Intrinsic value of The Michaels Companies, Inc. - MIK

Previous Close

$11.26

  Intrinsic Value

$4.49

stock screener

  Rating & Target

str. sell

-60%

Previous close

$11.26

 
Intrinsic value

$4.49

 
Up/down potential

-60%

 
Rating

str. sell

We calculate the intrinsic value of MIK 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 1.8

 

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, %
  2.70
  2.93
  3.14
  3.32
  3.49
  3.64
  3.78
  3.90
  4.01
  4.11
  4.20
  4.28
  4.35
  4.42
  4.47
  4.53
  4.57
  4.62
  4.65
  4.69
  4.72
  4.75
  4.77
  4.80
  4.82
  4.83
  4.85
  4.87
  4.88
  4.89
Revenue, $m
  5,507
  5,668
  5,846
  6,040
  6,251
  6,479
  6,723
  6,986
  7,266
  7,564
  7,882
  8,219
  8,577
  8,955
  9,356
  9,780
  10,227
  10,699
  11,197
  11,722
  12,275
  12,858
  13,472
  14,118
  14,798
  15,514
  16,266
  17,058
  17,890
  18,765
Variable operating expenses, $m
  4,746
  4,885
  5,038
  5,205
  5,386
  5,582
  5,792
  6,017
  6,258
  6,515
  6,773
  7,063
  7,371
  7,696
  8,040
  8,404
  8,789
  9,194
  9,622
  10,074
  10,549
  11,050
  11,577
  12,133
  12,717
  13,332
  13,979
  14,659
  15,374
  16,126
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
  4,746
  4,885
  5,038
  5,205
  5,386
  5,582
  5,792
  6,017
  6,258
  6,515
  6,773
  7,063
  7,371
  7,696
  8,040
  8,404
  8,789
  9,194
  9,622
  10,074
  10,549
  11,050
  11,577
  12,133
  12,717
  13,332
  13,979
  14,659
  15,374
  16,126
Operating income, $m
  760
  783
  808
  835
  865
  897
  931
  968
  1,008
  1,050
  1,108
  1,156
  1,206
  1,259
  1,316
  1,375
  1,438
  1,505
  1,575
  1,648
  1,726
  1,808
  1,895
  1,985
  2,081
  2,182
  2,288
  2,399
  2,516
  2,639
EBITDA, $m
  875
  900
  929
  959
  993
  1,029
  1,068
  1,110
  1,154
  1,201
  1,252
  1,305
  1,362
  1,422
  1,486
  1,553
  1,624
  1,699
  1,778
  1,862
  1,950
  2,042
  2,140
  2,242
  2,350
  2,464
  2,584
  2,709
  2,841
  2,980
Interest expense (income), $m
  113
  147
  56
  60
  63
  67
  72
  77
  82
  87
  93
  99
  106
  113
  120
  128
  137
  145
  155
  165
  175
  186
  197
  210
  222
  236
  250
  265
  281
  297
  315
Earnings before tax, $m
  613
  727
  748
  772
  798
  825
  855
  887
  921
  957
  1,009
  1,050
  1,093
  1,139
  1,188
  1,239
  1,293
  1,350
  1,410
  1,473
  1,540
  1,611
  1,685
  1,763
  1,845
  1,932
  2,023
  2,118
  2,219
  2,324
Tax expense, $m
  166
  196
  202
  208
  215
  223
  231
  239
  249
  258
  272
  284
  295
  308
  321
  334
  349
  364
  381
  398
  416
  435
  455
  476
  498
  522
  546
  572
  599
  628
Net income, $m
  448
  530
  546
  564
  582
  602
  624
  647
  672
  698
  737
  767
  798
  832
  867
  904
  944
  985
  1,029
  1,076
  1,124
  1,176
  1,230
  1,287
  1,347
  1,410
  1,476
  1,546
  1,620
  1,697

