Intrinsic value of Kraton - KRA

Previous Close

$26.83

  Intrinsic Value

$41.14

stock screener

  Rating & Target

str. buy

+53%

Previous close

$26.83

 
Intrinsic value

$41.14

 
Up/down potential

+53%

 
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 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, %
  2.50
  2.75
  2.97
  3.18
  3.36
  3.52
  3.67
  3.80
  3.92
  4.03
  4.13
  4.22
  4.29
  4.36
  4.43
  4.49
  4.54
  4.58
  4.62
  4.66
  4.70
  4.73
  4.75
  4.78
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
Revenue, $m
  2,009
  2,065
  2,126
  2,194
  2,267
  2,347
  2,433
  2,526
  2,625
  2,731
  2,844
  2,964
  3,091
  3,226
  3,368
  3,520
  3,679
  3,848
  4,026
  4,214
  4,411
  4,620
  4,840
  5,071
  5,314
  5,570
  5,840
  6,123
  6,422
  6,735
Variable operating expenses, $m
  1,396
  1,431
  1,470
  1,513
  1,560
  1,610
  1,665
  1,724
  1,787
  1,854
  1,808
  1,884
  1,965
  2,051
  2,142
  2,238
  2,339
  2,446
  2,559
  2,679
  2,805
  2,937
  3,077
  3,224
  3,378
  3,541
  3,713
  3,893
  4,082
  4,282
Fixed operating expenses, $m
  411
  420
  429
  439
  448
  458
  468
  478
  489
  500
  511
  522
  533
  545
  557
  569
  582
  595
  608
  621
  635
  649
  663
  678
  693
  708
  723
  739
  756
  772
Total operating expenses, $m
  1,807
  1,851
  1,899
  1,952
  2,008
  2,068
  2,133
  2,202
  2,276
  2,354
  2,319
  2,406
  2,498
  2,596
  2,699
  2,807
  2,921
  3,041
  3,167
  3,300
  3,440
  3,586
  3,740
  3,902
  4,071
  4,249
  4,436
  4,632
  4,838
  5,054
Operating income, $m
  203
  214
  227
  242
  260
  279
  300
  324
  349
  377
  525
  558
  592
  630
  670
  713
  758
  807
  859
  914
  972
  1,034
  1,100
  1,169
  1,243
  1,321
  1,404
  1,491
  1,583
  1,681
EBITDA, $m
  422
  436
  452
  471
  492
  515
  541
  569
  599
  633
  668
  707
  748
  792
  840
  890
  944
  1,001
  1,061
  1,126
  1,194
  1,267
  1,344
  1,425
  1,511
  1,602
  1,698
  1,800
  1,907
  2,020
Interest expense (income), $m
  116
  128
  132
  138
  143
  150
  156
  164
  172
  180
  189
  199
  210
  221
  233
  245
  258
  272
  287
  303
  319
  337
  355
  374
  395
  416
  438
  462
  487
  513
  541
Earnings before tax, $m
  75
  82
  90
  99
  110
  122
  136
  152
  169
  187
  326
  348
  372
  397
  425
  454
  486
  520
  556
  594
  635
  679
  725
  775
  827
  883
  942
  1,004
  1,070
  1,140
Tax expense, $m
  20
  22
  24
  27
  30
  33
  37
  41
  46
  51
  88
  94
  100
  107
  115
  123
  131
  140
  150
  160
  172
  183
  196
  209
  223
  238
  254
  271
  289
  308
Net income, $m
  55
  60
  65
  72
  80
  89
  100
  111
  123
  137
  238
  254
  271
  290
  310
  332
  355
  379
  406
  434
  464
  496
  530
  566
  604
  644
  687
  733
  781
  832

