Intrinsic value of KAR Auction Services, Inc - KAR

Previous Close

$62.53

  Intrinsic Value

$50.53

stock screener

  Rating & Target

hold

-19%

Previous close

$62.53

 
Intrinsic value

$50.53

 
Up/down potential

-19%

 
Rating

hold

We calculate the intrinsic value of KAR 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 8.3

 

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, %
  4.30
  4.37
  4.43
  4.49
  4.54
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.80
  4.82
  4.84
  4.86
  4.87
  4.88
  4.89
  4.91
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
  4.96
  4.97
Revenue, $m
  3,932
  4,104
  4,286
  4,478
  4,682
  4,896
  5,123
  5,362
  5,614
  5,879
  6,159
  6,453
  6,763
  7,089
  7,433
  7,794
  8,173
  8,572
  8,992
  9,433
  9,896
  10,384
  10,896
  11,434
  11,999
  12,593
  13,217
  13,872
  14,561
  15,284
Variable operating expenses, $m
  3,181
  3,307
  3,441
  3,582
  3,732
  3,890
  4,057
  4,233
  4,418
  4,613
  4,531
  4,748
  4,976
  5,216
  5,468
  5,734
  6,013
  6,307
  6,616
  6,940
  7,281
  7,640
  8,016
  8,412
  8,828
  9,265
  9,724
  10,207
  10,713
  11,245
Fixed operating expenses, $m
  87
  89
  91
  93
  95
  97
  99
  101
  103
  106
  108
  110
  113
  115
  118
  120
  123
  126
  129
  131
  134
  137
  140
  143
  146
  150
  153
  156
  160
  163
Total operating expenses, $m
  3,268
  3,396
  3,532
  3,675
  3,827
  3,987
  4,156
  4,334
  4,521
  4,719
  4,639
  4,858
  5,089
  5,331
  5,586
  5,854
  6,136
  6,433
  6,745
  7,071
  7,415
  7,777
  8,156
  8,555
  8,974
  9,415
  9,877
  10,363
  10,873
  11,408
Operating income, $m
  665
  708
  754
  803
  855
  910
  967
  1,028
  1,093
  1,161
  1,520
  1,595
  1,674
  1,758
  1,846
  1,939
  2,037
  2,140
  2,248
  2,361
  2,481
  2,607
  2,739
  2,878
  3,024
  3,178
  3,340
  3,510
  3,688
  3,876
EBITDA, $m
  1,128
  1,179
  1,233
  1,291
  1,351
  1,416
  1,484
  1,555
  1,631
  1,711
  1,795
  1,883
  1,976
  2,075
  2,178
  2,287
  2,402
  2,522
  2,649
  2,783
  2,923
  3,070
  3,226
  3,389
  3,560
  3,740
  3,930
  4,129
  4,338
  4,558
Interest expense (income), $m
  125
  192
  210
  229
  249
  270
  292
  316
  341
  367
  395
  424
  454
  487
  521
  556
  594
  634
  675
  719
  765
  814
  864
  918
  974
  1,033
  1,095
  1,160
  1,229
  1,301
  1,376
Earnings before tax, $m
  473
  498
  525
  554
  585
  617
  651
  688
  726
  766
  1,096
  1,141
  1,188
  1,237
  1,290
  1,345
  1,403
  1,464
  1,528
  1,596
  1,667
  1,742
  1,821
  1,904
  1,991
  2,083
  2,179
  2,281
  2,387
  2,499
Tax expense, $m
  128
  135
  142
  150
  158
  167
  176
  186
  196
  207
  296
  308
  321
  334
  348
  363
  379
  395
  413
  431
  450
  470
  492
  514
  538
  562
  588
  616
  645
  675
Net income, $m
  345
  364
  384
  405
  427
  451
  476
  502
  530
  559
  800
  833
  867
  903
  942
  982
  1,024
  1,069
  1,116
  1,165
  1,217
  1,272
  1,329
  1,390
  1,454
  1,521
  1,591
  1,665
  1,743
  1,825

