Intrinsic value of Schnitzer Steel Industries, Inc. - SCHN

Previous Close

$24.64

  Intrinsic Value

$134.24

stock screener

  Rating & Target

str. buy

+445%

Previous close

$24.64

 
Intrinsic value

$134.24

 
Up/down potential

+445%

 
Rating

str. buy

We calculate the intrinsic value of SCHN 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 0.7

 

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, %
  16.70
  15.53
  14.48
  13.53
  12.68
  11.91
  11.22
  10.60
  10.04
  9.53
  9.08
  8.67
  8.30
  7.97
  7.68
  7.41
  7.17
  6.95
  6.76
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
  5.76
  5.68
  5.61
  5.55
Revenue, $m
  2,760
  3,189
  3,650
  4,144
  4,669
  5,225
  5,812
  6,427
  7,072
  7,747
  8,450
  9,183
  9,945
  10,738
  11,563
  12,419
  13,310
  14,235
  15,197
  16,197
  17,237
  18,319
  19,446
  20,620
  21,844
  23,119
  24,450
  25,839
  27,289
  28,804
Variable operating expenses, $m
  2,365
  2,730
  3,123
  3,543
  3,990
  4,463
  4,961
  5,485
  6,034
  6,608
  7,189
  7,812
  8,461
  9,135
  9,837
  10,566
  11,323
  12,110
  12,928
  13,779
  14,664
  15,585
  16,544
  17,542
  18,583
  19,668
  20,800
  21,982
  23,216
  24,504
Fixed operating expenses, $m
  194
  198
  203
  207
  212
  217
  221
  226
  231
  236
  241
  247
  252
  258
  263
  269
  275
  281
  287
  294
  300
  307
  313
  320
  327
  335
  342
  349
  357
  365
Total operating expenses, $m
  2,559
  2,928
  3,326
  3,750
  4,202
  4,680
  5,182
  5,711
  6,265
  6,844
  7,430
  8,059
  8,713
  9,393
  10,100
  10,835
  11,598
  12,391
  13,215
  14,073
  14,964
  15,892
  16,857
  17,862
  18,910
  20,003
  21,142
  22,331
  23,573
  24,869
Operating income, $m
  201
  260
  325
  394
  468
  546
  629
  716
  807
  903
  1,020
  1,124
  1,232
  1,345
  1,463
  1,585
  1,712
  1,844
  1,981
  2,124
  2,273
  2,428
  2,589
  2,758
  2,933
  3,117
  3,308
  3,508
  3,716
  3,935
EBITDA, $m
  267
  334
  407
  485
  568
  657
  750
  848
  951
  1,058
  1,171
  1,288
  1,410
  1,537
  1,669
  1,806
  1,949
  2,098
  2,252
  2,413
  2,580
  2,755
  2,936
  3,126
  3,323
  3,529
  3,744
  3,969
  4,203
  4,449
Interest expense (income), $m
  7
  8
  13
  18
  25
  31
  38
  45
  53
  61
  70
  78
  88
  97
  107
  118
  129
  140
  152
  164
  177
  190
  203
  218
  232
  248
  264
  281
  298
  317
  336
Earnings before tax, $m
  193
  248
  306
  370
  437
  508
  584
  663
  746
  833
  942
  1,036
  1,135
  1,238
  1,345
  1,456
  1,572
  1,692
  1,817
  1,948
  2,083
  2,224
  2,372
  2,525
  2,685
  2,852
  3,027
  3,209
  3,400
  3,599
Tax expense, $m
  52
  67
  83
  100
  118
  137
  158
  179
  202
  225
  254
  280
  306
  334
  363
  393
  424
  457
  491
  526
  562
  601
  640
  682
  725
  770
  817
  866
  918
  972
Net income, $m
  141
  181
  224
  270
  319
  371
  426
  484
  545
  608
  687
  757
  829
  904
  982
  1,063
  1,147
  1,235
  1,327
  1,422
  1,521
  1,624
  1,731
  1,843
  1,960
  2,082
  2,210
  2,343
  2,482
  2,627

