Intrinsic value of LSC Communications, Inc. - LKSD

Previous Close

$6.19

  Intrinsic Value

$0.40

stock screener

  Rating & Target

str. sell

-94%

Previous close

$6.19

 
Intrinsic value

$0.40

 
Up/down potential

-94%

 
Rating

str. sell

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 0.2

 

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, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  3,903
  3,992
  4,095
  4,210
  4,338
  4,478
  4,630
  4,795
  4,973
  5,164
  5,368
  5,586
  5,818
  6,065
  6,326
  6,603
  6,897
  7,207
  7,535
  7,881
  8,247
  8,632
  9,038
  9,466
  9,917
  10,391
  10,890
  11,416
  11,969
  12,550
Variable operating expenses, $m
  2,833
  2,897
  2,971
  3,054
  3,146
  3,246
  3,356
  3,475
  3,603
  3,740
  3,861
  4,018
  4,185
  4,362
  4,550
  4,749
  4,960
  5,184
  5,419
  5,669
  5,931
  6,208
  6,500
  6,808
  7,132
  7,474
  7,833
  8,211
  8,608
  9,027
Fixed operating expenses, $m
  1,050
  1,073
  1,096
  1,120
  1,145
  1,170
  1,196
  1,222
  1,249
  1,277
  1,305
  1,333
  1,363
  1,393
  1,423
  1,455
  1,487
  1,519
  1,553
  1,587
  1,622
  1,658
  1,694
  1,731
  1,769
  1,808
  1,848
  1,889
  1,930
  1,973
Total operating expenses, $m
  3,883
  3,970
  4,067
  4,174
  4,291
  4,416
  4,552
  4,697
  4,852
  5,017
  5,166
  5,351
  5,548
  5,755
  5,973
  6,204
  6,447
  6,703
  6,972
  7,256
  7,553
  7,866
  8,194
  8,539
  8,901
  9,282
  9,681
  10,100
  10,538
  11,000
Operating income, $m
  20
  22
  28
  36
  47
  61
  78
  98
  121
  147
  202
  235
  271
  310
  353
  399
  450
  504
  563
  626
  693
  766
  843
  926
  1,015
  1,109
  1,210
  1,316
  1,430
  1,551
EBITDA, $m
  165
  170
  178
  190
  205
  224
  245
  270
  299
  331
  366
  405
  448
  495
  546
  601
  660
  724
  793
  866
  945
  1,029
  1,119
  1,215
  1,318
  1,426
  1,542
  1,665
  1,795
  1,934
Interest expense (income), $m
  0
  77
  81
  84
  89
  94
  99
  105
  111
  118
  125
  133
  142
  151
  161
  171
  182
  193
  205
  218
  232
  246
  262
  278
  295
  312
  331
  351
  372
  394
  417
Earnings before tax, $m
  -57
  -58
  -57
  -53
  -47
  -38
  -27
  -13
  3
  22
  69
  93
  120
  149
  182
  218
  256
  299
  344
  394
  447
  504
  566
  632
  702
  778
  859
  945
  1,037
  1,134
Tax expense, $m
  0
  0
  0
  0
  0
  0
  0
  0
  1
  6
  19
  25
  32
  40
  49
  59
  69
  81
  93
  106
  121
  136
  153
  171
  190
  210
  232
  255
  280
  306
Net income, $m
  -57
  -58
  -57
  -53
  -47
  -38
  -27
  -13
  2
  16
  51
  68
  88
  109
  133
  159
  187
  218
  251
  287
  326
  368
  413
  461
  513
  568
  627
  690
  757
  828

