Intrinsic value of Kraton - KRA

Previous Close

$45.83

  Intrinsic Value

$84.62

stock screener

  Rating & Target

str. buy

+85%

Previous close

$45.83

 
Intrinsic value

$84.62

 
Up/down potential

+85%

 
Rating

str. buy

We calculate the intrinsic value of KRA 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 2017), $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 1.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  12.40
  11.66
  10.99
  10.39
  9.86
  9.37
  8.93
  8.54
  8.19
  7.87
  7.58
  7.32
  7.09
  6.88
  6.69
  6.52
  6.37
  6.23
  6.11
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
Revenue, $m
  2,203
  2,460
  2,730
  3,014
  3,311
  3,621
  3,945
  4,282
  4,632
  4,997
  5,376
  5,769
  6,178
  6,603
  7,045
  7,505
  7,983
  8,481
  8,999
  9,539
  10,102
  10,688
  11,301
  11,940
  12,607
  13,305
  14,033
  14,796
  15,593
  16,427
Variable operating expenses, $m
  1,516
  1,680
  1,851
  2,031
  2,220
  2,417
  2,622
  2,836
  3,058
  3,290
  3,412
  3,662
  3,922
  4,191
  4,472
  4,764
  5,067
  5,383
  5,712
  6,055
  6,412
  6,784
  7,173
  7,579
  8,002
  8,445
  8,908
  9,391
  9,897
  10,427
Fixed operating expenses, $m
  413
  422
  431
  441
  450
  460
  470
  481
  491
  502
  513
  525
  536
  548
  560
  572
  585
  598
  611
  624
  638
  652
  666
  681
  696
  711
  727
  743
  759
  776
Total operating expenses, $m
  1,929
  2,102
  2,282
  2,472
  2,670
  2,877
  3,092
  3,317
  3,549
  3,792
  3,925
  4,187
  4,458
  4,739
  5,032
  5,336
  5,652
  5,981
  6,323
  6,679
  7,050
  7,436
  7,839
  8,260
  8,698
  9,156
  9,635
  10,134
  10,656
  11,203
Operating income, $m
  274
  358
  448
  542
  641
  744
  852
  965
  1,082
  1,205
  1,450
  1,583
  1,721
  1,864
  2,013
  2,169
  2,331
  2,500
  2,676
  2,860
  3,052
  3,252
  3,461
  3,680
  3,909
  4,148
  4,399
  4,661
  4,936
  5,224
EBITDA, $m
  631
  743
  862
  987
  1,118
  1,255
  1,398
  1,548
  1,703
  1,865
  2,033
  2,209
  2,391
  2,580
  2,778
  2,983
  3,197
  3,420
  3,652
  3,895
  4,148
  4,412
  4,687
  4,975
  5,277
  5,592
  5,921
  6,266
  6,628
  7,006
Interest expense (income), $m
  116
  128
  150
  174
  199
  225
  253
  282
  312
  343
  375
  409
  444
  481
  518
  558
  599
  641
  686
  732
  780
  830
  882
  936
  993
  1,052
  1,114
  1,178
  1,246
  1,316
  1,390
Earnings before tax, $m
  146
  208
  274
  343
  415
  491
  571
  653
  740
  829
  1,041
  1,139
  1,240
  1,346
  1,456
  1,570
  1,690
  1,814
  1,944
  2,080
  2,222
  2,370
  2,525
  2,687
  2,857
  3,034
  3,220
  3,415
  3,619
  3,834
Tax expense, $m
  39
  56
  74
  93
  112
  133
  154
  176
  200
  224
  281
  307
  335
  363
  393
  424
  456
  490
  525
  562
  600
  640
  682
  726
  771
  819
  870
  922
  977
  1,035
Net income, $m
  107
  152
  200
  250
  303
  359
  417
  477
  540
  606
  760
  831
  905
  982
  1,063
  1,146
  1,233
  1,324
  1,419
  1,518
  1,622
  1,730
  1,843
  1,962
  2,085
  2,215
  2,351
  2,493
  2,642
  2,799

