Intrinsic value of Resources Connection, Inc. - RECN

Previous Close

$16.33

  Intrinsic Value

$18.49

stock screener

  Rating & Target

hold

+13%

Previous close

$16.33

 
Intrinsic value

$18.49

 
Up/down potential

+13%

 
Rating

hold

We calculate the intrinsic value of RECN 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 0.5

 

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, %
  20.50
  18.95
  17.56
  16.30
  15.17
  14.15
  13.24
  12.41
  11.67
  11.01
  10.40
  9.86
  9.38
  8.94
  8.55
  8.19
  7.87
  7.58
  7.33
  7.09
  6.88
  6.70
  6.53
  6.37
  6.24
  6.11
  6.00
  5.90
  5.81
  5.73
Revenue, $m
  788
  937
  1,102
  1,282
  1,476
  1,685
  1,908
  2,145
  2,395
  2,659
  2,935
  3,225
  3,527
  3,843
  4,171
  4,513
  4,868
  5,237
  5,621
  6,020
  6,434
  6,865
  7,313
  7,779
  8,264
  8,769
  9,295
  9,844
  10,416
  11,013
Variable operating expenses, $m
  736
  872
  1,021
  1,185
  1,361
  1,551
  1,753
  1,968
  2,195
  2,435
  2,665
  2,928
  3,202
  3,489
  3,787
  4,097
  4,420
  4,755
  5,103
  5,465
  5,841
  6,232
  6,639
  7,062
  7,503
  7,961
  8,439
  8,937
  9,457
  9,999
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
  736
  872
  1,021
  1,185
  1,361
  1,551
  1,753
  1,968
  2,195
  2,435
  2,665
  2,928
  3,202
  3,489
  3,787
  4,097
  4,420
  4,755
  5,103
  5,465
  5,841
  6,232
  6,639
  7,062
  7,503
  7,961
  8,439
  8,937
  9,457
  9,999
Operating income, $m
  52
  65
  81
  97
  115
  134
  155
  177
  200
  224
  270
  297
  325
  354
  384
  416
  448
  482
  518
  554
  593
  632
  674
  717
  761
  808
  856
  907
  959
  1,014
EBITDA, $m
  77
  92
  108
  126
  145
  165
  187
  210
  235
  261
  288
  316
  346
  377
  409
  443
  478
  514
  552
  591
  631
  674
  718
  763
  811
  861
  912
  966
  1,022
  1,081
Interest expense (income), $m
  1
  3
  5
  7
  9
  12
  15
  17
  20
  24
  27
  31
  34
  38
  42
  47
  51
  56
  60
  65
  71
  76
  82
  87
  94
  100
  106
  113
  120
  128
  136
Earnings before tax, $m
  48
  60
  73
  88
  103
  120
  137
  156
  176
  197
  240
  263
  287
  312
  338
  365
  393
  422
  452
  484
  517
  551
  586
  623
  661
  701
  743
  786
  832
  879
Tax expense, $m
  13
  16
  20
  24
  28
  32
  37
  42
  48
  53
  65
  71
  77
  84
  91
  98
  106
  114
  122
  131
  139
  149
  158
  168
  179
  189
  201
  212
  225
  237
Net income, $m
  35
  44
  53
  64
  75
  87
  100
  114
  129
  144
  175
  192
  209
  228
  246
  266
  287
  308
  330
  353
  377
  402
  428
  455
  483
  512
  542
  574
  607
  642

