Intrinsic value of Ruth's Hospitality Group - RUTH

Previous Close

$23.00

  Intrinsic Value

$15.90

stock screener

  Rating & Target

sell

-31%

Previous close

$23.00

 
Intrinsic value

$15.90

 
Up/down potential

-31%

 
Rating

sell

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of RUTH 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  3.49
  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
  386
  394
  403
  413
  425
  438
  452
  467
  484
  502
  521
  542
  564
  587
  612
  638
  666
  696
  727
  760
  795
  832
  871
  912
  955
  1,000
  1,048
  1,099
  1,152
  1,208
  1,266
Variable operating expenses, $m
 
  272
  279
  286
  294
  303
  312
  323
  334
  346
  360
  371
  386
  403
  420
  438
  457
  477
  499
  521
  545
  571
  597
  625
  655
  686
  719
  753
  790
  828
  868
Fixed operating expenses, $m
 
  75
  77
  79
  81
  83
  85
  87
  89
  91
  93
  96
  98
  101
  103
  106
  108
  111
  114
  117
  120
  123
  126
  129
  132
  135
  139
  142
  146
  149
  153
Total operating expenses, $m
  338
  347
  356
  365
  375
  386
  397
  410
  423
  437
  453
  467
  484
  504
  523
  544
  565
  588
  613
  638
  665
  694
  723
  754
  787
  821
  858
  895
  936
  977
  1,021
Operating income, $m
  48
  46
  47
  49
  50
  53
  55
  58
  61
  64
  68
  74
  79
  84
  89
  95
  101
  108
  115
  122
  130
  139
  148
  158
  168
  179
  191
  203
  216
  230
  245
EBITDA, $m
  61
  60
  61
  63
  65
  67
  70
  73
  77
  81
  85
  90
  95
  100
  106
  113
  120
  127
  135
  144
  153
  162
  173
  184
  195
  207
  220
  234
  249
  264
  281
Interest expense (income), $m
  1
  2
  2
  2
  3
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  24
Earnings before tax, $m
  46
  44
  45
  46
  48
  49
  52
  54
  57
  59
  63
  69
  73
  77
  82
  87
  92
  98
  104
  111
  118
  126
  134
  143
  152
  162
  172
  183
  195
  208
  221
Tax expense, $m
  15
  12
  12
  13
  13
  13
  14
  15
  15
  16
  17
  19
  20
  21
  22
  23
  25
  26
  28
  30
  32
  34
  36
  39
  41
  44
  47
  50
  53
  56
  60
Net income, $m
  30
  32
  33
  34
  35
  36
  38
  39
  41
  43
  46
  50
  53
  56
  60
  63
  67
  72
  76
  81
  86
  92
  98
  104
  111
  118
  126
  134
  143
  152
  161

