Intrinsic value of Resources Connection - RECN

Previous Close

$16.57

  Intrinsic Value

$18.94

stock screener

  Rating & Target

hold

+14%

Previous close

$16.57

 
Intrinsic value

$18.94

 
Up/down potential

+14%

 
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, %
  23.70
  21.83
  20.15
  18.63
  17.27
  16.04
  14.94
  13.94
  13.05
  12.24
  11.52
  10.87
  10.28
  9.75
  9.28
  8.85
  8.47
  8.12
  7.81
  7.53
  7.27
  7.05
  6.84
  6.66
  6.49
  6.34
  6.21
  6.09
  5.98
  5.88
Revenue, $m
  809
  986
  1,184
  1,405
  1,648
  1,912
  2,198
  2,504
  2,831
  3,178
  3,544
  3,929
  4,333
  4,755
  5,196
  5,656
  6,135
  6,633
  7,151
  7,689
  8,249
  8,830
  9,434
  10,062
  10,715
  11,395
  12,102
  12,839
  13,606
  14,407
Variable operating expenses, $m
  756
  916
  1,096
  1,297
  1,517
  1,757
  2,016
  2,294
  2,591
  2,906
  3,217
  3,567
  3,933
  4,317
  4,717
  5,135
  5,570
  6,022
  6,492
  6,981
  7,488
  8,016
  8,564
  9,134
  9,727
  10,344
  10,987
  11,655
  12,352
  13,079
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
  756
  916
  1,096
  1,297
  1,517
  1,757
  2,016
  2,294
  2,591
  2,906
  3,217
  3,567
  3,933
  4,317
  4,717
  5,135
  5,570
  6,022
  6,492
  6,981
  7,488
  8,016
  8,564
  9,134
  9,727
  10,344
  10,987
  11,655
  12,352
  13,079
Operating income, $m
  54
  70
  88
  108
  131
  155
  182
  210
  240
  272
  327
  362
  399
  438
  479
  521
  566
  611
  659
  709
  760
  814
  870
  927
  988
  1,050
  1,116
  1,183
  1,254
  1,328
EBITDA, $m
  79
  97
  116
  138
  162
  188
  216
  246
  278
  312
  348
  386
  426
  467
  510
  556
  603
  651
  702
  755
  810
  867
  927
  988
  1,052
  1,119
  1,189
  1,261
  1,336
  1,415
Interest expense (income), $m
  1
  3
  6
  8
  11
  14
  17
  20
  24
  28
  33
  38
  43
  48
  53
  59
  65
  71
  78
  84
  91
  99
  106
  114
  122
  131
  140
  149
  158
  168
  179
Earnings before tax, $m
  50
  64
  80
  98
  117
  138
  161
  185
  211
  239
  289
  320
  352
  385
  420
  456
  494
  534
  575
  617
  662
  708
  756
  805
  857
  911
  967
  1,025
  1,086
  1,149
Tax expense, $m
  14
  17
  22
  26
  32
  37
  43
  50
  57
  65
  78
  86
  95
  104
  113
  123
  133
  144
  155
  167
  179
  191
  204
  217
  231
  246
  261
  277
  293
  310
Net income, $m
  37
  47
  59
  71
  86
  101
  118
  135
  154
  174
  211
  233
  257
  281
  307
  333
  361
  390
  420
  451
  483
  517
  552
  588
  626
  665
  706
  748
  793
  839