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
  2,362
  2,432
  2,508
  2,591
  2,682
  2,779
  2,884
  2,997
  3,117
  3,245
  3,381
  3,526
  3,679
  3,842
  4,014
  4,195
  4,387
  4,590
  4,803
  5,029
  5,266
  5,516
  5,779
  6,057
  6,348
  6,655
  6,978
  7,318
  7,675
  8,050
Adjusted assets (=assets-cash), $m
  2,362
  2,432
  2,508
  2,591
  2,682
  2,779
  2,884
  2,997
  3,117
  3,245
  3,381
  3,526
  3,679
  3,842
  4,014
  4,195
  4,387
  4,590
  4,803
  5,029
  5,266
  5,516
  5,779
  6,057
  6,348
  6,655
  6,978
  7,318
  7,675
  8,050
Revenue / Adjusted assets
  2.331
  2.331
  2.331
  2.331
  2.331
  2.331
  2.331
  2.331
  2.331
  2.331
  2.331
  2.331
  2.331
  2.331
  2.331
  2.331
  2.331
  2.331
  2.331
  2.331
  2.331
  2.331
  2.331
  2.331
  2.331
  2.331
  2.331
  2.331
  2.331
  2.331
Average production assets, $m
  501
  516
  532
  550
  569
  590
  612
  636
  661
  688
  717
  748
  780
  815
  851
  890
  931
  974
  1,019
  1,067
  1,117
  1,170
  1,226
  1,285
  1,347
  1,412
  1,480
  1,552
  1,628
  1,708
Working capital, $m
  325
  334
  345
  356
  369
  382
  397
  412
  429
  446
  465
  485
  506
  528
  552
  577
  603
  631
  661
  692
  724
  759
  795
  833
  873
  915
  960
  1,006
  1,056
  1,107
Total debt, $m
  1,043
  1,105
  1,174
  1,249
  1,330
  1,418
  1,513
  1,614
  1,722
  1,838
  1,960
  2,090
  2,228
  2,375
  2,529
  2,693
  2,866
  3,048
  3,240
  3,443
  3,656
  3,882
  4,118
  4,368
  4,631
  4,907
  5,197
  5,503
  5,824
  6,162
Total liabilities, $m
  2,126
  2,188
  2,257
  2,332
  2,414
  2,501
  2,596
  2,697
  2,805
  2,921
  3,043
  3,173
  3,311
  3,458
  3,612
  3,776
  3,949
  4,131
  4,323
  4,526
  4,740
  4,965
  5,202
  5,451
  5,714
  5,990
  6,280
  6,586
  6,907
  7,245
Total equity, $m
  236
  243
  251
  259
  268
  278
  288
  300
  312
  325
  338
  353
  368
  384
  401
  420
  439
  459
  480
  503
  527
  552
  578
  606
  635
  666
  698
  732
  767
  805
Total liabilities and equity, $m
  2,362
  2,431
  2,508
  2,591
  2,682
  2,779
  2,884
  2,997
  3,117
  3,246
  3,381
  3,526
  3,679
  3,842
  4,013
  4,196
  4,388
  4,590
  4,803
  5,029
  5,267
  5,517
  5,780
  6,057
  6,349
  6,656
  6,978
  7,318
  7,674
  8,050
Debt-to-equity ratio
  4.420
  4.550
  4.680
  4.820
  4.960
  5.100
  5.250
  5.390
  5.530
  5.660
  5.800
  5.930
  6.060
  6.180
  6.300
  6.420
  6.530
  6.640
  6.750
  6.850
  6.940
  7.040
  7.130
  7.210
  7.290
  7.370
  7.450
  7.520
  7.590
  7.650
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
  448
  530
  546
  564
  582
  602
  624
  647
  672
  698
  737
  767
  798
  832
  867
  904
  944
  985
  1,029
  1,076
  1,124
  1,176
  1,230
  1,287
  1,347
  1,410
  1,476
  1,546
  1,620
  1,697
Depreciation, amort., depletion, $m
  114
  117
  120
  124
  128
  132
  136
  141
  146
  152
  143
  150
  156
  163
  170
  178
  186
  195
  204
  213
  223
  234
  245
  257
  269
  282
  296
  310
  326
  342
Funds from operations, $m
  562
  648
  667
  688
  710
