Intrinsic value of NewMarket Corporation - NEU

Previous Close

$471.80

  Intrinsic Value

$177.79

stock screener

  Rating & Target

str. sell

-62%

Previous close

$471.80

 
Intrinsic value

$177.79

 
Up/down potential

-62%

 
Rating

str. sell

We calculate the intrinsic value of NEU 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 5.3

 

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
  2,336
  2,390
  2,451
  2,520
  2,596
  2,680
  2,771
  2,870
  2,977
  3,091
  3,213
  3,343
  3,482
  3,630
  3,786
  3,952
  4,128
  4,314
  4,510
  4,717
  4,936
  5,167
  5,410
  5,666
  5,935
  6,219
  6,518
  6,833
  7,164
  7,512
Variable operating expenses, $m
  1,992
  2,038
  2,090
  2,148
  2,213
  2,284
  2,361
  2,445
  2,535
  2,632
  2,722
  2,832
  2,950
  3,075
  3,207
  3,348
  3,497
  3,654
  3,820
  3,996
  4,181
  4,376
  4,582
  4,799
  5,028
  5,268
  5,521
  5,788
  6,068
  6,363
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
  1,992
  2,038
  2,090
  2,148
  2,213
  2,284
  2,361
  2,445
  2,535
  2,632
  2,722
  2,832
  2,950
  3,075
  3,207
  3,348
  3,497
  3,654
  3,820
  3,996
  4,181
  4,376
  4,582
  4,799
  5,028
  5,268
  5,521
  5,788
  6,068
  6,363
Operating income, $m
  344
  352
  361
  372
  383
  396
  410
  425
  442
  459
  491
  511
  533
  555
  579
  604
  631
  660
  690
  721
  755
  790
  827
  867
  908
  951
  997
  1,045
  1,096
  1,149
EBITDA, $m
  424
  434
  445
  457
  471
  486
  503
  521
  540
  561
  583
  607
  632
  659
  687
  717
  749
  783
  819
  856
  896
  938
  982
  1,028
  1,077
  1,129
  1,183
  1,240
  1,300
  1,363
Interest expense (income), $m
  19
  42
  43
  44
  46
  48
  50
  53
  55
  58
  61
  64
  68
  72
  76
  80
  84
  89
  94
  99
  105
  111
  117
  123
  130
  138
  145
  153
  162
  171
  180
Earnings before tax, $m
  302
  309
  317
  326
  335
  346
  358
  370
  384
  398
  427
  443
  461
  480
  499
  520
  542
  566
  591
  617
  644
  673
  704
  736
  770
  806
  843
  883
  925
  969
Tax expense, $m
  82
  83
  86
  88
  91
  93
  97
  100
  104
  107
  115
  120
  124
  129
  135
  140
  146
  153
  159
  166
  174
  182
  190
  199
  208
  218
  228
  238
  250
  262
Net income, $m
  220
  226
  231
  238
  245
  253
  261
  270
  280
  291
  312
  324
  337
  350
  365
  380
  396
  413
  431
  450
  470
  491
  514
  537
  562
  588
  616
  645
  675
  707

