Intrinsic value of Kelly Services, Inc. - KELYA

Previous Close

$25.04

  Intrinsic Value

$16.64

stock screener

  Rating & Target

sell

-34%

Previous close

$25.04

 
Intrinsic value

$16.64

 
Up/down potential

-34%

 
Rating

sell

We calculate the intrinsic value of KELYA 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 1.0

 

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, %
  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
  5,624
  5,754
  5,902
  6,068
  6,251
  6,453
  6,673
  6,911
  7,167
  7,442
  7,737
  8,051
  8,385
  8,740
  9,117
  9,517
  9,940
  10,387
  10,860
  11,359
  11,885
  12,440
  13,026
  13,642
  14,292
  14,975
  15,695
  16,453
  17,249
  18,087
Variable operating expenses, $m
  5,455
  5,581
  5,724
  5,885
  6,063
  6,258
  6,471
  6,701
  6,950
  7,216
  7,492
  7,797
  8,120
  8,464
  8,830
  9,216
  9,626
  10,059
  10,517
  11,000
  11,510
  12,048
  12,614
  13,212
  13,841
  14,503
  15,200
  15,933
  16,705
  17,517
Fixed operating expenses, $m
  82
  84
  85
  87
  89
  91
  93
  95
  97
  99
  102
  104
  106
  108
  111
  113
  116
  118
  121
  124
  126
  129
  132
  135
  138
  141
  144
  147
  150
  154
Total operating expenses, $m
  5,537
  5,665
  5,809
  5,972
  6,152
  6,349
  6,564
  6,796
  7,047
  7,315
  7,594
  7,901
  8,226
  8,572
  8,941
  9,329
  9,742
  10,177
  10,638
  11,124
  11,636
  12,177
  12,746
  13,347
  13,979
  14,644
  15,344
  16,080
  16,855
  17,671
Operating income, $m
  87
  89
  92
  96
  99
  104
  109
  114
  120
  127
  143
  150
  158
  167
  177
  187
  198
  209
  222
  235
  249
  263
  279
  296
  313
  332
  351
  372
  394
  417
EBITDA, $m
  115
  117
  121
  125
  129
  134
  140
  146
  153
  161
  169
  177
  187
  197
  208
  219
  231
  245
  258
  273
  289
  306
  323
  342
  361
  382
  404
  428
  452
  478
Interest expense (income), $m
  3
  0
  1
  3
  5
  6
  8
  11
  13
  16
  19
  22
  25
  29
  33
  37
  41
  45
  50
  55
  61
  66
  72
  78
  85
  92
  99
  107
  115
  124
  133
Earnings before tax, $m
  87
  88
  89
  91
  93
  95
  98
  101
  104
  108
  121
  125
  130
  135
  140
  146
  152
  159
  167
  174
  182
  191
  201
  211
  221
  232
  244
  257
  270
  284
Tax expense, $m
  23
  24
  24
  25
  25
  26
  26
  27
  28
  29
  33
  34
  35
  36
  38
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
  63
  66
  69
  73
  77
Net income, $m
  64
  64
  65
  67
  68
  70
  72
  74
  76
  79
  88
  91
  95
  98
  102
  107
  111
  116
  122
  127
  133
  140
  146
  154
  161
  170
  178
  187
  197
  208

