Intrinsic value of LSC Communications - LKSD

Previous Close

$12.48

  Intrinsic Value

$42.26

stock screener

  Rating & Target

str. buy

+239%

Previous close

$12.48

 
Intrinsic value

$42.26

 
Up/down potential

+239%

 
Rating

str. buy

We calculate the intrinsic value of LKSD 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 0.4

 

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, %
  11.20
  10.58
  10.02
  9.52
  9.07
  8.66
  8.29
  7.97
  7.67
  7.40
  7.16
  6.95
  6.75
  6.58
  6.42
  6.28
  6.15
  6.03
  5.93
  5.84
  5.75
  5.68
  5.61
  5.55
  5.49
  5.45
  5.40
  5.36
  5.32
  5.29
Revenue, $m
  4,007
  4,430
  4,874
  5,338
  5,823
  6,327
  6,852
  7,397
  7,965
  8,554
  9,167
  9,804
  10,465
  11,154
  11,870
  12,615
  13,390
  14,198
  15,040
  15,918
  16,834
  17,790
  18,788
  19,831
  20,920
  22,060
  23,251
  24,497
  25,802
  27,167
Variable operating expenses, $m
  3,812
  4,212
  4,632
  5,071
  5,528
  6,005
  6,501
  7,017
  7,553
  8,110
  8,665
  9,267
  9,893
  10,543
  11,220
  11,924
  12,658
  13,421
  14,217
  15,047
  15,913
  16,817
  17,760
  18,746
  19,776
  20,852
  21,979
  23,157
  24,390
  25,681
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
  3,812
  4,212
  4,632
  5,071
  5,528
  6,005
  6,501
  7,017
  7,553
  8,110
  8,665
  9,267
  9,893
  10,543
  11,220
  11,924
  12,658
  13,421
  14,217
  15,047
  15,913
  16,817
  17,760
  18,746
  19,776
  20,852
  21,979
  23,157
  24,390
  25,681
Operating income, $m
  195
  218
  243
  268
  294
  322
  351
  381
  412
  444
  502
  536
  573
  610
  649
  690
  733
  777
  823
  871
  921
  973
  1,028
  1,085
  1,145
  1,207
  1,272
  1,340
  1,412
  1,486
EBITDA, $m
  373
  413
  454
  497
  542
  589
  638
  689
  742
  797
  854
  913
  975
  1,039
  1,106
  1,175
  1,247
  1,323
  1,401
  1,483
  1,568
  1,657
  1,750
  1,847
  1,949
  2,055
  2,166
  2,282
  2,403
  2,531
Interest expense (income), $m
  0
  73
  91
  109
  129
  149
  170
  192
  215
  239
  263
  289
  316
  344
  373
  403
  434
  466
  500
  535
  572
  610
  650
  692
  736
  781
  829
  878
  930
  985
  1,042
Earnings before tax, $m
  122
  127
  133
  139
  145
  152
  159
  166
  173
  180
  212
  220
  229
  238
  247
  256
  266
  277
  288
  299
  311
  323
  336
  349
  364
  378
  394
  410
  427
  445
Tax expense, $m
  33
  34
  36
  38
  39
  41
  43
  45
  47
  49
  57
  60
  62
  64
  67
  69
  72
  75
  78
  81
  84
  87
  91
  94
  98
  102
  106
  111
  115
  120
Net income, $m
  89
  93
  97
  102
  106
  111
  116
  121
  126
  132
  155
  161
  167
  174
  180
  187
  194
  202
  210
  218
  227
  236
  245
  255
  265
  276
  287
  299
  312
  325