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
  3,008
  3,091
  3,183
  3,284
  3,394
  3,514
  3,643
  3,781
  3,930
  4,088
  4,257
  4,436
  4,627
  4,829
  5,043
  5,269
  5,508
  5,760
  6,027
  6,308
  6,604
  6,916
  7,245
  7,591
  7,955
  8,339
  8,742
  9,167
  9,613
  10,082
Adjusted assets (=assets-cash), $m
  3,008
  3,091
  3,183
  3,284
  3,394
  3,514
  3,643
  3,781
  3,930
  4,088
  4,257
  4,436
  4,627
  4,829
  5,043
  5,269
  5,508
  5,760
  6,027
  6,308
  6,604
  6,916
  7,245
  7,591
  7,955
  8,339
  8,742
  9,167
  9,613
  10,082
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
  1,569
  1,612
  1,660
  1,713
  1,771
  1,833
  1,900
  1,973
  2,050
  2,133
  2,221
  2,314
  2,414
  2,519
  2,631
  2,749
  2,873
  3,005
  3,144
  3,291
  3,445
  3,608
  3,780
  3,960
  4,150
  4,350
  4,561
  4,782
  5,015
  5,260
Working capital, $m
  342
  351
  361
  373
  385
  399
  414
  429
  446
  464
  483
  504
  525
  548
  573
  598
  625
  654
  684
  716
  750
  785
  823
  862
  903
  947
  993
  1,041
  1,092
  1,145
Total debt, $m
  1,677
  1,742
  1,814
  1,893
  1,979
  2,073
  2,174
  2,282
  2,398
  2,523
  2,655
  2,795
  2,944
  3,102
  3,270
  3,447
  3,634
  3,832
  4,040
  4,260
  4,492
  4,737
  4,994
  5,265
  5,551
  5,851
  6,167
  6,499
  6,849
  7,216
Total liabilities, $m
  2,355
  2,420
  2,492
  2,571
  2,658
  2,751
  2,852
  2,961
  3,077
  3,201
  3,333
  3,474
  3,623
  3,781
  3,948
  4,125
  4,313
  4,510
  4,719
  4,939
  5,171
  5,415
  5,673
  5,944
  6,229
  6,529
  6,845
  7,178
  7,527
  7,895
Total equity, $m
  653
  671
  691
  713
  737
  762
  790
  821
  853
  887
  924
  963
  1,004
  1,048
  1,094
  1,143
  1,195
  1,250
  1,308
  1,369
  1,433
  1,501
  1,572
  1,647
  1,726
  1,810
  1,897
  1,989
  2,086
  2,188
Total liabilities and equity, $m
  3,008
  3,091
  3,183
  3,284
  3,395
  3,513
  3,642
  3,782
  3,930
  4,088
  4,257
  4,437
  4,627
  4,829
  5,042
  5,268
  5,508
  5,760
  6,027
  6,308
  6,604
  6,916
  7,245
  7,591
  7,955
  8,339
  8,742
  9,167
  9,613
  10,083
Debt-to-equity ratio
  2.570
  2.600
  2.630
  2.660
  2.690
  2.720
  2.750
  2.780
  2.810
  2.840
  2.870
  2.900
  2.930
  2.960
  2.990
  3.010
  3.040
  3.070
  3.090
  3.110
  3.130
  3.160
  3.180
  3.200
  3.220
  3.230
  3.250
  3.270
  3.280
  3.300
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
  55
  60
  65
  72
  80
  89
  100
  111
  123
  137
  238
  254
  271
  290
  310
  332
  355
  379
  406
  434
  464
  496
  530
  566
  604
  644
  687
  733
  781
  832
Depreciation, amort., depletion, $m
  219
  222
  225
  229
  232
  236
  241
  245
  250
  256
  143
  149
  156
  163
  170
  177
  185
  194
  203
  212
  222
  233
  244
  256
  268
  281
  294
  309
  324
  339
Funds from operations, $m
  274
  282
  291
  301
  313
  326
  340
  356
  374
  393
  381
  403
  427
  452
  480
  509
  540
  573
  609
  646
  686
  728
  773
  821
  872
  925
  982
  1,041
  1,105
  1,172
Change in working capital, $m
  8
  9
  10
  11
  13
  14
  15
  16
  17
  18
  19
  20
  22
  23
  24
  26
  27
  29
  30
  32
  34
  35
  37
  39
  41
  44
  46
  48
  51
  53
Cash from operations, $m
  266
  272
  280
  289
  300
  312
  326
  340
  357
  375
  362
  383
  405
  430
  455
  483
  513
  545
  578
  614
  652
  693
  736
  782
  830
  881
  936
  993
  1,054
  1,118
Maintenance CAPEX, $m
  -99
  -101
  -104
  -107
  -111
  -114
  -118
  -123
  -127
  -132
  -138
  -143
  -149
  -156
  -163
  -170
  -177
  -185
  -194
  -203
  -212
  -222
  -233
  -244
  -256
  -268
  -281
  -294
  -309
  -324
New CAPEX, $m
  -39
  -43
  -48
  -53
  -58
  -62
  -67
  -72
  -77
  -83
  -88
  -94
  -99
  -105
  -112
  -118
  -125
  -132
  -139
  -147
  -155
  -163
  -172
  -181