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  4
  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
  207
  207
  212
  217
  223
  230
  238
  246
  254
  264
  274
  285
  296
  309
  322
  336
  350
  366
  382
  400
  418
  438
  458
  480
  502
  526
  551
  578
  606
  635
  666
Adjusted assets (=assets-cash), $m
  203
  207
  212
  217
  223
  230
  238
  246
  254
  264
  274
  285
  296
  309
  322
  336
  350
  366
  382
  400
  418
  438
  458
  480
  502
  526
  551
  578
  606
  635
  666
Revenue / Adjusted assets
  1.901
  1.903
  1.901
  1.903
  1.906
  1.904
  1.899
  1.898
  1.906
  1.902
  1.901
  1.902
  1.905
  1.900
  1.901
  1.899
  1.903
  1.902
  1.903
  1.900
  1.902
  1.900
  1.902
  1.900
  1.902
  1.901
  1.902
  1.901
  1.901
  1.902
  1.901
Average production assets, $m
  131
  133
  136
  140
  144
  148
  153
  158
  164
  170
  176
  183
  190
  198
  207
  216
  225
  235
  246
  257
  269
  281
  294
  308
  323
  338
  354
  371
  389
  408
  428
Working capital, $m
  -45
  -50
  -51
  -52
  -54
  -56
  -57
  -59
  -61
  -64
  -66
  -69
  -72
  -75
  -78
  -81
  -85
  -88
  -92
  -97
  -101
  -106
  -111
  -116
  -121
  -127
  -133
  -140
  -146
  -153
  -161
Total debt, $m
  25
  28
  31
  34
  38
  42
  47
  52
  58
  64
  70
  77
  84
  92
  100
  109
  118
  128
  138
  149
  161
  173
  186
  200
  214
  229
  245
  262
  279
  298
  317
Total liabilities, $m
  128
  131
  134
  137
  141
  145
  150
  155
  161
  167
  173
  180
  187
  195
  203
  212
  221
  231
  241
  252
  264
  276
  289
  303
  317
  332
  348
  365
  382
  401
  420
Total equity, $m
  79
  76
  78
  80
  82
  85
  88
  91
  94
  97
  101
  105
  109
  114
  119
  124
  129
  135
  141
  148
  154
  161
  169
  177
  185
  194
  203
  213
  224
  234
  246
Total liabilities and equity, $m
  207
  207
  212
  217
  223
  230
  238
  246
  255
  264
  274
  285
  296
  309
  322
  336
  350
  366
  382
  400
  418
  437
  458
  480
  502
  526
  551
  578
  606
  635
  666
Debt-to-equity ratio
  0.316
  0.360
  0.390
  0.430
  0.460
  0.500
  0.540
  0.570
  0.610
  0.650
  0.690
  0.730
  0.770
  0.810
  0.840
  0.880
  0.910
  0.950
  0.980
  1.010
  1.040
  1.070
  1.100
  1.130
  1.150
  1.180
  1.200
  1.230
  1.250
  1.270
  1.290
Adjusted equity ratio
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  30
  32
  33
  34
  35
  36
  38
  39
  41
  43
  46
  50
  53
  56
  60
  63
  67
  72
  76
  81
  86
  92
  98
  104
  111
  118
  126
  134
  143
  152
  161
Depreciation, amort., depletion, $m
  13
  14
  14
  14
  14
  15
  15
  16
  16
  17
  17
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  33
  34
  36
Funds from operations, $m
  53
  46
  47
  48
  49
  51
  53
  55
  57
  60
  63
  66
  69
  73
  77
  82
  86
  91
  97
  103
  109
  116
  123
  130
  138
  147
  156
  165
  175
  186
  197
Change in working capital, $m
  -3
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
Cash from operations, $m
  56
  47
  48
  49
  51
  53
  55
  57
  60
  62
  65
  68
  72
  76
  80
  85
  90
  95
  101
  107
  113
  120
  128
  135
  144
  152
  162
  172
  182
  193
  205
Maintenance CAPEX, $m
  0
  -11
  -11
  -11
  -12
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -33
  -34
New CAPEX, $m
  -26
  -3
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
Cash from investing activities, $m
  -25
  -14
  -14
  -14
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -22
  -24
  -25
  -26
  -27
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
  -42
  -44
  -47
  -49
  -52
  -54
Free cash flow, $m
  31
  33
  34
  34
  35
  36
  37
  39
  41
  43
  45
  46
  49
  52
  55
  59
  62
  66
  70
  75
  80
  85
  91
  97
  103
  110
  117
  125
  133
  141
  151
Issuance/(repayment) of debt, $m
  25
  3
  3
  3
  4
  4
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  19
Issuance/(repurchase) of shares, $m
  -45
  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  
  -21
  3
  3
  3
  4
  4
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  19
Total cash flow (excl. dividends), $m
  10
  36
  37
  38
  39
  40
  42
  44
  46
  48
  51
  53
  56
  60
  63
  67
  72
  76
  81
  86
  92
  97
  104
  110
  117
  125
  133
  141
  150
  160
  170
Retained Cash Flow (-), $m
  19
  -1
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
Prev. year cash balance distribution, $m
 
  4
  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
 
  39
  35
  36
  37
  38
  39
  41
  43
  45
  47
  49
  52
  55
  59
  62
  66
  70
  75
  80
  85
  90
  96
  102
  109
  116
  124
  132
  140
  149
  159
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
 
  37
  32
  31
  30
  29
  29
  28
  27
  26
  25
  23
  22
  21
  20
  18
  17
  15
  14
  12
  11
  9
  8
  7
  6
  5
  4
  3
  2
  2
  1
Current shareholders' claim on cash, %
  100
  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

Ruth's Hospitality Group, Inc. develops and operates fine dining restaurants under the name, Ruth's Chris Steak House. The Company operates through two segments. As of December 25, 2016, the Company-owned steakhouse restaurant segment included 68 Ruth's Chris Steak House restaurants and one Ruth's Chris Steak House restaurant, and the franchise operations segment included 81 franchisee-owned Ruth's Chris Steak House restaurants. Its restaurant's menu features a selection of Prime and Choice grade steaks, and other offerings. Its menu also includes lamb chops, fish, shrimp, crab, chicken and lobster. Its Ruth's Chris restaurants offer 10 to 13 appetizer items, including Orleans-style barbequed shrimp, mushrooms stuffed with crabmeat, lobster bisque and osso bucco ravioli. It also offers a range of potatoes and vegetables as side dishes. For dessert, creme brulee, white chocolate bread pudding, cheesecake, fresh seasonal berries with sweet cream sauce and other selections are available.

