Intrinsic value of Quanex Building Products - NX

Previous Close

$16.80

  Intrinsic Value

$9.24

stock screener

  Rating & Target

sell

-45%

Previous close

$16.80

 
Intrinsic value

$9.24

 
Up/down potential

-45%

 
Rating

sell

We calculate the intrinsic value of NX 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 2017), $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 0.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

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
  884
  905
  928
  954
  983
  1,015
  1,049
  1,087
  1,127
  1,170
  1,216
  1,266
  1,318
  1,374
  1,434
  1,496
  1,563
  1,633
  1,708
  1,786
  1,869
  1,956
  2,048
  2,145
  2,247
  2,355
  2,468
  2,587
  2,712
  2,844
Variable operating expenses, $m
  849
  868
  889
  913
  940
  969
  1,001
  1,035
  1,072
  1,112
  1,118
  1,164
  1,212
  1,263
  1,318
  1,376
  1,437
  1,501
  1,570
  1,642
  1,718
  1,798
  1,883
  1,972
  2,066
  2,165
  2,269
  2,378
  2,493
  2,614
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
  849
  868
  889
  913
  940
  969
  1,001
  1,035
  1,072
  1,112
  1,118
  1,164
  1,212
  1,263
  1,318
  1,376
  1,437
  1,501
  1,570
  1,642
  1,718
  1,798
  1,883
  1,972
  2,066
  2,165
  2,269
  2,378
  2,493
  2,614
Operating income, $m
  35
  37
  39
  41
  43
  46
  49
  52
  55
  58
  98
  102
  106
  111
  116
  121
  126
  132
  138
  144
  151
  158
  165
  173
  181
  190
  199
  209
  219
  230
EBITDA, $m
  130
  133
  136
  140
  144
  149
  154
  159
  165
  172
  178
  186
  193
  202
  210
  219
  229
  240
  250
  262
  274
  287
  300
  315
  330
  345
  362
  379
  398
  417
Interest expense (income), $m
  9
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  30
  32
  34
  36
  38
  40
  42
  44
  47
  50
  52
  55
Earnings before tax, $m
  22
  24
  25
  27
  28
  30
  32
  34
  37
  39
  78
  81
  84
  88
  91
  95
  99
  103
  107
  112
  117
  122
  128
  133
  139
  146
  152
  159
  167
  175
Tax expense, $m
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
  36
  38
  39
  41
  43
  45
  47
Net income, $m
  16
  17
  18
  19
  21
  22
  24
  25
  27
  29
  57
  59
  62
  64
  67
  69
  72
  75
  78
  82
  85
  89
  93
  97
  102
  106
  111
  116
  122
  127

