Intrinsic value of Quaker Chemical - KWR

Previous Close

$148.32

  Intrinsic Value

$63.81

stock screener

  Rating & Target

str. sell

-57%

Previous close

$148.32

 
Intrinsic value

$63.81

 
Up/down potential

-57%

 
Rating

str. sell

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of KWR 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  1.22
  12.10
  11.39
  10.75
  10.18
  9.66
  9.19
  8.77
  8.40
  8.06
  7.75
  7.48
  7.23
  7.01
  6.80
  6.62
  6.46
  6.32
  6.18
  6.07
  5.96
  5.86
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
  5.37
  5.33
Revenue, $m
  747
  837
  933
  1,033
  1,138
  1,248
  1,363
  1,482
  1,607
  1,736
  1,871
  2,011
  2,156
  2,307
  2,464
  2,627
  2,797
  2,974
  3,158
  3,349
  3,549
  3,757
  3,974
  4,200
  4,437
  4,684
  4,942
  5,212
  5,494
  5,789
  6,098
Variable operating expenses, $m
 
  754
  839
  929
  1,022
  1,120
  1,223
  1,329
  1,440
  1,555
  1,675
  1,792
  1,921
  2,056
  2,196
  2,341
  2,493
  2,650
  2,814
  2,985
  3,163
  3,348
  3,541
  3,743
  3,954
  4,174
  4,404
  4,644
  4,896
  5,159
  5,434
Fixed operating expenses, $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 operating expenses, $m
  664
  754
  839
  929
  1,022
  1,120
  1,223
  1,329
  1,440
  1,555
  1,675
  1,792
  1,921
  2,056
  2,196
  2,341
  2,493
  2,650
  2,814
  2,985
  3,163
  3,348
  3,541
  3,743
  3,954
  4,174
  4,404
  4,644
  4,896
  5,159
  5,434
Operating income, $m
  83
  83
  93
  104
  116
  128
  140
  153
  167
  181
  196
  219
  235
  251
  268
  286
  304
  324
  344
  365
  386
  409
  433
  457
  483
  510
  538
  567
  598
  630
  664
EBITDA, $m
  103
  106
  118
  131
  144
  158
  173
  188
  204
  220
  237
  255
  273
  292
  312
  333
  354
  377
  400
  424
  450
  476
  503
  532
  562
  593
  626
  660
  696
  733
  772
Interest expense (income), $m
  2
  2
  4
  5
  6
  8
  9
  11
  12
  14
  16
  17
  19
  21
  23
  25
  28
  30
  32
  35
  37
  40
  43
  46
  49
  52
  55
  59
  63
  66
  70
Earnings before tax, $m
  84
  81
  90
  100
  110
  120
  131
  143
  155
  167
  180
  201
  215
  230
  245
  261
  277
  294
  311
  330
  349
  369
  390
  411
  434
  458
  482
  508
  535
  564
  593
Tax expense, $m
  23
  22
  24
  27
  30
  32
  35
  39
  42
  45
  49
  54
  58
  62
  66
  70
  75
  79
  84
  89
  94
  100
  105
  111
  117
  124
  130
  137
  145
  152
  160
Net income, $m
  61
  59
  66
  73
  80
  88
  96
  104
  113
  122
  131
  147
  157
  168
  179
  190
  202
  214
  227
  241
  255
  269
  284
  300
  317
  334
  352
  371
  391
  411
  433

