Intrinsic value of MSC Industrial Direct Company, Inc. - MSM

Previous Close

$79.51

  Intrinsic Value

$83.07

stock screener

  Rating & Target

hold

+4%

Previous close

$79.51

 
Intrinsic value

$83.07

 
Up/down potential

+4%

 
Rating

hold

We calculate the intrinsic value of MSM 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 4.4

 

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, %
  8.20
  7.88
  7.59
  7.33
  7.10
  6.89
  6.70
  6.53
  6.38
  6.24
  6.12
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.32
  5.28
  5.26
  5.23
  5.21
  5.19
  5.17
  5.15
Revenue, $m
  3,467
  3,740
  4,024
  4,319
  4,626
  4,944
  5,275
  5,620
  5,978
  6,351
  6,740
  7,145
  7,566
  8,006
  8,465
  8,944
  9,444
  9,967
  10,513
  11,084
  11,682
  12,307
  12,961
  13,646
  14,363
  15,114
  15,901
  16,725
  17,590
  18,496
Variable operating expenses, $m
  3,003
  3,233
  3,472
  3,721
  3,980
  4,248
  4,528
  4,818
  5,120
  5,435
  5,682
  6,024
  6,379
  6,750
  7,137
  7,541
  7,963
  8,403
  8,864
  9,345
  9,849
  10,376
  10,927
  11,505
  12,109
  12,742
  13,406
  14,101
  14,830
  15,594
Fixed operating expenses, $m
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
Total operating expenses, $m
  3,005
  3,235
  3,474
  3,723
  3,982
  4,250
  4,530
  4,820
  5,122
  5,437
  5,685
  6,027
  6,382
  6,753
  7,140
  7,544
  7,966
  8,406
  8,867
  9,348
  9,852
  10,379
  10,930
  11,508
  12,112
  12,746
  13,410
  14,105
  14,834
  15,598
Operating income, $m
  462
  505
  549
  596
  644
  694
  746
  800
  856
  914
  1,055
  1,118
  1,185
  1,254
  1,325
  1,401
  1,479
  1,561
  1,647
  1,736
  1,830
  1,928
  2,030
  2,138
  2,250
  2,368
  2,491
  2,621
  2,756
  2,898
EBITDA, $m
  586
  632
  680
  730
  782
  836
  892
  951
  1,011
  1,075
  1,140
  1,209
  1,280
  1,355
  1,433
  1,514
  1,599
  1,687
  1,780
  1,877
  1,978
  2,084
  2,195
  2,311
  2,432
  2,560
  2,693
  2,833
  2,979
  3,133
Interest expense (income), $m
  12
  29
  33
  37
  41
  46
  51
  55
  60
  66
  71
  77
  83
  89
  95
  102
  109
  116
  124
  132
  140
  149
  158
  167
  177
  188
  199
  210
  222
  234
  248
Earnings before tax, $m
  433
  472
  512
  554
  598
  643
  690
  739
  790
  843
  978
  1,036
  1,096
  1,158
  1,224
  1,292
  1,363
  1,437
  1,515
  1,596
  1,681
  1,770
  1,863
  1,961
  2,063
  2,169
  2,281
  2,399
  2,522
  2,651
Tax expense, $m
  117
  127
  138
  150
  161
  174
  186
  200
  213
  228
  264
  280
  296
  313
  330
  349
  368
  388
  409
  431
  454
  478
  503
  529
  557
  586
  616
  648
  681
  716
Net income, $m
  316
  345
  374
  405
  436
  470
  504
  540
  577
  616
  714
  756
  800
  846
  893
  943
  995
  1,049
  1,106
  1,165
  1,227
  1,292
  1,360
  1,431
  1,506
  1,584
  1,665
  1,751
  1,841
  1,935

