Intrinsic value of R.R. Donnelley & Sons Company - RRD

Previous Close

$4.48

  Intrinsic Value

$2.59

stock screener

  Rating & Target

sell

-42%

Previous close

$4.48

 
Intrinsic value

$2.59

 
Up/down potential

-42%

 
Rating

sell

We calculate the intrinsic value of RRD 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 0.3

 

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, %
  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
  6,936
  7,096
  7,278
  7,483
  7,709
  7,958
  8,229
  8,523
  8,839
  9,178
  9,541
  9,928
  10,340
  10,779
  11,244
  11,736
  12,258
  12,809
  13,392
  14,008
  14,657
  15,342
  16,063
  16,824
  17,625
  18,468
  19,356
  20,290
  21,272
  22,306
Variable operating expenses, $m
  6,727
  6,880
  7,055
  7,251
  7,469
  7,708
  7,968
  8,250
  8,554
  8,879
  9,161
  9,533
  9,929
  10,350
  10,796
  11,269
  11,770
  12,300
  12,859
  13,450
  14,073
  14,731
  15,424
  16,154
  16,923
  17,733
  18,585
  19,482
  20,426
  21,418
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
  6,727
  6,880
  7,055
  7,251
  7,469
  7,708
  7,968
  8,250
  8,554
  8,879
  9,161
  9,533
  9,929
  10,350
  10,796
  11,269
  11,770
  12,300
  12,859
  13,450
  14,073
  14,731
  15,424
  16,154
  16,923
  17,733
  18,585
  19,482
  20,426
  21,418
Operating income, $m
  209
  216
  223
  231
  240
  250
  261
  273
  285
  299
  380
  395
  412
  429
  448
  467
  488
  510
  533
  558
  583
  611
  639
  670
  702
  735
  771
  808
  847
  888
EBITDA, $m
  411
  420
  431
  443
  457
  471
  487
  505
  524
  544
  565
  588
  613
  638
  666
  695
  726
  759
  793
  830
  868
  909
  952
  997
  1,044
  1,094
  1,147
  1,202
  1,260
  1,321
Interest expense (income), $m
  273
  167
  123
  129
  136
  144
  152
  162
  172
  184
  196
  209
  223
  238
  254
  271
  289
  308
  328
  349
  371
  395
  420
  447
  474
  504
  535
  567
  601
  637
  675
Earnings before tax, $m
  42
  93
  94
  95
  97
  98
  99
  100
  101
  103
  171
  172
  174
  175
  177
  179
  180
  182
  184
  186
  188
  191
  193
  195
  198
  201
  203
  206
  210
  213
Tax expense, $m
  11
  25
  25
  26
  26
  26
  27
  27
  27
  28
  46
  47
  47
  47
  48
  48
  49
  49
  50
  50
  51
  51
  52
  53
  53
  54
  55
  56
  57
  57
Net income, $m
  31
  68
  69
  70
  70
  71
  72
  73
  74
  75
  125
  126
  127
  128
  129
  130
  132
  133
  134
  136
  137
  139
  141
  143
  144
  146
  149
  151
  153
  155