  734
  760
  788
  818
  850
  880
  916
  954
  994
  1,037
  1,082
  1,130
  1,180
  1,233
  1,289
  1,348
  1,410
  1,475
  1,544
  1,616
  1,692
  1,773
  1,857
  1,945
  2,038
Change in working capital, $m
  9
  10
  10
  11
  12
  13
  14
  15
  17
  18
  19
  20
  21
  22
  24
  25
  26
  28
  29
  31
  33
  34
  36
  38
  40
  42
  44
  47
  49
  52
Cash from operations, $m
  553
  638
  656
  676
  698
  721
  746
  773
  802
  833
  861
  896
  933
  972
  1,014
  1,057
  1,103
  1,152
  1,204
  1,258
  1,315
  1,376
  1,439
  1,506
  1,576
  1,650
  1,728
  1,810
  1,896
  1,987
Maintenance CAPEX, $m
  -97
  -100
  -103
  -106
  -110
  -114
  -118
  -122
  -127
  -132
  -138
  -143
  -150
  -156
  -163
  -170
  -178
  -186
  -195
  -204
  -213
  -223
  -234
  -245
  -257
  -269
  -282
  -296
  -310
  -326
New CAPEX, $m
  -14
  -15
  -16
  -18
  -19
  -21
  -22
  -24
  -25
  -27
  -29
  -31
  -33
  -34
  -36
  -39
  -41
  -43
  -45
  -48
  -50
  -53
  -56
  -59
  -62
  -65
  -68
  -72
  -76
  -80
Cash from investing activities, $m
  -111
  -115
  -119
  -124
  -129
  -135
  -140
  -146
  -152
  -159
  -167
  -174
  -183
  -190
  -199
  -209
  -219
  -229
  -240
  -252
  -263
  -276
  -290
  -304
  -319
  -334
  -350
  -368
  -386
  -406
Free cash flow, $m
  442
  523
  537
  552
  569
  586
  606
  627
  649
  673
  695
  722
  751
  782
  814
  848
  885
  923
  964
  1,006
  1,052
  1,099
  1,149
  1,202
  1,257
  1,316
  1,377
  1,442
  1,510
  1,581
Issuance/(repayment) of debt, $m
  -1,684
  62
  69
  75
  81
  88
  94
  101
  108
  115
  123
  130
  138
  146
  155
  164
  173
  182
  192
  203
  214
  225
  237
  249
  263
  276
  291
  306
  321
  338
Issuance/(repurchase) of shares, $m
  1,298
  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  
  -386
  62
  69
  75
  81
  88
  94
  101
  108
  115
  123
  130
  138
  146
  155
  164
  173
  182
  192
  203
  214
  225
  237
  249
  263
  276
  291
  306
  321
  338
Total cash flow (excl. dividends), $m
  57
  586
  606
  627
  650
  674
  700
  728
  757
  788
  817
  852
  889
  928
  969
  1,012
  1,057
  1,105
  1,156
  1,209
  1,265
  1,324
  1,386
  1,451
  1,520
  1,592
  1,668
  1,748
  1,831
  1,919
Retained Cash Flow (-), $m
  -1,746
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -36
  -38
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
  -1,689
  579
  598
  619
  641
  665
  690
  717
  745
  776
  804
  838
  874
  912
  952
  994
  1,038
  1,085
  1,135
  1,187
  1,241
  1,299
  1,360
  1,424
  1,491
  1,561
  1,636
  1,714
  1,796
  1,882
Discount rate, %
  12.60
  13.23
  13.89
  14.59
  15.32
  16.08
  16.89
  17.73
  18.62
  19.55
  20.52
  21.55
  22.63
  23.76
  24.95
  26.19
  27.50
  28.88
  30.32
  31.84
  33.43
  35.10
  36.86
  38.70
  40.64
  42.67
  44.80
  47.04
  49.39
  51.86
PV of cash for distribution, $m
  -1,500
  451
  405
  359
  314
  272
  231
  194
  160
  130
  103
  81
  62
  46
  34
  24
  17
  11
  7
  5
  3
  2
  1
  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