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  89
  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
  692
  676
  753
  834
  919
  1,007
  1,100
  1,196
  1,297
  1,401
  1,510
  1,623
  1,740
  1,862
  1,989
  2,121
  2,258
  2,400
  2,549
  2,703
  2,864
  3,032
  3,207
  3,390
  3,581
  3,780
  3,989
  4,206
  4,434
  4,672
  4,921
Adjusted assets (=assets-cash), $m
  603
  676
  753
  834
  919
  1,007
  1,100
  1,196
  1,297
  1,401
  1,510
  1,623
  1,740
  1,862
  1,989
  2,121
  2,258
  2,400
  2,549
  2,703
  2,864
  3,032
  3,207
  3,390
  3,581
  3,780
  3,989
  4,206
  4,434
  4,672
  4,921
Revenue / Adjusted assets
  1.239
  1.238
  1.239
  1.239
  1.238
  1.239
  1.239
  1.239
  1.239
  1.239
  1.239
  1.239
  1.239
  1.239
  1.239
  1.239
  1.239
  1.239
  1.239
  1.239
  1.239
  1.239
  1.239
  1.239
  1.239
  1.239
  1.239
  1.239
  1.239
  1.239
  1.239
Average production assets, $m
  160
  179
  200
  221
  244
  267
  292
  317
  344
  372
  400
  430
  461
  494
  527
  562
  599
  636
  676
  717
  759
  804
  850
  899
  949
  1,002
  1,058
  1,115
  1,176
  1,239
  1,305
Working capital, $m
  249
  181
  201
  223
  246
  270
  294
  320
  347
  375
  404
  434
  466
  498
  532
  568
  604
  642
  682
  723
  767
  811
  858
  907
  958
  1,012
  1,067
  1,126
  1,187
  1,250
  1,317
Total debt, $m
  66
  100
  137
  176
  216
  259
  303
  349
  397
  447
  499
  553
  609
  667
  728
  791
  856
  924
  995
  1,069
  1,146
  1,226
  1,310
  1,397
  1,489
  1,584
  1,684
  1,788
  1,896
  2,010
  2,129
Total liabilities, $m
  289
  323
  360
  399
  439
  482
  526
  572
  620
  670
  722
  776
  832
  890
  951
  1,014
  1,079
  1,147
  1,218
  1,292
  1,369
  1,449
  1,533
  1,620
  1,712
  1,807
  1,907
  2,011
  2,119
  2,233
  2,352
Total equity, $m
  403
  353
  393
  435
  480
  526
  574
  625
  677
  732
  788
  847
  908
  972
  1,038
  1,107
  1,178
  1,253
  1,330
  1,411
  1,495
  1,583
  1,674
  1,770
  1,869
  1,973
  2,082
  2,196
  2,315
  2,439
  2,569
Total liabilities and equity, $m
  692
  676
  753
  834
  919
  1,008
  1,100
  1,197
  1,297
  1,402
  1,510
  1,623
  1,740
  1,862
  1,989
  2,121
  2,257
  2,400
  2,548
  2,703
  2,864
  3,032
  3,207
  3,390
  3,581
  3,780
  3,989
  4,207
  4,434
  4,672
  4,921
Debt-to-equity ratio
  0.164
  0.280
  0.350
  0.400
  0.450
  0.490
  0.530
  0.560
  0.590
  0.610
  0.630
  0.650
  0.670
  0.690
  0.700
  0.710
  0.730
  0.740
  0.750
  0.760
  0.770
  0.770
  0.780
  0.790
  0.800
  0.800
  0.810
  0.810
  0.820
  0.820
  0.830
Adjusted equity ratio
  0.521
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522
  0.522

