Intrinsic value of Ruth's Hospitality Group - RUTH

Previous Close

$30.25

  Intrinsic Value

$23.49

stock screener

  Rating & Target

sell

-22%

Previous close

$30.25

 
Intrinsic value

$23.49

 
Up/down potential

-22%

 
Rating

sell

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 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 0.9

 

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, %
  7.50
  7.25
  7.02
  6.82
  6.64
  6.48
  6.33
  6.20
  6.08
  5.97
  5.87
  5.78
  5.71
  5.64
  5.57
  5.51
  5.46
  5.42
  5.38
  5.34
  5.30
  5.27
  5.25
  5.22
  5.20
  5.18
  5.16
  5.15
  5.13
  5.12
Revenue, $m
  446
  478
  512
  547
  583
  621
  660
  701
  744
  788
  835
  883
  933
  986
  1,041
  1,098
  1,158
  1,221
  1,287
  1,355
  1,427
  1,502
  1,581
  1,664
  1,750
  1,841
  1,936
  2,036
  2,140
  2,250
Variable operating expenses, $m
  391
  418
  447
  477
  508
  540
  574
  609
  646
  684
  714
  756
  799
  844
  891
  940
  992
  1,045
  1,101
  1,160
  1,222
  1,286
  1,354
  1,424
  1,498
  1,576
  1,657
  1,743
  1,832
  1,926
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
  391
  418
  447
  477
  508
  540
  574
  609
  646
  684
  714
  756
  799
  844
  891
  940
  992
  1,045
  1,101
  1,160
  1,222
  1,286
  1,354
  1,424
  1,498
  1,576
  1,657
  1,743
  1,832
  1,926
Operating income, $m
  56
  60
  65
  70
  75
  81
  86
  92
  98
  105
  120
  127
  134
  142
  150
  158
  167
  176
  185
  195
  205
  216
  228
  240
  252
  265
  279
  293
  308
  324
EBITDA, $m
  84
  90
  96
  103
  109
  116
  124
  132
  140
  148
  157
  166
  175
  185
  195
  206
  217
  229
  241
  254
  268
  282
  297
  312
  328
  345
  363
  382
  401
  422
Interest expense (income), $m
  1
  3
  3
  4
  5
  6
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  23
  24
  26
  27
  29
  31
  33
  35
  37
  39
Earnings before tax, $m
  53
  57
  61
  65
  70
  74
  79
  84
  90
  95
  110
  115
  122
  128
  135
  142
  150
  157
  165
  174
  183
  192
  202
  212
  223
  234
  246
  258
  271
  285
Tax expense, $m
  14
  15
  16
  18
  19
  20
  21
  23
  24
  26
  30
  31
  33
  35
  36
  38
  40
  42
  45
  47
  49
  52
  55
  57
  60
  63
  66
  70
  73
  77
Net income, $m
  39
  41
  44
  48
  51
  54
  58
  62
  65
  69
  80
  84
  89
  94
  99
  104
  109
  115
  121
  127
  133
  140
  147
  155
  163
  171
  179
  188
  198
  208

