.500
  0.520
  0.530
  0.540
  0.560
  0.570
  0.590
  0.600
  0.610
  0.620
  0.630
  0.640
  0.660
  0.670
  0.680
  0.680
  0.690
  0.700
Adjusted equity ratio
  0.530
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533
  0.533

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  32
  38
  39
  40
  42
  43
  45
  47
  49
  51
  53
  66
  69
  72
  75
  78
  81
  84
  88
  92
  96
  100
  105
  110
  115
  120
  126
  132
  138
  144
  151
Depreciation, amort., depletion, $m
  14
  21
  21
  21
  21
  21
  22
  22
  22
  22
  23
  8
  8
  8
  9
  9
  10
  10
  11
  11
  11
  12
  13
  13
  14
  14
  15
  16
  17
  17
  18
Funds from operations, $m
  50
  59
  60
  61
  63
  65
  66
  69
  71
  73
  76
  74
  77
  80
  83
  87
  91
  95
  99
  103
  108
  112
  118
  123
  129
  135
  141
  148
  154
  162
  170
Change in working capital, $m
  -1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
Cash from operations, $m
  51
  58
  59
  60
  61
  63
  65
  67
  69
  71
  73
  72
  74
  77
  80
  84
  87
  91
  95
  99
  103
  108
  113
  118
  123
  129
  135
  141
  148
  155
  162
Maintenance CAPEX, $m
  0
  -6
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -17
  -17
New CAPEX, $m
  -6
  -2
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
Cash from investing activities, $m
  -62
  -8
  -8
  -8
  -9
  -9
  -9
  -11
  -11
  -11
  -11
  -13
  -13
  -13
  -14
  -15
  -16
  -17
  -17
  -19
  -19
  -20
  -21
  -23
  -23
  -25
  -25
  -27
  -28
  -30
  -31
Free cash flow, $m
  -11
  51
  51
  52
  53
  54
  55
  56
  58
  60
  61
  59
  61
  64
  66
  69
  71
  74
  77
  81
  84
  88
  92
  96
  100
  105
  109
  114
  120
  125
  131
Issuance/(repayment) of debt, $m
  51
  4
  4
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  11
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
Issuance/(repurchase) of shares, $m
  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
  0
  0
Cash from financing (excl. dividends), $m  
  31
  4
  4
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  11
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
Total cash flow (excl. dividends), $m
  14
  54
  55
  57
  58
  60
  62
  64
  66
  68
  71
  69
  72
  75
  78
  81
  85
  89
  93
  97
  101
  106
  110
  116
  121
  127
  133
  139
  145
  152
  160
Retained Cash Flow (-), $m
  -16
  -4
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -26
  -28
  -29
  -31
  -32
Prev. year cash balance distribution, $m
 
  70
  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
 
  120
  50
  51
  52
  53
  54
  55
  57
  58
  60
  58
  60
  62
  64
  67
  70
  72
  75
  78
  82
  85
  89
  93
  97
  101
  106
  111
  116
  121
  127
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
 
  115
  46
  45
  43
  41
  39
  37
  36
  34
  32
  28
  26
  24
  22
  20
  18
  16
  14
  12
  10
  9
  7
  6
  5
  4
  3
  2
  2
  1
  1
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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Kadant Inc. is a supplier of equipment and components used in process industries. In addition, the Company manufactures granules made from papermaking by-products. Its segments include Papermaking Systems and Wood Processing Systems. The Company has a customer base, which includes paper and oriented strand board (OSB) manufacturers. Papermaking Systems segment is engaged in developing, manufacturing, and marketing equipment for the global papermaking and paper recycling industries. Its Papermaking Systems segment consists of product lines, including Stock-Preparation; Doctoring, Cleaning, & Filtration, and Fluid-Handling. The Company develops, manufactures and markets stranders and related equipment used in the production of OSB.