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
  1,732
  1,771
  1,817
  1,868
  1,925
  1,987
  2,054
  2,128
  2,207
  2,291
  2,382
  2,478
  2,581
  2,691
  2,807
  2,930
  3,060
  3,198
  3,343
  3,497
  3,659
  3,830
  4,010
  4,200
  4,400
  4,610
  4,832
  5,065
  5,310
  5,568
Adjusted assets (=assets-cash), $m
  1,732
  1,771
  1,817
  1,868
  1,925
  1,987
  2,054
  2,128
  2,207
  2,291
  2,382
  2,478
  2,581
  2,691
  2,807
  2,930
  3,060
  3,198
  3,343
  3,497
  3,659
  3,830
  4,010
  4,200
  4,400
  4,610
  4,832
  5,065
  5,310
  5,568
Revenue / Adjusted assets
  1.349
  1.350
  1.349
  1.349
  1.349
  1.349
  1.349
  1.349
  1.349
  1.349
  1.349
  1.349
  1.349
  1.349
  1.349
  1.349
  1.349
  1.349
  1.349
  1.349
  1.349
  1.349
  1.349
  1.349
  1.349
  1.349
  1.349
  1.349
  1.349
  1.349
Average production assets, $m
  733
  750
  770
  791
  815
  842
  870
  901
  935
  971
  1,009
  1,050
  1,093
  1,140
  1,189
  1,241
  1,296
  1,355
  1,416
  1,481
  1,550
  1,622
  1,699
  1,779
  1,864
  1,953
  2,047
  2,146
  2,249
  2,359
Working capital, $m
  479
  490
  502
  517
  532
  549
  568
  588
  610
  634
  659
  685
  714
  744
  776
  810
  846
  884
  925
  967
  1,012
  1,059
  1,109
  1,161
  1,217
  1,275
  1,336
  1,401
  1,469
  1,540
Total debt, $m
  795
  823
  855
  892
  932
  976
  1,024
  1,076
  1,132
  1,193
  1,257
  1,326
  1,399
  1,477
  1,559
  1,647
  1,739
  1,837
  1,941
  2,050
  2,165
  2,287
  2,415
  2,550
  2,692
  2,842
  2,999
  3,165
  3,339
  3,523
Total liabilities, $m
  1,231
  1,259
  1,292
  1,328
  1,368
  1,413
  1,461
  1,513
  1,569
  1,629
  1,693
  1,762
  1,835
  1,913
  1,996
  2,083
  2,176
  2,274
  2,377
  2,486
  2,602
  2,723
  2,851
  2,986
  3,128
  3,278
  3,436
  3,601
  3,776
  3,959
Total equity, $m
  500
  512
  525
  540
  556
  574
  594
  615
  638
  662
  688
  716
  746
  778
  811
  847
  884
  924
  966
  1,011
  1,057
  1,107
  1,159
  1,214
  1,272
  1,332
  1,396
  1,464
  1,535
  1,609
Total liabilities and equity, $m
  1,731
  1,771
  1,817
  1,868
  1,924
  1,987
  2,055
  2,128
  2,207
  2,291
  2,381
  2,478
  2,581
  2,691
  2,807
  2,930
  3,060
  3,198
  3,343
  3,497
  3,659
  3,830
  4,010
  4,200
  4,400
  4,610
  4,832
  5,065
  5,311
  5,568
Debt-to-equity ratio
  1.590
  1.610
  1.630
  1.650
  1.680
  1.700
  1.730
  1.750
  1.780
  1.800
  1.830
  1.850
  1.880
  1.900
  1.920
  1.940
  1.970
  1.990
  2.010
  2.030
  2.050
  2.070
  2.080
  2.100
  2.120
  2.130
  2.150
  2.160
  2.180
  2.190
Adjusted equity ratio
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  220
  226
  231
  238
  245
  253
  261
  270
  280
  291
  312
  324
  337
  350
  365
  380
  396
  413
  431
  450
  470
  491
  514
  537
  562
  588
  616
  645
  675
  707
Depreciation, amort., depletion, $m
  80
  82
  84
  86
  88
  90
  93
  96
  99
  102
  92
  95
  99
  104
  108
  113
  118
  123
  129
  135
  141
  147
  154
  162
  169
  178
  186
  195
  204
  214
Funds from operations, $m
  301
  307
  315
  323
  332
  343
  354
  366
  379
  392
  403
  419
  436
  454
  473
  493
  514
  536
  560
  585
  611
  639
  668
  699
  732
  766
  802
  840
  880
  921
Change in working capital, $m
  9
  11
  13
  14
  16
  17
  19
  20
  22
  23
  25
  27
  28
  30
  32
  34
  36
  38
  40
  42
  45
  47
  50
  52
  55
  58
  61
  64
  68
  71
Cash from operations, $m
  291
  296
  302
  309
  317
  325
  335
  345
  357
  369
  378
  392
  407
  423
  441
  459
  478
  498
  520
  542
  566
  592
  618
  647
  676
  708
  741
  775
  812
  850
Maintenance CAPEX, $m
  -65
  -67
  -68
  -70
  -72
  -74
  -77
  -79
  -82
  -85
  -88
  -92
  -95
  -99
  -104
  -108
  -113
  -118
  -123
  -129
  -135
  -141
  -147
  -154
  -162
  -169
  -178
  -186
  -195
  -204
New CAPEX, $m
  -15
  -17
  -19
  -22
  -24
  -26
  -29
  -31
  -33
  -36
  -38
  -41
  -44
  -46
  -49
  -52
  -55
  -58
  -62
  -65
  -69
  -72
  -76
  -80
  -85
  -89
  -94
  -99
  -104
  -109
Cash from investing activities, $m
  -80
  -84
  -87
  -92
  -96
  -100
  -106
  -110
  -115
  -121
  -126
  -133
  -139
  -145
  -153
  -160
  -168
  -176
  -185
  -194
  -204
  -213
  -223
  -234
  -247
  -258
  -272
  -285
  -299
  -313
Free cash flow, $m
  211
  213
  215
  217
  221
  225
  230
  235
  241
  248
  252
  260
  268
  278
  288
  298
  310
  322
  335
  349
  363
  378
  395
  412
  430
  449
  469
  490
  513
  536
Issuance/(repayment) of debt, $m
  24
  28
  32
  36
  40
  44
  48
  52
  56
  60
  64
  69
  73
  78
  83
  87
  93
  98
  103
  109
  115
  122
  128
  135
  142
  150
  158
  166
  174
  183
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  
  24
  28
  32
  36
  40
  44
  48
  52
  56
  60
  64
  69
  73
  78
  83
  87
  93
  98
  103
  109
  115
  122
  128
  135
  142
  150
  158
  166
  174
  183
Total cash flow (excl. dividends), $m
  235
  241
  247
  254
  261
  269
  278
  287
  297
  308
  316
  329
  342
  356
  370
  386
  402
  420
  438
  458
  478
  500
  523
  547
  572
  599
  627
  656
  687
  720
Retained Cash Flow (-), $m
  -10
  -12
  -13
  -15
  -16
  -18
  -20
  -21
  -23
  -24
  -26
  -28
  -30
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -47
  -49
  -52
  -55
  -58
  -61
  -64
  -67
  -71
  -75
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
  224
  230
  234
  239
  245
  251
  258
  266
  275
  284
  290
  301
  312
  324
  337
  350
  365
  380
  396
  413
  431
  451
  471
  492
  514
  538
  563
  589
  616
  645
Discount rate, %
  7.40
  7.77
  8.16
  8.57
  8.99
  9.44
  9.92
  10.41
  10.93
  11.48
  12.05
  12.66
  13.29
  13.95
  14.65
  15.38
  16.15
  16.96
  17.81
  18.70
  19.63
  20.62
  21.65
  22.73
  23.87
  25.06
  26.31
  27.63
  29.01
  30.46
PV of cash for distribution, $m
  209
  198
  185
  172
  159
  146
  133
  121
  108
  96
  83
  72
  62
  52
  43
  35
  29
  23
  18
  13
  10
  7
  5
  4
  2
  2
  1
  1
  0
  0
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

