Intrinsic value of Meritor, Inc. - MTOR

Previous Close

$23.66

  Intrinsic Value

$81.04

stock screener

  Rating & Target

str. buy

+243%

Previous close

$23.66

 
Intrinsic value

$81.04

 
Up/down potential

+243%

 
Rating

str. buy

We calculate the intrinsic value of MTOR 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 2.0

 

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, %
  15.00
  14.00
  13.10
  12.29
  11.56
  10.90
  10.31
  9.78
  9.30
  8.87
  8.49
  8.14
  7.82
  7.54
  7.29
  7.06
  6.85
  6.67
  6.50
  6.35
  6.22
  6.09
  5.98
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
Revenue, $m
  4,805
  5,477
  6,195
  6,956
  7,760
  8,607
  9,494
  10,423
  11,393
  12,404
  13,457
  14,552
  15,691
  16,874
  18,104
  19,382
  20,710
  22,091
  23,527
  25,021
  26,576
  28,196
  29,883
  31,642
  33,477
  35,391
  37,389
  39,476
  41,657
  43,936
Variable operating expenses, $m
  4,164
  4,741
  5,357
  6,010
  6,700
  7,426
  8,188
  8,984
  9,817
  10,684
  11,545
  12,485
  13,461
  14,477
  15,532
  16,628
  17,768
  18,952
  20,184
  21,466
  22,800
  24,190
  25,638
  27,147
  28,721
  30,363
  32,077
  33,868
  35,738
  37,693
Fixed operating expenses, $m
  246
  252
  257
  263
  269
  275
  281
  287
  293
  300
  306
  313
  320
  327
  334
  341
  349
  357
  364
  372
  381
  389
  398
  406
  415
  424
  434
  443
  453
  463
Total operating expenses, $m
  4,410
  4,993
  5,614
  6,273
  6,969
  7,701
  8,469
  9,271
  10,110
  10,984
  11,851
  12,798
  13,781
  14,804
  15,866
  16,969
  18,117
  19,309
  20,548
  21,838
  23,181
  24,579
  26,036
  27,553
  29,136
  30,787
  32,511
  34,311
  36,191
  38,156
Operating income, $m
  394
  484
  581
  683
  792
  906
  1,026
  1,152
  1,283
  1,421
  1,606
  1,755
  1,909
  2,071
  2,238
  2,412
  2,594
  2,782
  2,978
  3,182
  3,395
  3,617
  3,848
  4,089
  4,341
  4,604
  4,878
  5,165
  5,465
  5,779
EBITDA, $m
  594
  706
  826
  954
  1,088
  1,231
  1,380
  1,536
  1,699
  1,870
  2,047
  2,232
  2,424
  2,624
  2,832
  3,048
  3,273
  3,507
  3,750
  4,003
  4,267
  4,542
  4,828
  5,127
  5,439
  5,765
  6,105
  6,460
  6,832
  7,220
Interest expense (income), $m
  75
  59
  86
  114
  144
  176
  210
  246
  283
  322
  363
  405
  449
  495
  543
  593
  645
  698
  754
  812
  873
  935
  1,001
  1,069
  1,140
  1,214
  1,291
  1,371
  1,455
  1,543
  1,635
Earnings before tax, $m
  335
  399
  467
  539
  616
  696
  781
  869
  962
  1,058
  1,201
  1,305
  1,414
  1,527
  1,645
  1,768
  1,895
  2,028
  2,166
  2,310
  2,460
  2,616
  2,779
  2,949
  3,127
  3,313
  3,507
  3,710
  3,922
  4,145
Tax expense, $m
  90
  108
  126
  146
  166
  188
  211
  235
  260
  286
  324
  352
  382
  412
  444
  477
  512
  547
  585
  624
  664
  706
  750
  796
  844
  894
  947
  1,002
  1,059
  1,119
Net income, $m
  244
  291
  341
  394
  449
  508
  570
  634
  702
  772
  876
  953
  1,032
  1,115
  1,201
  1,290
  1,383
  1,480
  1,581
  1,686
  1,796
  1,910
  2,029
  2,153
  2,283
  2,418
  2,560
  2,708
  2,863
  3,025

