Intrinsic value of Kennametal Inc. - KMT

Previous Close

$30.01

  Intrinsic Value

$50.97

stock screener

  Rating & Target

str. buy

+70%

Previous close

$30.01

 
Intrinsic value

$50.97

 
Up/down potential

+70%

 
Rating

str. buy

We calculate the intrinsic value of KMT 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 2.5

 

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, %
  2.80
  3.02
  3.22
  3.40
  3.56
  3.70
  3.83
  3.95
  4.05
  4.15
  4.23
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.82
  4.84
  4.86
  4.87
  4.88
  4.90
Revenue, $m
  2,434
  2,508
  2,589
  2,676
  2,772
  2,874
  2,984
  3,102
  3,228
  3,362
  3,504
  3,655
  3,815
  3,984
  4,164
  4,353
  4,553
  4,764
  4,986
  5,221
  5,468
  5,728
  6,002
  6,290
  6,594
  6,913
  7,249
  7,602
  7,974
  8,364
Variable operating expenses, $m
  902
  928
  956
  987
  1,020
  1,056
  1,095
  1,136
  1,180
  1,227
  1,229
  1,282
  1,338
  1,398
  1,461
  1,527
  1,597
  1,671
  1,749
  1,832
  1,918
  2,009
  2,106
  2,207
  2,313
  2,425
  2,543
  2,667
  2,797
  2,934
Fixed operating expenses, $m
  1,234
  1,261
  1,288
  1,317
  1,346
  1,375
  1,406
  1,437
  1,468
  1,500
  1,533
  1,567
  1,602
  1,637
  1,673
  1,710
  1,747
  1,786
  1,825
  1,865
  1,906
  1,948
  1,991
  2,035
  2,080
  2,125
  2,172
  2,220
  2,269
  2,319
Total operating expenses, $m
  2,136
  2,189
  2,244
  2,304
  2,366
  2,431
  2,501
  2,573
  2,648
  2,727
  2,762
  2,849
  2,940
  3,035
  3,134
  3,237
  3,344
  3,457
  3,574
  3,697
  3,824
  3,957
  4,097
  4,242
  4,393
  4,550
  4,715
  4,887
  5,066
  5,253
Operating income, $m
  299
  320
  344
  373
  406
  443
  484
  530
  580
  634
  741
  806
  875
  950
  1,030
  1,116
  1,208
  1,307
  1,412
  1,524
  1,643
  1,770
  1,905
  2,049
  2,201
  2,363
  2,534
  2,715
  2,908
  3,111
EBITDA, $m
  437
  460
  488
  520
  556
  597
  642
  692
  747
  807
  871
  941
  1,017
  1,098
  1,185
  1,278
  1,377
  1,484
  1,597
  1,718
  1,846
  1,983
  2,128
  2,282
  2,446
  2,619
  2,803
  2,997
  3,203
  3,421
Interest expense (income), $m
  28
  54
  56
  59
  62
  65
  69
  73
  77
  81
  86
  91
  97
  102
  108
  115
  122
  129
  136
  144
  153
  162
  171
  181
  191
  202
  214
  226
  239
  252
  266
Earnings before tax, $m
  245
  263
  285
  311
  340
  374
  411
  453
  498
  548
  650
  709
  773
  841
  915
  995
  1,080
  1,170
  1,268
  1,371
  1,482
  1,599
  1,724
  1,857
  1,999
  2,149
  2,308
  2,477
  2,656
  2,845
Tax expense, $m
  66
  71
  77
  84
  92
  101
  111
  122
  134
  148
  176
  191
  209
  227
  247
  269
  291
  316
  342
  370
  400
  432
  466
  502
  540
  580
  623
  669
  717
  768
Net income, $m
  179
  192
  208
  227
  249
  273
  300
  330
  364
  400
  475
  518
  564
  614
  668
  726
  788
  854
  925
  1,001
  1,082
  1,167
  1,259
  1,356
  1,459
  1,569
  1,685
  1,808
  1,939
  2,077