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
  3,713
  3,798
  3,896
  4,006
  4,127
  4,260
  4,405
  4,563
  4,732
  4,913
  5,108
  5,315
  5,536
  5,770
  6,019
  6,283
  6,562
  6,857
  7,169
  7,499
  7,846
  8,213
  8,599
  9,006
  9,435
  9,887
  10,362
  10,862
  11,388
  11,941
Adjusted assets (=assets-cash), $m
  3,713
  3,798
  3,896
  4,006
  4,127
  4,260
  4,405
  4,563
  4,732
  4,913
  5,108
  5,315
  5,536
  5,770
  6,019
  6,283
  6,562
  6,857
  7,169
  7,499
  7,846
  8,213
  8,599
  9,006
  9,435
  9,887
  10,362
  10,862
  11,388
  11,941
Revenue / Adjusted assets
  1.868
  1.868
  1.868
  1.868
  1.868
  1.868
  1.868
  1.868
  1.868
  1.868
  1.868
  1.868
  1.868
  1.868
  1.868
  1.868
  1.868
  1.868
  1.868
  1.868
  1.868
  1.868
  1.868
  1.868
  1.868
  1.868
  1.868
  1.868
  1.868
  1.868
Average production assets, $m
  943
  965
  990
  1,018
  1,048
  1,082
  1,119
  1,159
  1,202
  1,248
  1,298
  1,350
  1,406
  1,466
  1,529
  1,596
  1,667
  1,742
  1,821
  1,905
  1,993
  2,086
  2,185
  2,288
  2,397
  2,512
  2,632
  2,759
  2,893
  3,034
Working capital, $m
  402
  412
  422
  434
  447
  462
  477
  494
  513
  532
  553
  576
  600
  625
  652
  681
  711
  743
  777
  812
  850
  890
  932
  976
  1,022
  1,071
  1,123
  1,177
  1,234
  1,294
Total debt, $m
  1,532
  1,609
  1,697
  1,796
  1,905
  2,025
  2,156
  2,297
  2,449
  2,613
  2,787
  2,974
  3,173
  3,384
  3,608
  3,845
  4,096
  4,362
  4,643
  4,939
  5,252
  5,582
  5,930
  6,296
  6,682
  7,089
  7,516
  7,966
  8,440
  8,938
Total liabilities, $m
  3,342
  3,419
  3,506
  3,605
  3,714
  3,834
  3,965
  4,106
  4,259
  4,422
  4,597
  4,783
  4,982
  5,193
  5,417
  5,655
  5,906
  6,172
  6,452
  6,749
  7,062
  7,392
  7,739
  8,106
  8,492
  8,898
  9,326
  9,776
  10,249
  10,747
Total equity, $m
  371
  380
  390
  401
  413
  426
  441
  456
  473
  491
  511
  531
  554
  577
  602
  628
  656
  686
  717
  750
  785
  821
  860
  901
  944
  989
  1,036
  1,086
  1,139
  1,194
Total liabilities and equity, $m
  3,713
  3,799
  3,896
  4,006
  4,127
  4,260
  4,406
  4,562
  4,732
  4,913
  5,108
  5,314
  5,536
  5,770
  6,019
  6,283
  6,562
  6,858
  7,169
  7,499
  7,847
  8,213
  8,599
  9,007
  9,436
  9,887
  10,362
  10,862
  11,388
  11,941
Debt-to-equity ratio
  4.130
  4.240
  4.360
  4.480
  4.620
  4.750
  4.890
  5.030
  5.180
  5.320
  5.460
  5.600
  5.730
  5.860
  5.990
  6.120
  6.240
  6.360
  6.480
  6.590
  6.690
  6.800
  6.900
  6.990
  7.080
  7.170
  7.250
  7.330
  7.410
  7.480
Adjusted equity ratio
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  31
  68
  69
  70
  70
  71
  72
  73
  74
  75
  125
  126
  127
  128
  129
  130
  132
  133
  134
  136
  137
  139
  141
  143
  144
  146
  149
  151
  153
  155
Depreciation, amort., depletion, $m
  201
  205
  208
  212
  216
  221
  227
  232
  238
  245
  185
  193
  201
  209
  218
  228
  238
  249
  260
  272
  285
  298
  312
  327
  342
  359
  376
  394
  413
  433
Funds from operations, $m
  232
  273
  277
  282
  287
  293
  299
  305
  312
  320
  310
  319
  328
  337
  348
  358
  370
  382
  395
  408
  422
  437
  453
  469
  487
  505
  525
  545
  566
  589
Change in working capital, $m
  8
  9
  11
  12
  13
  14
  16
  17
  18
  20
  21
  22
  24
  25
  27
  29
  30
  32
  34
  36
  38
  40
  42
  44
  46
  49
  51
  54
  57
  60
Cash from operations, $m
  224
  263
  266
  270
  274
  278
  283
  288
  294
  300
  289
  296
  304
  312
  321
  330
  340
  350
  361
  372
  385
  397
  411
  425
  440
  456
  473
  491
  509
  529
Maintenance CAPEX, $m
  -132
  -135
  -138
  -141
  -145
  -150
  -155
  -160
  -166
  -172
  -178
  -185
  -193
  -201
  -209
  -218
  -228
  -238
  -249
  -260
  -272
  -285
  -298
  -312
  -327
  -342
  -359
  -376
  -394
  -413
New CAPEX, $m
  -20
  -22
  -25
  -28
  -31
  -34
  -37
  -40
  -43
  -46
  -49
  -53
  -56
  -60
  -63
  -67
  -71
  -75
  -79
  -84
  -88
  -93
  -98
  -103
  -109
  -115
  -121
  -127
  -134
  -141
Cash from investing activities, $m
  -152
  -157
  -163
  -169
  -176
  -184
  -192
  -200
  -209
  -218
  -227
  -238
  -249
  -261
  -272
  -285
  -299
  -313
  -328
  -344
  -360
  -378
  -396
  -415
  -436
  -457
  -480
  -503
  -528
  -554
Free cash flow, $m
  72
  107
  104
  101
  98
  95
  92
  89
  86
  82
  61
  58
  55
  51
  48
  44
  41
  37
  33
  28
  24
  20
  15
  10
  5
  -1
  -6
  -12
  -19
  -25
Issuance/(repayment) of debt, $m
  -559
  77
  88
  99
  109
  120
  131
  141
  152
  163
  175
  187
  199
  211
  224
  237
  251
  266
  281
  296
  313
  330
  348
  366
  386
  406
  428
  450
  473
  498
Issuance/(repurchase) of shares, $m
  601
  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  
  42
  77
  88
  99
  109
  120
  131
  141
  152
  163
  175
  187
  199
  211
  224
  237
  251
  266
  281
  296
  313
  330
  348
  366
  386
  406
  428
  450
  473
  498
Total cash flow (excl. dividends), $m
  114
  184
  192
  199
  207
  214
  222
  230
  238
  246
  236
  245
  253
  263
  272
  282
  292
  302
  313
  325
  337
  349
  363
  376
  391
  406
  421
  438
  455
  473
Retained Cash Flow (-), $m
  -631
  -9
  -10
  -11
  -12
  -13
  -15
  -16
  -17
  -18
  -19
  -21
  -22
  -23
  -25
  -26
  -28
  -30
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -48
  -50
  -53
  -55
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
  -518
  175
  182
  188
  195
  201
  208
  214
  221
  228
  217
  224
  231
  239
  247
  255
  264
  273
  282
  292
  302
  313
  324
  336
  348
  360
  374
  388
  402
  418
Discount rate, %
  13.30
  13.97
  14.66
  15.40
  16.17
  16.97
  17.82
  18.71
  19.65
  20.63
  21.66
  22.75
  23.88
  25.08
  26.33
  27.65
  29.03
  30.48
  32.01
  33.61
  35.29
  37.05
  38.91
  40.85
  42.89
  45.04
  47.29
  49.65
  52.14
  54.74
PV of cash for distribution, $m
  -457
  135
  121
  106
  92
  79
  66
  54
  44
  35
  25
  19
  14
  10
  7
  5
  3
  2
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