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
  2,240
  2,476
  2,725
  2,984
  3,255
  3,537
  3,830
  4,135
  4,452
  4,782
  5,124
  5,480
  5,850
  6,235
  6,635
  7,051
  7,485
  7,936
  8,407
  8,898
  9,410
  9,944
  10,502
  11,085
  11,694
  12,331
  12,997
  13,693
  14,422
  15,186
Adjusted assets (=assets-cash), $m
  2,240
  2,476
  2,725
  2,984
  3,255
  3,537
  3,830
  4,135
  4,452
  4,782
  5,124
  5,480
  5,850
  6,235
  6,635
  7,051
  7,485
  7,936
  8,407
  8,898
  9,410
  9,944
  10,502
  11,085
  11,694
  12,331
  12,997
  13,693
  14,422
  15,186
Revenue / Adjusted assets
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
  1.789
Average production assets, $m
  785
  868
  955
  1,046
  1,141
  1,240
  1,343
  1,450
  1,561
  1,677
  1,797
  1,922
  2,051
  2,186
  2,326
  2,472
  2,624
  2,783
  2,948
  3,120
  3,299
  3,487
  3,682
  3,887
  4,100
  4,324
  4,557
  4,801
  5,057
  5,325
Working capital, $m
  409
  452
  497
  545
  594
  645
  699
  755
  812
  873
  935
  1,000
  1,067
  1,138
  1,211
  1,287
  1,366
  1,448
  1,534
  1,624
  1,717
  1,815
  1,916
  2,023
  2,134
  2,250
  2,372
  2,499
  2,632
  2,771
Total debt, $m
  1,020
  1,228
  1,446
  1,673
  1,910
  2,158
  2,415
  2,682
  2,960
  3,249
  3,550
  3,862
  4,186
  4,524
  4,875
  5,240
  5,620
  6,016
  6,429
  6,859
  7,308
  7,777
  8,266
  8,777
  9,312
  9,870
  10,454
  11,065
  11,704
  12,374
Total liabilities, $m
  1,964
  2,172
  2,390
  2,617
  2,854
  3,102
  3,359
  3,626
  3,904
  4,193
  4,494
  4,806
  5,130
  5,468
  5,819
  6,184
  6,564
  6,960
  7,373
  7,803
  8,252
  8,721
  9,210
  9,721
  10,256
  10,814
  11,398
  12,009
  12,648
  13,318
Total equity, $m
  275
  305
  335
  367
  400
  435
  471
  509
  548
  588
  630
  674
  720
  767
  816
  867
  921
  976
  1,034
  1,094
  1,157
  1,223
  1,292
  1,363
  1,438
  1,517
  1,599
  1,684
  1,774
  1,868
Total liabilities and equity, $m
  2,239
  2,477
  2,725
  2,984
  3,254
  3,537
  3,830
  4,135
  4,452
  4,781
  5,124
  5,480
  5,850
  6,235
  6,635
  7,051
  7,485
  7,936
  8,407
  8,897
  9,409
  9,944
  10,502
  11,084
  11,694
  12,331
  12,997
  13,693
  14,422
  15,186
Debt-to-equity ratio
  3.700
  4.030
  4.310
  4.560
  4.770
  4.960
  5.130
  5.270
  5.410
  5.530
  5.630
  5.730
  5.820
  5.900
  5.970
  6.040
  6.100
  6.160
  6.220
  6.270
  6.310
  6.360
  6.400
  6.440
  6.470
  6.510
  6.540
  6.570
  6.600
  6.620
Adjusted equity ratio
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  89
  93
  97
  102
  106
  111
  116
  121
  126
  132
  155
  161
  167
  174
  180
  187
  194
  202
  210
  218
  227
  236
  245
  255
  265
  276
  287
  299
  312
  325
Depreciation, amort., depletion, $m
  178
  194
  212
  229
  248
  267
  288
  308
  330
  353
  352
  377
  402
  429
  456
  485
  515
  546
  578
  612
  647
  684
  722
  762
  804
  848
  894
  941
  992
  1,044
Funds from operations, $m
  267
  287
  309
  331
  354