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
  2,361
  2,415
  2,478
  2,547
  2,624
  2,709
  2,801
  2,901
  3,009
  3,124
  3,248
  3,380
  3,520
  3,669
  3,828
  3,995
  4,173
  4,361
  4,559
  4,768
  4,990
  5,223
  5,468
  5,727
  6,000
  6,287
  6,589
  6,907
  7,242
  7,593
Adjusted assets (=assets-cash), $m
  2,361
  2,415
  2,478
  2,547
  2,624
  2,709
  2,801
  2,901
  3,009
  3,124
  3,248
  3,380
  3,520
  3,669
  3,828
  3,995
  4,173
  4,361
  4,559
  4,768
  4,990
  5,223
  5,468
  5,727
  6,000
  6,287
  6,589
  6,907
  7,242
  7,593
Revenue / Adjusted assets
  2.382
  2.383
  2.382
  2.382
  2.382
  2.382
  2.382
  2.382
  2.382
  2.382
  2.382
  2.382
  2.382
  2.382
  2.382
  2.382
  2.382
  2.382
  2.382
  2.382
  2.382
  2.382
  2.382
  2.382
  2.382
  2.382
  2.382
  2.382
  2.382
  2.382
Average production assets, $m
  141
  144
  148
  152
  156
  161
  167
  173
  179
  186
  193
  201
  210
  219
  228
  238
  248
  260
  271
  284
  297
  311
  326
  341
  357
  374
  392
  411
  431
  452
Working capital, $m
  478
  489
  502
  516
  531
  549
  567
  587
  609
  633
  658
  684
  713
  743
  775
  809
  845
  883
  923
  965
  1,010
  1,057
  1,107
  1,160
  1,215
  1,273
  1,334
  1,398
  1,466
  1,537
Total debt, $m
  26
  53
  84
  118
  157
  199
  245
  295
  349
  406
  468
  534
  604
  678
  757
  841
  930
  1,023
  1,122
  1,227
  1,337
  1,453
  1,576
  1,705
  1,841
  1,984
  2,135
  2,294
  2,461
  2,636
Total liabilities, $m
  1,178
  1,205
  1,236
  1,271
  1,310
  1,352
  1,398
  1,448
  1,501
  1,559
  1,621
  1,687
  1,757
  1,831
  1,910
  1,994
  2,082
  2,176
  2,275
  2,379
  2,490
  2,606
  2,729
  2,858
  2,994
  3,137
  3,288
  3,447
  3,614
  3,789
Total equity, $m
  1,183
  1,210
  1,241
  1,276
  1,315
  1,357
  1,404
  1,454
  1,507
  1,565
  1,627
  1,693
  1,764
  1,838
  1,918
  2,002
  2,091
  2,185
  2,284
  2,389
  2,500
  2,617
  2,740
  2,869
  3,006
  3,150
  3,301
  3,460
  3,628
  3,804
Total liabilities and equity, $m
  2,361
  2,415
  2,477
  2,547
  2,625
  2,709
  2,802
  2,902
  3,008
  3,124
  3,248
  3,380
  3,521
  3,669
  3,828
  3,996
  4,173
  4,361
  4,559
  4,768
  4,990
  5,223
  5,469
  5,727
  6,000
  6,287
  6,589
  6,907
  7,242
  7,593
Debt-to-equity ratio
  0.020
  0.040
  0.070
  0.090
  0.120
  0.150
  0.170
  0.200
  0.230
  0.260
  0.290
  0.320
  0.340
  0.370
  0.390
  0.420
  0.440
  0.470
  0.490
  0.510
  0.530
  0.560
  0.580
  0.590
  0.610
  0.630
  0.650
  0.660
  0.680
  0.690
Adjusted equity ratio
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  64
  64
  65
  67
  68
  70
  72
  74
  76
  79
  88
  91
  95
  98
  102
  107
  111
  116
  122
  127
  133
  140
  146
  154
  161
  170
  178
  187
  197
  208
Depreciation, amort., depletion, $m
  28
  28
  29
  29
  30
  30
  31
  32
  33
  34
  26
  27
  28
  30
  31
  32
  34
  35
  37
  38
  40
  42
  44
  46
  48
  51
  53
  56
  58
  61
Funds from operations, $m
  91
  92
  94
  96
  98
  100
  103
  106
  109
  113
  114
  118
  123
  128
  133
  139
  145
  151
  158
  166
  173
  182
  190
  200
  210
  220
  231
  243
  255
  269
Change in working capital, $m
  9
  11
  13
  14
  16
  17
  19
  20
  22
  23
  25
  27
  28
  30
  32
  34
  36
  38
  40
  42
  45
  47
  50
  52
  55
  58
  61
  64
  68
  71
Cash from operations, $m
  82
  81
  81
  81
  82
  83
  84
  85
  87
  89
  89
  92
  95
  98
  101
  105
  109
  113
  118
  123
  129
  134
  141
  147
  154
  162
  170
  179
  188
  197
Maintenance CAPEX, $m
  -19
  -19
  -19
  -20
  -20
  -21
  -22
  -23
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -32
  -34
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -53
  -56
  -58
New CAPEX, $m
  -1
  -3
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
Cash from investing activities, $m
  -20
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -54
  -57
  -59
  -62
  -65
  -69
  -72
  -76
  -79
Free cash flow, $m
  62
  59
  58
  57
  57
  57
  57
  57
  57
  58
  57
  58
  59
  60
  62
  64
  66
  69
  71
  74
  77
  80
  84
  88
  92
  97
  102
  107
  112
  118
Issuance/(repayment) of debt, $m
  23
  27
  31
  35
  39
  42
  46
  50
  54
  58
  62
  66
  70
  74
  79
  84
  89
  94
  99
  105
  110
  116
  123
  129
  136
  143
  151
  159
  167
  176
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  
  23
  27
  31
  35
  39
  42
  46
  50
  54
  58
  62
  66
  70
  74
  79
  84
  89
  94
  99
  105
  110
  116
  123
  129
  136
  143
  151
  159
  167
  176
Total cash flow (excl. dividends), $m
  85
  86
  89
  92
  95
  99
  103
  107
  111
  116
  118
  123
  129
  135
  141
  148
  155
  162
  170
  179
  187
  197
  207
  217
  228
  240
  252
  265
  279
  294
Retained Cash Flow (-), $m
  -23
  -27
  -31
  -35
  -39
  -42
  -46
  -50
  -54
  -58
  -62
  -66
  -70
  -75
  -79
  -84
  -89
  -94
  -99
  -105
  -111
  -117
  -123
  -130
  -137
  -144
  -151
  -159
  -168
  -176
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
  62
  59
  58
  57
  57
  57
  57
  57
  57
  58
  56
  57
  59
  60
  62
  64
  66
  68
  71
  74
  77
  80
  84
  87
  92
  96
  101
  106
  112
  117
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
  59
  54
  50
  47
  44
  41
  38
  36
  33
  30
  27
  25
  22
  20
  18
  16
  14
  13
  11
  9
  8
  7
  5
  4
  4
  3
  2
  2
  1
  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