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
  521
  620
  729
  848
  976
  1,114
  1,262
  1,418
  1,584
  1,758
  1,941
  2,133
  2,333
  2,541
  2,759
  2,985
  3,220
  3,464
  3,717
  3,981
  4,255
  4,540
  4,837
  5,145
  5,466
  5,800
  6,148
  6,511
  6,889
  7,284
Adjusted assets (=assets-cash), $m
  521
  620
  729
  848
  976
  1,114
  1,262
  1,418
  1,584
  1,758
  1,941
  2,133
  2,333
  2,541
  2,759
  2,985
  3,220
  3,464
  3,717
  3,981
  4,255
  4,540
  4,837
  5,145
  5,466
  5,800
  6,148
  6,511
  6,889
  7,284
Revenue / Adjusted assets
  1.512
  1.511
  1.512
  1.512
  1.512
  1.513
  1.512
  1.513
  1.512
  1.513
  1.512
  1.512
  1.512
  1.512
  1.512
  1.512
  1.512
  1.512
  1.512
  1.512
  1.512
  1.512
  1.512
  1.512
  1.512
  1.512
  1.512
  1.512
  1.512
  1.512
Average production assets, $m
  143
  170
  199
  232
  267
  305
  345
  388
  434
  481
  531
  584
  638
  696
  755
  817
  881
  948
  1,017
  1,090
  1,165
  1,243
  1,324
  1,408
  1,496
  1,587
  1,682
  1,782
  1,885
  1,993
Working capital, $m
  53
  63
  74
  86
  99
  113
  128
  144
  160
  178
  197
  216
  236
  257
  279
  302
  326
  351
  377
  403
  431
  460
  490
  521
  554
  588
  623
  660
  698
  738
Total debt, $m
  97
  134
  175
  220
  269
  321
  377
  437
  500
  566
  635
  707
  783
  862
  945
  1,030
  1,119
  1,212
  1,308
  1,408
  1,512
  1,620
  1,732
  1,849
  1,971
  2,097
  2,229
  2,367
  2,510
  2,660
Total liabilities, $m
  198
  235
  276
  321
  370
  422
  478
  538
  600
  666
  736
  808
  884
  963
  1,046
  1,131
  1,220
  1,313
  1,409
  1,509
  1,613
  1,721
  1,833
  1,950
  2,071
  2,198
  2,330
  2,468
  2,611
  2,761
Total equity, $m
  324
  385
  453
  526
  606
  692
  784
  881
  984
  1,092
  1,206
  1,324
  1,449
  1,578
  1,713
  1,853
  1,999
  2,151
  2,309
  2,472
  2,643
  2,819
  3,003
  3,195
  3,394
  3,602
  3,818
  4,043
  4,278
  4,523
Total liabilities and equity, $m
  522
  620
  729
  847
  976
  1,114
  1,262
  1,419
  1,584
  1,758
  1,942
  2,132
  2,333
  2,541
  2,759
  2,984
  3,219
  3,464
  3,718
  3,981
  4,256
  4,540
  4,836
  5,145
  5,465
  5,800
  6,148
  6,511
  6,889
  7,284
Debt-to-equity ratio
  0.300
  0.350
  0.390
  0.420
  0.440
  0.460
  0.480
  0.500
  0.510
  0.520
  0.530
  0.530
  0.540
  0.550
  0.550
  0.560
  0.560
  0.560
  0.570
  0.570
  0.570
  0.570
  0.580
  0.580
  0.580
  0.580
  0.580
  0.590
  0.590
  0.590
Adjusted equity ratio
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  35
  44
  53
  64
  75
  87
  100
  114
  129
  144
  175
  192
  209
  228
  246
  266
  287
  308
  330
  353
  377
  402
  428
  455
  483
  512
  542
  574
  607
  642
Depreciation, amort., depletion, $m
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  18
  19
  21
  23
  25
  27
  29
  32
  34
  36
  39
  41
  44
  47
  50
  53
  56
  59
  63
  66
Funds from operations, $m
  61
  71
  81
  93
  105
  119
  133
  148
  164
  181
  193
  211
  231
  251
  272
  293
  316
  340
  364
  390
  416
  443
  472
  502
  533
  565
  598
  633
  670
  708
Change in working capital, $m
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
Cash from operations, $m
  52
  61
  70
  81
  92
  105
  118
  132
  147
  163
  174
  192
  210
  230
  250
  271
  292
  315
  338
  363
  388
  415
  442
  470
  500
  531
  563
  597
  632
  668
Maintenance CAPEX, $m
  -4
  -5
  -6
  -7
  -8
  -9
  -10
  -12
  -13
  -14
  -16
  -18
  -19
  -21
  -23
  -25
  -27
  -29
  -32
  -34
  -36
  -39
  -41
  -44
  -47
  -50
  -53
  -56
  -59
  -63
New CAPEX, $m
  -24
  -27
  -30
  -33
  -35
  -38
  -40
  -43
  -45
  -48
  -50
  -52
  -55
  -57
  -59
  -62
  -64
  -67
  -69
  -72
  -75
  -78
  -81
  -84
  -88
  -91
  -95
  -99
  -104
  -108
Cash from investing activities, $m
  -28
  -32
  -36
  -40
  -43
  -47
  -50
  -55
  -58
  -62
  -66
  -70
  -74
  -78
  -82
  -87
  -91
  -96
  -101
  -106
  -111
  -117
  -122
  -128
  -135
  -141
  -148
  -155
  -163
  -171
Free cash flow, $m
  24
  29
  35
  41
  49
  58
  67
  78
  89
  101
  108
  122
  136
  151
  167
  184
  201
  219
  237
  257
  277
  298
  319
  342
  365
  390
  415
  441
  469
  497
Issuance/(repayment) of debt, $m
  34
  37
  41
  45
  49
  52
  56
  59
  63
  66
  69
  73
  76
  79
  82
  86
  89
  93
  96
  100
  104
  108
  112
  117
  122
  127
  132
  138
  143
  150
Issuance/(repurchase) of shares, $m
  20
  17
  14
  10
  5
  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  
  54
  54
  55
  55
  54
  52
  56
  59
  63
  66
  69
  73
  76
  79
  82
  86
  89
  93
  96
  100
  104
  108
  112
  117
  122
  127
  132
  138
  143
  150
Total cash flow (excl. dividends), $m
  77
  84
  90
  96
  103
  110
  123
  137
  152
  167
  177
  194
  212
  230
  249
  269
  290
  311
  334
  357
  381
  406
  432
  459
  487
  516
  547
  579
  612
  647
Retained Cash Flow (-), $m
  -55
  -61
  -68
  -74
  -80
  -86
  -92
  -97
  -103
  -108
  -114
  -119
  -124
  -130
  -135
  -140
  -146
  -152
  -158
  -164
  -170
  -177
  -184
  -191
  -199
  -207
  -216
  -225
  -235
  -245
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
  22
  22
  22
  23
  23
  24
  32
  40
  49
  59
  64
  75
  88
  101
  114
  129
  144
  160
  176
  193
  211
  229
  248
  267
  288
  309
  331
  354
  377
  402
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
  21
  20
  20
  19
  18
  18
  21
  25
  28
  31
  30
  32
  33
  34
  34
  33
  31
  29
  27
  25
  22
  19
  16
  14
  11
  9
  7
  5
  4
  3
Current shareholders' claim on cash, %
  96.3
  93.7
  92.0
  90.9
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5