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
  3,298
  3,683
  4,087
  4,512
  4,957
  5,421
  5,906
  6,410
  6,935
  7,480
  8,047
  8,636
  9,249
  9,885
  10,547
  11,235
  11,951
  12,696
  13,471
  14,280
  15,122
  16,001
  16,917
  17,874
  18,873
  19,917
  21,008
  22,149
  23,342
  24,591
Adjusted assets (=assets-cash), $m
  3,298
  3,683
  4,087
  4,512
  4,957
  5,421
  5,906
  6,410
  6,935
  7,480
  8,047
  8,636
  9,249
  9,885
  10,547
  11,235
  11,951
  12,696
  13,471
  14,280
  15,122
  16,001
  16,917
  17,874
  18,873
  19,917
  21,008
  22,149
  23,342
  24,591
Revenue / Adjusted assets
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
  0.668
Average production assets, $m
  2,390
  2,669
  2,962
  3,270
  3,593
  3,929
  4,280
  4,646
  5,026
  5,421
  5,832
  6,259
  6,703
  7,165
  7,644
  8,143
  8,662
  9,201
  9,764
  10,350
  10,960
  11,597
  12,261
  12,955
  13,679
  14,436
  15,226
  16,053
  16,918
  17,823
Working capital, $m
  97
  108
  120
  133
  146
  159
  174
  188
  204
  220
  237
  254
  272
  291
  310
  330
  351
  373
  396
  420
  444
  470
  497
  525
  555
  585
  617
  651
  686
  723
Total debt, $m
  1,903
  2,204
  2,521
  2,854
  3,202
  3,566
  3,945
  4,340
  4,751
  5,178
  5,622
  6,083
  6,563
  7,061
  7,579
  8,118
  8,678
  9,262
  9,869
  10,502
  11,162
  11,849
  12,567
  13,316
  14,099
  14,916
  15,770
  16,664
  17,598
  18,576
Total liabilities, $m
  2,582
  2,883
  3,200
  3,533
  3,881
  4,245
  4,624
  5,019
  5,430
  5,857
  6,301
  6,762
  7,242
  7,740
  8,258
  8,797
  9,357
  9,941
  10,548
  11,181
  11,841
  12,528
  13,246
  13,995
  14,778
  15,595
  16,449
  17,343
  18,277
  19,255
Total equity, $m
  716
  799
  887
  979
  1,076
  1,176
  1,282
  1,391
  1,505
  1,623
  1,746
  1,874
  2,007
  2,145
  2,289
  2,438
  2,593
  2,755
  2,923
  3,099
  3,281
  3,472
  3,671
  3,879
  4,095
  4,322
  4,559
  4,806
  5,065
  5,336
Total liabilities and equity, $m
  3,298
  3,682
  4,087
  4,512
  4,957
  5,421
  5,906
  6,410
  6,935
  7,480
  8,047
  8,636
  9,249
  9,885
  10,547
  11,235
  11,950
  12,696
  13,471
  14,280
  15,122
  16,000
  16,917
  17,874
  18,873
  19,917
  21,008
  22,149
  23,342
  24,591
Debt-to-equity ratio
  2.660
  2.760
  2.840
  2.910
  2.980
  3.030
  3.080
  3.120
  3.160
  3.190
  3.220
  3.250
  3.270
  3.290
  3.310
  3.330
  3.350
  3.360
  3.380
  3.390
  3.400
  3.410
  3.420
  3.430
  3.440
  3.450
  3.460
  3.470
  3.470
  3.480
Adjusted equity ratio
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  107
  152
  200
  250
  303
  359
  417
  477
  540
  606
  760
  831
  905
  982
  1,063
  1,146
  1,233
  1,324
  1,419
  1,518
  1,622
  1,730
  1,843
  1,962
  2,085
  2,215
  2,351
  2,493
  2,642
  2,799
Depreciation, amort., depletion, $m
  357
  385
  414
  445
  477
  511
  546
  583
  621
  660
  583
  626
  670
  716
  764
  814
  866
  920
  976
  1,035
  1,096
  1,160
  1,226
  1,295
  1,368
  1,444
  1,523
  1,605
  1,692
  1,782
Funds from operations, $m
  464
  537
  614
  695
  781
  870
  963
  1,060
  1,161
  1,266
  1,343
  1,457
  1,575
  1,699
  1,827
  1,960
  2,100
  2,245
  2,396
  2,553
  2,718
  2,890
  3,069
  3,257
  3,453
  3,659