Kelly Services, Inc. is a workforce solutions provider, which is engaged in offering a range of specialty services. The Company provides workforce solutions in three regions: the Americas; Europe, the Middle East and Africa (EMEA), and Asia Pacific (APAC). The Company's segments are Americas Commercial, Americas Professional and Technical (Americas PT), EMEA Commercial, EMEA Professional and Technical (EMEA PT), and Outsourcing and Consulting Group (OCG). The Americas Commercial segment includes Office, Contact Center, Education, Marketing and Electronic Assembly. The Americas PT segment includes a range of specialty staffing services. The EMEA Commercial segment provides a range of staffing services, including Office, Contact Center and its temporary-to-hire service. The EMEA PT segment provides Engineering, Finance and Accounting services. The OCG segment delivers talent management solutions across multiple regions, skill sets and a spectrum of talent categories.

FINANCIAL RATIOS  of  Kelly Services, Inc. (KELYA)

Valuation Ratios
P/E Ratio 7.9
Price to Sales 0.2
Price to Book 0.9
Price to Tangible Book
Price to Cash Flow 25.9
Price to Free Cash Flow 39.9
Growth Rates
Sales Growth Rate -4.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -23.5%
Cap. Spend. - 3 Yr. Gr. Rate -8.3%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 51
Management Effectiveness
Return On Assets 6.2%
Ret/ On Assets - 3 Yr. Avg. 3.5%
Return On Total Capital 12.3%
Ret/ On T. Cap. - 3 Yr. Avg. 6.9%
Return On Equity 12.7%
Return On Equity - 3 Yr. Avg. 7.3%
Asset Turnover 2.7
Profitability Ratios
Gross Margin 17.2%
Gross Margin - 3 Yr. Avg. 16.7%
EBITDA Margin 3.3%
EBITDA Margin - 3 Yr. Avg. 1.9%
Operating Margin 1.2%
Oper. Margin - 3 Yr. Avg. 0.9%
Pre-Tax Margin 2.8%
Pre-Tax Margin - 3 Yr. Avg. 1.4%
Net Profit Margin 2.3%
Net Profit Margin - 3 Yr. Avg. 1.2%
Effective Tax Rate 20%
Eff/ Tax Rate - 3 Yr. Avg. -1.4%
Payout Ratio 9.1%

KELYA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KELYA stock intrinsic value calculation we used $5514 million for the last fiscal year's total revenue generated by Kelly Services, Inc.. The default revenue input number comes from 0001 income statement of Kelly 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 KELYA 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 KELYA is calculated based on our internal credit rating of Kelly 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 Kelly 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 KELYA stock the variable cost ratio is equal to 97%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $80 million in the base year in the intrinsic value calculation for KELYA 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 Kelly Services, Inc..

Corporate tax rate of 27% is the nominal tax rate for Kelly 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 KELYA 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 KELYA are equal to 2.5%.

Life of production assets of 7.4 years is the average useful life of capital assets used in Kelly 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 KELYA is equal to 8.5%. 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 - $1159.5 million for Kelly 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 38.872 million for Kelly 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 Kelly Services, Inc. at the current share price and the inputted number of shares is $1.0 billion.

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