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
  260
  279
  299
  319
  341
  363
  386
  409
  434
  460
  487
  515
  545
  576
  608
  641
  676
  713
  751
  791
  833
  877
  923
  971
  1,022
  1,075
  1,130
  1,188
  1,249
  1,313
Adjusted assets (=assets-cash), $m
  260
  279
  299
  319
  341
  363
  386
  409
  434
  460
  487
  515
  545
  576
  608
  641
  676
  713
  751
  791
  833
  877
  923
  971
  1,022
  1,075
  1,130
  1,188
  1,249
  1,313
Revenue / Adjusted assets
  1.715
  1.713
  1.712
  1.715
  1.710
  1.711
  1.710
  1.714
  1.714
  1.713
  1.715
  1.715
  1.712
  1.712
  1.712
  1.713
  1.713
  1.712
  1.714
  1.713
  1.713
  1.713
  1.713
  1.714
  1.712
  1.713
  1.713
  1.714
  1.713
  1.714
Average production assets, $m
  195
  209
  223
  238
  254
  271
  288
  306
  324
  344
  364
  385
  407
  430
  454
  479
  505
  532
  561
  591
  622
  655
  689
  725
  763
  803
  844
  888
  933
  981
Working capital, $m
  -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
  -8
  -8
  -9
  -9
Total debt, $m
  63
  76
  89
  102
  117
  132
  147
  163
  180
  197
  215
  234
  254
  275
  296
  319
  342
  367
  393
  420
  448
  477
  508
  541
  575
  610
  647
  686
  727
  770
Total liabilities, $m
  175
  188
  201
  215
  229
  244
  259
  275
  292
  309
  327
  346
  366
  387
  408
  431
  454
  479
  505
  532
  560
  589
  620
  653
  687
  722
  759
  799
  840
  883
Total equity, $m
  85
  92
  98
  105
  112
  119
  126
  134
  142
  151
  160
  169
  179
  189
  199
  210
  222
  234
  246
  260
  273
  288
  303
  319
  335
  353
  371
  390
  410
  431
Total liabilities and equity, $m
  260
  280
  299
  320
  341
  363
  385
  409
  434
  460
  487
  515
  545
  576
  607
  641
  676
  713
  751
  792
  833
  877
  923
  972
  1,022
  1,075
  1,130
  1,189
  1,250
  1,314
Debt-to-equity ratio
  0.740
  0.830
  0.910
  0.980
  1.050
  1.110
  1.160
  1.210
  1.260
  1.310
  1.350
  1.390
  1.420
  1.450
  1.490
  1.520
  1.540
  1.570
  1.590
  1.620
  1.640
  1.660
  1.680
  1.700
  1.710
  1.730
  1.750
  1.760
  1.780
  1.790
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
  39
  41
  44
  48
  51
  54
  58
  62
  65
  69
  80
  84
  89
  94
  99
  104
  109
  115
  121
  127
  133
  140
  147
  155
  163
  171
  179
  188
  198
  208
Depreciation, amort., depletion, $m
  28
  30
  31
  33
  34
  36
  37
  39
  41
  43
  36
  38
  41
  43
  45
  48
  50
  53
  56
  59
  62
  66
  69
  73
  76
  80
  84
  89
  93
  98
Funds from operations, $m
  67
  71
  76
  80
  85
  90
  95
  101
  107
  112
  116
  123
  130
  137
  144
  152
  160
  168
  177
  186
  196
  206
  216
  227
  239
  251
  264
  277
  291
  306
Change in working capital, $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 operations, $m
  67
  71
  76
  80
  85
  90
  96
  101
  107
  113
  117
  123
  130
  137
  144
  152
  160
  168
  177
  186
  196
  206
  217
  228
  239
  251
  264
  278
  292
  306
Maintenance CAPEX, $m
  -18
  -19
  -21
  -22
  -24
  -25
  -27
  -29
  -31
  -32
  -34
  -36
  -38
  -41
  -43
  -45
  -48
  -50
  -53
  -56
  -59
  -62
  -66
  -69
  -73
  -76
  -80
  -84
  -89
  -93
New CAPEX, $m
  -14
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -34
  -36
  -38
  -40
  -41
  -43
  -46
  -48
Cash from investing activities, $m
  -32
  -33
  -36
  -37
  -40
  -41
  -44
  -47
  -50
  -51
  -54
  -57
  -60
  -64
  -67
  -70
  -74
  -77
  -82
  -86
  -90
  -95
  -100
  -105
  -111
  -116
  -121
  -127
  -135
  -141
Free cash flow, $m
  35
  38
  40
  43
  46
  48
  51
  54
  58
  61
  62
  66
  69
  73
  77
  81
  86
  90
  95
  100
  106
  111
  117
  123
  129
  136
  143
  150
  157
  165
Issuance/(repayment) of debt, $m
  13
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  36
  37
  39
  41
  43
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  
  13
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  36
  37
  39
  41
  43
Total cash flow (excl. dividends), $m
  48
  50
  53
  56
  60
  63
  67
  70
  74
  78
  80
  84
  89
  94
  99
  104
  109
  115
  121
  127
  134
  141
  148
  155
  163
  171
  180
  189
  198
  208
Retained Cash Flow (-), $m
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
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
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  33
  34
Cash available for distribution, $m
  43
  44
  47
  50
  53
  56
  59
  63
  66
  70
  71
  75
  79
  84
  88
  93
  98
  103
  108
  114
  120
  126
  133
  139
  146
  154
  162
  170
  178
  187
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
  41
  40
  41
  41
  41
  41
  40
  39
  38
  37
  34
  32
  30
  28
  26
  24
  21
  19
  17
  14
  12
  10
  9
  7
  6
  4
  3
  3
  2
  1
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

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 30.8
Price to Sales 2.4
Price to Book 11.7
Price to Tangible Book
Price to Cash Flow 16.5
Price to Free Cash Flow 30.8
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 $415 million for the last fiscal year's total revenue generated by Ruth's Hospitality Group. The default revenue input number comes from 2017 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 7.5% 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 1.6%.

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 43.6%.

Life of production assets of 10 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 -0.4%. 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 - $80 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 30 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 $0.9 billion.

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COMPANY NEWS

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▶ Ruth's Hospitality beats 4Q profit forecasts   [Feb-21-18 07:31AM  Associated Press]
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▶ 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]
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▶ 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]
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