Intrinsic value of Powell Industries - POWL

Previous Close

$39.88

  Intrinsic Value

$7.25

stock screener

  Rating & Target

str. sell

-82%

Previous close

$39.88

 
Intrinsic value

$7.25

 
Up/down potential

-82%

 
Rating

str. sell

We calculate the intrinsic value of POWL 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 0.4

 

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
  404
  413
  424
  436
  449
  463
  479
  496
  515
  534
  556
  578
  602
  628
  655
  683
  714
  746
  780
  816
  854
  893
  935
  980
  1,026
  1,075
  1,127
  1,182
  1,239
  1,299
Variable operating expenses, $m
  320
  328
  336
  346
  356
  367
  380
  394
  408
  424
  440
  458
  477
  497
  519
  542
  566
  591
  618
  646
  676
  708
  741
  776
  813
  852
  893
  936
  982
  1,029
Fixed operating expenses, $m
  105
  108
  110
  112
  115
  117
  120
  123
  125
  128
  131
  134
  137
  140
  143
  146
  149
  152
  156
  159
  163
  166
  170
  174
  177
  181
  185
  189
  194
  198
Total operating expenses, $m
  425
  436
  446
  458
  471
  484
  500
  517
  533
  552
  571
  592
  614
  637
  662
  688
  715
  743
  774
  805
  839
  874
  911
  950
  990
  1,033
  1,078
  1,125
  1,176
  1,227
Operating income, $m
  -22
  -22
  -22
  -22
  -22
  -21
  -21
  -20
  -19
  -17
  -16
  -14
  -12
  -9
  -7
  -4
  -1
  2
  6
  10
  14
  19
  24
  30
  36
  42
  49
  56
  63
  72
EBITDA, $m
  -7
  -7
  -7
  -6
  -5
  -4
  -3
  -2
  0
  2
  5
  7
  10
  13
  17
  21
  25
  30
  34
  40
  46
  52
  58
  65
  73
  81
  90
  99
  109
  119
Interest expense (income), $m
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
Earnings before tax, $m
  -22
  -22
  -22
  -23
  -22
  -22
  -22
  -21
  -20
  -19
  -17
  -16
  -14
  -12
  -10
  -7
  -5
  -2
  2
  5
  9
  13
  18
  23
  28
  34
  40
  46
  53
  61
Tax expense, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  2
  4
  5
  6
  8
  9
  11
  13
  14
  16
Net income, $m
  -22
  -22
  -22
  -23
  -22
  -22
  -22
  -21
  -20
  -19
  -17
  -16
  -14
  -12
  -10
  -7
  -5
  -2
  1
  4
  7
  10
  13
  17
  20
  25
  29
  34
  39
  44