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
  3,134
  3,573
  4,041
  4,538
  5,062
  5,614
  6,193
  6,799
  7,432
  8,091
  8,778
  9,493
  10,235
  11,007
  11,809
  12,643
  13,509
  14,410
  15,347
  16,322
  17,336
  18,393
  19,493
  20,641
  21,838
  23,086
  24,390
  25,751
  27,173
  28,660
Adjusted assets (=assets-cash), $m
  3,134
  3,573
  4,041
  4,538
  5,062
  5,614
  6,193
  6,799
  7,432
  8,091
  8,778
  9,493
  10,235
  11,007
  11,809
  12,643
  13,509
  14,410
  15,347
  16,322
  17,336
  18,393
  19,493
  20,641
  21,838
  23,086
  24,390
  25,751
  27,173
  28,660
Revenue / Adjusted assets
  1.533
  1.533
  1.533
  1.533
  1.533
  1.533
  1.533
  1.533
  1.533
  1.533
  1.533
  1.533
  1.533
  1.533
  1.533
  1.533
  1.533
  1.533
  1.533
  1.533
  1.533
  1.533
  1.533
  1.533
  1.533
  1.533
  1.533
  1.533
  1.533
  1.533
Average production assets, $m
  788
  898
  1,016
  1,141
  1,273
  1,412
  1,557
  1,709
  1,868
  2,034
  2,207
  2,387
  2,573
  2,767
  2,969
  3,179
  3,396
  3,623
  3,858
  4,103
  4,359
  4,624
  4,901
  5,189
  5,490
  5,804
  6,132
  6,474
  6,832
  7,205
Working capital, $m
  139
  159
  180
  202
  225
  250
  275
  302
  330
  360
  390
  422
  455
  489
  525
  562
  601
  641
  682
  726
  771
  818
  867
  918
  971
  1,026
  1,084
  1,145
  1,208
  1,274
Total debt, $m
  1,190
  1,583
  2,002
  2,446
  2,916
  3,410
  3,928
  4,470
  5,037
  5,627
  6,241
  6,881
  7,546
  8,236
  8,954
  9,700
  10,476
  11,282
  12,121
  12,993
  13,901
  14,846
  15,832
  16,859
  17,930
  19,047
  20,214
  21,432
  22,705
  24,036
Total liabilities, $m
  2,805
  3,198
  3,617
  4,061
  4,531
  5,025
  5,543
  6,085
  6,652
  7,242
  7,856
  8,496
  9,161
  9,851
  10,569
  11,315
  12,091
  12,897
  13,736
  14,608
  15,516
  16,461
  17,447
  18,474
  19,545
  20,662
  21,829
  23,047
  24,320
  25,651
Total equity, $m
  329
  375
  424
  476
  532
  590
  650
  714
  780
  850
  922
  997
  1,075
  1,156
  1,240
  1,328
  1,418
  1,513
  1,611
  1,714
  1,820
  1,931
  2,047
  2,167
  2,293
  2,424
  2,561
  2,704
  2,853
  3,009
Total liabilities and equity, $m
  3,134
  3,573
  4,041
  4,537
  5,063
  5,615
  6,193
  6,799
  7,432
  8,092
  8,778
  9,493
  10,236
  11,007
  11,809
  12,643
  13,509
  14,410
  15,347
  16,322
  17,336
  18,392
  19,494
  20,641
  21,838
  23,086
  24,390
  25,751
  27,173
  28,660
Debt-to-equity ratio
  3.620
  4.220
  4.720
  5.130
  5.490
  5.780
  6.040
  6.260
  6.450
  6.620
  6.770
  6.900
  7.020
  7.130
  7.220
  7.310
  7.390
  7.460
  7.520
  7.580
  7.640
  7.690
  7.730
  7.780
  7.820
  7.860
  7.890
  7.930
  7.960
  7.990
Adjusted equity ratio
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  244
  291
  341
  394
  449
  508
  570
  634
  702
  772
  876
  953
  1,032
  1,115
  1,201
  1,290
  1,383
  1,480
  1,581
  1,686
  1,796
  1,910
  2,029
  2,153
  2,283
  2,418
  2,560
  2,708
  2,863
  3,025
Depreciation, amort., depletion, $m
  200
  222
  245
  270
  297
  324
  354
  384
  416
  449
  441
  477
  515
  553
  594
  636
  679
  725
  772
  821
  872
  925
  980
  1,038
  1,098
  1,161
  1,226
  1,295
  1,366
  1,441
Funds from operations, $m
  444
  513
  586
  664
  746
  833
  923
  1,018
  1,118
  1,221
