Intrinsic value of Kforce, Inc. - KFRC

Previous Close

$35.95

  Intrinsic Value

$50.79

stock screener

  Rating & Target

buy

+41%

Previous close

$35.95

 
Intrinsic value

$50.79

 
Up/down potential

+41%

 
Rating

buy

We calculate the intrinsic value of KFRC 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 0.9

 

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, %
  4.50
  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
  4.89
  4.90
  4.91
  4.92
  4.92
  4.93
  4.94
  4.95
  4.95
  4.96
  4.96
  4.96
  4.97
  4.97
  4.97
  4.98
Revenue, $m
  1,482
  1,549
  1,620
  1,696
  1,775
  1,858
  1,946
  2,039
  2,136
  2,239
  2,347
  2,461
  2,580
  2,706
  2,838
  2,977
  3,123
  3,277
  3,438
  3,608
  3,786
  3,973
  4,170
  4,377
  4,594
  4,822
  5,062
  5,313
  5,577
  5,855
Variable operating expenses, $m
  1,169
  1,222
  1,278
  1,337
  1,399
  1,465
  1,534
  1,607
  1,684
  1,765
  1,846
  1,935
  2,029
  2,128
  2,232
  2,342
  2,456
  2,577
  2,704
  2,838
  2,978
  3,125
  3,280
  3,442
  3,613
  3,792
  3,981
  4,179
  4,386
  4,605
Fixed operating expenses, $m
  228
  233
  238
  243
  249
  254
  260
  265
  271
  277
  283
  290
  296
  302
  309
  316
  323
  330
  337
  345
  352
  360
  368
  376
  384
  393
  401
  410
  419
  428
Total operating expenses, $m
  1,397
  1,455
  1,516
  1,580
  1,648
  1,719
  1,794
  1,872
  1,955
  2,042
  2,129
  2,225
  2,325
  2,430
  2,541
  2,658
  2,779
  2,907
  3,041
  3,183
  3,330
  3,485
  3,648
  3,818
  3,997
  4,185
  4,382
  4,589
  4,805
  5,033
Operating income, $m
  85
  94
  104
  115
  127
  139
  152
  166
  181
  197
  218
  236
  255
  275
  297
  320
  344
  370
  397
  426
  456
  489
  523
  559
  597
  637
  680
  724
  772
  822
EBITDA, $m
  95
  104
  115
  126
  138
  150
  164
  179
  194
  210
  228
  246
  266
  287
  309
  332
  357
  384
  411
  441
  472
  505
  540
  577
  616
  657
  701
  747
  795
  846
Interest expense (income), $m
  2
  4
  4
  5
  6
  6
  7
  8
  8
  9
  10
  11
  11
  12
  13
  14
  15
  17
  18
  19
  20
  22
  23
  25
  26
  28
  30
  31
  33
  35
  37
Earnings before tax, $m
  81
  90
  99
  110
  121
  132
  145
  158
  172
  188
  207
  224
  243
  262
  283
  305
  328
  352
  378
  406
  435
  466
  498
  533
  569
  607
  648
  691
  736
  784
Tax expense, $m
  22
  24
  27
  30
  33
  36
  39
  43
  47
  51
  56
  61
  66
  71
  76
  82
  88
  95
  102
  110
  117
  126
  134
  144
  154
  164
  175
  187
  199
  212
Net income, $m
  59
  66
  73
  80
  88
  97
  106
  115
  126
  137
  151
  164
  177
  191
  206
  222
  239
  257
  276
  296
  317
  340
  364
  389
  415
  443
  473
  505
  538
  573