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
  2,936
  3,025
  3,122
  3,229
  3,343
  3,467
  3,600
  3,742
  3,894
  4,055
  4,227
  4,409
  4,602
  4,806
  5,023
  5,251
  5,492
  5,746
  6,015
  6,298
  6,596
  6,910
  7,240
  7,588
  7,954
  8,339
  8,744
  9,170
  9,618
  10,089
Adjusted assets (=assets-cash), $m
  2,936
  3,025
  3,122
  3,229
  3,343
  3,467
  3,600
  3,742
  3,894
  4,055
  4,227
  4,409
  4,602
  4,806
  5,023
  5,251
  5,492
  5,746
  6,015
  6,298
  6,596
  6,910
  7,240
  7,588
  7,954
  8,339
  8,744
  9,170
  9,618
  10,089
Revenue / Adjusted assets
  0.829
  0.829
  0.829
  0.829
  0.829
  0.829
  0.829
  0.829
  0.829
  0.829
  0.829
  0.829
  0.829
  0.829
  0.829
  0.829
  0.829
  0.829
  0.829
  0.829
  0.829
  0.829
  0.829
  0.829
  0.829
  0.829
  0.829
  0.829
  0.829
  0.829
Average production assets, $m
  1,056
  1,088
  1,123
  1,162
  1,203
  1,247
  1,295
  1,346
  1,401
  1,459
  1,521
  1,586
  1,656
  1,729
  1,807
  1,889
  1,976
  2,068
  2,164
  2,266
  2,373
  2,486
  2,605
  2,730
  2,862
  3,000
  3,146
  3,299
  3,461
  3,630
Working capital, $m
  519
  534
  551
  570
  590
  612
  636
  661
  688
  716
  746
  779
  813
  849
  887
  927
  970
  1,015
  1,062
  1,112
  1,165
  1,220
  1,278
  1,340
  1,405
  1,473
  1,544
  1,619
  1,698
  1,782
Total debt, $m
  1,039
  1,091
  1,147
  1,209
  1,276
  1,348
  1,425
  1,508
  1,596
  1,690
  1,790
  1,896
  2,008
  2,127
  2,253
  2,386
  2,526
  2,675
  2,831
  2,995
  3,169
  3,352
  3,544
  3,746
  3,959
  4,184
  4,419
  4,667
  4,928
  5,202
Total liabilities, $m
  1,709
  1,761
  1,817
  1,879
  1,946
  2,018
  2,095
  2,178
  2,266
  2,360
  2,460
  2,566
  2,678
  2,797
  2,923
  3,056
  3,196
  3,344
  3,501
  3,665
  3,839
  4,021
  4,214
  4,416
  4,629
  4,853
  5,089
  5,337
  5,598
  5,872
Total equity, $m
  1,227
  1,264
  1,305
  1,350
  1,398
  1,449
  1,505
  1,564
  1,628
  1,695
  1,767
  1,843
  1,924
  2,009
  2,099
  2,195
  2,296
  2,402
  2,514
  2,632
  2,757
  2,888
  3,026
  3,172
  3,325
  3,486
  3,655
  3,833
  4,020
  4,217
Total liabilities and equity, $m
  2,936
  3,025
  3,122
  3,229
  3,344
  3,467
  3,600
  3,742
  3,894
  4,055
  4,227
  4,409
  4,602
  4,806
  5,022
  5,251
  5,492
  5,746
  6,015
  6,297
  6,596
  6,909
  7,240
  7,588
  7,954
  8,339
  8,744
  9,170
  9,618
  10,089
Debt-to-equity ratio
  0.850
  0.860
  0.880
  0.900
  0.910
  0.930
  0.950
  0.960
  0.980
  1.000
  1.010
  1.030
  1.040
  1.060
  1.070
  1.090
  1.100
  1.110
  1.130
  1.140
  1.150
  1.160
  1.170
  1.180
  1.190
  1.200
  1.210
  1.220
  1.230
  1.230
Adjusted equity ratio
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  179
  192
  208
  227
  249
  273
  300
  330
  364
  400
  475
  518
  564
  614
  668
  726
  788
  854
  925
  1,001
  1,082
  1,167
  1,259
  1,356
  1,459
  1,569
  1,685
  1,808
  1,939
  2,077
Depreciation, amort., depletion, $m
  138
  141
  144
  147
  151
  154
  158
  163
  168
  172
  130
  136
  142
  148
  154
  161
  169
  177
  185
  194
  203
  212
  223
  233
  245
  256
  269
  282
  296
  310
Funds from operations, $m
  317
  333
  352
  374
  399
  427
  459
  493
  531
  573
  605
  653
  706
  762
  823
  887
  957
  1,031
  1,110
  1,195
  1,284
  1,380
  1,481
  1,589
  1,704
  1,825
  1,954
  2,090
  2,234
  2,387
Change in working capital, $m
  14
  16
  17
  19
  20
  22
  23
  25
  27
  29
  30
  32
  34
  36
  38
  40
  43
  45
  47
  50
  53
  55
  58
  61
  65
  68
  72
  75
  79
  83
Cash from operations, $m
  303
  317
  335
  355
  379
  405
  435
  468
  504
  544
  574
  621
  671
  726
  784
  847
  914
  986
  1,063
  1,145
  1,232
  1,325
  1,423
  1,528
  1,639
  1,757
  1,882
  2,015
  2,155
  2,304
Maintenance CAPEX, $m
  -88
  -90
  -93
  -96
  -99
  -103
  -107
  -111
  -115
  -120
  -125
  -130
  -136
  -142
  -148
  -154
  -161
  -169
  -177
  -185
  -194
  -203
  -212
  -223
  -233
  -245
  -256
  -269
  -282
  -296
New CAPEX, $m
  -30
  -32
  -35
  -38
  -41
  -45
  -48
  -51
  -55
  -58
  -62
  -66
  -69
  -74
  -78
  -82
  -87
  -92
  -97
  -102
  -107
  -113
  -119
  -125
  -132
  -139
  -146
  -153
  -161
  -169
Cash from investing activities, $m
  -118
  -122
  -128
  -134
  -140
  -148
  -155
  -162
  -170
  -178
  -187
  -196
  -205
  -216
  -226
  -236
  -248
  -261
  -274
  -287
  -301
  -316
  -331
  -348
  -365
  -384
  -402
  -422
  -443
  -465
Free cash flow, $m
  186
  195
  207
  221
  238
  258
  281
  306
  335
  366
  388
  425
  466
  511
  559
  611
  666
  726
  790
  858
  931
  1,009
  1,092
  1,180
  1,274
  1,374
  1,480
  1,593
  1,712
  1,839
Issuance/(repayment) of debt, $m
  47
  52
  57
  62
  67
  72
  77
  83
  88
  94
  100
  106
  112
  119
  126
  133
  140
  148
  156
  165
  173
  183
  192
  202
  213
  224
  236
  248
  261
  274
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  
  47
  52
  57
  62
  67
  72
  77
  83
  88
  94
  100
  106
  112
  119
  126
  133
  140
  148
  156
  165
  173
  183
  192
  202
  213
  224
  236
  248
  261
  274
Total cash flow (excl. dividends), $m
  233
  247
  264
  283
  305
  330
  358
  389
  423
  460
  488
  531
  579
  630
  685
  743
  806
  874
  946
  1,023
  1,104
  1,191
  1,284
  1,383
  1,487
  1,598
  1,716
  1,841
  1,973
  2,113
Retained Cash Flow (-), $m
  -33
  -37
  -41
  -44
  -48
  -52
  -56
  -59
  -63
  -68
  -72
  -76
  -81
  -85
  -90
  -95
  -101
  -106
  -112
  -118
  -125
  -131
  -138
  -145
  -153
  -161
  -169
  -178
  -187
  -197
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
  200
  210
  223
  239
  257
  278
  303
  330
  360
  393
  416
  455
  498
  544
  594
  648
  706
  767
  834
  904
  980
  1,060
  1,146
  1,237
  1,334
  1,437
  1,546
  1,662
  1,786
  1,916
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
  192
  192
  194
  196
  199
  202
  204
  206
  207
  206
  198
  194
  189
  183
  174
  165
  154
  141
  128
  115
  101
  88
  75
  63
  52
  42
  33
  26
  19
  14
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