  1,318
  1,430
  1,547
  1,668
  1,795
  1,926
  2,063
  2,205
  2,353
  2,507
  2,667
  2,835
  3,009
  3,191
  3,381
  3,579
  3,787
  4,003
  4,230
  4,467
Change in working capital, $m
  18
  20
  21
  22
  23
  25
  26
  27
  28
  29
  31
  32
  33
  34
  36
  37
  39
  40
  42
  43
  45
  47
  49
  51
  53
  56
  58
  61
  63
  66
Cash from operations, $m
  426
  493
  565
  642
  723
  808
  898
  992
  1,090
  1,192
  1,287
  1,398
  1,514
  1,634
  1,759
  1,889
  2,024
  2,165
  2,311
  2,464
  2,622
  2,788
  2,960
  3,140
  3,328
  3,524
  3,729
  3,943
  4,166
  4,400
Maintenance CAPEX, $m
  -137
  -158
  -180
  -203
  -228
  -255
  -282
  -311
  -342
  -374
  -407
  -441
  -477
  -515
  -553
  -594
  -636
  -679
  -725
  -772
  -821
  -872
  -925
  -980
  -1,038
  -1,098
  -1,161
  -1,226
  -1,295
  -1,366
New CAPEX, $m
  -101
  -110
  -118
  -125
  -132
  -139
  -146
  -152
  -159
  -166
  -173
  -180
  -187
  -194
  -202
  -210
  -218
  -226
  -236
  -245
  -255
  -266
  -277
  -288
  -301
  -314
  -328
  -342
  -358
  -374
Cash from investing activities, $m
  -238
  -268
  -298
  -328
  -360
  -394
  -428
  -463
  -501
  -540
  -580
  -621
  -664
  -709
  -755
  -804
  -854
  -905
  -961
  -1,017
  -1,076
  -1,138
  -1,202
  -1,268
  -1,339
  -1,412
  -1,489
  -1,568
  -1,653
  -1,740
Free cash flow, $m
  188
  225
  268
  314
  363
  415
  470
  528
  589
  652
  708
  777
  850
  925
  1,004
  1,086
  1,171
  1,259
  1,351
  1,447
  1,546
  1,650
  1,759
  1,871
  1,989
  2,112
  2,240
  2,374
  2,514
  2,660
Issuance/(repayment) of debt, $m
  366
  393
  419
  444
  470
  494
  518
  542
  566
  590
  615
  639
  665
  691
  718
  746
  775
  806
  838
  872
  908
  946
  985
  1,027
  1,071
  1,118
  1,167
  1,218
  1,273
  1,331
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  
  366
  393
  419
  444
  470
  494
  518
  542
  566
  590
  615
  639
  665
  691
  718
  746
  775
  806
  838
  872
  908
  946
  985
  1,027
  1,071
  1,118
  1,167
  1,218
  1,273
  1,331
Total cash flow (excl. dividends), $m
  554
  618
  687
  758
  832
  909
  988
  1,070
  1,155
  1,243
  1,322
  1,417
  1,515
  1,616
  1,722
  1,832
  1,946
  2,065
  2,189
  2,319
  2,454
  2,596
  2,744
  2,898
  3,060
  3,229
  3,407
  3,592
  3,787
  3,991
Retained Cash Flow (-), $m
  -42
  -46
  -49
  -52
  -55
  -58
  -61
  -64
  -66
  -69
  -72
  -75
  -78
  -81
  -84
  -88
  -91
  -95
  -98
  -102
  -107
  -111
  -116
  -120
  -126
  -131
  -137
  -143
  -149
  -156
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
  572
  638
  706
  777
  851
  927
  1,006
  1,088
  1,174
  1,250
  1,342
  1,437
  1,535
  1,638
  1,744
  1,855
  1,971
  2,091
  2,217
  2,348
  2,485
  2,628
  2,778
  2,934
  3,098
  3,270
  3,449
  3,638
  3,835
Discount rate, %
  7.60
  7.98
  8.38
  8.80
  9.24
  9.70
  10.18
  10.69
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.05
  15.80
  16.59
  17.42
  18.29
  19.20
  20.17
  21.17
  22.23
  23.34
  24.51
  25.74
  27.02
  28.37
  29.79
  31.28
PV of cash for distribution, $m
  476
  491
  501
  504
  500
  488
  470
  446
  418
  385
  346
  310
  272
  235
  200
  167
  137
  109
  86
  66
  50
  36
  26
  18
  12
  8
  5
  3
  2
  1
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