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
  7,518
  7,847
  8,195
  8,563
  8,952
  9,362
  9,795
  10,252
  10,734
  11,242
  11,776
  12,339
  12,932
  13,555
  14,211
  14,902
  15,627
  16,390
  17,193
  18,036
  18,923
  19,854
  20,833
  21,862
  22,943
  24,078
  25,271
  26,525
  27,841
  29,224
Adjusted assets (=assets-cash), $m
  7,518
  7,847
  8,195
  8,563
  8,952
  9,362
  9,795
  10,252
  10,734
  11,242
  11,776
  12,339
  12,932
  13,555
  14,211
  14,902
  15,627
  16,390
  17,193
  18,036
  18,923
  19,854
  20,833
  21,862
  22,943
  24,078
  25,271
  26,525
  27,841
  29,224
Revenue / Adjusted assets
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
Average production assets, $m
  2,493
  2,602
  2,717
  2,839
  2,968
  3,104
  3,248
  3,399
  3,559
  3,728
  3,905
  4,091
  4,288
  4,495
  4,712
  4,941
  5,182
  5,435
  5,701
  5,980
  6,274
  6,583
  6,908
  7,249
  7,607
  7,984
  8,380
  8,795
  9,232
  9,690
Working capital, $m
  354
  369
  386
  403
  421
  441
  461
  483
  505
  529
  554
  581
  609
  638
  669
  701
  736
  771
  809
  849
  891
  935
  981
  1,029
  1,080
  1,133
  1,190
  1,249
  1,310
  1,376
Total debt, $m
  2,918
  3,179
  3,457
  3,750
  4,060
  4,387
  4,732
  5,097
  5,480
  5,885
  6,311
  6,760
  7,232
  7,729
  8,252
  8,802
  9,380
  9,989
  10,628
  11,300
  12,007
  12,749
  13,529
  14,349
  15,211
  16,116
  17,067
  18,066
  19,115
  20,217
Total liabilities, $m
  5,992
  6,254
  6,531
  6,824
  7,134
  7,462
  7,807
  8,171
  8,555
  8,960
  9,386
  9,834
  10,307
  10,804
  11,327
  11,877
  12,455
  13,063
  13,703
  14,375
  15,081
  15,824
  16,604
  17,424
  18,285
  19,191
  20,141
  21,140
  22,190
  23,292
Total equity, $m
  1,526
  1,593
  1,664
  1,738
  1,817
  1,901
  1,988
  2,081
  2,179
  2,282
  2,391
  2,505
  2,625
  2,752
  2,885
  3,025
  3,172
  3,327
  3,490
  3,661
  3,841
  4,030
  4,229
  4,438
  4,657
  4,888
  5,130
  5,385
  5,652
  5,933
Total liabilities and equity, $m
  7,518
  7,847
  8,195
  8,562
  8,951
  9,363
  9,795
  10,252
  10,734
  11,242
  11,777
  12,339
  12,932
  13,556
  14,212
  14,902
  15,627
  16,390
  17,193
  18,036
  18,922
  19,854
  20,833
  21,862
  22,942
  24,079
  25,271
  26,525
  27,842
  29,225
Debt-to-equity ratio
  1.910
  2.000
  2.080
  2.160
  2.230
  2.310
  2.380
  2.450
  2.520
  2.580
  2.640
  2.700
  2.750
  2.810
  2.860
  2.910
  2.960
  3.000
  3.050
  3.090
  3.130
  3.160
  3.200
  3.230
  3.270
  3.300
  3.330
  3.360
  3.380
  3.410
Adjusted equity ratio
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  345
  364
  384
  405
  427
  451
  476
  502
  530
  559
  800
  833
  867
  903
  942
  982
  1,024
  1,069
  1,116
  1,165
  1,217
  1,272
  1,329
  1,390
  1,454
  1,521
  1,591
  1,665
  1,743
  1,825
Depreciation, amort., depletion, $m
  463
  471
  479
  487
  497
  506
  516
  527
  538
  550
  275
  288
  302
  317
  332
  348
  365
  383
  401
  421
  442
  464
  486
  510
  536
  562
  590
  619
  650
  682
Funds from operations, $m
  808
  834
  862
  892
  924
  957
  992
  1,029
  1,068
  1,109
  1,075
  1,121
  1,169
  1,220
  1,273
  1,330
  1,389
  1,452
  1,517
  1,586