  378
  403
  429
  456
  485
  507
  538
  569
  602
  636
  672
  709
  748
  788
  830
  874
  919
  967
  1,017
  1,069
  1,124
  1,181
  1,241
  1,303
  1,369
Change in working capital, $m
  41
  43
  45
  47
  49
  51
  54
  56
  58
  60
  62
  65
  68
  70
  73
  76
  79
  82
  86
  90
  93
  98
  102
  106
  111
  116
  122
  127
  133
  139
Cash from operations, $m
  226
  244
  264
  284
  305
  327
  350
  374
  399
  424
  445
  473
  502
  532
  563
  596
  630
  665
  702
  740
  780
  822
  865
  911
  958
  1,008
  1,060
  1,114
  1,170
  1,229
Maintenance CAPEX, $m
  -138
  -154
  -170
  -187
  -205
  -224
  -243
  -263
  -284
  -306
  -329
  -352
  -377
  -402
  -429
  -456
  -485
  -515
  -546
  -578
  -612
  -647
  -684
  -722
  -762
  -804
  -848
  -894
  -941
  -992
New CAPEX, $m
  -79
  -83
  -87
  -91
  -95
  -99
  -103
  -107
  -111
  -116
  -120
  -125
  -130
  -135
  -140
  -146
  -152
  -158
  -165
  -172
  -180
  -187
  -196
  -204
  -214
  -223
  -234
  -244
  -256
  -268
Cash from investing activities, $m
  -217
  -237
  -257
  -278
  -300
  -323
  -346
  -370
  -395
  -422
  -449
  -477
  -507
  -537
  -569
  -602
  -637
  -673
  -711
  -750
  -792
  -834
  -880
  -926
  -976
  -1,027
  -1,082
  -1,138
  -1,197
  -1,260
Free cash flow, $m
  8
  7
  6
  5
  5
  4
  4
  3
  3
  3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -14
  -16
  -17
  -20
  -22
  -24
  -27
  -30
Issuance/(repayment) of debt, $m
  198
  208
  218
  227
  237
  247
  257
  268
  278
  289
  300
  312
  324
  337
  351
  365
  380
  396
  413
  430
  449
  469
  489
  511
  534
  558
  584
  611
  639
  669
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  
  198
  208
  218
  227
  237
  247
  257
  268
  278
  289
  300
  312
  324
  337
  351
  365
  380
  396
  413
  430
  449
  469
  489
  511
  534
  558
  584
  611
  639
  669
Total cash flow (excl. dividends), $m
  207
  215
  224
  233
  242
  251
  261
  271
  281
  292
  296
  308
  320
  332
  345
  359
  373
  388
  404
  421
  438
  456
  475
  496
  517
  539
  562
  587
  613
  640
Retained Cash Flow (-), $m
  -27
  -29
  -31
  -32
  -33
  -35
  -36
  -38
  -39
  -41
  -42
  -44
  -46
  -47
  -49
  -51
  -53
  -56
  -58
  -60
  -63
  -66
  -69
  -72
  -75
  -78
  -82
  -86
  -90
  -94
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
  179
  186
  193
  201
  209
  217
  225
  233
  242
  251
  254
  264
  274
  285
  296
  308
  320
  333
  346
  360
  375
  391
  407
  424
  442
  461
  480
  501
  523
  546
Discount rate, %
  9.30
  9.77
  10.25
  10.77
  11.30
  11.87
  12.46
  13.09
  13.74
  14.43
  15.15
  15.91
  16.70
  17.54
  18.41
  19.33
  20.30
  21.32
  22.38
  23.50
  24.68
  25.91
  27.20
  28.57
  29.99
  31.49
  33.07
  34.72
  36.46
  38.28
PV of cash for distribution, $m
  164
  154
  144
  134
  122
  111
  99
  87
  76
  65
  54
  45
  37
  30
  23
  18
  14
  10
  7
  5
  4
  2
  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