FINANCIAL RATIOS  of  Kadant (KAI)

Valuation Ratios
P/E Ratio 34.8
Price to Sales 2.7
Price to Book 3.9
Price to Tangible Book
Price to Cash Flow 21.8
Price to Free Cash Flow 24.7
Growth Rates
Sales Growth Rate 6.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 20%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio 71
Current Ratio 0.1
LT Debt to Equity 23%
Total Debt to Equity 23.3%
Interest Coverage 46
Management Effectiveness
Return On Assets 7.4%
Ret/ On Assets - 3 Yr. Avg. 7.6%
Return On Total Capital 9.9%
Ret/ On T. Cap. - 3 Yr. Avg. 10.4%
Return On Equity 11.6%
Return On Equity - 3 Yr. Avg. 11.8%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 45.4%
Gross Margin - 3 Yr. Avg. 45.3%
EBITDA Margin 14.5%
EBITDA Margin - 3 Yr. Avg. 14.5%
Operating Margin 10.9%
Oper. Margin - 3 Yr. Avg. 11.4%
Pre-Tax Margin 10.9%
Pre-Tax Margin - 3 Yr. Avg. 11.3%
Net Profit Margin 7.7%
Net Profit Margin - 3 Yr. Avg. 7.9%
Effective Tax Rate 28.9%
Eff/ Tax Rate - 3 Yr. Avg. 29.5%
Payout Ratio 25%

KAI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KAI stock intrinsic value calculation we used $414 million for the last fiscal year's total revenue generated by Kadant. The default revenue input number comes from 2016 income statement of Kadant. 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 KAI 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 4.3%, whose default value for KAI is calculated based on our internal credit rating of Kadant, 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 Kadant.
    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 KAI stock the variable cost ratio is equal to 87.2%.

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 KAI 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 Kadant.

Corporate tax rate of 27% is the nominal tax rate for Kadant. 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 KAI 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 KAI are equal to 21.7%.

Life of production assets of 16.1 years is the average useful life of capital assets used in Kadant 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 KAI is equal to 11.6%. 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 - $283 million for Kadant - 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 11.123 million for Kadant 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 Kadant at the current share price and the inputted number of shares is $1.1 billion.

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COMPANY NEWS

▶ ETFs with exposure to Kadant, Inc. : October 16, 2017   [Oct-16-17 09:55AM  Capital Cube]
▶ ETFs with exposure to Kadant, Inc. : October 3, 2017   [Oct-03-17 11:21AM  Capital Cube]
▶ Kadant Declares Cash Dividend   [Sep-20-17 04:50PM  Business Wire]
▶ Kadant Acquires a Leading Expansion Joint Manufacturer   [Aug-14-17 04:46PM  Business Wire]
▶ Kadant beats 2Q profit forecasts   [Aug-01-17 11:28PM  Associated Press]
▶ Kadant beats 2Q profit forecasts   [06:26PM  Associated Press]
▶ Kadant Reports 2017 Second Quarter Results   [04:09PM  Business Wire]
▶ ETFs with exposure to Kadant, Inc. : June 22, 2017   [Jun-22-17 03:55PM  Capital Cube]
▶ Kadant to Acquire NII FPG Companys Forest Products Business   [May-30-17 04:25PM  Business Wire]
▶ Kadant Declares Cash Dividend   [May-17-17 04:28PM  Business Wire]
▶ Kadant Authorizes Share Repurchase   [04:24PM  Business Wire]
▶ Why Kadant Stock Jumped 18% This Morning   [May-03-17 01:28PM  Motley Fool]
▶ Kadant tops Street 1Q forecasts   [May-02-17 06:10PM  Associated Press]
▶ Kadant Reports 2017 First Quarter Results   [04:04PM  Business Wire]
▶ Kadant, Inc. Value Analysis (NYSE:KAI) : April 24, 2017   [Apr-24-17 03:29PM  Capital Cube]
▶ Kadant Declares Cash Dividend   [Mar-08-17 05:14PM  Business Wire]
▶ Kadant Expands PAAL Business into North America   [Jan-26-17 09:27AM  Business Wire]
▶ Is Kforce Inc. (KFRC) A Good Stock To Buy?   [Dec-12-16 08:52AM  at Insider Monkey]
▶ Hedge Funds Arent Crazy About Kadant Inc. (KAI) Anymore   [Dec-07-16 06:46AM  at Insider Monkey]
▶ Kadant to Host Its First Investor Day on December 1, 2016   [Nov-28-16 04:44PM  Business Wire]
▶ Kadant Declares Cash Dividend   [Nov-16-16 04:45PM  Business Wire]
▶ Kadant Declares Cash Dividend   [Sep-14-16 05:05PM  Business Wire]
Financial statements of KAI
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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