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
  790
  808
  829
  852
  878
  906
  937
  970
  1,006
  1,045
  1,086
  1,130
  1,177
  1,227
  1,280
  1,336
  1,395
  1,458
  1,525
  1,595
  1,669
  1,746
  1,829
  1,915
  2,006
  2,102
  2,203
  2,310
  2,422
  2,539
Adjusted assets (=assets-cash), $m
  790
  808
  829
  852
  878
  906
  937
  970
  1,006
  1,045
  1,086
  1,130
  1,177
  1,227
  1,280
  1,336
  1,395
  1,458
  1,525
  1,595
  1,669
  1,746
  1,829
  1,915
  2,006
  2,102
  2,203
  2,310
  2,422
  2,539
Revenue / Adjusted assets
  1.119
  1.120
  1.119
  1.120
  1.120
  1.120
  1.120
  1.121
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
Average production assets, $m
  583
  596
  612
  629
  648
  669
  691
  716
  743
  771
  802
  834
  869
  906
  945
  986
  1,030
  1,076
  1,125
  1,177
  1,232
  1,289
  1,350
  1,414
  1,481
  1,552
  1,626
  1,705
  1,787
  1,874
Working capital, $m
  44
  45
  46
  48
  49
  51
  52
  54
  56
  59
  61
  63
  66
  69
  72
  75
  78
  82
  85
  89
  93
  98
  102
  107
  112
  118
  123
  129
  136
  142
Total debt, $m
  247
  255
  265
  276
  289
  302
  317
  332
  349
  368
  387
  408
  431
  454
  479
  506
  534
  564
  595
  628
  663
  700
  739
  780
  824
  869
  917
  967
  1,020
  1,076
Total liabilities, $m
  374
  383
  393
  404
  416
  429
  444
  460
  477
  495
  515
  536
  558
  582
  607
  633
  661
  691
  723
  756
  791
  828
  867
  908
  951
  997
  1,044
  1,095
  1,148
  1,204
Total equity, $m
  415
  425
  436
  448
  462
  477
  493
  510
  529
  550
  571
  594
  619
  645
  673
  703
  734
  767
  802
  839
  878
  919
  962
  1,007
  1,055
  1,106
  1,159
  1,215
  1,274
  1,336
Total liabilities and equity, $m
  789
  808
  829
  852
  878
  906
  937
  970
  1,006
  1,045
  1,086
  1,130
  1,177
  1,227
  1,280
  1,336
  1,395
  1,458
  1,525
  1,595
  1,669
  1,747
  1,829
  1,915
  2,006
  2,103
  2,203
  2,310
  2,422
  2,540
Debt-to-equity ratio
  0.590
  0.600
  0.610
  0.620
  0.630
  0.630
  0.640
  0.650
  0.660
  0.670
  0.680
  0.690
  0.700
  0.700
  0.710
  0.720
  0.730
  0.730
  0.740
  0.750
  0.760
  0.760
  0.770
  0.770
  0.780
  0.790
  0.790
  0.800
  0.800
  0.810
Adjusted equity ratio
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  16
  17
  18
  19
  21
  22
  24
  25
  27
  29
  57
  59
  62
  64
  67
  69
  72
  75
  78
  82
  85
  89
  93
  97
  102
  106
  111
  116
  122
  127
Depreciation, amort., depletion, $m
  94
  96
  97
  99
  101
  103
  105
  108
  110
  113
  80
  83
  87
  91
  94
  99
  103
  108
  113
  118
  123
  129
  135
  141
  148
  155
  163
  170
  179
  187
Funds from operations, $m
  111
  113
  116
  118
  122
  125
  129
  133
  137
  142
  137
  143
  149
  155
  161
  168
  175
  183
  191
  200
  209
  218
  228
  239
  250
  262
  274
  287
  300
  315
Change in working capital, $m
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
Cash from operations, $m
  110
  112
  114
  117
  120
  123
  127
  131
  135
  140
  135
  140
  146
  152
  158
  165
  172
  179
  187
  196
  204
  214
  223
  234
  245
  256
  268
  281
  294
  308
Maintenance CAPEX, $m
  -57
  -58
  -60
  -61
  -63
  -65
  -67
  -69
  -72
  -74
  -77
  -80
  -83
  -87
  -91
  -94
  -99
  -103
  -108
  -113
  -118
  -123
  -129
  -135
  -141
  -148
  -155
  -163
  -170
  -179
New CAPEX, $m
  -11
  -13
  -15
  -17
  -19
  -21
  -23
  -25
  -27
  -29
  -30
  -33
  -35
  -37
  -39
  -41
  -44
  -46
  -49
  -52
  -55
  -58
  -61
  -64
  -67
  -71
  -75
  -78
  -83
  -87
Cash from investing activities, $m
  -68
  -71
  -75
  -78
  -82
  -86
  -90
  -94
  -99
  -103
  -107
  -113
  -118
  -124
  -130
  -135
  -143
  -149
  -157
  -165
  -173
  -181
  -190
  -199
  -208
  -219
  -230
  -241
  -253
  -266
Free cash flow, $m
  41
  40
  39
  39
  38
  38
  37
  37
  37
  37
  27
  28
  28
  28
  28
  29
  29
  30
  31
  31
  32
  33
  34
  35
  36
  37
  38
  40
  41
  43
Issuance/(repayment) of debt, $m
  7
  9
  10
  11
  12
  13
  15
  16
  17
  18
  20
  21
  22
  24
  25
  27
  28
  30
  31
  33
  35
  37
  39
  41
  43
  46
  48
  50
  53
  56
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  
  7
  9
  10
  11
  12
  13
  15
  16
  17
  18
  20
  21
  22
  24
  25
  27
  28
  30
  31
  33
  35
  37
  39
  41
  43
  46
  48
  50
  53
  56
Total cash flow (excl. dividends), $m
  49
  49
  49
  50
  50
  51
  52
  53
  54
  55
  47
  48
  50
  52
  54
  56
  58
  60
  62
  65
  67
  70
  73
  76
  79
  83
  86
  90
  94
  98
Retained Cash Flow (-), $m
  -8
  -10
  -11
  -12
  -14
  -15
  -16
  -18
  -19
  -20
  -22
  -23
  -25
  -26
  -28
  -30
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -46
  -48
  -50
  -53
  -56
  -59
  -62
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
  5
  5
  5
  6
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  16
  16
Cash available for distribution, $m
  40
  39
  38
  38
  37
  36
  36
  36
  35
  35
  25
  25
  25
  26
  26
  26
  26
  27
  27
  28
  28
  29
  30
  30
  31
  32
  33
  34
  35
  37
Discount rate, %
  5.70
  5.99
  6.28
  6.60
  6.93
  7.27
  7.64
  8.02
  8.42
  8.84
  9.28
  9.75
  10.24
  10.75
  11.29
  11.85
  12.44
  13.06
  13.72
  14.40
  15.12
  15.88
  16.67
  17.51
  18.38
  19.30
  20.27
  21.28
  22.34
  23.46
PV of cash for distribution, $m
  38
  35
  32
  29
  26
  24
  21
  19
  17
  15
  10
  8
  7
  6
  5
  4
  4
  3
  2
  2
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
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Quanex Building Products Corporation manufactures components for original equipment manufacturers (OEM) in the building products industry. The Company's components can be categorized as window and door (fenestration) components, and kitchen and bath cabinet components. The Company operates through three segments: North American Engineered Components (NA Engineered Components), which consists of four operating segments primarily focused on the fenestration market in North America manufacturing vinyl profiles, insulating glass (IG) spacers, screens and other fenestration components; European Engineered Components (EU Engineered Components), which consists of the United Kingdom-based vinyl extrusion business, manufacturing vinyl profiles and conservatories, and the European insulating glass business manufacturing IG spacers, and North American Cabinet Components (NA Cabinet Components), which consists of the North American cabinet door and components business.

