Intrinsic value of Lamb Weston Holdings, Inc. - LW

Previous Close

$71.66

  Intrinsic Value

$9.83

stock screener

  Rating & Target

str. sell

-86%

Previous close

$71.66

 
Intrinsic value

$9.83

 
Up/down potential

-86%

 
Rating

str. sell

We calculate the intrinsic value of LW 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 10.5

 

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, %
  10.50
  9.95
  9.45
  9.01
  8.61
  8.25
  7.92
  7.63
  7.37
  7.13
  6.92
  6.73
  6.55
  6.40
  6.26
  6.13
  6.02
  5.92
  5.83
  5.74
  5.67
  5.60
  5.54
  5.49
  5.44
  5.39
  5.36
  5.32
  5.29
  5.26
Revenue, $m
  3,784
  4,160
  4,553
  4,964
  5,391
  5,835
  6,298
  6,778
  7,278
  7,797
  8,336
  8,897
  9,480
  10,086
  10,718
  11,375
  12,059
  12,773
  13,517
  14,293
  15,104
  15,950
  16,834
  17,757
  18,723
  19,733
  20,790
  21,896
  23,054
  24,266
Variable operating expenses, $m
  2,862
  3,145
  3,441
  3,750
  4,071
  4,405
  4,753
  5,114
  5,490
  5,880
  6,269
  6,690
  7,129
  7,585
  8,060
  8,554
  9,069
  9,605
  10,165
  10,749
  11,358
  11,994
  12,659
  13,354
  14,080
  14,839
  15,634
  16,466
  17,337
  18,248
Fixed operating expenses, $m
  262
  267
  273
  279
  285
  292
  298
  305
  311
  318
  325
  332
  340
  347
  355
  363
  371
  379
  387
  396
  404
  413
  422
  432
  441
  451
  461
  471
  481
  492
Total operating expenses, $m
  3,124
  3,412
  3,714
  4,029
  4,356
  4,697
  5,051
  5,419
  5,801
  6,198
  6,594
  7,022
  7,469
  7,932
  8,415
  8,917
  9,440
  9,984
  10,552
  11,145
  11,762
  12,407
  13,081
  13,786
  14,521
  15,290
  16,095
  16,937
  17,818
  18,740
Operating income, $m
  660
  747
  839
  935
  1,034
  1,138
  1,247
  1,359
  1,476
  1,598
  1,742
  1,874
  2,011
  2,154
  2,303
  2,458
  2,620
  2,789
  2,965
  3,149
  3,341
  3,542
  3,752
  3,972
  4,202
  4,443
  4,695
  4,959
  5,236
  5,526
EBITDA, $m
  826
  928
  1,035
  1,147
  1,264
  1,386
  1,512
  1,644
  1,780
  1,923
  2,071
  2,225
  2,385
  2,552
  2,726
  2,907
  3,096
  3,293
  3,498
  3,713
  3,937
  4,171
  4,416
  4,672
  4,940
  5,221
  5,515
  5,823
  6,145
  6,483
Interest expense (income), $m
  0
  129
  110
  125
  140
  156
  173
  190
  208
  227
  246
  267
  288
  310
  332
  356
  381
  406
  433
  461
  490
  520
  552
  585
  620
  656
  694
  733
  774
  817
  863
Earnings before tax, $m
  531
  637
  714
  795
  878
  966
  1,057
  1,151
  1,249
  1,352
  1,475
  1,586
  1,702
  1,822
  1,947
  2,077
  2,214
  2,356
  2,504
  2,659
  2,821
  2,990
  3,167
  3,352
  3,546
  3,749
  3,962
  4,185
  4,419
  4,663
Tax expense, $m
  143
  172
  193
  215
  237
  261
  285
  311
  337
  365
  398
  428
  459
  492
  526
  561
  598
  636
  676
  718
  762
  807
  855
  905
  958
  1,012
  1,070
  1,130
  1,193
  1,259
Net income, $m
  387
  465
  521
  580
  641
  705
  771
  840
  912
  987
  1,077
  1,158
  1,242
  1,330
  1,421
  1,517
  1,616
  1,720
  1,828
  1,941
  2,059
  2,183
  2,312
  2,447
  2,589
  2,737
  2,892
  3,055
  3,226
  3,404