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
  388
  397
  408
  419
  432
  446
  461
  477
  495
  514
  534
  556
  579
  604
  630
  657
  686
  717
  750
  784
  821
  859
  899
  942
  987
  1,034
  1,084
  1,136
  1,191
  1,249
Adjusted assets (=assets-cash), $m
  388
  397
  408
  419
  432
  446
  461
  477
  495
  514
  534
  556
  579
  604
  630
  657
  686
  717
  750
  784
  821
  859
  899
  942
  987
  1,034
  1,084
  1,136
  1,191
  1,249
Revenue / Adjusted assets
  1.041
  1.040
  1.039
  1.041
  1.039
  1.038
  1.039
  1.040
  1.040
  1.039
  1.041
  1.040
  1.040
  1.040
  1.040
  1.040
  1.041
  1.040
  1.040
  1.041
  1.040
  1.040
  1.040
  1.040
  1.040
  1.040
  1.040
  1.040
  1.040
  1.040
Average production assets, $m
  147
  150
  154
  159
  163
  169
  174
  181
  187
  195
  202
  210
  219
  228
  238
  249
  260
  272
  284
  297
  311
  325
  341
  357
  374
  391
  410
  430
  451
  473
Working capital, $m
  -15
  -15
  -16
  -16
  -17
  -17
  -18
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -46
  -48
Total debt, $m
  3
  5
  8
  11
  14
  17
  21
  25
  29
  34
  39
  44
  50
  56
  62
  69
  76
  84
  92
  100
  109
  118
  128
  139
  150
  161
  174
  186
  200
  214
Total liabilities, $m
  95
  97
  100
  103
  106
  109
  113
  117
  121
  126
  131
  136
  142
  148
  154
  161
  168
  176
  184
  192
  201
  210
  220
  231
  242
  253
  266
  278
  292
  306
Total equity, $m
  293
  300
  308
  316
  326
  336
  348
  360
  374
  388
  403
  420
  437
  456
  475
  496
  518
  542
  566
  592
  620
  649
  679
  711
  745
  781
  818
  858
  899
  943
Total liabilities and equity, $m
  388
  397
  408
  419
  432
  445
  461
  477
  495
  514
  534
  556
  579
  604
  629
  657
  686
  718
  750
  784
  821
  859
  899
  942
  987
  1,034
  1,084
  1,136
  1,191
  1,249
Debt-to-equity ratio
  0.010
  0.020
  0.030
  0.030
  0.040
  0.050
  0.060
  0.070
  0.080
  0.090
  0.100
  0.110
  0.110
  0.120
  0.130
  0.140
  0.150
  0.150
  0.160
  0.170
  0.180
  0.180
  0.190
  0.200
  0.200
  0.210
  0.210
  0.220
  0.220
  0.230
Adjusted equity ratio
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -22
  -22
  -22
  -23
  -22
  -22
  -22
  -21
  -20
  -19
  -17
  -16
  -14
  -12
  -10
  -7
  -5
  -2
  1
  4
  7
  10
  13
  17
  20
  25
  29
  34
  39
  44
Depreciation, amort., depletion, $m
  15
  15
  16
  16
  17
  17
  18
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
Funds from operations, $m
  -7
  -7
  -7
  -7
  -6
  -5
  -4
  -3
  -1
  1
  3
  5
  8
  11
  14
  17
  21
  25
  30
  33
  38
  42
  47
  52
  58
  64
  70
  77
  84
  92
Change in working capital, $m
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
Cash from operations, $m
  -7
  -7
  -6
  -6
  -5
  -5
  -3
  -2
  0
  1
  4
  6
  9
  12
  15
  19
  22
  27
  31
  35
  39
  44
  49
  54
  60
  66
  72
  79
  86
  94
Maintenance CAPEX, $m
  -14
  -15
  -15
  -15
  -16
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -37
  -39
  -41
  -43
  -45
New CAPEX, $m
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
Cash from investing activities, $m
  -17
  -18
  -19
  -19
  -21
  -21
  -23
  -23
  -25
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -38
  -39
  -41
  -44
  -46
  -48
  -50
  -53
  -55
  -58
  -61
  -64
  -67
Free cash flow, $m
  -24
  -25
  -25
  -26
  -26
  -26
  -26
  -26
  -25
  -24
  -24
  -22
  -21
  -20
  -18
  -16
  -14
  -11
  -9
  -7
  -4
  -2
  1
  4
  7
  10
  14
  18
  22
  27
Issuance/(repayment) of debt, $m
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  13
  14
Issuance/(repurchase) of shares, $m
  28
  29
  30
  31
  32
  33
  33
  33
  33
  33
  33
  32
  32
  31
  30
  28
  27
  25
  23
  22
  21
  19
  18
  16
  13
  11
  8
  6
  3
  0
Cash from financing (excl. dividends), $m  
  30
  31
  33
  34
  35
  36
  37
  37
  37
  38
  38
  37
  38
  37
  36
  35
  34
  33
  31
  30
  30
  28
  28
  26
  24
  23
  20
  19
  16
  14
Total cash flow (excl. dividends), $m
  6
  6
  7
  8
  9
  10
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  22
  23
  24
  25
  27
  28
  30
  31
  33
  35
  36
  38
  41
Retained Cash Flow (-), $m
  -28
  -29
  -30
  -31
  -32
  -33
  -33
  -33
  -33
  -33
  -33
  -32
  -32
  -31
  -30
  -28
  -27
  -25
  -25
  -26
  -27
  -29
  -31
  -32
  -34
  -36
  -38
  -39
  -42
  -44
Prev. year cash balance distribution, $m
  34
  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
  3
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
Cash available for distribution, $m
  12
  -23
  -23
  -23
  -23
  -23
  -22
  -22
  -21
  -20
  -19
  -17
  -15
  -14
  -11
  -9
  -6
  -3
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
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
  11
  -21
  -20
  -19
  -18
  -17
  -15
  -14
  -12
  -10
  -9
  -7
  -6
  -5
  -3
  -2
  -1
  -1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  93.3
  87.0
  81.1
  75.5
  70.3
  65.5
  61.1
  57.1
  53.4
  50.2
  47.3
  44.6
  42.3
  40.3
  38.4
  36.8
  35.4
  34.2
  33.2
  32.2
  31.4
  30.7
  30.1
  29.6
  29.2
  28.9
  28.7
  28.5
  28.5
  28.5

Powell Industries, Inc. develops design, manufactures and services custom-engineered equipment and systems for the distribution, control and monitoring of electrical energy designed to distribute, control and monitor the flow of electrical energy, and provide protection to motors, transformers and other electrically powered equipment. The Company's principal products include integrated power control room substations (PCRs), custom-engineered modules, electrical houses (E-Houses), traditional and arc-resistant distribution switchgear and control gear, medium-voltage circuit breakers, monitoring and control communications systems, motor control centers and bus duct systems. These products are designed for application voltages ranging from 480 volts to 38,000 volts, and are used in oil and gas refining, offshore oil and gas production, petrochemical, pipeline, terminal, mining and metals, light rail traction power, electric utility, pulp and paper, and other heavy industrial markets.