The Michaels Companies, Inc. (Michaels) is an arts and crafts specialty retailer in North America. The Company's segments include Michaels-U.S., Michaels-Canada, Aaron Brothers, Pat Catan's and Darice. As of January 28, 2017, the Company operated 1,223 Michaels retail stores in 49 states and Canada, with approximately 18,000 average square feet of selling space per store. It operated 109 Aaron Brothers stores in nine states, with approximately 5,500 average square feet of selling space and 35 Pat Catan's stores in five states, with approximately 32,000 average square feet of selling space, as of January 28, 2017. The Company also operates an international wholesale business under the Darice brand name. The Company's stores purchase custom frames, framing supplies and mats from its framing operation and subsidiary, Artistree, Inc. (Artistree), which consists of a manufacturing facility and four regional processing centers.

FINANCIAL RATIOS  of  The Michaels Companies, Inc. (MIK)

Valuation Ratios
P/E Ratio 5.8
Price to Sales 0.4
Price to Book -1.3
Price to Tangible Book
Price to Cash Flow 3.9
Price to Free Cash Flow 4.8
Growth Rates
Sales Growth Rate 5.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -8.1%
Cap. Spend. - 3 Yr. Gr. Rate 0.4%
Financial Strength
Quick Ratio 10
Current Ratio 0
LT Debt to Equity -160.4%
Total Debt to Equity -162.2%
Interest Coverage 6
Management Effectiveness
Return On Assets 21.6%
Ret/ On Assets - 3 Yr. Avg. 17.1%
Return On Total Capital 36%
Ret/ On T. Cap. - 3 Yr. Avg. 31.4%
Return On Equity -22.1%
Return On Equity - 3 Yr. Avg. -16.6%
Asset Turnover 2.5
Profitability Ratios
Gross Margin 39%
Gross Margin - 3 Yr. Avg. 39.7%
EBITDA Margin 15.6%
EBITDA Margin - 3 Yr. Avg. 13.1%
Operating Margin 13.6%
Oper. Margin - 3 Yr. Avg. 13.3%
Pre-Tax Margin 11.2%
Pre-Tax Margin - 3 Yr. Avg. 10.1%
Net Profit Margin 7.3%
Net Profit Margin - 3 Yr. Avg. 6.4%
Effective Tax Rate 35.1%
Eff/ Tax Rate - 3 Yr. Avg. 36.6%
Payout Ratio 0%

MIK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MIK stock intrinsic value calculation we used $5362 million for the last fiscal year's total revenue generated by The Michaels Companies, Inc.. The default revenue input number comes from 0001 income statement of The Michaels Companies, 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 MIK stock valuation model: a) initial revenue growth rate of 2.7% 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 12.6%, whose default value for MIK is calculated based on our internal credit rating of The Michaels Companies, 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 The Michaels Companies, 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 MIK stock the variable cost ratio is equal to 86.2%.

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 MIK 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 The Michaels Companies, Inc..

Corporate tax rate of 27% is the nominal tax rate for The Michaels Companies, 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 MIK 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 MIK are equal to 9.1%.

Life of production assets of 4.7 years is the average useful life of capital assets used in The Michaels Companies, 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 MIK is equal to 5.9%. 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 - $-1509.495 million for The Michaels Companies, 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 157.534 million for The Michaels Companies, 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 The Michaels Companies, Inc. at the current share price and the inputted number of shares is $1.8 billion.

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