FINANCIAL RATIOS  of  Ruth's Hospitality Group (RUTH)

Valuation Ratios
P/E Ratio 23.4
Price to Sales 1.8
Price to Book 8.9
Price to Tangible Book
Price to Cash Flow 12.5
Price to Free Cash Flow 23.4
Growth Rates
Sales Growth Rate 3.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 30%
Cap. Spend. - 3 Yr. Gr. Rate 11.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 31.6%
Total Debt to Equity 31.6%
Interest Coverage 47
Management Effectiveness
Return On Assets 15.1%
Ret/ On Assets - 3 Yr. Avg. 12.3%
Return On Total Capital 29.7%
Ret/ On T. Cap. - 3 Yr. Avg. 24.2%
Return On Equity 33.9%
Return On Equity - 3 Yr. Avg. 27%
Asset Turnover 1.9
Profitability Ratios
Gross Margin 27.5%
Gross Margin - 3 Yr. Avg. 26.4%
EBITDA Margin 15.5%
EBITDA Margin - 3 Yr. Avg. 15.4%
Operating Margin 12.4%
Oper. Margin - 3 Yr. Avg. 11.9%
Pre-Tax Margin 11.9%
Pre-Tax Margin - 3 Yr. Avg. 11.7%
Net Profit Margin 7.8%
Net Profit Margin - 3 Yr. Avg. 6.8%
Effective Tax Rate 32.6%
Eff/ Tax Rate - 3 Yr. Avg. 31.7%
Payout Ratio 30%

RUTH stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RUTH stock intrinsic value calculation we used $386 million for the last fiscal year's total revenue generated by Ruth's Hospitality Group. The default revenue input number comes from 2016 income statement of Ruth's Hospitality Group. 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 RUTH 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 RUTH is calculated based on our internal credit rating of Ruth's Hospitality Group, 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 Ruth's Hospitality Group.
    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 RUTH stock the variable cost ratio is equal to 69.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $73 million in the base year in the intrinsic value calculation for RUTH 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 Ruth's Hospitality Group.

Corporate tax rate of 27% is the nominal tax rate for Ruth's Hospitality Group. 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 RUTH 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 RUTH are equal to 33.8%.

Life of production assets of 11.9 years is the average useful life of capital assets used in Ruth's Hospitality Group 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 RUTH is equal to -12.7%. 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 - $79 million for Ruth's Hospitality Group - 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 32.405 million for Ruth's Hospitality Group 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 Ruth's Hospitality Group at the current share price and the inputted number of shares is $0.7 billion.

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COMPANY NEWS

▶ Ruth's Chris corporate buying six Hawaii restaurants from franchisee for $35M   [Nov-03-17 06:15PM  American City Business Journals]
▶ Ruth's Hospitality misses Street 3Q forecasts   [07:10AM  Associated Press]
▶ McDonalds Clears Key Benchmark, Hitting 80-Plus RS Rating   [Sep-29-17 03:00AM  Investor's Business Daily]
▶ Stocks With Rising Relative Strength: Wendy's   [Sep-27-17 03:00AM  Investor's Business Daily]
▶ Ruth's Hospitality beats Street 2Q forecasts   [Jul-28-17 10:21PM  Associated Press]
▶ The Restaurant Sector Q2 Earnings Cheat Sheet   [Jul-22-17 03:39PM  Benzinga]
▶ Stocks Modestly Higher; These 3 Stocks Reach Buy Zones   [May-05-17 03:01PM  Investor's Business Daily]
▶ Ruth's Hospitality tops 1Q profit forecasts   [07:09AM  Associated Press]
▶ Ruth's Hospitality Continues to Impress   [Mar-21-17 06:34PM  GuruFocus.com]
▶ Ruth's Hospitality tops 4Q profit forecasts   [07:18AM  Associated Press]
▶ Ruth's Chris Steak House expanding to Kauai   [Feb-09-17 08:00PM  at bizjournals.com]
▶ Is Harmonic Inc (HLIT) Going to Burn These Hedge Funds?   [Dec-12-16 08:39AM  at Insider Monkey]
▶ Chipotles third-quarter earnings: What to expect   [Oct-24-16 04:25PM  at MarketWatch]
Financial statements of RUTH
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