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
  535
  652
  783
  929
  1,090
  1,265
  1,453
  1,656
  1,872
  2,102
  2,344
  2,598
  2,866
  3,145
  3,437
  3,741
  4,058
  4,387
  4,730
  5,086
  5,455
  5,840
  6,239
  6,655
  7,087
  7,536
  8,004
  8,491
  8,999
  9,528
Adjusted assets (=assets-cash), $m
  535
  652
  783
  929
  1,090
  1,265
  1,453
  1,656
  1,872
  2,102
  2,344
  2,598
  2,866
  3,145
  3,437
  3,741
  4,058
  4,387
  4,730
  5,086
  5,455
  5,840
  6,239
  6,655
  7,087
  7,536
  8,004
  8,491
  8,999
  9,528
Revenue / Adjusted assets
  1.512
  1.512
  1.512
  1.512
  1.512
  1.511
  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
  1.512
  1.512
  1.512
Average production assets, $m
  146
  178
  214
  254
  298
  346
  398
  453
  512
  575
  641
  711
  784
  861
  941
  1,024
  1,110
  1,201
  1,294
  1,392
  1,493
  1,598
  1,708
  1,821
  1,939
  2,062
  2,190
  2,324
  2,463
  2,608
Working capital, $m
  54
  66
  79
  94
  110
  128
  147
  168
  190
  213
  237
  263
  290
  319
  348
  379
  411
  444
  479
  515
  553
  592
  632
  674
  718
  763
  811
  860
  912
  965
Total debt, $m
  102
  146
  196
  251
  312
  378
  450
  527
  609
  696
  787
  884
  985
  1,091
  1,202
  1,317
  1,437
  1,562
  1,692
  1,827
  1,967
  2,112
  2,264
  2,421
  2,585
  2,755
  2,933
  3,117
  3,310
  3,510
Total liabilities, $m
  203
  247
  297
  352
  413
  479
  551
  628
  710
  796
  888
  985
  1,086
  1,192
  1,303
  1,418
  1,538
  1,663
  1,793
  1,927
  2,068
  2,213
  2,365
  2,522
  2,686
  2,856
  3,034
  3,218
  3,411
  3,611
Total equity, $m
  332
  405
  486
  577
  677
  785
  903
  1,028
  1,163
  1,305
  1,455
  1,614
  1,779
  1,953
  2,134
  2,323
  2,520
  2,724
  2,937
  3,158
  3,388
  3,627
  3,875
  4,133
  4,401
  4,680
  4,971
  5,273
  5,588
  5,917
Total liabilities and equity, $m
  535
  652
  783
  929
  1,090
  1,264
  1,454
  1,656
  1,873
  2,101
  2,343
  2,599
  2,865
  3,145
  3,437
  3,741
  4,058
  4,387
  4,730
  5,085
  5,456
  5,840
  6,240
  6,655
  7,087
  7,536
  8,005
  8,491
  8,999
  9,528
Debt-to-equity ratio
  0.310
  0.360
  0.400
  0.440
  0.460
  0.480
  0.500
  0.510
  0.520
  0.530
  0.540
  0.550
  0.550
  0.560
  0.560
  0.570
  0.570
  0.570
  0.580
  0.580
  0.580
  0.580
  0.580
  0.590
  0.590
  0.590
  0.590
  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
  37
  47
  59
  71
  86
  101
  118
  135
  154
  174
  211
  233
  257
  281
  307
  333
  361
  390
  420
  451
  483
  517
  552
  588
  626
  665
  706
  748
  793
  839
Depreciation, amort., depletion, $m
  26
  27
  28
  30
  31
  33
  34
  36
  38
  40
  21
  24
  26
  29
  31
  34
  37
  40
  43
  46
  50
  53
  57
  61
  65
  69
  73
  77
  82
  87
Funds from operations, $m
  63
  74
  87
  101
  117
  134
  152
  172
  192
  215
  232
  257
  283
  310
  338
  367
  398
  430
  463
  497
  533
  570
  608
  649
  690
  734
  779
  826
  875
  926
Change in working capital, $m
  10
  12
  13
  15
  16
  18
  19
  21
  22
  23
  25
  26
  27
  28
  30
  31
  32
  33
  35
  36
  37
  39
  40
  42
  44
  46
  47
  49
  51
  54
Cash from operations, $m
  52
  62
  73
  86
  100
  116
  133
  151
  171
  191
  208
  231
  256
  282
  308
  337
  366
  396
  428
  461
  495
  531
  568
  606
  646
  688
  731
  776
  823
  872
Maintenance CAPEX, $m
  -4
  -5
  -6
  -7
  -8
  -10
  -12
  -13
  -15
  -17
  -19
  -21
  -24
  -26
  -29
  -31
  -34
  -37
  -40
  -43
  -46
  -50
  -53
  -57
  -61
  -65
  -69
  -73
  -77
  -82
New CAPEX, $m
  -28
  -32
  -36
  -40
  -44
  -48
  -52
  -55
  -59
  -63
  -66
  -70
  -73
  -76
  -80
  -83
  -87
  -90
  -94
  -97
  -101
  -105
  -109
  -114
  -118
  -123
  -128
  -133
  -139
  -145
Cash from investing activities, $m
  -32
  -37
  -42
  -47
  -52
  -58
  -64
  -68
  -74
  -80
  -85
  -91
  -97
  -102
  -109
  -114
  -121
  -127
  -134
  -140
  -147
  -155
  -162
  -171
  -179
  -188
  -197
  -206
  -216
  -227
Free cash flow, $m
  20
  25
  32
  39
  48
  58
  70
  82
  96
  112
  122
  140
  159
  179
  200
  222
  245
  269
  294
  320
  348
  376
  405
  436
  468
  500
  535
  570
  607
  645
Issuance/(repayment) of debt, $m
  39
  44
  50
  55
  61
  66
  72
  77
  82
  87
  92
  97
  101
  106
  111
  115
  120
  125
  130
  135
  140
  146
  151
  157
  164
  170
  177
  185
  192
  201
Issuance/(repurchase) of shares, $m
  27
  26
  23
  19
  14
  8
  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  
  66
  70
  73
  74
  75
  74
  72
  77
  82
  87
  92
  97
  101
  106
  111
  115
  120
  125
  130
  135
  140
  146
  151
  157
  164
  170
  177
  185
  192
  201
Total cash flow (excl. dividends), $m
  86
  95
  104
  114
  123
  132
  141
  159
  178
  199
  214
  237
  260
  285
  310
  337
  365
  394
  424
  455
  488
  522
  557
  593
  631
  671
  712
  755
  799
  846
Retained Cash Flow (-), $m
  -64
  -73
  -82
  -91
  -100
  -109
  -117
  -126
  -134
  -142
  -150
  -158
  -166
  -174
  -181
  -189
  -197
  -205
  -213
  -221
  -230
  -239
  -248
  -258
  -268
  -279
  -291
  -303
  -315
  -329
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
  23
  23
  23
  23
  23
  24
  33
  44
  56
  64
  78
  94
  111
  129
  148
  168
  189
  211
  234
  258
  283
  309
  335
  363
  392
  421
  452
  484
  517
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
  21
  20
  19
  18
  17
  16
  21
  25
  29
  30
  33
  36
  37
  38
  38
  37
  35
  33
  30
  27
  23
  20
  17
  14
  11
  9
  7
  5
  4
Current shareholders' claim on cash, %
  95.2
  91.6
  89.0
  87.3
  86.2
  85.7
  85.7
  85.7
  85.7
  85.7
  85.7
  85.7
  85.7
  85.7
  85.7
  85.7
  85.7
  85.7
  85.7
  85.7
  85.7
  85.7
  85.7
  85.7
  85.7
  85.7
  85.7
  85.7
  85.7
  85.7