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
  3,041
  3,344
  3,660
  3,990
  4,333
  4,691
  5,063
  5,449
  5,850
  6,267
  6,701
  7,152
  7,620
  8,108
  8,615
  9,144
  9,694
  10,268
  10,866
  11,490
  12,141
  12,821
  13,532
  14,274
  15,051
  15,863
  16,712
  17,601
  18,532
  19,507
Adjusted assets (=assets-cash), $m
  3,041
  3,344
  3,660
  3,990
  4,333
  4,691
  5,063
  5,449
  5,850
  6,267
  6,701
  7,152
  7,620
  8,108
  8,615
  9,144
  9,694
  10,268
  10,866
  11,490
  12,141
  12,821
  13,532
  14,274
  15,051
  15,863
  16,712
  17,601
  18,532
  19,507
Revenue / Adjusted assets
  1.244
  1.244
  1.244
  1.244
  1.244
  1.244
  1.244
  1.244
  1.244
  1.244
  1.244
  1.244
  1.244
  1.244
  1.244
  1.244
  1.244
  1.244
  1.244
  1.244
  1.244
  1.244
  1.244
  1.244
  1.244
  1.244
  1.244
  1.244
  1.244
  1.244
Average production assets, $m
  1,582
  1,739
  1,903
  2,075
  2,253
  2,439
  2,632
  2,833
  3,042
  3,259
  3,484
  3,719
  3,963
  4,216
  4,480
  4,755
  5,041
  5,339
  5,650
  5,975
  6,313
  6,667
  7,036
  7,423
  7,826
  8,248
  8,690
  9,153
  9,636
  10,143
Working capital, $m
  446
  491
  537
  586
  636
  689
  743
  800
  859
  920
  984
  1,050
  1,119
  1,190
  1,265
  1,342
  1,423
  1,507
  1,595
  1,687
  1,782
  1,882
  1,986
  2,095
  2,209
  2,329
  2,453
  2,584
  2,720
  2,863
Total debt, $m
  2,035
  2,307
  2,592
  2,889
  3,198
  3,519
  3,854
  4,202
  4,563
  4,938
  5,329
  5,734
  6,156
  6,595
  7,051
  7,527
  8,022
  8,539
  9,077
  9,638
  10,225
  10,837
  11,476
  12,145
  12,843
  13,574
  14,339
  15,139
  15,976
  16,854
Total liabilities, $m
  2,737
  3,010
  3,294
  3,591
  3,900
  4,222
  4,556
  4,904
  5,265
  5,641
  6,031
  6,437
  6,858
  7,297
  7,754
  8,229
  8,725
  9,241
  9,779
  10,341
  10,927
  11,539
  12,179
  12,847
  13,546
  14,276
  15,041
  15,841
  16,679
  17,556
Total equity, $m
  304
  334
  366
  399
  433
  469
  506
  545
  585
  627
  670
  715
  762
  811
  862
  914
  969
  1,027
  1,087
  1,149
  1,214
  1,282
  1,353
  1,427
  1,505
  1,586
  1,671
  1,760
  1,853
  1,951
Total liabilities and equity, $m
  3,041
  3,344
  3,660
  3,990
  4,333
  4,691
  5,062
  5,449
  5,850
  6,268
  6,701
  7,152
  7,620
  8,108
  8,616
  9,143
  9,694
  10,268
  10,866
  11,490
  12,141
  12,821
  13,532
  14,274
  15,051
  15,862
  16,712
  17,601
  18,532
  19,507
Debt-to-equity ratio
  6.690
  6.900
  7.080
  7.240
  7.380
  7.500
  7.610
  7.710
  7.800
  7.880
  7.950
  8.020
  8.080
  8.130
  8.180
  8.230
  8.280
  8.320
  8.350
  8.390
  8.420
  8.450
  8.480
  8.510
  8.530
  8.560
  8.580
  8.600
  8.620
  8.640
Adjusted equity ratio
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  387
  465
  521
  580
  641
  705
  771
  840
  912
  987
  1,077
  1,158
  1,242
  1,330
  1,421
  1,517
  1,616
  1,720
  1,828
  1,941
  2,059
  2,183
  2,312
  2,447
  2,589
  2,737
  2,892
  3,055
  3,226
  3,404
Depreciation, amort., depletion, $m
  166
  181
  197
  213
  230
  247
  265
  284
  304
  325
  329
  351
  374
  398
  423
  449
  476
  504
  533
  564
  596
  629
  664
  700
  738
  778
  820
  863
  909
  957
Funds from operations, $m
  554
  646
  718
  793
  871
  952
  1,037
  1,125