  3,874
  4,098
  4,334
  4,581
Change in working capital, $m
  11
  11
  12
  12
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  34
  35
  37
Cash from operations, $m
  453
  526
  602
  683
  768
  856
  948
  1,045
  1,145
  1,250
  1,327
  1,440
  1,557
  1,680
  1,807
  1,940
  2,079
  2,223
  2,373
  2,530
  2,693
  2,864
  3,043
  3,229
  3,424
  3,628
  3,841
  4,065
  4,299
  4,544
Maintenance CAPEX, $m
  -213
  -239
  -267
  -296
  -327
  -359
  -393
  -428
  -465
  -503
  -542
  -583
  -626
  -670
  -716
  -764
  -814
  -866
  -920
  -976
  -1,035
  -1,096
  -1,160
  -1,226
  -1,295
  -1,368
  -1,444
  -1,523
  -1,605
  -1,692
New CAPEX, $m
  -262
  -279
  -293
  -308
  -322
  -337
  -351
  -366
  -380
  -395
  -411
  -427
  -444
  -461
  -480
  -499
  -519
  -540
  -562
  -586
  -611
  -637
  -664
  -693
  -724
  -757
  -791
  -827
  -865
  -905
Cash from investing activities, $m
  -475
  -518
  -560
  -604
  -649
  -696
  -744
  -794
  -845
  -898
  -953
  -1,010
  -1,070
  -1,131
  -1,196
  -1,263
  -1,333
  -1,406
  -1,482
  -1,562
  -1,646
  -1,733
  -1,824
  -1,919
  -2,019
  -2,125
  -2,235
  -2,350
  -2,470
  -2,597
Free cash flow, $m
  -22
  8
  42
  79
  118
  160
  205
  251
  300
  352
  373
  429
  488
  548
  612
  677
  745
  817
  891
  968
  1,048
  1,131
  1,218
  1,309
  1,404
  1,503
  1,607
  1,715
  1,829
  1,947
Issuance/(repayment) of debt, $m
  286
  301
  317
  333
  348
  364
  379
  395
  411
  427
  444
  461
  479
  498
  518
  539
  560
  583
  607
  633
  660
  688
  718
  749
  782
  817
  854
  893
  934
  978
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  
  286
  301
  317
  333
  348
  364
  379
  395
  411
  427
  444
  461
  479
  498
  518
  539
  560
  583
  607
  633
  660
  688
  718
  749
  782
  817
  854
  893
  934
  978
Total cash flow (excl. dividends), $m
  264
  309
  359
  411
  466
  524
  584
  646
  711
  779
  817
  891
  967
  1,047
  1,130
  1,216
  1,306
  1,400
  1,498
  1,600
  1,707
  1,819
  1,936
  2,059
  2,187
  2,321
  2,461
  2,609
  2,763
  2,925
Retained Cash Flow (-), $m
  -80
  -83
  -88
  -92
  -96
  -101
  -105
  -109
  -114
  -118
  -123
  -128
  -133
  -138
  -144
  -149
  -155
  -162
  -168
  -175
  -183
  -191
  -199
  -208
  -217
  -227
  -237
  -248
  -259
  -271
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
  8
  9
  10
  11
  12
  13
  14
  16
  17
  19
  20
  22
  23
  25
  26
  28
  30
  32
  34
  36
  38
  40
  43
  45
  48
  50
  53
  56
  59
  62
Cash available for distribution, $m
  184
  225
  271
  319
  370
  423
  479
  537
  597
  660
  694
  763
  834
  909
  986
  1,067
  1,151
  1,238
  1,330
  1,425
  1,525
  1,629
  1,737
  1,851
  1,970
  2,094
  2,225
  2,361
  2,504
  2,654
Discount rate, %
  9.80
  10.29
  10.80
  11.34
  11.91
  12.51
  13.13
  13.79
  14.48
  15.20
  15.96
  16.76
  17.60
  18.48
  19.40
  20.37
  21.39
  22.46
  23.58
  24.76
  26.00
  27.30
  28.67
  30.10
  31.61
  33.19
  34.85
  36.59
  38.42
  40.34
PV of cash for distribution, $m
  167
  185
  199
  208
  211
  209
  202
  191
  177
  160
  136
  119
  101
  85
  69
  55
  43
  32
  24
  17
  12
  8
  5
  3
  2
  1
  1
  0
  0
  0
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