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
  1,789
  1,830
  1,878
  1,930
  1,989
  2,053
  2,123
  2,199
  2,280
  2,368
  2,461
  2,561
  2,668
  2,781
  2,901
  3,028
  3,162
  3,305
  3,455
  3,614
  3,781
  3,958
  4,144
  4,340
  4,547
  4,764
  4,993
  5,234
  5,488
  5,754
Adjusted assets (=assets-cash), $m
  1,789
  1,830
  1,878
  1,930
  1,989
  2,053
  2,123
  2,199
  2,280
  2,368
  2,461
  2,561
  2,668
  2,781
  2,901
  3,028
  3,162
  3,305
  3,455
  3,614
  3,781
  3,958
  4,144
  4,340
  4,547
  4,764
  4,993
  5,234
  5,488
  5,754
Revenue / Adjusted assets
  2.182
  2.181
  2.181
  2.181
  2.181
  2.181
  2.181
  2.181
  2.181
  2.181
  2.181
  2.181
  2.181
  2.181
  2.181
  2.181
  2.181
  2.181
  2.181
  2.181
  2.181
  2.181
  2.181
  2.181
  2.181
  2.181
  2.181
  2.181
  2.181
  2.181
Average production assets, $m
  679
  695
  713
  733
  755
  779
  806
  834
  865
  899
  934
  972
  1,012
  1,055
  1,101
  1,149
  1,200
  1,254
  1,311
  1,371
  1,435
  1,502
  1,573
  1,647
  1,725
  1,808
  1,895
  1,986
  2,083
  2,184
Working capital, $m
  281
  287
  295
  303
  312
  322
  333
  345
  358
  372
  387
  402
  419
  437
  455
  475
  497
  519
  543
  567
  594
  621
  651
  682
  714
  748
  784
  822
  862
  904
Total debt, $m
  800
  837
  879
  926
  979
  1,037
  1,100
  1,168
  1,241
  1,320
  1,404
  1,494
  1,589
  1,691
  1,799
  1,913
  2,034
  2,162
  2,297
  2,440
  2,590
  2,749
  2,916
  3,093
  3,279
  3,474
  3,680
  3,897
  4,125
  4,364
Total liabilities, $m
  1,609
  1,646
  1,688
  1,735
  1,788
  1,846
  1,909
  1,977
  2,050
  2,129
  2,213
  2,303
  2,398
  2,500
  2,608
  2,722
  2,843
  2,971
  3,106
  3,249
  3,399
  3,558
  3,725
  3,902
  4,088
  4,283
  4,489
  4,706
  4,934
  5,173
Total equity, $m
  181
  185
  190
  195
  201
  207
  214
  222
  230
  239
  249
  259
  269
  281
  293
  306
  319
  334
  349
  365
  382
  400
  419
  438
  459
  481
  504
  529
  554
  581
Total liabilities and equity, $m
  1,790
  1,831
  1,878
  1,930
  1,989
  2,053
  2,123
  2,199
  2,280
  2,368
  2,462
  2,562
  2,667
  2,781
  2,901
  3,028
  3,162
  3,305
  3,455
  3,614
  3,781
  3,958
  4,144
  4,340
  4,547
  4,764
  4,993
  5,235
  5,488
  5,754
Debt-to-equity ratio
  4.420
  4.530
  4.630
  4.750
  4.870
  5.000
  5.130
  5.260
  5.390
  5.520
  5.650
  5.770
  5.900
  6.020
  6.140
  6.260
  6.370
  6.480
  6.580
  6.680
  6.780
  6.880
  6.970
  7.060
  7.140
  7.220
  7.300
  7.370
  7.440
  7.510
Adjusted equity ratio
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101
  0.101

