Intrinsic value of Sturm Ruger - RGR

Previous Close

$56.20

  Intrinsic Value

$45.12

stock screener

  Rating & Target

hold

-20%

Previous close

$56.20

 
Intrinsic value

$45.12

 
Up/down potential

-20%

 
Rating

hold

We calculate the intrinsic value of RGR 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 1.0

 

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
  532
  545
  559
  574
  592
  611
  632
  654
  679
  705
  732
  762
  794
  827
  863
  901
  941
  983
  1,028
  1,075
  1,125
  1,178
  1,233
  1,291
  1,353
  1,418
  1,486
  1,558
  1,633
  1,712
Variable operating expenses, $m
  315
  322
  331
  340
  350
  362
  374
  387
  402
  417
  434
  451
  470
  490
  511
  533
  557
  582
  609
  637
  666
  697
  730
  765
  801
  839
  880
  922
  967
  1,014
Fixed operating expenses, $m
  143
  146
  149
  153
  156
  160
  163
  167
  170
  174
  178
  182
  186
  190
  194
  198
  203
  207
  212
  216
  221
  226
  231
  236
  241
  247
  252
  257
  263
  269
Total operating expenses, $m
  458
  468
  480
  493
  506
  522
  537
  554
  572
  591
  612
  633
  656
  680
  705
  731
  760
  789
  821
  853
  887
  923
  961
  1,001
  1,042
  1,086
  1,132
  1,179
  1,230
  1,283
Operating income, $m
  74
  76
  78
  82
  85
  90
  95
  100
  107
  113
  121
  129
  138
  148
  158
  169
  181
  194
  208
  222
  238
  255
  272
  291
  311
  332
  354
  378
  403
  430
EBITDA, $m
  85
  87
  90
  93
  97
  102
  107
  113
  120
  127
  136
  144
  154
  164
  175
  187
  200
  214
  228
  244
  260
  278
  297
  317
  338
  360
  384
  409
  436
  464
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
Earnings before tax, $m
  74
  76
  78
  81
  85
  89
  94
  100
  106
  113
  120
  128
  137
  146
  156
  167
  179
  192
  205
  220
  235
  251
  269
  287
  306
  327
  349
  373
  397
  423
Tax expense, $m
  20
  21
  21
  22
  23
  24
  25
  27
  29
  30
  32
  35
  37
  39
  42
  45
  48
  52
  55
  59
  63
  68
  72
  77
  83
  88
  94
  101
  107
  114
Net income, $m
  54
  55
  57
  59
  62
  65
  69
  73
  77
  82
  88
  93
  100
  107
  114
  122
  131
  140
  150
  160
  171
  183
  196
  209
  224
  239
  255
  272
  290
  309

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
  279
  285
  293
  301
  310
  320
  331
  343
  355
  369
  384
  399
  416
  433
  452
  472
  493
  515
  539
  563
  589
  617
  646
  677
  709
  743
  778
  816
  855
  897
Adjusted assets (=assets-cash), $m
  279
  285
  293
  301
  310
  320
  331
  343
  355
  369
  384
  399
  416
  433
  452
  472
  493
  515
  539
  563
  589
  617
  646
  677
  709
  743
  778
  816
  855
  897
Revenue / Adjusted assets
  1.907
  1.912
  1.908
  1.907
  1.910
  1.909
  1.909
  1.907
  1.913
  1.911
  1.906
  1.910
  1.909
  1.910
  1.909
  1.909
  1.909
  1.909
  1.907
  1.909
  1.910
  1.909
  1.909
  1.907
  1.908
  1.908
  1.910
  1.909
  1.910
  1.909
Average production assets, $m
  106
  108
  111
  114
  118
  122
  126
  130
  135
  140
  146
  152
  158
  165
  172
  179
  187
  196
  205
  214
  224
  234
  245
  257
  269
  282
  296
  310
  325
  341
Working capital, $m
  7
  8
  8
  8
  8
  9
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
Total debt, $m
  1
  2
  4
  5
  7
  9
  11
  14
  16
  19
  22
  25
  28
  32
  35
  39
  43
  48
  52
  57
  62
  68
  74
  80
  86
  93
  100
  107
  115
  123
Total liabilities, $m
  55
  56
  58
  60
  61
  63
  66
  68
  70
  73
  76
  79
  82
  86
  90
  93
  98
  102
  107
  112
  117
  122
  128
  134
  140
  147
  154
  162
  169
  178
Total equity, $m
  224
  229
  235
  241
  249
  257
  265
  275
  285
  296
  308
  320
  333
  348
  363
  378
  395
  413
  432
  452
  473
  495
  518
  543
  568
  596
  624
  654
  686
  719
Total liabilities and equity, $m
  279
  285
  293
  301
  310
  320
  331
  343
  355
  369
  384
  399
  415
  434
  453
  471
  493
  515
  539
  564
  590
  617
  646
  677
  708
  743
  778
  816
  855
  897
Debt-to-equity ratio
  0.000
  0.010
  0.020
  0.020
  0.030
  0.040
  0.040
  0.050
  0.060
  0.060
  0.070
  0.080
  0.080
  0.090
  0.100
  0.100
  0.110
  0.120
  0.120
  0.130
  0.130
  0.140
  0.140
  0.150
  0.150
  0.160
  0.160
  0.160
  0.170
  0.170
Adjusted equity ratio
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802
  0.802