  1,216
  1,311
  1,406
  1,509
  1,616
  1,728
  1,844
  1,965
  2,091
  2,223
  2,361
  2,505
  2,655
  2,812
  2,976
  3,148
  3,327
  3,515
  3,712
  3,918
  4,135
  4,361
Change in working capital, $m
  42
  44
  46
  48
  50
  52
  55
  57
  59
  61
  64
  66
  69
  72
  74
  78
  81
  84
  88
  92
  96
  100
  104
  109
  114
  119
  125
  131
  137
  143
Cash from operations, $m
  511
  602
  672
  744
  820
  900
  982
  1,068
  1,157
  1,250
  1,342
  1,443
  1,547
  1,656
  1,769
  1,888
  2,011
  2,139
  2,273
  2,413
  2,559
  2,712
  2,872
  3,039
  3,213
  3,396
  3,587
  3,788
  3,998
  4,218
Maintenance CAPEX, $m
  -135
  -149
  -164
  -180
  -196
  -213
  -230
  -248
  -267
  -287
  -307
  -329
  -351
  -374
  -398
  -423
  -449
  -476
  -504
  -533
  -564
  -596
  -629
  -664
  -700
  -738
  -778
  -820
  -863
  -909
New CAPEX, $m
  -150
  -157
  -164
  -171
  -179
  -186
  -193
  -201
  -209
  -217
  -225
  -234
  -244
  -254
  -264
  -275
  -286
  -298
  -311
  -324
  -339
  -354
  -369
  -386
  -404
  -422
  -442
  -462
  -484
  -507
Cash from investing activities, $m
  -285
  -306
  -328
  -351
  -375
  -399
  -423
  -449
  -476
  -504
  -532
  -563
  -595
  -628
  -662
  -698
  -735
  -774
  -815
  -857
  -903
  -950
  -998
  -1,050
  -1,104
  -1,160
  -1,220
  -1,282
  -1,347
  -1,416
Free cash flow, $m
  226
  295
  343
  393
  446
  501
  559
  619
  681
  746
  809
  880
  953
  1,029
  1,108
  1,190
  1,276
  1,365
  1,458
  1,556
  1,657
  1,763
  1,873
  1,989
  2,109
  2,235
  2,368
  2,506
  2,651
  2,802
Issuance/(repayment) of debt, $m
  -350
  272
  285
  297
  309
  322
  334
  348
  361
  375
  390
  406
  422
  439
  457
  475
  495
  516
  538
  562
  586
  612
  639
  668
  699
  731
  765
  800
  838
  877
Issuance/(repurchase) of shares, $m
  251
  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  
  -99
  272
  285
  297
  309
  322
  334
  348
  361
  375
  390
  406
  422
  439
  457
  475
  495
  516
  538
  562
  586
  612
  639
  668
  699
  731
  765
  800
  838
  877
Total cash flow (excl. dividends), $m
  127
  568
  628
  690
  755
  823
  893
  966
  1,043
  1,122
  1,199
  1,285
  1,374
  1,467
  1,565
  1,666
  1,771
  1,882
  1,997
  2,117
  2,243
  2,375
  2,513
  2,657
  2,808
  2,966
  3,132
  3,306
  3,488
  3,679
Retained Cash Flow (-), $m
  -639
  -30
  -32
  -33
  -34
  -36
  -37
  -39
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -60
  -62
  -65
  -68
  -71
  -74
  -78
  -81
  -85
  -89
  -93
  -97
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
  -512
  537
  596
  657
  721
  787
  856
  928
  1,002
  1,080
  1,156
  1,240
  1,328
  1,419
  1,514
  1,613
  1,716
  1,824
  1,937
  2,055
  2,178
  2,307
  2,442
  2,583
  2,730
  2,885
  3,047
  3,217
  3,395
  3,582
Discount rate, %
  12.90
  13.55
  14.22
  14.93
  15.68
  16.46
  17.29
  18.15
  19.06
  20.01
  21.01
  22.06
  23.17
  24.32
  25.54
  26.82
  28.16
  29.57
  31.05
  32.60
  34.23
  35.94
  37.74
  39.62
  41.60
  43.68
  45.87
  48.16
  50.57
  53.10
PV of cash for distribution, $m
  -453
  417
  400
  377
  348
  315
  280
  244
  209
  174
  142
  113
  88
  67
  50
  36
  25
  17
  11
  7
  5
  3
  2
  1
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