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  61
  59
  66
  73
  80
  88
  96
  104
  113
  122
  131
  147
  157
  168
  179
  190
  202
  214
  227
  241
  255
  269
  284
  300
  317
  334
  352
  371
  391
  411
  433
Depreciation, amort., depletion, $m
  20
  23
  25
  27
  28
  30
  32
  35
  37
  39
  41
  36
  38
  41
  44
  47
  50
  53
  56
  60
  63
  67
  71
  75
  79
  84
  88
  93
  98
  103
  109
Funds from operations, $m
  64
  82
  90
  99
  108
  118
  128
  139
  150
  161
  173
  183
  196
  209
  223
  237
  252
  267
  284
  300
  318
  336
  355
  375
  396
  418
  440
  464
  489
  515
  542
Change in working capital, $m
  -10
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  41
  43
  45
  47
  49
  51
  53
  56
  58
  61
  64
  67
Cash from operations, $m
  74
  62
  70
  78
  86
  94
  103
  113
  123
  133
  144
  153
  164
  176
  189
  202
  215
  229
  244
  259
  275
  291
  308
  326
  345
  364
  385
  406
  428
  451
  475
Maintenance CAPEX, $m
  0
  -13
  -15
  -17
  -18
  -20
  -22
  -24
  -26
  -29
  -31
  -33
  -36
  -38
  -41
  -44
  -47
  -50
  -53
  -56
  -60
  -63
  -67
  -71
  -75
  -79
  -84
  -88
  -93
  -98
  -103
New CAPEX, $m
  -10
  -20
  -20
  -21
  -22
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -32
  -34
  -35
  -36
  -38
  -39
  -41
  -43
  -45
  -46
  -48
  -51
  -53
  -55
  -58
  -60
  -63
  -66
Cash from investing activities, $m
  -24
  -33
  -35
  -38
  -40
  -44
  -47
  -50
  -53
  -57
  -60
  -63
  -67
  -70
  -75
  -79
  -83
  -88
  -92
  -97
  -103
  -108
  -113
  -119
  -126
  -132
  -139
  -146
  -153
  -161
  -169
Free cash flow, $m
  50
  29
  34
  39
  45
  51
  57
  63
  70
  77
  84
  89
  97
  106
  114
  123
  132
  142
  151
  162
  172
  183
  195
  207
  219
  232
  246
  260
  275
  290
  306
Issuance/(repayment) of debt, $m
  -15
  35
  37
  39
  41
  42
  44
  46
  48
  50
  52
  54
  56
  58
  61
  63
  65
  68
  71
  74
  77
  80
  84
  87
  91
  95
  100
  104
  109
  114
  119
Issuance/(repurchase) of shares, $m
  -6
  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  
  -20
  35
  37
  39
  41
  42
  44
  46
  48
  50
  52
  54
  56
  58
  61
  63
  65
  68
  71
  74
  77
  80
  84
  87
  91
  95
  100
  104
  109
  114
  119
Total cash flow (excl. dividends), $m
  26
  65
  71
  78
  85
  93
  101
  109
  118
  127
  136
  143
  153
  164
  175
  186
  198
  210
  222
  236
  249
  264
  279
  294
  311
  328
  345
  364
  383
  404
  425
Retained Cash Flow (-), $m
  -30
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -55
  -57
  -59
  -61
  -64
  -66
  -69
  -72
  -74
  -77
  -81
  -84
  -88
  -91
  -95
  -100
  -104
  -109
  -114
  -119
  -124
  -130
Prev. year cash balance distribution, $m
 
  88
  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
 
  115
  31
  36
  41
  47
  53
  59
  65
  72
  79
  84
  92
  100
  108
  117
  126
  135
  145
  155
  165
  176
  187
  199
  211
  224
  237
  250
  265
  279
  295
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
 
  110
  28
  31
  34
  36
  38
  40
  41
  41
  42
  40
  39
  38
  36
  34
  32
  29
  27
  24
  21
  18
  16
  13
  11
  9
  7
  5
  4
  3
  2
Current shareholders' claim on cash, %
  100
  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

Quaker Chemical Corporation is a provider of process fluids, chemical specialties, and technical expertise to a range of industries, including steel, aluminum, mining, aerospace, tube and pipe, cans and others. The Company's segments include North America, Europe, Middle East and Africa (EMEA), Asia/Pacific and South America. It develops, produces, and markets a range of formulated chemical specialty products and offers chemical management services. Its products and services include rolling lubricants (used by manufacturers of steel in the hot and cold rolling of steel and by manufacturers of aluminum in the hot rolling of aluminum); machining and grinding compounds (used by metalworking customers in cutting, shaping, and grinding metal parts, which require special treatment to enable them to tolerate the manufacturing process, achieve closer tolerance, and improve tool life), and hydraulic fluids (used by steel, metalworking, and other customers to operate hydraulic equipment).