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  54
  55
  57
  59
  62
  65
  69
  73
  77
  82
  88
  93
  100
  107
  114
  122
  131
  140
  150
  160
  171
  183
  196
  209
  224
  239
  255
  272
  290
  309
Depreciation, amort., depletion, $m
  11
  11
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  16
  17
  18
  19
  20
  20
  21
  22
  23
  25
  26
  27
  28
  30
  31
  32
  34
Funds from operations, $m
  65
  66
  68
  71
  74
  77
  81
  86
  91
  96
  102
  109
  116
  123
  131
  140
  149
  160
  170
  182
  194
  207
  221
  235
  251
  267
  285
  303
  323
  343
Change in working capital, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
Cash from operations, $m
  65
  66
  68
  71
  74
  77
  81
  85
  90
  96
  102
  108
  115
  123
  131
  140
  149
  159
  170
  181
  193
  206
  220
  234
  250
  266
  284
  302
  321
  342
Maintenance CAPEX, $m
  -10
  -11
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -28
  -30
  -31
  -32
New CAPEX, $m
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
Cash from investing activities, $m
  -12
  -13
  -14
  -14
  -14
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -21
  -23
  -23
  -25
  -26
  -27
  -29
  -29
  -31
  -32
  -34
  -37
  -38
  -40
  -42
  -44
  -46
  -48
Free cash flow, $m
  52
  53
  55
  56
  59
  62
  65
  68
  73
  77
  82
  88
  94
  100
  107
  115
  123
  132
  141
  151
  162
  173
  185
  198
  212
  226
  242
  258
  275
  294
Issuance/(repayment) of debt, $m
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
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  
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
Total cash flow (excl. dividends), $m
  53
  54
  56
  58
  61
  64
  67
  71
  75
  80
  85
  91
  97
  104
  111
  119
  127
  136
  146
  156
  167
  179
  191
  204
  218
  233
  249
  266
  283
  302
Retained Cash Flow (-), $m
  -4
  -5
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -33
Prev. year cash balance distribution, $m
  11
  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
  4
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
Cash available for distribution, $m
  59
  49
  50
  51
  53
  55
  58
  61
  65
  69
  73
  78
  84
  90
  96
  103
  110
  118
  127
  136
  146
  157
  168
  180
  192
  206
  220
  235
  252
  269
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
  57
  45
  44
  42
  41
  40
  39
  38
  37
  36
  35
  33
  32
  30
  28
  26
  24
  22
  20
  17
  15
  13
  11
  9
  7
  6
  5
  4
  3
  2
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

Sturm, Ruger & Company, Inc. is engaged in the design, manufacture, and sale of firearms to domestic customers. The Company operates through two segments: firearms and castings. The firearms segment manufactures and sells rifles, pistols, and revolvers principally to a range of federally licensed, independent wholesale distributors primarily located in the United States. The castings segment manufactures and sells steel investment castings and metal injection molding (MIM) parts. The Company's design and manufacturing operations are located in the United States. The Company primarily offers products in three industry product categories: rifles, pistols, and revolvers. The Company's firearms are sold through independent wholesale distributors, principally to the commercial sporting market. The Company manufactures firearm products under the Ruger name. The Company also manufactures and sells accessories and replacement parts for its firearms.

FINANCIAL RATIOS  of  Sturm Ruger (RGR)

Valuation Ratios
P/E Ratio 12.1
Price to Sales 1.6
Price to Book 3.9
Price to Tangible Book
Price to Cash Flow 10
Price to Free Cash Flow 15
Growth Rates
Sales Growth Rate 20.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 20.7%
Cap. Spend. - 3 Yr. Gr. Rate -8.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 26.2%
Ret/ On Assets - 3 Yr. Avg. 20.9%
Return On Total Capital 35.2%
Ret/ On T. Cap. - 3 Yr. Avg. 28.9%
Return On Equity 35.2%
Return On Equity - 3 Yr. Avg. 28.9%
Asset Turnover 2
Profitability Ratios
Gross Margin 33.1%
Gross Margin - 3 Yr. Avg. 31.8%
EBITDA Margin 25.8%
EBITDA Margin - 3 Yr. Avg. 22.3%
Operating Margin 20.2%
Oper. Margin - 3 Yr. Avg. 15.8%
Pre-Tax Margin 20.5%
Pre-Tax Margin - 3 Yr. Avg. 16.1%
Net Profit Margin 13.1%
Net Profit Margin - 3 Yr. Avg. 10.5%
Effective Tax Rate 36%
Eff/ Tax Rate - 3 Yr. Avg. 34.3%
Payout Ratio 37.9%

RGR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RGR stock intrinsic value calculation we used $522 million for the last fiscal year's total revenue generated by Sturm Ruger. The default revenue input number comes from 2017 income statement of Sturm Ruger. 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 RGR 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 RGR is calculated based on our internal credit rating of Sturm Ruger, 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 Sturm Ruger.
    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 RGR stock the variable cost ratio is equal to 59.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $140 million in the base year in the intrinsic value calculation for RGR 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 Sturm Ruger.

Corporate tax rate of 27% is the nominal tax rate for Sturm Ruger. 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 RGR 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 RGR are equal to 19.9%.

Life of production assets of 10 years is the average useful life of capital assets used in Sturm Ruger 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 RGR is equal to 1.4%. 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 - $230 million for Sturm Ruger - 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 17 million for Sturm Ruger 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 Sturm Ruger at the current share price and the inputted number of shares is $1.0 billion.

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COMPANY NEWS

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▶ Sturm Ruger: 1Q Earnings Snapshot   [05:14AM  Associated Press]
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▶ At $53.65, Is Sturm Ruger & Company, Inc (NYSE:RGR) A Buy?   [Apr-03-18 07:11PM  Simply Wall St.]
▶ Is Sturm, Ruger & Company, Inc. a Buy?   [Mar-31-18 08:01PM  Motley Fool]
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