  -190
  -200
  -210
  -221
  -233
  -245
Cash from investing activities, $m
  -138
  -144
  -152
  -160
  -169
  -176
  -185
  -195
  -204
  -215
  -226
  -237
  -248
  -261
  -275
  -288
  -302
  -317
  -333
  -350
  -367
  -385
  -405
  -425
  -446
  -468
  -491
  -515
  -542
  -569
Free cash flow, $m
  128
  128
  128
  130
  132
  136
  140
  146
  152
  160
  136
  146
  157
  168
  181
  196
  211
  228
  246
  265
  286
  308
  332
  357
  385
  414
  445
  478
  513
  550
Issuance/(repayment) of debt, $m
  59
  65
  72
  79
  86
  94
  101
  109
  116
  124
  132
  141
  149
  158
  167
  177
  187
  198
  209
  220
  232
  244
  257
  271
  285
  300
  316
  332
  349
  367
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  
  59
  65
  72
  79
  86
  94
  101
  109
  116
  124
  132
  141
  149
  158
  167
  177
  187
  198
  209
  220
  232
  244
  257
  271
  285
  300
  316
  332
  349
  367
Total cash flow (excl. dividends), $m
  187
  193
  200
  209
  218
  229
  241
  254
  268
  284
  268
  286
  306
  327
  349
  373
  398
  425
  454
  485
  518
  552
  589
  628
  670
  714
  761
  810
  862
  917
Retained Cash Flow (-), $m
  -16
  -18
  -20
  -22
  -24
  -26
  -28
  -30
  -32
  -34
  -37
  -39
  -41
  -44
  -46
  -49
  -52
  -55
  -58
  -61
  -64
  -68
  -71
  -75
  -79
  -83
  -88
  -92
  -97
  -102
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
  171
  175
  180
  187
  195
  203
  213
  224
  236
  249
  232
  247
  264
  283
  302
  324
  346
  370
  396
  424
  453
  485
  518
  553
  591
  631
  673
  718
  765
  815
Discount rate, %
  9.60
  10.08
  10.58
  11.11
  11.67
  12.25
  12.86
  13.51
  14.18
  14.89
  15.64
  16.42
  17.24
  18.10
  19.01
  19.96
  20.96
  22.00
  23.10
  24.26
  25.47
  26.75
  28.08
  29.49
  30.96
  32.51
  34.13
  35.84
  37.63
  39.51
PV of cash for distribution, $m
  156
  144
  133
  123
  112
  102
  91
  81
  72
  62
  47
  40
  33
  28
  22
  18
  14
  10
  8
  6
  4
  3
  2
  1
  1
  0
  0
  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 7.8
Price to Sales 0.5
Price to Book 1.8
Price to Tangible Book
Price to Cash Flow 6
Price to Free Cash Flow 63.9
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 $1960.362 million for the last fiscal year's total revenue generated by Kraton. The default revenue input number comes from 0001 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 2.5% 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 9.6%, 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 69.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $402 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%.

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 78.1%.

Life of production assets of 15.5 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 17%. 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 - $636.481 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 31.886 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 $0.9 billion.

RELATED COMPANIES Price Int.Val. Rating
XOM Exxon Mobil 78.00 139.68  str.buy
EMN Eastman Chemic 80.62 133.47  buy
HUN Huntsman 21.35 115.42  str.buy
TSE Trinseo 44.99 127.29  str.buy
NGVT Ingevity 96.99 33.02  str.sell
LYB LyondellBasell 92.07 371.08  str.buy
POL PolyOne 33.04 53.52  buy

COMPANY NEWS

▶ Kraton: 3Q Earnings Snapshot   [04:52PM  Associated Press]
▶ Kraton Corporation Provides Hurricane Michael Update   [Oct-15-18 06:30AM  PR Newswire]
▶ Estimating The Fair Value Of Kraton Corporation (NYSE:KRA)   [Sep-24-18 10:26AM  Simply Wall St.]
▶ Kraton Spotlights Next Generation Cariflex at IRGCE 2018   [Aug-22-18 09:00AM  PR Newswire]
▶ 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]

CONTACT US       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2018. All rigths reserved.