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
  1,289
  1,489
  1,705
  1,936
  2,181
  2,441
  2,714
  3,002
  3,303
  3,618
  3,947
  4,289
  4,645
  5,016
  5,401
  5,801
  6,217
  6,649
  7,098
  7,565
  8,051
  8,556
  9,083
  9,631
  10,203
  10,798
  11,420
  12,069
  12,746
  13,454
Adjusted assets (=assets-cash), $m
  1,289
  1,489
  1,705
  1,936
  2,181
  2,441
  2,714
  3,002
  3,303
  3,618
  3,947
  4,289
  4,645
  5,016
  5,401
  5,801
  6,217
  6,649
  7,098
  7,565
  8,051
  8,556
  9,083
  9,631
  10,203
  10,798
  11,420
  12,069
  12,746
  13,454
Revenue / Adjusted assets
  2.141
  2.142
  2.141
  2.140
  2.141
  2.141
  2.141
  2.141
  2.141
  2.141
  2.141
  2.141
  2.141
  2.141
  2.141
  2.141
  2.141
  2.141
  2.141
  2.141
  2.141
  2.141
  2.141
  2.141
  2.141
  2.141
  2.141
  2.141
  2.141
  2.141
Average production assets, $m
  571
  660
  756
  858
  967
  1,082
  1,203
  1,330
  1,464
  1,604
  1,749
  1,901
  2,059
  2,223
  2,393
  2,571
  2,755
  2,947
  3,146
  3,353
  3,568
  3,792
  4,025
  4,268
  4,522
  4,786
  5,061
  5,349
  5,649
  5,962
Working capital, $m
  221
  255
  292
  332
  374
  418
  465
  514
  566
  620
  676
  735
  796
  859
  925
  994
  1,065
  1,139
  1,216
  1,296
  1,379
  1,466
  1,556
  1,650
  1,747
  1,850
  1,956
  2,067
  2,183
  2,304
Total debt, $m
  180
  260
  345
  437
  534
  638
  746
  860
  980
  1,105
  1,236
  1,371
  1,513
  1,660
  1,813
  1,972
  2,137
  2,308
  2,486
  2,672
  2,865
  3,066
  3,275
  3,492
  3,719
  3,956
  4,202
  4,460
  4,729
  5,010
Total liabilities, $m
  512
  591
  677
  768
  866
  969
  1,078
  1,192
  1,311
  1,436
  1,567
  1,703
  1,844
  1,991
  2,144
  2,303
  2,468
  2,640
  2,818
  3,003
  3,196
  3,397
  3,606
  3,824
  4,050
  4,287
  4,534
  4,791
  5,060
  5,341
Total equity, $m
  777
  898
  1,028
  1,167
  1,315
  1,472
  1,637
  1,810
  1,992
  2,182
  2,380
  2,586
  2,801
  3,024
  3,257
  3,498
  3,749
  4,009
  4,280
  4,562
  4,855
  5,160
  5,477
  5,808
  6,152
  6,511
  6,886
  7,277
  7,686
  8,112
Total liabilities and equity, $m
  1,289
  1,489
  1,705
  1,935
  2,181
  2,441
  2,715
  3,002
  3,303
  3,618
  3,947
  4,289
  4,645
  5,015
  5,401
  5,801
  6,217
  6,649
  7,098
  7,565
  8,051
  8,557
  9,083
  9,632
  10,202
  10,798
  11,420
  12,068
  12,746
  13,453
Debt-to-equity ratio
  0.230
  0.290
  0.340
  0.370
  0.410
  0.430
  0.460
  0.480
  0.490
  0.510
  0.520
  0.530
  0.540
  0.550
  0.560
  0.560
  0.570
  0.580
  0.580
  0.590
  0.590
  0.590
  0.600
  0.600
  0.600
  0.610
  0.610
  0.610
  0.620
  0.620
Adjusted equity ratio
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  141
  181
  224
  270
  319
  371
  426
  484
  545
  608
  687
  757
  829
  904
  982
  1,063
  1,147
  1,235
  1,327
  1,422
  1,521
  1,624
  1,731
  1,843
  1,960
  2,082
  2,210
  2,343
  2,482
  2,627
Depreciation, amort., depletion, $m
  66
  74
  82
  91
  101
  110
  121
  132
  143
  155
  151
  164
  177
  192
  206
  222
  238
  254
  271
  289
  308
  327
  347