FINANCIAL RATIOS  of  Powell Industries (POWL)

Valuation Ratios
P/E Ratio -50.6
Price to Sales 1.2
Price to Book 1.4
Price to Tangible Book
Price to Cash Flow 12.3
Price to Free Cash Flow 13.8
Growth Rates
Sales Growth Rate -29.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 33.3%
Cap. Spend. - 3 Yr. Gr. Rate -25.1%
Financial Strength
Quick Ratio NaN
Current Ratio 0.2
LT Debt to Equity 0.6%
Total Debt to Equity 0.6%
Interest Coverage 0
Management Effectiveness
Return On Assets -2.1%
Ret/ On Assets - 3 Yr. Avg. 1.1%
Return On Total Capital -2.7%
Ret/ On T. Cap. - 3 Yr. Avg. 1.5%
Return On Equity -2.7%
Return On Equity - 3 Yr. Avg. 1.5%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 12.9%
Gross Margin - 3 Yr. Avg. 16%
EBITDA Margin -1.3%
EBITDA Margin - 3 Yr. Avg. 3.2%
Operating Margin -4.8%
Oper. Margin - 3 Yr. Avg. 0.4%
Pre-Tax Margin -4.3%
Pre-Tax Margin - 3 Yr. Avg. 0.8%
Net Profit Margin -2.3%
Net Profit Margin - 3 Yr. Avg. 0.6%
Effective Tax Rate 47.1%
Eff/ Tax Rate - 3 Yr. Avg. 39.7%
Payout Ratio -133.3%

POWL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the POWL stock intrinsic value calculation we used $396 million for the last fiscal year's total revenue generated by Powell Industries. The default revenue input number comes from 2017 income statement of Powell Industries. 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 POWL 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 4.3%, whose default value for POWL is calculated based on our internal credit rating of Powell Industries, 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 Powell Industries.
    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 POWL stock the variable cost ratio is equal to 79.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $103 million in the base year in the intrinsic value calculation for POWL 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 Powell Industries.

Corporate tax rate of 27% is the nominal tax rate for Powell Industries. 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 POWL stock is equal to 0.7%.

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 POWL are equal to 36.4%.

Life of production assets of 10 years is the average useful life of capital assets used in Powell Industries 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 POWL is equal to -3.7%. 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 - $321 million for Powell Industries - 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 million for Powell Industries 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 Powell Industries at the current share price and the inputted number of shares is $0.4 billion.

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COMPANY NEWS

▶ Powell Industries, Inc. to Host Earnings Call   [Aug-08-18 09:00AM  ACCESSWIRE]
▶ Powell Industries: Fiscal 3Q Earnings Snapshot   [Aug-07-18 04:31PM  Associated Press]
▶ Wired News - Roper Technologies to Acquire PowerPlan   [May-23-18 07:05AM  ACCESSWIRE]
▶ Powell Industries Announces CFO Retirement Plan   [May-14-18 04:20PM  PR Newswire]
▶ Powell Industries: Fiscal 2Q Earnings Snapshot   [May-08-18 07:16PM  Associated Press]
▶ Powell Industries reports 1Q loss   [Feb-06-18 04:35PM  Associated Press]
▶ Powell Industries reports 4Q loss   [Dec-05-17 04:35PM  Associated Press]
▶ Powell Industries Declares Quarterly Cash Dividend   [Nov-07-17 04:15PM  PR Newswire]
▶ Powell Industries reports 3Q loss   [Aug-08-17 04:46PM  Associated Press]
▶ Powell Industries reports 2Q loss   [May-02-17 04:56PM  Associated Press]
▶ /C O R R E C T I O N -- Powell Industries, Inc./   [Feb-07-17 05:44PM  PR Newswire]
▶ Powell Industries reports 1Q loss   [04:24PM  Associated Press]
▶ Arnold Van Den Berg Exits Powell Industries   [Jan-25-17 06:00PM  GuruFocus.com]
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