  1,659
  1,736
  1,816
  1,900
  1,989
  2,083
  2,181
  2,284
  2,393
  2,507
Change in working capital, $m
  15
  15
  16
  17
  18
  19
  20
  22
  23
  24
  25
  26
  28
  29
  31
  32
  34
  36
  38
  40
  42
  44
  46
  48
  51
  53
  56
  59
  62
  65
Cash from operations, $m
  794
  819
  846
  875
  905
  937
  971
  1,007
  1,045
  1,085
  1,050
  1,094
  1,141
  1,191
  1,243
  1,297
  1,355
  1,416
  1,479
  1,547
  1,617
  1,692
  1,770
  1,852
  1,938
  2,029
  2,125
  2,225
  2,331
  2,442
Maintenance CAPEX, $m
  -168
  -176
  -183
  -191
  -200
  -209
  -219
  -229
  -239
  -251
  -263
  -275
  -288
  -302
  -317
  -332
  -348
  -365
  -383
  -401
  -421
  -442
  -464
  -486
  -510
  -536
  -562
  -590
  -619
  -650
New CAPEX, $m
  -103
  -109
  -115
  -122
  -129
  -136
  -144
  -152
  -160
  -168
  -177
  -187
  -196
  -207
  -218
  -229
  -241
  -253
  -266
  -280
  -294
  -309
  -325
  -341
  -358
  -377
  -396
  -416
  -437
  -459
Cash from investing activities, $m
  -271
  -285
  -298
  -313
  -329
  -345
  -363
  -381
  -399
  -419
  -440
  -462
  -484
  -509
  -535
  -561
  -589
  -618
  -649
  -681
  -715
  -751
  -789
  -827
  -868
  -913
  -958
  -1,006
  -1,056
  -1,109
Free cash flow, $m
  523
  534
  547
  561
  576
  592
  609
  627
  646
  666
  610
  633
  657
  682
  708
  737
  766
  798
  831
  866
  902
  941
  982
  1,024
  1,070
  1,117
  1,167
  1,220
  1,275
  1,333
Issuance/(repayment) of debt, $m
  250
  262
  277
  293
  310
  327
  345
  364
  384
  405
  426
  449
  472
  497
  523
  550
  578
  608
  639
  672
  707
  743
  780
  820
  861
  905
  951
  999
  1,049
  1,102
Issuance/(repurchase) of shares, $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 from financing (excl. dividends), $m  
  250
  262
  277
  293
  310
  327
  345
  364
  384
  405
  426
  449
  472
  497
  523
  550
  578
  608
  639
  672
  707
  743
  780
  820
  861
  905
  951
  999
  1,049
  1,102
Total cash flow (excl. dividends), $m
  773
  796
  825
  855
  886
  919
  954
  991
  1,030
  1,071
  1,036
  1,081
  1,129
  1,179
  1,231
  1,287
  1,345
  1,406
  1,470
  1,538
  1,609
  1,683
  1,762
  1,844
  1,931
  2,022
  2,118
  2,219
  2,324
  2,435
Retained Cash Flow (-), $m
  -62
  -67
  -71
  -75
  -79
  -83
  -88
  -93
  -98
  -103
  -109
  -114
  -120
  -127
  -133
  -140
  -147
  -155
  -163
  -171
  -180
  -189
  -199
  -209
  -219
  -231
  -242
  -254
  -267
  -281
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
  711
  730
  754
  780
  807
  836
  866
  899
  932
  968
  928
  967
  1,009
  1,052
  1,098
  1,147
  1,197
  1,251
  1,307
  1,367
  1,429
  1,494
  1,563
  1,636
  1,712
  1,792
  1,876
  1,964
  2,057
  2,155
Discount rate, %
  7.10
  7.46
  7.83
  8.22
  8.63
  9.06
  9.51
  9.99
  10.49
  11.01
  11.57
  12.14
  12.75
  13.39
  14.06
  14.76
  15.50
  16.27
  17.09
  17.94
  18.84
  19.78
  20.77
  21.81
  22.90
  24.04
  25.25
  26.51
  27.83
  29.22
PV of cash for distribution, $m
  664
  632
  602
  569
  534
  497
  459
  419
  380
  340
  278
  244
  212
  181
  153
  127
  103
  83
  65
  50
  38
  28
  20
  14
  10
  7
  4
  3
  2
  1
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