FINANCIAL RATIOS  of  Quanex Building Products (NX)

Valuation Ratios
P/E Ratio 30.8
Price to Sales 0.7
Price to Book 1.4
Price to Tangible Book
Price to Cash Flow 7.4
Price to Free Cash Flow 13.3
Growth Rates
Sales Growth Rate -6.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -5.4%
Cap. Spend. - 3 Yr. Gr. Rate 0.6%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 53.6%
Total Debt to Equity 58.7%
Interest Coverage 4
Management Effectiveness
Return On Assets 3.3%
Ret/ On Assets - 3 Yr. Avg. 2.3%
Return On Total Capital 3%
Ret/ On T. Cap. - 3 Yr. Avg. 2.1%
Return On Equity 4.9%
Return On Equity - 3 Yr. Avg. 2.8%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 22.4%
Gross Margin - 3 Yr. Avg. 22.8%
EBITDA Margin 10.6%
EBITDA Margin - 3 Yr. Avg. 8.8%
Operating Margin 4%
Oper. Margin - 3 Yr. Avg. 3.9%
Pre-Tax Margin 3%
Pre-Tax Margin - 3 Yr. Avg. 2%
Net Profit Margin 2.2%
Net Profit Margin - 3 Yr. Avg. 1.5%
Effective Tax Rate 26.9%
Eff/ Tax Rate - 3 Yr. Avg. 41.3%
Payout Ratio 31.6%

NX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NX stock intrinsic value calculation we used $867 million for the last fiscal year's total revenue generated by Quanex Building Products. The default revenue input number comes from 2017 income statement of Quanex Building Products. 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 NX 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 5.7%, whose default value for NX is calculated based on our internal credit rating of Quanex Building Products, 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 Quanex Building Products.
    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 NX stock the variable cost ratio is equal to 96.1%.

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 NX 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 Quanex Building Products.

Corporate tax rate of 27% is the nominal tax rate for Quanex Building Products. 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 NX stock is equal to 0.6%.

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 NX are equal to 65.9%.

Life of production assets of 10 years is the average useful life of capital assets used in Quanex Building Products 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 NX is equal to 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 - $407 million for Quanex Building Products - 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 34 million for Quanex Building Products 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 Quanex Building Products at the current share price and the inputted number of shares is $0.6 billion.

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COMPANY NEWS

▶ The 5 Best Stocks to Buy for August   [Jul-31-18 02:40PM  InvestorPlace]
▶ Quanex: Fiscal 2Q Earnings Snapshot   [Jun-04-18 04:23PM  Associated Press]
▶ Top NYSE Cheap Stocks To Buy   [10:02AM  Simply Wall St.]
▶ Quanex posts 1Q profit   [Mar-05-18 04:21PM  Associated Press]
▶ Quanex posts 4Q profit   [Dec-11-17 04:33PM  Associated Press]
▶ Quanex Building Products Declares Quarterly Dividend   [Dec-04-17 04:15PM  GlobeNewswire]
▶ Quanex posts 3Q profit   [Sep-06-17 10:41PM  Associated Press]
▶ Quanex posts 2Q profit   [May-30-17 04:23PM  Associated Press]
▶ Quanex reports 1Q loss   [Mar-06-17 05:20PM  Associated Press]
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