Lamb Weston Holdings, Inc. (Lamb Weston), is a supplier of frozen potato, sweet potato, appetizer and vegetable products to restaurants and retailers around the world. The Company's segments include Global, Foodservice, Retail and Other. The Global segment includes operations associated with Lamb Weston’s business with large chain restaurant customers, whether those results are generated in the United States or abroad, as well as operations associated with retail and foodservice customers located outside of the United States and Canada. The Foodservice segment includes sales to a line of foodservice distribution customers in the United States and Canada. The Retail reporting segment includes sales to grocery, mass, club, and specialty retailers primarily in the United States. The Other segment includes the operations from Lamb Weston’s frozen vegetable business. It also includes the operations from Lamb Weston’s dairy business.

FINANCIAL RATIOS  of  Lamb Weston Holdings, Inc. (LW)

Valuation Ratios
P/E Ratio 32
Price to Sales 3.3
Price to Book -16.2
Price to Tangible Book
Price to Cash Flow 23.4
Price to Free Cash Flow 65.4
Growth Rates
Sales Growth Rate 5.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 88.8%
Cap. Spend. - 3 Yr. Gr. Rate 8%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity -365.5%
Total Debt to Equity -374.8%
Interest Coverage 0
Management Effectiveness
Return On Assets 14.1%
Ret/ On Assets - 3 Yr. Avg. 13.8%
Return On Total Capital 19.7%
Ret/ On T. Cap. - 3 Yr. Avg. 19%
Return On Equity 86.7%
Return On Equity - 3 Yr. Avg. 42.6%
Asset Turnover 1.4
Profitability Ratios
Gross Margin 24.8%
Gross Margin - 3 Yr. Avg. 22.4%
EBITDA Margin 17.9%
EBITDA Margin - 3 Yr. Avg. 16.6%
Operating Margin 16.4%
Oper. Margin - 3 Yr. Avg. 13.9%
Pre-Tax Margin 14.4%
Pre-Tax Margin - 3 Yr. Avg. 13.2%
Net Profit Margin 10.3%
Net Profit Margin - 3 Yr. Avg. 9.7%
Effective Tax Rate 37.2%
Eff/ Tax Rate - 3 Yr. Avg. 37.9%
Payout Ratio 8.3%

LW stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LW stock intrinsic value calculation we used $3424 million for the last fiscal year's total revenue generated by Lamb Weston Holdings, Inc.. The default revenue input number comes from 0001 income statement of Lamb Weston Holdings, 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 LW stock valuation model: a) initial revenue growth rate of 10.5% 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 12.9%, whose default value for LW is calculated based on our internal credit rating of Lamb Weston Holdings, 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 Lamb Weston Holdings, 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 LW stock the variable cost ratio is equal to 75.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $256 million in the base year in the intrinsic value calculation for LW 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 5.4% for Lamb Weston Holdings, Inc..

Corporate tax rate of 27% is the nominal tax rate for Lamb Weston Holdings, 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 LW 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 LW are equal to 41.8%.

Life of production assets of 10.6 years is the average useful life of capital assets used in Lamb Weston Holdings, 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 LW is equal to 11.8%. 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 - $-334.8 million for Lamb Weston Holdings, 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 146.454 million for Lamb Weston Holdings, 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 Lamb Weston Holdings, Inc. at the current share price and the inputted number of shares is $10.5 billion.

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