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
  2,476
  2,671
  2,874
  3,085
  3,304
  3,532
  3,768
  4,014
  4,270
  4,537
  4,814
  5,103
  5,405
  5,719
  6,047
  6,389
  6,746
  7,119
  7,509
  7,917
  8,344
  8,791
  9,258
  9,747
  10,259
  10,796
  11,358
  11,947
  12,564
  13,211
Adjusted assets (=assets-cash), $m
  2,476
  2,671
  2,874
  3,085
  3,304
  3,532
  3,768
  4,014
  4,270
  4,537
  4,814
  5,103
  5,405
  5,719
  6,047
  6,389
  6,746
  7,119
  7,509
  7,917
  8,344
  8,791
  9,258
  9,747
  10,259
  10,796
  11,358
  11,947
  12,564
  13,211
Revenue / Adjusted assets
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
Average production assets, $m
  756
  815
  877
  942
  1,008
  1,078
  1,150
  1,225
  1,303
  1,385
  1,469
  1,558
  1,649
  1,745
  1,845
  1,950
  2,059
  2,173
  2,292
  2,416
  2,547
  2,683
  2,825
  2,975
  3,131
  3,295
  3,466
  3,646
  3,835
  4,032
Working capital, $m
  905
  976
  1,050
  1,127
  1,207
  1,290
  1,377
  1,467
  1,560
  1,658
  1,759
  1,865
  1,975
  2,090
  2,209
  2,334
  2,465
  2,601
  2,744
  2,893
  3,049
  3,212
  3,383
  3,562
  3,749
  3,945
  4,150
  4,365
  4,591
  4,827
Total debt, $m
  609
  686
  766
  849
  936
  1,025
  1,119
  1,215
  1,316
  1,421
  1,531
  1,645
  1,763
  1,887
  2,016
  2,151
  2,292
  2,439
  2,593
  2,753
  2,921
  3,097
  3,281
  3,474
  3,676
  3,887
  4,109
  4,341
  4,584
  4,839
Total liabilities, $m
  976
  1,053
  1,132
  1,215
  1,302
  1,391
  1,485
  1,582
  1,682
  1,787
  1,897
  2,011
  2,129
  2,253
  2,382
  2,517
  2,658
  2,805
  2,959
  3,119
  3,288
  3,463
  3,648
  3,840
  4,042
  4,253
  4,475
  4,707
  4,950
  5,205
Total equity, $m
  1,501
  1,619
  1,742
  1,869
  2,002
  2,140
  2,284
  2,433
  2,588
  2,749
  2,917
  3,093
  3,275
  3,466
  3,664
  3,872
  4,088
  4,314
  4,551
  4,798
  5,057
  5,327
  5,610
  5,907
  6,217
  6,542
  6,883
  7,240
  7,614
  8,006
Total liabilities and equity, $m
  2,477
  2,672
  2,874
  3,084
  3,304
  3,531
  3,769
  4,015
  4,270
  4,536
  4,814
  5,104
  5,404
  5,719
  6,046
  6,389
  6,746
  7,119
  7,510
  7,917
  8,345
  8,790
  9,258
  9,747
  10,259
  10,795
  11,358
  11,947
  12,564
  13,211
Debt-to-equity ratio
  0.410
  0.420
  0.440
  0.450
  0.470
  0.480
  0.490
  0.500
  0.510
  0.520
  0.520
  0.530
  0.540
  0.540
  0.550
  0.560
  0.560
  0.570
  0.570
  0.570
  0.580
  0.580
  0.580
  0.590
  0.590
  0.590
  0.600
  0.600
  0.600
  0.600
Adjusted equity ratio
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  316
  345
  374
  405
  436
  470
  504
  540
  577
  616
  714
  756
  800
  846
  893
  943
  995
  1,049
  1,106
  1,165
  1,227
  1,292
  1,360
  1,431
  1,506
  1,584
  1,665
  1,751
  1,841
  1,935
Depreciation, amort., depletion, $m
  124
  127
  131
  135
  138
  142
  147
  151
  156
  160
  85
  91
  96
  101
  107
  113
  120
  126
  133
  140
  148
  156
  164
  173
  182
  192
  202
  212
  223
  234
Funds from operations, $m
  440
  472
  505
  539
  575
  612
  651
  691
  732
  776
  800
  847
  896
  947
  1,000
  1,056
  1,115
  1,175
  1,239
  1,306
  1,375
  1,448
  1,524
  1,604
  1,688
  1,775
  1,867
  1,963
  2,064
  2,169
Change in working capital, $m
  69
  71
  74
  77
  80
  83
  86
  90
  94
  97
  101
  106
  110
  115
  120
  125
  131
  136
  143
  149
  156
  163
  171
  179
  187
  196
  205
  215
  226
  236
Cash from operations, $m
  371
  400
  431
  462
  495
  529
  564
  601
  639
  678
  698
  741
  786
  832
  881
  931
  984
  1,039
  1,097
  1,157
  1,219
  1,285
  1,354
  1,425
  1,501
  1,579
  1,662
  1,748
  1,838
  1,933
Maintenance CAPEX, $m
  -41
  -44
  -47
  -51
  -55
  -59
  -63
  -67
  -71
  -76
  -81
  -85
  -91
  -96
  -101
  -107
  -113
  -120
  -126
  -133
  -140
  -148
  -156
  -164
  -173
  -182
  -192
  -202
  -212
  -223
New CAPEX, $m
  -56
  -60
  -62
  -64
  -67
  -69
  -72
  -75
  -78
  -81
  -85
  -88
  -92
  -96
  -100
  -104
  -109
  -114
  -119
  -125
  -130
  -136
  -143
  -149
  -156
  -164
  -172
  -180
  -188
  -198
Cash from investing activities, $m
  -97
  -104
  -109
  -115
  -122
  -128
  -135
  -142
  -149
  -157
  -166
  -173
  -183
  -192
  -201
  -211
  -222
  -234
  -245
  -258
  -270
  -284
  -299
  -313
  -329
  -346
  -364
  -382
  -400
  -421
Free cash flow, $m
  274
  297
  321
  347
  373
  401
  429
  459
  489
  521
  533
  567
  603
  640
  679
  720
  762
  805
  851
  899
  949
  1,001
  1,055
  1,112
  1,171
  1,233
  1,298
  1,367
  1,438
  1,513
Issuance/(repayment) of debt, $m
  74
  77
  80
  83
  86
  90
  93
  97
  101
  105
  109
  114
  119
  124
  129
  135
  141
  147
  154
  161
  168
  176
  184
  193
  202
  211
  221
  232
  243
  255
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  
  74
  77
  80
  83
  86
  90
  93
  97
  101
  105
  109
  114
  119
  124
  129
  135
  141
  147
  154
  161
  168
  176
  184
  193
  202
  211
  221
  232
  243
  255
Total cash flow (excl. dividends), $m
  349
  374
  401
  430
  460
  490
  522
  556
  590
  626
  642
  681
  722
  764
  808
  854
  902
  953
  1,005
  1,060
  1,117
  1,177
  1,239
  1,305
  1,373
  1,445
  1,520
  1,599
  1,681
  1,768
Retained Cash Flow (-), $m
  -113
  -118
  -123
  -128
  -133
  -138
  -143
  -149
  -155
  -161
  -168
  -175
  -183
  -190
  -199
  -207
  -217
  -226
  -236
  -247
  -259
  -271
  -283
  -296
  -310
  -325
  -341
  -357
  -374
  -392
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
  235
  256
  278
  302
  327
  352
  379
  407
  435
  465
  474
  506
  539
  574
  610
  647
  686
  726
  768
  812
  858
  906
  956
  1,008
  1,063
  1,120
  1,179
  1,242
  1,307
  1,375
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
  226
  234
  242
  249
  253
  256
  256
  254
  250
  244
  225
  216
  205
  193
  179
  164
  149
  134
  118
  103
  89
  75
  63
  51
  41
  33
  25
  19
  14
  10
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

