Intrinsic value of Ruth's Hospitality Group - RUTH

Previous Close

$27.19

  Intrinsic Value

$31.26

stock screener

  Rating & Target

hold

+15%

Previous close

$27.19

 
Intrinsic value

$31.26

 
Up/down potential

+15%

 
Rating

hold

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

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 0.8

 

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, %
  10.40
  9.86
  9.37
  8.94
  8.54
  8.19
  7.87
  7.58
  7.32
  7.09
  6.88
  6.69
  6.53
  6.37
  6.24
  6.11
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.31
  5.28
  5.25
Revenue, $m
  458
  503
  550
  599
  651
  704
  759
  817
  877
  939
  1,004
  1,071
  1,141
  1,213
  1,289
  1,368
  1,450
  1,535
  1,625
  1,718
  1,815
  1,916
  2,022
  2,133
  2,249
  2,370
  2,497
  2,630
  2,768
  2,914
Variable operating expenses, $m
  401
  439
  480
  522
  566
  611
  659
  708
  759
  812
  859
  917
  976
  1,039
  1,103
  1,171
  1,241
  1,314
  1,391
  1,470
  1,553
  1,640
  1,731
  1,826
  1,925
  2,029
  2,137
  2,251
  2,370
  2,494
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
  401
  439
  480
  522
  566
  611
  659
  708
  759
  812
  859
  917
  976
  1,039
  1,103
  1,171
  1,241
  1,314
  1,391
  1,470
  1,553
  1,640
  1,731
  1,826
  1,925
  2,029
  2,137
  2,251
  2,370
  2,494
Operating income, $m
  57
  64
  71
  78
  85
  93
  101
  109
  118
  127
  145
  154
  164
  175
  186
  197
  209
  221
  234
  247
  261
  276
  291
  307
  324
  341
  360
  379
  399
  420
EBITDA, $m
  79
  87
  95
  104
  112
  122
  131
  141
  151
  162
  173
  185
  197
  210
  223
  236
  251
  265
  281
  297
  314
  331
  349
  369
  389
  410
  431
  454
  478
  504
Interest expense (income), $m
  1
  3
  4
  5
  6
  7
  8
  9
  10
  11
  12
  14
  15
  17
  18
  20
  21
  23
  25
  26
  28
  30
  32
  34
  37
  39
  42
  44
  47
  50
  53
Earnings before tax, $m
  55
  60
  66
  72
  78
  85
  92
  99
  106
  114
  131
  139
  148
  157
  166
  176
  186
  197
  208
  219
  231
  244
  257
  270
  285
  300
  316
  332
  349
  367
Tax expense, $m
  15
  16
  18
  19
  21
  23
  25
  27
  29
  31
  35
  38
  40
  42
  45
  47
  50
  53
  56
  59
  62
  66
  69
  73
  77
  81
  85
  90
  94
  99
Net income, $m
  40
  44
  48
  53
  57
  62
  67
  72
  78
  83
  95
  102
  108
  114
  121
  128
  136
  143
  152
  160
  169
  178
  187
  197
  208
  219
  230
  242
  255
  268