KAR Auction Services, Inc. is a provider of whole car auction services in North America, and salvage auction services in North America and the United Kingdom. The Company operates through three segments: ADESA, Inc. (ADESA Auctions or ADESA), Insurance Auto Auctions, Inc. (IAA) and Automotive Finance Corporation (AFC). The ADESA segment is a provider of whole car auctions and related services to the vehicle remarketing industry in North America. It serves its customer base through online auctions and auction facilities that are developed and located to draw professional sellers and buyers together, and allow the buyers to inspect and compare vehicles remotely or in person. As a provider of salvage vehicle auctions and related services, it operates as IAA in the United States and Impact Auto Auctions in Canada, and serves customer base through salvage auction locations throughout North America. The AFC segment provides floorplan financing to independent used vehicle dealers.

FINANCIAL RATIOS  of  KAR Auction Services, Inc (KAR)

Valuation Ratios
P/E Ratio 38.5
Price to Sales 2.7
Price to Book 6.1
Price to Tangible Book
Price to Cash Flow 23.7
Price to Free Cash Flow 41.5
Growth Rates
Sales Growth Rate 17.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 14.8%
Cap. Spend. - 3 Yr. Gr. Rate 9.8%
Financial Strength
Quick Ratio 2
Current Ratio 0.1
LT Debt to Equity 169.3%
Total Debt to Equity 176.8%
Interest Coverage 4
Management Effectiveness
Return On Assets 4.9%
Ret/ On Assets - 3 Yr. Avg. 4.6%
Return On Total Capital 6.2%
Ret/ On T. Cap. - 3 Yr. Avg. 6%
Return On Equity 16%
Return On Equity - 3 Yr. Avg. 13.9%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 42%
Gross Margin - 3 Yr. Avg. 42.6%
EBITDA Margin 22.9%
EBITDA Margin - 3 Yr. Avg. 22.9%
Operating Margin 15.7%
Oper. Margin - 3 Yr. Avg. 15.3%
Pre-Tax Margin 11.3%
Pre-Tax Margin - 3 Yr. Avg. 11.6%
Net Profit Margin 7%
Net Profit Margin - 3 Yr. Avg. 7.3%
Effective Tax Rate 37.5%
Eff/ Tax Rate - 3 Yr. Avg. 36.9%
Payout Ratio 70.7%

KAR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KAR stock intrinsic value calculation we used $3770 million for the last fiscal year's total revenue generated by KAR Auction Services, Inc. The default revenue input number comes from 0001 income statement of KAR Auction Services, Inc. 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 KAR stock valuation model: a) initial revenue growth rate of 4.3% 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 7.1%, whose default value for KAR is calculated based on our internal credit rating of KAR Auction Services, Inc, 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 KAR Auction Services, Inc.
    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 KAR stock the variable cost ratio is equal to 81.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $85 million in the base year in the intrinsic value calculation for KAR 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 7.2% for KAR Auction Services, Inc.

Corporate tax rate of 27% is the nominal tax rate for KAR Auction Services, Inc. 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 KAR 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 KAR are equal to 63.4%.

Life of production assets of 14.2 years is the average useful life of capital assets used in KAR Auction Services, Inc 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 KAR is equal to 9%. 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 - $1464.2 million for KAR Auction Services, Inc - 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 132.993 million for KAR Auction Services, Inc 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 KAR Auction Services, Inc at the current share price and the inputted number of shares is $8.3 billion.

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