MSC Industrial Direct Co., Inc. is a North American distributor of metalworking and maintenance, repair and operations (MRO) products and services. The Company's range of MRO products include cutting tools, measuring instruments, tooling components, metalworking products, fasteners, flat stock, raw materials, abrasives, machinery hand and power tools, safety and janitorial supplies, plumbing supplies, materials handling products, power transmission components and electrical supplies. The Company serves a range of customers throughout the United States, Canada and the United Kingdom, from individual machine shops, to manufacturing companies, to government agencies, such as the General Services Administration and the Department of Defense. The Company also serves durable and non-durable goods manufacturing, education and healthcare markets, among others. As of September 3, 2016, the Company had operated a network of 12 customer fulfillment centers.

FINANCIAL RATIOS  of  MSC Industrial Direct Company, Inc. (MSM)

Valuation Ratios
P/E Ratio 19.4
Price to Sales 1.6
Price to Book 3.7
Price to Tangible Book
Price to Cash Flow 18.2
Price to Free Cash Flow 22.4
Growth Rates
Sales Growth Rate 0.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -46.6%
Cap. Spend. - 3 Yr. Gr. Rate -7.9%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 16.4%
Total Debt to Equity 43.5%
Interest Coverage 32
Management Effectiveness
Return On Assets 11.5%
Ret/ On Assets - 3 Yr. Avg. 11.3%
Return On Total Capital 13.3%
Ret/ On T. Cap. - 3 Yr. Avg. 13.3%
Return On Equity 19.9%
Return On Equity - 3 Yr. Avg. 18.6%
Asset Turnover 1.4
Profitability Ratios
Gross Margin 44.5%
Gross Margin - 3 Yr. Avg. 44.9%
EBITDA Margin 15.3%
EBITDA Margin - 3 Yr. Avg. 15.5%
Operating Margin 13.1%
Oper. Margin - 3 Yr. Avg. 13.1%
Pre-Tax Margin 12.7%
Pre-Tax Margin - 3 Yr. Avg. 12.8%
Net Profit Margin 8%
Net Profit Margin - 3 Yr. Avg. 8%
Effective Tax Rate 37.2%
Eff/ Tax Rate - 3 Yr. Avg. 37.7%
Payout Ratio 44.2%

MSM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MSM stock intrinsic value calculation we used $3204 million for the last fiscal year's total revenue generated by MSC Industrial Direct Company, Inc.. The default revenue input number comes from 0001 income statement of MSC Industrial Direct Company, 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 MSM stock valuation model: a) initial revenue growth rate of 8.2% 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 4.3%, whose default value for MSM is calculated based on our internal credit rating of MSC Industrial Direct Company, 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 MSC Industrial Direct Company, 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 MSM stock the variable cost ratio is equal to 86.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $2 million in the base year in the intrinsic value calculation for MSM 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 MSC Industrial Direct Company, Inc..

Corporate tax rate of 27% is the nominal tax rate for MSC Industrial Direct Company, 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 MSM 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 MSM are equal to 21.8%.

Life of production assets of 17.2 years is the average useful life of capital assets used in MSC Industrial Direct Company, 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 MSM is equal to 26.1%. 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 - $1387.254 million for MSC Industrial Direct Company, 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 55.296 million for MSC Industrial Direct Company, 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 MSC Industrial Direct Company, Inc. at the current share price and the inputted number of shares is $4.4 billion.

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