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
  267
  294
  321
  350
  380
  411
  443
  477
  512
  548
  586
  625
  665
  708
  752
  798
  846
  896
  948
  1,002
  1,059
  1,118
  1,180
  1,245
  1,312
  1,383
  1,457
  1,534
  1,615
  1,700
Adjusted assets (=assets-cash), $m
  267
  294
  321
  350
  380
  411
  443
  477
  512
  548
  586
  625
  665
  708
  752
  798
  846
  896
  948
  1,002
  1,059
  1,118
  1,180
  1,245
  1,312
  1,383
  1,457
  1,534
  1,615
  1,700
Revenue / Adjusted assets
  1.715
  1.711
  1.713
  1.711
  1.713
  1.713
  1.713
  1.713
  1.713
  1.714
  1.713
  1.714
  1.716
  1.713
  1.714
  1.714
  1.714
  1.713
  1.714
  1.715
  1.714
  1.714
  1.714
  1.713
  1.714
  1.714
  1.714
  1.714
  1.714
  1.714
Average production assets, $m
  159
  175
  191
  209
  226
  245
  264
  284
  305
  327
  349
  373
  397
  422
  449
  476
  505
  534
  565
  598
  632
  667
  704
  742
  783
  825
  869
  915
  963
  1,014
Working capital, $m
  -61
  -67
  -74
  -80
  -87
  -94
  -102
  -109
  -117
  -126
  -134
  -143
  -153
  -163
  -173
  -183
  -194
  -206
  -218
  -230
  -243
  -257
  -271
  -286
  -301
  -318
  -335
  -352
  -371
  -390
Total debt, $m
  67
  85
  103
  122
  143
  163
  185
  208
  231
  256
  281
  307
  335
  363
  393
  424
  456
  489
  524
  561
  599
  639
  680
  724
  769
  817
  866
  918
  973
  1,030
Total liabilities, $m
  180
  197
  216
  235
  255
  276
  298
  320
  344
  368
  393
  420
  447
  476
  505
  536
  568
  602
  637
  673
  712
  751
  793
  836
  882
  929
  979
  1,031
  1,085
  1,142
Total equity, $m
  88
  96
  105
  115
  125
  135
  145
  156
  168
  180
  192
  205
  218
  232
  247
  262
  277
  294
  311
  329
  347
  367
  387
  408
  430
  454
  478
  503
  530
  558
Total liabilities and equity, $m
  268
  293
  321
  350
  380
  411
  443
  476
  512
  548
  585
  625
  665
  708
  752
  798
  845
  896
  948
  1,002
  1,059
  1,118
  1,180
  1,244
  1,312
  1,383
  1,457
  1,534
  1,615
  1,700
Debt-to-equity ratio
  0.760
  0.880
  0.980
  1.070
  1.140
  1.210
  1.270
  1.330
  1.380
  1.420
  1.460
  1.500
  1.530
  1.560
  1.590
  1.620
  1.640
  1.670
  1.690
  1.710
  1.720
  1.740
  1.760
  1.770
  1.790
  1.800
  1.810
  1.830
  1.840
  1.850
Adjusted equity ratio
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  40
  44
  48
  53
  57
  62
  67
  72
  78
  83
  95
  102
  108
  114
  121
  128
  136
  143
  152
  160
  169
  178
  187
  197
  208
  219
  230
  242
  255
  268
Depreciation, amort., depletion, $m
  22
  23
  25
  26
  27
  29
  31
  32
  34
  36
  29
  31
  33
  35
  37
  39
  42
  44
  47
  49
  52
  55
  58
  61
  65
  68
  72
  76
  80
  84
Funds from operations, $m
  62
  67
  73
  79
  85
  91
  98
  104
  112
  119
  124
  132
  141
  149
  158
  168
  177
  188
  198
  209
  221
  233
  246
  259
  273
  287
  302
  318
  335
  352
Change in working capital, $m
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -19
Cash from operations, $m
  67
  73
  79
  85
  92
  98
  105
  112
  120
  127
  133
  141
  150
  159
  168
  178
  188
  199
  210
  222
  234
  247
  260
  274
  288
  303
  319
  336
  353
  371
Maintenance CAPEX, $m
  -12
  -13
  -14
  -16
  -17
  -19
  -20
  -22
  -23
  -25
  -27
  -29
  -31
  -33
  -35
  -37
  -39
  -42
  -44
  -47
  -49
  -52
  -55
  -58
  -61
  -65
  -68
  -72
  -76
  -80
New CAPEX, $m
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -32
  -34
  -35
  -37
  -39
  -40
  -42
  -44
  -46
  -48
  -51
Cash from investing activities, $m
  -27
  -29
  -30
  -33
  -35
  -38
  -39
  -42
  -44
  -47
  -49
  -52
  -55
  -58
  -61
  -64
  -68
  -72
  -75
  -79
  -83
  -87
  -92
  -97
  -101
  -107
  -112
  -118
  -124
  -131
Free cash flow, $m
  40
  44
  48
  52
  56
  61
  65
  70
  75
  80
  83
  89
  95
  101
  107
  114
  121
  128
  135
  143
  151
  159
  168
  177
  186
  196
  207
  218
  229
  241
Issuance/(repayment) of debt, $m
  17
  18
  18
  19
  20
  21
  22
  23
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  36
  38
  40
  42
  43
  45
  48
  50
  52
  54
  57
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  
  17
  18
  18
  19
  20
  21
  22
  23
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  36
  38
  40
  42
  43
  45
  48
  50
  52
  54
  57
Total cash flow (excl. dividends), $m
  57
  62
  67
  71
  77
  82
  87
  93
  99
  105
  109
  115
  122
  129
  137
  145
  153
  161
  170
  179
  189
  199
  209
  220
  232
  244
  257
  270
  284
  298
Retained Cash Flow (-), $m
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
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
  49
  53
  58
  62
  67
  72
  77
  82
  87
  93
  96
  103
  109
  116
  122
  130
  137
  145
  153
  161
  170
  179
  189
  199
  210
  221
  232
  244
  257
  270
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
  47
  49
  50
  51
  52
  52
  52
  51
  50
  49
  46
  44
  41
  39
  36
  33
  30
  27
  24
  21
  18
  15
  12
  10
  8
  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
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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 27.7
Price to Sales 2.2
Price to Book 10.5
Price to Tangible Book
Price to Cash Flow 14.8
Price to Free Cash Flow 27.7
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 $414.823 million for the last fiscal year's total revenue generated by Ruth's Hospitality Group. The default revenue input number comes from 0001 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 10.4% 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 87.7%.

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 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 5.4% 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 34.8%.

Life of production assets of 12.1 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 -13.4%. 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 - $79.504 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 29.728 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 $0.8 billion.

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COMPANY NEWS

▶ Ruth's Hospitality: 3Q Earnings Snapshot   [07:18AM  Associated Press]
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▶ Ruth's Hospitality: 2Q Earnings Snapshot   [07:11AM  Associated Press]
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▶ Ruth's Hospitality: 1Q Earnings Snapshot   [May-04-18 07:11AM  Associated Press]
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▶ Orlando Brand Madness: Round 3 ends Sunday, so vote now!   [Mar-26-18 10:13AM  American City Business Journals]
▶ Ruth's Hospitality beats 4Q profit forecasts   [Feb-21-18 07:31AM  Associated Press]
▶ Sizzling Steak Stocks To Buy Now   [Jan-25-18 12:28PM  Zacks]
▶ 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]
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