Resources Connection, Inc. is a multinational consulting firm. The Company's operating entities primarily provide services under the name Resources Global Professionals (RGP). The Company provides consulting and business initiative support services to its global client base in the areas of accounting; finance; corporate governance, risk and compliance (GRC) management; corporate advisory, strategic communications and restructuring; information management; human capital; supply chain management, and legal and regulatory. The Company provides its services and solutions to a client base in a range of industries. Its finance and accounting services encompass accounting operations, financial reporting, internal controls, financial analyses and business transactions. It offers a range of technology solutions, which include enterprise resource planning systems; strategic front-of-the-house systems; human resources (HR) information systems, and supply chain management systems, among others.

FINANCIAL RATIOS  of  Resources Connection, Inc. (RECN)

Valuation Ratios
P/E Ratio 25.5
Price to Sales 0.8
Price to Book 2
Price to Tangible Book
Price to Cash Flow 17.3
Price to Free Cash Flow 21.1
Growth Rates
Sales Growth Rate -2.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 150%
Cap. Spend. - 3 Yr. Gr. Rate 4.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 20.2%
Total Debt to Equity 20.2%
Interest Coverage 35
Management Effectiveness
Return On Assets 5%
Ret/ On Assets - 3 Yr. Avg. 6.3%
Return On Total Capital 6%
Ret/ On T. Cap. - 3 Yr. Avg. 7.7%
Return On Equity 6.5%
Return On Equity - 3 Yr. Avg. 7.8%
Asset Turnover 1.5
Profitability Ratios
Gross Margin 37.9%
Gross Margin - 3 Yr. Avg. 38.4%
EBITDA Margin 6.5%
EBITDA Margin - 3 Yr. Avg. 8.4%
Operating Margin 5.8%
Oper. Margin - 3 Yr. Avg. 7.8%
Pre-Tax Margin 5.8%
Pre-Tax Margin - 3 Yr. Avg. 7.8%
Net Profit Margin 3.3%
Net Profit Margin - 3 Yr. Avg. 4.3%
Effective Tax Rate 44.1%
Eff/ Tax Rate - 3 Yr. Avg. 44.2%
Payout Ratio 73.7%

RECN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RECN stock intrinsic value calculation we used $654 million for the last fiscal year's total revenue generated by Resources Connection, Inc.. The default revenue input number comes from 0001 income statement of Resources Connection, 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 RECN stock valuation model: a) initial revenue growth rate of 20.5% 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 RECN is calculated based on our internal credit rating of Resources Connection, 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 Resources Connection, 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 RECN stock the variable cost ratio is equal to 94%.

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 RECN 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 Resources Connection, Inc..

Corporate tax rate of 27% is the nominal tax rate for Resources Connection, 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 RECN 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 RECN are equal to 18.1%.

Life of production assets of 33.4 years is the average useful life of capital assets used in Resources Connection, 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 RECN is equal to 6.7%. 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 - $268.825 million for Resources Connection, 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 31.725 million for Resources Connection, 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 Resources Connection, Inc. at the current share price and the inputted number of shares is $0.5 billion.

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