R.R. Donnelley & Sons Company helps organizations communicate by working to create, manage, produce, distribute and process content on behalf of its customers. The Company's segments include Variable Print, Strategic Services, International and Corporate. The Variable Print segment includes the Company's United States short-run and transactional printing operations. The Variable Print segment's primary product offerings include commercial and digital print, direct mail, labels, statement printing, forms and packaging. The Strategic Services segment includes the Company's logistics services, print management offerings and digital and creative solutions. The International segment includes the Company's non-United States printing operations in Asia, Latin America and Canada. The International segment's primary product and service offerings include magazines, catalogs, retail inserts, books, directories, direct mail, logistics services and digital and creative solutions.

FINANCIAL RATIOS  of  R.R. Donnelley & Sons Company (RRD)

Valuation Ratios
P/E Ratio -0.6
Price to Sales 0
Price to Book -3
Price to Tangible Book
Price to Cash Flow 2.5
Price to Free Cash Flow -6.7
Growth Rates
Sales Growth Rate -0.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -17.3%
Cap. Spend. - 3 Yr. Gr. Rate -4.5%
Financial Strength
Quick Ratio 81
Current Ratio 0
LT Debt to Equity -2244.3%
Total Debt to Equity -2251.9%
Interest Coverage -1
Management Effectiveness
Return On Assets -4%
Ret/ On Assets - 3 Yr. Avg. 3.9%
Return On Total Capital -18.4%
Ret/ On T. Cap. - 3 Yr. Avg. -3.9%
Return On Equity -171.9%
Return On Equity - 3 Yr. Avg. -43.1%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 20%
Gross Margin - 3 Yr. Avg. 20.3%
EBITDA Margin 2%
EBITDA Margin - 3 Yr. Avg. 7.1%
Operating Margin -4.4%
Oper. Margin - 3 Yr. Avg. 0.3%
Pre-Tax Margin -7.2%
Pre-Tax Margin - 3 Yr. Avg. -2.9%
Net Profit Margin -7.2%
Net Profit Margin - 3 Yr. Avg. -1.1%
Effective Tax Rate 2.4%
Eff/ Tax Rate - 3 Yr. Avg. -43.2%
Payout Ratio -34.9%

RRD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RRD stock intrinsic value calculation we used $6800 million for the last fiscal year's total revenue generated by R.R. Donnelley & Sons Company. The default revenue input number comes from 0001 income statement of R.R. Donnelley & Sons Company. 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 RRD 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 13.3%, whose default value for RRD is calculated based on our internal credit rating of R.R. Donnelley & Sons Company, 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 R.R. Donnelley & Sons Company.
    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 RRD stock the variable cost ratio is equal to 97%.

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 RRD 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 8% for R.R. Donnelley & Sons Company.

Corporate tax rate of 27% is the nominal tax rate for R.R. Donnelley & Sons Company. 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 RRD 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 RRD are equal to 13.6%.

Life of production assets of 7 years is the average useful life of capital assets used in R.R. Donnelley & Sons Company 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 RRD is equal to 5.8%. 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 - $-260.1 million for R.R. Donnelley & Sons Company - 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 70.444 million for R.R. Donnelley & Sons Company 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 R.R. Donnelley & Sons Company at the current share price and the inputted number of shares is $0.3 billion.

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