LSC Communications, Inc. focuses on traditional and digital print, print-related services and office products. The Company's segments are Print and Office Products. The Company, through its Print segment, provides a range of print product offerings, which include magazines, catalogs, retail inserts, books and directories. In addition to printed products, the Company also provides a number of print-related services, such as supply chain management, mail services, e-book formatting and distribution services. Its Print segment services over 3,000 customers, including publishers of magazines, books and directories, online retailers, catalogers, mass merchandisers and contract stationers. In its Office Products segment, the Company manufactures and sells a range of branded and private label products, primarily within the core categories, including filing products; note-taking products; binder products; tax and stock forms, and envelopes.

FINANCIAL RATIOS  of  LSC Communications (LKSD)

Valuation Ratios
P/E Ratio 3.8
Price to Sales 0.1
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 1.8
Price to Free Cash Flow 2.2
Growth Rates
Sales Growth Rate -2.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 14.3%
Cap. Spend. - 3 Yr. Gr. Rate -9.5%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 309.2%
Total Debt to Equity 330.8%
Interest Coverage 0
Management Effectiveness
Return On Assets 5.3%
Ret/ On Assets - 3 Yr. Avg. 5.1%
Return On Total Capital 9.2%
Ret/ On T. Cap. - 3 Yr. Avg. 8.4%
Return On Equity 14%
Return On Equity - 3 Yr. Avg. 10%
Asset Turnover 1.8
Profitability Ratios
Gross Margin 17%
Gross Margin - 3 Yr. Avg. 17.2%
EBITDA Margin 9%
EBITDA Margin - 3 Yr. Avg. 8.2%
Operating Margin 4.8%
Oper. Margin - 3 Yr. Avg. 3.4%
Pre-Tax Margin 4.3%
Pre-Tax Margin - 3 Yr. Avg. 3.4%
Net Profit Margin 2.9%
Net Profit Margin - 3 Yr. Avg. 2.1%
Effective Tax Rate 32.5%
Eff/ Tax Rate - 3 Yr. Avg. 37.7%
Payout Ratio 7.5%

LKSD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LKSD stock intrinsic value calculation we used $3603 million for the last fiscal year's total revenue generated by LSC Communications. The default revenue input number comes from 0001 income statement of LSC Communications. 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 LKSD stock valuation model: a) initial revenue growth rate of 11.2% 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 9.3%, whose default value for LKSD is calculated based on our internal credit rating of LSC Communications, 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 LSC Communications.
    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 LKSD stock the variable cost ratio is equal to 95.2%.

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 LKSD 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 8.9% for LSC Communications.

Corporate tax rate of 27% is the nominal tax rate for LSC Communications. 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 LKSD 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 LKSD are equal to 19.6%.

Life of production assets of 5.1 years is the average useful life of capital assets used in LSC Communications 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 LKSD is equal to 10.2%. 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 - $248 million for LSC Communications - 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 33.371 million for LSC Communications 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 LSC Communications at the current share price and the inputted number of shares is $0.4 billion.

RELATED COMPANIES Price Int.Val. Rating
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ALJJ ALJ Regional H 1.75 4.20  str.buy

COMPANY NEWS

▶ LSC Communications: 2Q Earnings Snapshot   [09:20AM  Associated Press]
▶ LSC Communications: 1Q Earnings Snapshot   [May-03-18 06:56AM  Associated Press]
▶ LSC Communications Acquires TriLiteral LLC   [Apr-03-18 06:30AM  Business Wire]
▶ LSC Communications reports 4Q loss   [Feb-22-18 07:03AM  Associated Press]
▶ [$$] LSC Communications Acquires Gores-Backed Clark Group   [Nov-29-17 01:20PM  The Wall Street Journal]
▶ LSC Communications Acquires The Clark Group   [06:30AM  Business Wire]
▶ LSC Communications reports 3Q loss   [06:44AM  Associated Press]
▶ LSC Communications Acquires Publishers Press   [Sep-07-17 06:30AM  Business Wire]
▶ LSC Communications Completes Acquisition of CREEL   [Aug-17-17 04:01PM  Business Wire]
▶ LSC Communications misses 2Q profit forecasts   [Aug-04-17 12:32AM  Associated Press]
▶ LSC Communications Acquires Fairrington Transportation   [Jul-31-17 06:30AM  Business Wire]
▶ LSC Communications Acquires CREEL Printing   [Jul-17-17 06:30AM  Business Wire]
▶ LSC Communications reports 1Q loss   [May-04-17 06:50AM  Associated Press]

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