  368
  390
  413
  436
  461
  487
  514
Funds from operations, $m
  207
  255
  306
  361
  419
  482
  547
  616
  688
  764
  838
  920
  1,006
  1,095
  1,188
  1,285
  1,385
  1,489
  1,598
  1,711
  1,828
  1,951
  2,078
  2,211
  2,350
  2,495
  2,646
  2,804
  2,969
  3,141
Change in working capital, $m
  32
  34
  37
  40
  42
  44
  47
  49
  52
  54
  56
  59
  61
  63
  66
  69
  71
  74
  77
  80
  83
  87
  90
  94
  98
  102
  106
  111
  116
  121
Cash from operations, $m
  176
  220
  269
  321
  377
  437
  500
  567
  637
  710
  782
  862
  945
  1,032
  1,122
  1,216
  1,314
  1,415
  1,521
  1,631
  1,745
  1,864
  1,988
  2,117
  2,252
  2,393
  2,540
  2,693
  2,853
  3,020
Maintenance CAPEX, $m
  -42
  -49
  -57
  -65
  -74
  -83
  -93
  -104
  -115
  -126
  -138
  -151
  -164
  -177
  -192
  -206
  -222
  -238
  -254
  -271
  -289
  -308
  -327
  -347
  -368
  -390
  -413
  -436
  -461
  -487
New CAPEX, $m
  -82
  -89
  -96
  -102
  -109
  -115
  -121
  -127
  -134
  -140
  -146
  -152
  -158
  -164
  -171
  -177
  -184
  -192
  -199
  -207
  -215
  -224
  -233
  -243
  -253
  -264
  -275
  -287
  -300
  -314
Cash from investing activities, $m
  -124
  -138
  -153
  -167
  -183
  -198
  -214
  -231
  -249
  -266
  -284
  -303
  -322
  -341
  -363
  -383
  -406
  -430
  -453
  -478
  -504
  -532
  -560
  -590
  -621
  -654
  -688
  -723
  -761
  -801
Free cash flow, $m
  52
  83
  117
  154
  195
  239
  286
  336
  388
  444
  498
  559
  623
  690
  760
  832
  908
  986
  1,068
  1,153
  1,241
  1,333
  1,428
  1,527
  1,631
  1,739
  1,852
  1,969
  2,091
  2,219
Issuance/(repayment) of debt, $m
  73
  79
  86
  92
  97
  103
  109
  114
  120
  125
  130
  136
  141
  147
  153
  159
  165
  172
  178
  185
  193
  201
  209
  218
  227
  237
  247
  258
  269
  281
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  
  73
  79
  86
  92
  97
  103
  109
  114
  120
  125
  130
  136
  141
  147
  153
  159
  165
  172
  178
  185
  193
  201
  209
  218
  227
  237
  247
  258
  269
  281
Total cash flow (excl. dividends), $m
  125
  162
  202
  246
  292
  342
  394
  450
  508
  569
  628
  695
  765
  837
  913
  991
  1,073
  1,158
  1,246
  1,338
  1,434
  1,533
  1,637
  1,745
  1,858
  1,976
  2,098
  2,226
  2,360
  2,500
Retained Cash Flow (-), $m
  -111
  -121
  -130
  -139
  -148
  -157
  -165
  -173
  -182
  -190
  -198
  -206
  -215
  -223
  -232
  -241
  -251
  -261
  -271
  -282
  -293
  -305
  -317
  -331
  -345
  -359
  -375
  -391
  -408
  -427
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
  13
  41
  72
  107
  144
  185
  229
  276
  326
  379
  430
  489
  550
  614
  681
  750
  822
  897
  975
  1,056
  1,141
  1,228
  1,320
  1,414
  1,513
  1,616
  1,723
  1,835
  1,952
  2,074
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
  13
  38
  63
  88
  112
  134
  155
  173
  187
  199
  204
  209
  209
  206
  200
  191
  179
  165
  150
  134
  118
  102
  86
  72
  59
  47
  37
  28
  21
  16
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