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 (RECN)

Valuation Ratios
P/E Ratio 25.9
Price to Sales 0.8
Price to Book 2.1
Price to Tangible Book
Price to Cash Flow 17.6
Price to Free Cash Flow 21.4
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 $654.129 million for the last fiscal year's total revenue generated by Resources Connection. The default revenue input number comes from 0001 income statement of Resources Connection. 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 23.7% 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, 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.
    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.

Corporate tax rate of 27% is the nominal tax rate for Resources Connection. 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 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 - 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 31.923 million for Resources Connection 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 at the current share price and the inputted number of shares is $0.5 billion.

RELATED COMPANIES Price Int.Val. Rating
PRGX PRGX Global 9.08 7.69  hold
CRAI CRA Internatio 44.82 35.58  sell
FCN FTI Consulting 67.95 73.96  hold
NCI Navigant Consu 23.71 22.26  hold
CBZ CBIZ Inc 21.17 28.87  buy
HRB H&R Block 28.17 24.73  hold
HSON Hudson Global 1.45 46.23  str.buy

COMPANY NEWS

▶ US Stocks Fall on Thursday   [Oct-04-18 04:08PM  GuruFocus.com]
▶ RGP Signs Paradigm for Parity┬« Pledge   [Aug-24-18 10:00AM  Business Wire]
▶ Is It Time To Buy Resources Connection Inc (NASDAQ:RECN)?   [Aug-17-18 01:23PM  Simply Wall St.]
▶ Why Resources Connection Stock Just Dropped 12%   [Jul-19-18 01:40PM  Motley Fool]
▶ Resources Connection: Fiscal 4Q Earnings Snapshot   [Jul-18-18 05:25PM  Associated Press]
▶ Sitrick And Company Opens Boston Office   [May-11-18 09:00AM  PR Newswire]
▶ Resources Connection beats 3Q profit forecasts   [Apr-04-18 04:17PM  Associated Press]
▶ Top Ranked Income Stocks to Buy for January 9th   [Jan-09-18 08:55AM  Zacks]
▶ Resources Connection beats Street 2Q forecasts   [Jan-03-18 04:15PM  Associated Press]
▶ Resources Connection tops 1Q revenue forecasts   [Oct-04-17 04:14PM  Associated Press]
▶ Resources Connection misses 4Q profit forecasts   [Jul-20-17 09:43PM  Associated Press]

CONTACT US       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2018. All rigths reserved.