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
  397
  415
  434
  454
  476
  498
  521
  546
  572
  600
  629
  659
  691
  725
  761
  798
  837
  878
  921
  967
  1,015
  1,065
  1,117
  1,173
  1,231
  1,292
  1,356
  1,424
  1,494
  1,569
Adjusted assets (=assets-cash), $m
  397
  415
  434
  454
  476
  498
  521
  546
  572
  600
  629
  659
  691
  725
  761
  798
  837
  878
  921
  967
  1,015
  1,065
  1,117
  1,173
  1,231
  1,292
  1,356
  1,424
  1,494
  1,569
Revenue / Adjusted assets
  3.733
  3.733
  3.733
  3.736
  3.729
  3.731
  3.735
  3.734
  3.734
  3.732
  3.731
  3.734
  3.734
  3.732
  3.729
  3.731
  3.731
  3.732
  3.733
  3.731
  3.730
  3.731
  3.733
  3.731
  3.732
  3.732
  3.733
  3.731
  3.733
  3.732
Average production assets, $m
  65
  68
  71
  75
  78
  82
  86
  90
  94
  99
  103
  108
  114
  119
  125
  131
  137
  144
  151
  159
  167
  175
  183
  193
  202
  212
  223
  234
  245
  258
Working capital, $m
  164
  172
  180
  188
  197
  206
  216
  226
  237
  249
  261
  273
  286
  300
  315
  330
  347
  364
  382
  400
  420
  441
  463
  486
  510
  535
  562
  590
  619
  650
Total debt, $m
  83
  93
  103
  115
  126
  139
  152
  166
  180
  196
  212
  229
  247
  265
  285
  306
  328
  351
  375
  400
  427
  455
  484
  515
  547
  581
  617
  655
  694
  735
Total liabilities, $m
  221
  231
  242
  253
  265
  277
  290
  304
  319
  334
  350
  367
  385
  404
  424
  444
  466
  489
  513
  538
  565
  593
  622
  653
  686
  720
  755
  793
  832
  874
Total equity, $m
  176
  184
  192
  201
  211
  221
  231
  242
  254
  266
  279
  292
  306
  321
  337
  353
  371
  389
  408
  428
  449
  472
  495
  520
  545
  572
  601
  631
  662
  695
Total liabilities and equity, $m
  397
  415
  434
  454
  476
  498
  521
  546
  573
  600
  629
  659
  691
  725
  761
  797
  837
  878
  921
  966
  1,014
  1,065
  1,117
  1,173
  1,231
  1,292
  1,356
  1,424
  1,494
  1,569
Debt-to-equity ratio
  0.470
  0.500
  0.540
  0.570
  0.600
  0.630
  0.660
  0.690
  0.710
  0.740
  0.760
  0.780
  0.810
  0.830
  0.850
  0.870
  0.880
  0.900
  0.920
  0.930
  0.950
  0.960
  0.980
  0.990
  1.000
  1.020
  1.030
  1.040
  1.050
  1.060
Adjusted equity ratio
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  59
  66
  73
  80
  88
  97
  106
  115
  126
  137
  151
  164
  177
  191
  206
  222
  239
  257
  276
  296
  317
  340
  364
  389
  415
  443
  473
  505
  538
  573
Depreciation, amort., depletion, $m
  10
  10
  10
  11
  11
  11
  12
  12
  13
  13
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  25
Funds from operations, $m
  69
  76
  83
  91
  99
  108
  117
  128
  138
  150
  161
  174
  188
  203
  218
  235
  252
  271
  290
  311
  333
  356
  381
  407
  435
  464
  494
  527
  561
  597
Change in working capital, $m
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
Cash from operations, $m
  62
  68
  75
  82
  90
  99
  108
  117
  128
  139
  149
  162
  175
  189
  204
  219
  236
  254
  273
  292
  313
  336
  359
  384
  411
  438
  468
  499
  532
  566
Maintenance CAPEX, $m
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
New CAPEX, $m
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
Cash from investing activities, $m
  -9
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -15
  -17
  -17
  -18
  -18
  -20
  -21
  -21
  -23
  -24
  -26
  -26
  -28
  -29
  -31
  -32
  -34
  -35
Free cash flow, $m
  53
  59
  65
  72
  80
  88
  96
  105
  115
  125
  135
  147
  159
  172
  186
  201
  217
  234
  252
  271
  290
  312
  334
  358
  383
  409
  437
  467
  498
  531
Issuance/(repayment) of debt, $m
  10
  10
  11
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
  34
  36
  38
  39
  41
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  
  10
  10
  11
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
  34
  36
  38
  39
  41
Total cash flow (excl. dividends), $m
  63
  69
  76
  83
  91
  100
  109
  119
  129
  140
  151
  164
  177
  191
  206
  222
  239
  257
  276
  296
  317
  340
  363
  388
  415
  443
  473
  504
  537
  572
Retained Cash Flow (-), $m
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -28
  -30
  -31
  -33
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
  55
  61
  68
  75
  82
  90
  99
  108
  118
  128
  138
  150
  163
  176
  190
  206
  222
  239
  257
  276
  296
  317
  340
  364
  389
  416
  444
  474
  506
  539
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
  53
  56
  59
  61
  64
  65
  67
  67
  68
  67
  66
  64
  62
  59
  56
  52
  48
  44
  40
  35
  31
  26
  22
  19
  15
  12
  10
  7
  6
  4
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
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Kforce Inc. (Kforce) is engaged in providing professional and technical specialty staffing services and solutions. The Company operates through three segments, which include Technology (Tech), Finance and Accounting (FA) and Government Solutions (GS). The Company's Tech segment includes the operations of its subsidiary Kforce Global Solutions, Inc. The FA segment is engaged in providing both temporary staffing and permanent placement services to its clients in areas, such as general accounting, business analysis and others. The GS segment is engaged in providing services and solutions to the Federal Government as both a prime contractor and a subcontractor in the fields of information technology, and finance and accounting. Kforce operates through field offices located throughout the United States and one office in Manila, the Philippines. The Company offers various staffing services that consist of temporary staffing services (Flex) and permanent placement services (Direct Hire).