Kennametal Inc. is a supplier of tooling, engineered components and materials consumed in production processes. The Company operates through two segments: Industrial and Infrastructure. The Industrial segment generally serves customers that operate in industrial end markets, such as transportation, general engineering, aerospace and defense. The Infrastructure segment generally serves customers that operate in the earthworks and energy sectors supporting primary industries, such as oil and gas, power generation, underground, surface and hard-rock mining, highway construction and road maintenance. It provides wear-resistant products, application engineering and services backed by material science serving customers across various sectors. The Company's product offerings include a selection of standard and customized technologies for metalworking, such as metal cutting tools, tooling systems and services, as well as materials, such as cemented tungsten carbide products and super alloys.

FINANCIAL RATIOS  of  Kennametal Inc. (KMT)

Valuation Ratios
P/E Ratio 49.4
Price to Sales 1.2
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 12.6
Price to Free Cash Flow 32.7
Growth Rates
Sales Growth Rate -1.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 6.3%
Cap. Spend. - 3 Yr. Gr. Rate 0.2%
Financial Strength
Quick Ratio 191
Current Ratio 0.1
LT Debt to Equity 68.3%
Total Debt to Equity 68.4%
Interest Coverage 4
Management Effectiveness
Return On Assets 2.8%
Ret/ On Assets - 3 Yr. Avg. -5%
Return On Total Capital 2.9%
Ret/ On T. Cap. - 3 Yr. Avg. -7.9%
Return On Equity 4.9%
Return On Equity - 3 Yr. Avg. -12.5%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 32%
Gross Margin - 3 Yr. Avg. 30.6%
EBITDA Margin 10.6%
EBITDA Margin - 3 Yr. Avg. -0.2%
Operating Margin 5.5%
Oper. Margin - 3 Yr. Avg. -5.5%
Pre-Tax Margin 4%
Pre-Tax Margin - 3 Yr. Avg. -6.7%
Net Profit Margin 2.4%
Net Profit Margin - 3 Yr. Avg. -7.5%
Effective Tax Rate 36.6%
Eff/ Tax Rate - 3 Yr. Avg. 9.5%
Payout Ratio 130.6%

KMT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KMT stock intrinsic value calculation we used $2368 million for the last fiscal year's total revenue generated by Kennametal Inc.. The default revenue input number comes from 0001 income statement of Kennametal 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 KMT stock valuation model: a) initial revenue growth rate of 2.8% 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 KMT is calculated based on our internal credit rating of Kennametal 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 Kennametal 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 KMT stock the variable cost ratio is equal to 37.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1207 million in the base year in the intrinsic value calculation for KMT 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 Kennametal Inc..

Corporate tax rate of 27% is the nominal tax rate for Kennametal 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 KMT 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 KMT are equal to 43.4%.

Life of production assets of 11.7 years is the average useful life of capital assets used in Kennametal 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 KMT is equal to 21.3%. 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 - $1194.325 million for Kennametal 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 82.116 million for Kennametal 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 Kennametal Inc. at the current share price and the inputted number of shares is $2.5 billion.

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