FINANCIAL RATIOS  of  Quaker Chemical (KWR)

Valuation Ratios
P/E Ratio 32.3
Price to Sales 2.6
Price to Book 4.9
Price to Tangible Book
Price to Cash Flow 26.6
Price to Free Cash Flow 30.8
Growth Rates
Sales Growth Rate 1.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -9.1%
Cap. Spend. - 3 Yr. Gr. Rate -1.9%
Financial Strength
Quick Ratio 89
Current Ratio 0
LT Debt to Equity 16.1%
Total Debt to Equity 16.4%
Interest Coverage 43
Management Effectiveness
Return On Assets 9.1%
Ret/ On Assets - 3 Yr. Avg. 8.7%
Return On Total Capital 13.2%
Ret/ On T. Cap. - 3 Yr. Avg. 13%
Return On Equity 15.7%
Return On Equity - 3 Yr. Avg. 15.3%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 37.5%
Gross Margin - 3 Yr. Avg. 36.9%
EBITDA Margin 14.2%
EBITDA Margin - 3 Yr. Avg. 13%
Operating Margin 11.1%
Oper. Margin - 3 Yr. Avg. 10.3%
Pre-Tax Margin 11.2%
Pre-Tax Margin - 3 Yr. Avg. 10.3%
Net Profit Margin 8.2%
Net Profit Margin - 3 Yr. Avg. 7.5%
Effective Tax Rate 27.4%
Eff/ Tax Rate - 3 Yr. Avg. 27.5%
Payout Ratio 29.5%

KWR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KWR stock intrinsic value calculation we used $747 million for the last fiscal year's total revenue generated by Quaker Chemical. The default revenue input number comes from 2016 income statement of Quaker Chemical. 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 KWR stock valuation model: a) initial revenue growth rate of 12.1% 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 KWR is calculated based on our internal credit rating of Quaker Chemical, 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 Quaker Chemical.
    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 KWR stock the variable cost ratio is equal to 90.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for KWR 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 3.5% for Quaker Chemical.

Corporate tax rate of 27% is the nominal tax rate for Quaker Chemical. 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 KWR 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 KWR are equal to 21.4%.

Life of production assets of 12 years is the average useful life of capital assets used in Quaker Chemical 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 KWR is equal to 21.6%. 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 - $403 million for Quaker Chemical - 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 13.396 million for Quaker Chemical 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 Quaker Chemical at the current share price and the inputted number of shares is $2.0 billion.

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COMPANY NEWS

▶ Quaker Acquires Remaining Stake of India Joint Venture   [Dec-26-17 08:28AM  Market Realist]
▶ Quaker Chemical Announces Quarterly Dividend   [Nov-15-17 01:00PM  PR Newswire]
▶ Quaker Chemical Corporation to Host Earnings Call   [Oct-27-17 06:30AM  ACCESSWIRE]
▶ Quaker Chemical beats 3Q profit forecasts   [Oct-26-17 07:28PM  Associated Press]
▶ Quaker Chemical Announces Quarterly Dividend   [Sep-20-17 01:00PM  PR Newswire]
▶ Product Solutions to Suppress Dust and Reduce Downtime   [Aug-22-17 10:00AM  PR Newswire]
▶ Quaker Chemical meets 2Q profit forecasts   [01:09AM  Associated Press]
▶ Quaker Chemical Announces Second Quarter 2017 Results   [Jul-27-17 04:20PM  PR Newswire]
▶ Quaker Chemical Announces 3% Increase In Cash Dividend   [May-10-17 02:00PM  PR Newswire]
▶ Quaker Chemical Sees Composite Rating Improve To 96   [May-03-17 11:24AM  Investor's Business Daily]
▶ Quaker Chemical beats 1Q profit forecasts   [May-01-17 05:08PM  Associated Press]
▶ Quaker Chemical beats 4Q profit forecasts   [Feb-28-17 06:49PM  Associated Press]
▶ Quaker Chemical Announces Quarterly Dividend   [Feb-27-17 03:30PM  PR Newswire]
▶ Is Quaker Chemical Corp (KWR) a Good Stock to Buy?   [Dec-12-16 05:33PM  at Insider Monkey]
▶ Quaker Chemical Announces Quarterly Dividend   [Nov-16-16 03:00PM  PR Newswire]
Financial statements of KWR
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