NewMarket Corporation is a holding company. The Company is the parent company of Afton Chemical Corporation (Afton), Ethyl Corporation (Ethyl), NewMarket Services Corporation (NewMarket Services), and NewMarket Development Corporation (NewMarket Development). The Company operates through petroleum additives segment, which is primarily represented by Afton. The Company manufactures chemical components that are selected to perform one or more specific functions and combine those chemicals with other chemicals or components to form additive packages for use in specified end user applications. The petroleum additives product applications include lubricant additives and fuel additives. The Company's All other category includes the operations of the TEL business, as well as contract manufacturing and services performed by Ethyl. The Ethyl plant facility is located in Houston, Texas. It is involved in terminal operations related to TEL and other fuel additives.

FINANCIAL RATIOS  of  NewMarket Corporation (NEU)

Valuation Ratios
P/E Ratio 23
Price to Sales 2.7
Price to Book 11.6
Price to Tangible Book
Price to Cash Flow 15.8
Price to Free Cash Flow 26.6
Growth Rates
Sales Growth Rate -4.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 12.6%
Cap. Spend. - 3 Yr. Gr. Rate 19.8%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 105%
Total Debt to Equity 105%
Interest Coverage 19
Management Effectiveness
Return On Assets 19%
Ret/ On Assets - 3 Yr. Avg. 19.3%
Return On Total Capital 26%
Ret/ On T. Cap. - 3 Yr. Avg. 27.3%
Return On Equity 55.8%
Return On Equity - 3 Yr. Avg. 53.9%
Asset Turnover 1.5
Profitability Ratios
Gross Margin 33.2%
Gross Margin - 3 Yr. Avg. 31.1%
EBITDA Margin 19.9%
EBITDA Margin - 3 Yr. Avg. 18.5%
Operating Margin 17.7%
Oper. Margin - 3 Yr. Avg. 16.6%
Pre-Tax Margin 16.7%
Pre-Tax Margin - 3 Yr. Avg. 15.7%
Net Profit Margin 11.9%
Net Profit Margin - 3 Yr. Avg. 11%
Effective Tax Rate 29.2%
Eff/ Tax Rate - 3 Yr. Avg. 30%
Payout Ratio 31.3%

NEU stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NEU stock intrinsic value calculation we used $2290 million for the last fiscal year's total revenue generated by NewMarket Corporation. The default revenue input number comes from 0001 income statement of NewMarket Corporation. 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 NEU 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 7.4%, whose default value for NEU is calculated based on our internal credit rating of NewMarket Corporation, 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 NewMarket Corporation.
    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 NEU stock the variable cost ratio is equal to 85.3%.

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 NEU 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 NewMarket Corporation.

Corporate tax rate of 27% is the nominal tax rate for NewMarket Corporation. 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 NEU 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 NEU are equal to 31.4%.

Life of production assets of 11 years is the average useful life of capital assets used in NewMarket Corporation 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 NEU is equal to 20.5%. 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 - $489.907 million for NewMarket Corporation - 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 11.184 million for NewMarket Corporation 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 NewMarket Corporation at the current share price and the inputted number of shares is $5.3 billion.

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