Meritor, Inc. is a supplier of a range of integrated systems, modules and components to original equipment manufacturers (OEMs) and the aftermarket for the commercial vehicle, transportation and industrial sectors. The Company's segments include Commercial Truck & Industrial and Aftermarket & Trailer. The Commercial Truck & Industrial segment supplies drivetrain systems and components, including axles, drivelines and braking and suspension systems, for medium- and heavy-duty trucks, off-highway, military, construction, bus and coach, fire and emergency and other applications in North America, South America, Europe and Asia Pacific. The Commercial Truck & Industrial segment also includes the Company's aftermarket businesses in Asia Pacific and South America. The Aftermarket & Trailer segment supplies axles, brakes, drivelines, suspension parts and other replacement and remanufactured parts to commercial vehicle aftermarket customers in North America and Europe.

FINANCIAL RATIOS  of  Meritor, Inc. (MTOR)

Valuation Ratios
P/E Ratio 6.5
Price to Sales 0.6
Price to Book 7.8
Price to Tangible Book
Price to Cash Flow 11.9
Price to Free Cash Flow 25.9
Growth Rates
Sales Growth Rate 4.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 2.2%
Cap. Spend. - 3 Yr. Gr. Rate 4.3%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 277.8%
Total Debt to Equity 384.4%
Interest Coverage 6
Management Effectiveness
Return On Assets 14.7%
Ret/ On Assets - 3 Yr. Avg. 18.6%
Return On Total Capital 31%
Ret/ On T. Cap. - 3 Yr. Avg. 49%
Return On Equity 1098.3%
Return On Equity - 3 Yr. Avg. 319.5%
Asset Turnover 1.3
Profitability Ratios
Gross Margin 14.5%
Gross Margin - 3 Yr. Avg. 13.8%
EBITDA Margin 15.9%
EBITDA Margin - 3 Yr. Avg. 10.2%
Operating Margin 5.6%
Oper. Margin - 3 Yr. Avg. 5.2%
Pre-Tax Margin 11.4%
Pre-Tax Margin - 3 Yr. Avg. 6%
Net Profit Margin 9.7%
Net Profit Margin - 3 Yr. Avg. 9.8%
Effective Tax Rate 13.6%
Eff/ Tax Rate - 3 Yr. Avg. -86.1%
Payout Ratio 0%

MTOR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MTOR stock intrinsic value calculation we used $4178 million for the last fiscal year's total revenue generated by Meritor, Inc.. The default revenue input number comes from 0001 income statement of Meritor, 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 MTOR stock valuation model: a) initial revenue growth rate of 15% 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 7.6%, whose default value for MTOR is calculated based on our internal credit rating of Meritor, 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 Meritor, 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 MTOR 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 $241 million in the base year in the intrinsic value calculation for MTOR 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 7.2% for Meritor, Inc..

Corporate tax rate of 27% is the nominal tax rate for Meritor, 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 MTOR 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 MTOR are equal to 16.4%.

Life of production assets of 0 years is the average useful life of capital assets used in Meritor, 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 MTOR is equal to 2.9%. 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 - $287 million for Meritor, 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 83.533 million for Meritor, 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 Meritor, Inc. at the current share price and the inputted number of shares is $2.0 billion.

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