Kraton Corporation, formerly Kraton Performance Polymers, Inc., is a specialty chemicals company. The Company manufactures styrenic block copolymers (SBCs) and other engineered polymers. The Company also produces specialty products primarily derived from pine wood pulping co-products. The Company operates through two segments: Polymer Segment, which comprises SBCs and other engineered polymers business, and Chemical Segment, which comprises pine-based specialty products business. Its SBCs are used in a range of applications, including adhesives, coatings, consumer and personal care products, sealants, lubricants, medical, packaging, automotive, paving, roofing and footwear products. The Company also sells isoprene rubber (IR) and isoprene rubber latex (IRL), which are non-SBC products primarily used in applications, such as medical products, personal care, adhesives, tackifiers, paints and coatings. It offers crude tall oil (CTO) and crude sulfate turpentine (CST).

FINANCIAL RATIOS  of  Kraton (KRA)

Valuation Ratios
P/E Ratio 13.3
Price to Sales 0.8
Price to Book 3.1
Price to Tangible Book
Price to Cash Flow 10.3
Price to Free Cash Flow 109.1
Growth Rates
Sales Growth Rate 68.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -3.1%
Cap. Spend. - 3 Yr. Gr. Rate 7.8%
Financial Strength
Quick Ratio 3
Current Ratio 0.1
LT Debt to Equity 370.7%
Total Debt to Equity 379.9%
Interest Coverage 1
Management Effectiveness
Return On Assets 52.4%
Ret/ On Assets - 3 Yr. Avg. 18.7%
Return On Total Capital 7.2%
Ret/ On T. Cap. - 3 Yr. Avg. 2%
Return On Equity 26.2%
Return On Equity - 3 Yr. Avg. 7.9%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 27.5%
Gross Margin - 3 Yr. Avg. 23.1%
EBITDA Margin 14.6%
EBITDA Margin - 3 Yr. Avg. 9.9%
Operating Margin 7.1%
Oper. Margin - 3 Yr. Avg. 3.8%
Pre-Tax Margin 0.7%
Pre-Tax Margin - 3 Yr. Avg. 0.2%
Net Profit Margin 6.1%
Net Profit Margin - 3 Yr. Avg. 1.7%
Effective Tax Rate -707.7%
Eff/ Tax Rate - 3 Yr. Avg. -247%
Payout Ratio 0%

KRA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KRA stock intrinsic value calculation we used $1960 million for the last fiscal year's total revenue generated by Kraton. The default revenue input number comes from 2017 income statement of Kraton. 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 KRA stock valuation model: a) initial revenue growth rate of 12.4% 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 9.8%, whose default value for KRA is calculated based on our internal credit rating of Kraton, 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 Kraton.
    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 KRA stock the variable cost ratio is equal to 69.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $404 million in the base year in the intrinsic value calculation for KRA 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 7.9% for Kraton.

Corporate tax rate of 27% is the nominal tax rate for Kraton. 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 KRA stock is equal to 0.4%.

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 KRA are equal to 108.5%.

Life of production assets of 10 years is the average useful life of capital assets used in Kraton 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 KRA is equal to 4.4%. 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 - $636 million for Kraton - 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 31 million for Kraton 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 Kraton at the current share price and the inputted number of shares is $1.4 billion.

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COMPANY NEWS

▶ Kraton: 2Q Earnings Snapshot   [Jul-25-18 05:08PM  Associated Press]
▶ Kraton Announces Global HSBC Increase   [Jun-08-18 05:00PM  PR Newswire]
▶ Kraton: 1Q Earnings Snapshot   [05:02PM  Associated Press]
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