Schnitzer Steel Industries, Inc. is a recycler of ferrous and nonferrous scrap metal, including end-of-life vehicles, and a manufacturer of finished steel products. The Company operates through two segments: the Auto and Metals Recycling (AMR) business and the Steel Manufacturing Business (SMB). The AMR segment collects and recycles auto bodies, rail cars, home appliances, industrial machinery, manufacturing scrap and construction and demolition scrap from bridges, buildings and other infrastructure. AMR's primary products include recycled ferrous and nonferrous scrap metal. The SMB segment produces finished steel products such as rebar, wire rod, coiled rebar, merchant bar and other specialty products using 100% recycled metal sourced from AMR. SMB's products are primarily used in nonresidential and infrastructure construction in North America. SMB operates a steel mini-mill in McMinnville, Oregon that produces finished steel products using recycled metal and other raw materials.

FINANCIAL RATIOS  of  Schnitzer Steel Industries, Inc. (SCHN)

Valuation Ratios
P/E Ratio 14.8
Price to Sales 0.4
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 6.7
Price to Free Cash Flow 12.1
Growth Rates
Sales Growth Rate 24.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 28.6%
Cap. Spend. - 3 Yr. Gr. Rate 2.9%
Financial Strength
Quick Ratio 7
Current Ratio 0
LT Debt to Equity 27%
Total Debt to Equity 27.2%
Interest Coverage 8
Management Effectiveness
Return On Assets 5.7%
Ret/ On Assets - 3 Yr. Avg. -4.1%
Return On Total Capital 6.6%
Ret/ On T. Cap. - 3 Yr. Avg. -5.8%
Return On Equity 8.7%
Return On Equity - 3 Yr. Avg. -8.4%
Asset Turnover 1.8
Profitability Ratios
Gross Margin 13.2%
Gross Margin - 3 Yr. Avg. 11.8%
EBITDA Margin 6.3%
EBITDA Margin - 3 Yr. Avg. 1%
Operating Margin 3.3%
Oper. Margin - 3 Yr. Avg. -2.5%
Pre-Tax Margin 2.9%
Pre-Tax Margin - 3 Yr. Avg. -2.9%
Net Profit Margin 2.7%
Net Profit Margin - 3 Yr. Avg. -3%
Effective Tax Rate 4.1%
Eff/ Tax Rate - 3 Yr. Avg. 3.4%
Payout Ratio 44.4%

SCHN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SCHN stock intrinsic value calculation we used $2365 million for the last fiscal year's total revenue generated by Schnitzer Steel Industries, Inc.. The default revenue input number comes from 0001 income statement of Schnitzer Steel Industries, Inc.. 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 SCHN stock valuation model: a) initial revenue growth rate of 16.7% 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 SCHN is calculated based on our internal credit rating of Schnitzer Steel Industries, Inc., 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 Schnitzer Steel Industries, Inc..
    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 SCHN stock the variable cost ratio is equal to 85.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $190 million in the base year in the intrinsic value calculation for SCHN 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 7.1% for Schnitzer Steel Industries, Inc..

Corporate tax rate of 27% is the nominal tax rate for Schnitzer Steel Industries, Inc.. 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 SCHN 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 SCHN are equal to 20.7%.

Life of production assets of 11.6 years is the average useful life of capital assets used in Schnitzer Steel Industries, Inc. 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 SCHN is equal to 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 - $666.078 million for Schnitzer Steel Industries, Inc. - 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 27.026 million for Schnitzer Steel Industries, Inc. 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 Schnitzer Steel Industries, Inc. at the current share price and the inputted number of shares is $0.7 billion.

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