FINANCIAL RATIOS  of  Kforce, Inc. (KFRC)

Valuation Ratios
P/E Ratio 29.2
Price to Sales 0.7
Price to Book 7.9
Price to Tangible Book
Price to Cash Flow 24.7
Price to Free Cash Flow 35.7
Growth Rates
Sales Growth Rate 0.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 33.3%
Cap. Spend. - 3 Yr. Gr. Rate 8.4%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 95.1%
Total Debt to Equity 95.1%
Interest Coverage 29
Management Effectiveness
Return On Assets 9.5%
Ret/ On Assets - 3 Yr. Avg. 15.9%
Return On Total Capital 14.3%
Ret/ On T. Cap. - 3 Yr. Avg. 24.4%
Return On Equity 25.2%
Return On Equity - 3 Yr. Avg. 39.2%
Asset Turnover 3.7
Profitability Ratios
Gross Margin 31%
Gross Margin - 3 Yr. Avg. 31.1%
EBITDA Margin 5.1%
EBITDA Margin - 3 Yr. Avg. 5.4%
Operating Margin 4.5%
Oper. Margin - 3 Yr. Avg. 4.7%
Pre-Tax Margin 4.2%
Pre-Tax Margin - 3 Yr. Avg. 4.5%
Net Profit Margin 2.5%
Net Profit Margin - 3 Yr. Avg. 4.4%
Effective Tax Rate 41.1%
Eff/ Tax Rate - 3 Yr. Avg. 40.3%
Payout Ratio 36.4%

KFRC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KFRC stock intrinsic value calculation we used $1418 million for the last fiscal year's total revenue generated by Kforce, Inc.. The default revenue input number comes from 0001 income statement of Kforce, 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 KFRC stock valuation model: a) initial revenue growth rate of 4.5% 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 KFRC is calculated based on our internal credit rating of Kforce, 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 Kforce, 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 KFRC stock the variable cost ratio is equal to 78.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $223 million in the base year in the intrinsic value calculation for KFRC 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 Kforce, Inc..

Corporate tax rate of 27% is the nominal tax rate for Kforce, 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 KFRC 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 KFRC are equal to 4.4%.

Life of production assets of 10.5 years is the average useful life of capital assets used in Kforce, 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 KFRC is equal to 11.1%. 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 - $168.331 million for Kforce, 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 25.848 million for Kforce, 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 Kforce, Inc. at the current share price and the inputted number of shares is $0.9 billion.

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