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -57
  -58
  -57
  -53
  -47
  -38
  -27
  -13
  2
  16
  51
  68
  88
  109
  133
  159
  187
  218
  251
  287
  326
  368
  413
  461
  513
  568
  627
  690
  757
  828
Depreciation, amort., depletion, $m
  145
  148
  151
  154
  158
  163
  167
  172
  178
  184
  164
  171
  178
  185
  193
  202
  211
  220
  230
  241
  252
  264
  276
  289
  303
  317
  332
  348
  365
  383
Funds from operations, $m
  88
  89
  94
  101
  112
  125
  141
  159
  180
  200
  214
  239
  265
  294
  326
  360
  398
  438
  481
  528
  578
  632
  689
  750
  815
  885
  959
  1,038
  1,122
  1,211
Change in working capital, $m
  6
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  28
  29
  31
  32
  34
  36
  38
  40
  42
Cash from operations, $m
  82
  83
  87
  93
  103
  115
  130
  148
  167
  186
  200
  223
  248
  276
  307
  340
  377
  416
  458
  503
  552
  604
  660
  719
  783
  851
  923
  1,000
  1,082
  1,169
Maintenance CAPEX, $m
  -117
  -119
  -122
  -125
  -129
  -132
  -137
  -141
  -146
  -152
  -158
  -164
  -171
  -178
  -185
  -193
  -202
  -211
  -220
  -230
  -241
  -252
  -264
  -276
  -289
  -303
  -317
  -332
  -348
  -365
New CAPEX, $m
  -12
  -16
  -18
  -20
  -22
  -24
  -27
  -29
  -31
  -33
  -36
  -38
  -40
  -43
  -46
  -48
  -51
  -54
  -57
  -60
  -64
  -67
  -71
  -74
  -78
  -83
  -87
  -91
  -96
  -101
Cash from investing activities, $m
  -129
  -135
  -140
  -145
  -151
  -156
  -164
  -170
  -177
  -185
  -194
  -202
  -211
  -221
  -231
  -241
  -253
  -265
  -277
  -290
  -305
  -319
  -335
  -350
  -367
  -386
  -404
  -423
  -444
  -466
Free cash flow, $m
  -47
  -52
  -53
  -52
  -48
  -42
  -34
  -23
  -10
  1
  7
  21
  38
  56
  76
  99
  124
  151
  181
  213
  248
  285
  326
  369
  416
  466
  519
  576
  638
  703
Issuance/(repayment) of debt, $m
  33
  37
  42
  47
  53
  58
  63
  68
  73
  79
  84
  90
  96
  102
  108
  114
  121
  128
  135
  143
  151
  159
  167
  176
  186
  196
  206
  217
  228
  240
Issuance/(repurchase) of shares, $m
  60
  63
  62
  58
  53
  44
  34
  21
  6
  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  
  93
  100
  104
  105
  106
  102
  97
  89
  79
  79
  84
  90
  96
  102
  108
  114
  121
  128
  135
  143
  151
  159
  167
  176
  186
  196
  206
  217
  228
  240
Total cash flow (excl. dividends), $m
  46
  48
  51
  54
  57
  60
  63
  66
  69
  80
  91
  111
  133
  158
  184
  213
  245
  279
  316
  356
  398
  444
  493
  545
  601
  661
  725
  793
  865
  942
Retained Cash Flow (-), $m
  -60
  -63
  -62
  -58
  -53
  -44
  -34
  -21
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
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
  -14
  -15
  -11
  -4
  4
  16
  29
  45
  61
  71
  81
  101
  122
  146
  172
  201
  231
  265
  301
  340
  381
  426
  474
  526
  581
  639
  702
  769
  840
  916
Discount rate, %
  10.30
  10.82
  11.36
  11.92
  12.52
  13.15
  13.80
  14.49
  15.22
  15.98
  16.78
  17.62
  18.50
  19.42
  20.39
  21.41
  22.48
  23.61
  24.79
  26.03
  27.33
  28.70
  30.13
  31.64
  33.22
  34.88
  36.62
  38.45
  40.38
  42.40
PV of cash for distribution, $m
  -13
  -12
  -8
  -3
  2
  7
  12
  15
  17
  16
  15
  14
  13
  12
  11
  9
  7
  6
  4
  3
  2
  2
  1
  1
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  77.5
  59.6
  46.3
  36.6
  29.7
  24.9
  21.9
  20.2
  19.8
  19.8
  19.8
  19.8
  19.8
  19.8
  19.8
  19.8
  19.8
  19.8
  19.8
  19.8
  19.8
  19.8
  19.8
  19.8
  19.8
  19.8
  19.8
  19.8
  19.8
  19.8

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, Inc. (LKSD)

Valuation Ratios
P/E Ratio 1.9
Price to Sales 0.1
Price to Book 0.8
Price to Tangible Book
Price to Cash Flow 0.9
Price to Free Cash Flow 1.1
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 $3826 million for the last fiscal year's total revenue generated by LSC Communications, Inc.. The default revenue input number comes from 0001 income statement of LSC Communications, 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 LKSD stock valuation model: a) initial revenue growth rate of 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 10.3%, whose default value for LKSD is calculated based on our internal credit rating of LSC Communications, 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 LSC Communications, 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 LKSD stock the variable cost ratio is equal to 72.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1027 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 10.1% for LSC Communications, Inc..

Corporate tax rate of 27% is the nominal tax rate for LSC Communications, 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 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 17.4%.

Life of production assets of 5.7 years is the average useful life of capital assets used in LSC Communications, 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 LKSD is equal to 7.2%. 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 - $178 million for LSC Communications, 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 33.316 million for LSC Communications, 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 LSC Communications, Inc. at the current share price and the inputted number of shares is $0.2 billion.

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