Intrinsic value of ScanSource, Inc. - SCSC

Previous Close

$38.44

  Intrinsic Value

$34.72

stock screener

  Rating & Target

hold

-10%

Previous close

$38.44

 
Intrinsic value

$34.72

 
Up/down potential

-10%

 
Rating

hold

We calculate the intrinsic value of SCSC 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 1.0

 

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
  3,923
  4,013
  4,116
  4,232
  4,360
  4,501
  4,654
  4,820
  4,999
  5,191
  5,396
  5,615
  5,848
  6,096
  6,359
  6,638
  6,933
  7,245
  7,575
  7,923
  8,290
  8,677
  9,085
  9,515
  9,968
  10,445
  10,947
  11,476
  12,031
  12,616
Variable operating expenses, $m
  3,765
  3,851
  3,949
  4,058
  4,180
  4,314
  4,459
  4,617
  4,786
  4,968
  5,119
  5,327
  5,548
  5,783
  6,033
  6,297
  6,577
  6,873
  7,186
  7,516
  7,864
  8,232
  8,619
  9,027
  9,457
  9,909
  10,386
  10,887
  11,414
  11,969
Fixed operating expenses, $m
  50
  51
  52
  53
  55
  56
  57
  58
  60
  61
  62
  64
  65
  66
  68
  69
  71
  72
  74
  76
  77
  79
  81
  83
  84
  86
  88
  90
  92
  94
Total operating expenses, $m
  3,815
  3,902
  4,001
  4,111
  4,235
  4,370
  4,516
  4,675
  4,846
  5,029
  5,181
  5,391
  5,613
  5,849
  6,101
  6,366
  6,648
  6,945
  7,260
  7,592
  7,941
  8,311
  8,700
  9,110
  9,541
  9,995
  10,474
  10,977
  11,506
  12,063
Operating income, $m
  108
  111
  115
  120
  126
  132
  138
  146
  153
  162
  215
  225
  235
  246
  258
  271
  285
  299
  315
  331
  348
  366
  385
  406
  427
  450
  474
  499
  525
  553
EBITDA, $m
  173
  177
  182
  187
  194
  200
  208
  216
  225
  235
  245
  256
  268
  281
  294
  308
  324
  340
  357
  375
  394
  415
  436
  459
  483
  508
  535
  563
  593
  624
Interest expense (income), $m
  3
  13
  15
  16
  18
  19
  21
  23
  26
  28
  31
  34
  37
  40
  44
  48
  52
  56
  60
  65
  70
  75
  81
  87
  93
  99
  106
  114
  121
  129
  138
Earnings before tax, $m
  94
  97
  99
  103
  106
  110
  115
  120
  125
  131
  181
  187
  195
  202
  211
  220
  229
  239
  250
  261
  273
  285
  299
  313
  328
  343
  360
  378
  396
  416
Tax expense, $m
  25
  26
  27
  28
  29
  30
  31
  32
  34
  35
  49
  51
  53
  55
  57
  59
  62
  65
  67
  70
  74
  77
  81
  84
  88
  93
  97
  102
  107
  112
Net income, $m
  69
  70
  73
  75
  78
  81
  84
  87
  91
  96
  132
  137
  142
  148
  154
  160
  167
  174
  182
  190
  199
  208
  218
  228
  239
  251
  263
  276
  289
  303

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
  1,984
  2,030
  2,082
  2,141
  2,206
  2,277
  2,354
  2,438
  2,529
  2,626
  2,730
  2,840
  2,958
  3,084
  3,217
  3,358
  3,507
  3,665
  3,831
  4,007
  4,193
  4,389
  4,595
  4,813
  5,042
  5,283
  5,537
  5,805
  6,086
  6,381
Adjusted assets (=assets-cash), $m
  1,984
  2,030
  2,082
  2,141
  2,206
  2,277
  2,354
  2,438
  2,529
  2,626
  2,730
  2,840
  2,958
  3,084
  3,217
  3,358
  3,507
  3,665
  3,831
  4,007
  4,193
  4,389
  4,595
  4,813
  5,042
  5,283
  5,537
  5,805
  6,086
  6,381
Revenue / Adjusted assets
  1.977
  1.977
  1.977
  1.977
  1.976
  1.977
  1.977
  1.977
  1.977
  1.977
  1.977
  1.977
  1.977
  1.977
  1.977
  1.977
  1.977
  1.977
  1.977
  1.977
  1.977
  1.977
  1.977
  1.977
  1.977
  1.977
  1.977
  1.977
  1.977
  1.977
Average production assets, $m
  255
  261
  268
  275
  283
  293
  303
  313
  325
  337
  351
  365
  380
  396
  413
  431
  451
  471
  492
  515
  539
  564
  591
  619
  648
  679
  712
  746
  782
  820
Working capital, $m
  639
  654
  671
  690
  711
  734
  759
  786
  815
  846
  880
  915
  953
  994
  1,037
  1,082
  1,130
  1,181
  1,235
  1,291
  1,351
  1,414
  1,481
  1,551
  1,625
  1,703
  1,784
  1,871
  1,961
  2,056
Total debt, $m
  272
  297
  326
  359
  395
  434
  477
  524
  574
  628
  685
  747
  812
  882
  956
  1,034
  1,117
  1,204
  1,297
  1,395
  1,498
  1,606
  1,721
  1,842
  1,969
  2,103
  2,244
  2,392
  2,548
  2,712
Total liabilities, $m
  1,101
  1,127
  1,156
  1,188
  1,224
  1,264
  1,307
  1,353
  1,403
  1,457
  1,515
  1,576
  1,642
  1,711
  1,785
  1,863
  1,946
  2,034
  2,126
  2,224
  2,327
  2,436
  2,550
  2,671
  2,798
  2,932
  3,073
  3,222
  3,378
  3,542
Total equity, $m
  883
  903
  927
  953
  981
  1,013
  1,048
  1,085
  1,125
  1,168
  1,215
  1,264
  1,316
  1,372
  1,431
  1,494
  1,561
  1,631
  1,705
  1,783
  1,866
  1,953
  2,045
  2,142
  2,244
  2,351
  2,464
  2,583
  2,708
  2,840
Total liabilities and equity, $m
  1,984
  2,030
  2,083
  2,141
  2,205
  2,277
  2,355
  2,438
  2,528
  2,625
  2,730
  2,840
  2,958
  3,083
  3,216
  3,357
  3,507
  3,665
  3,831
  4,007
  4,193
  4,389
  4,595
  4,813
  5,042
  5,283
  5,537
  5,805
  6,086
  6,382
Debt-to-equity ratio
  0.310
  0.330
  0.350
  0.380
  0.400
  0.430
  0.460
  0.480
  0.510
  0.540
  0.560
  0.590
  0.620
  0.640
  0.670
  0.690
  0.720
  0.740
  0.760
  0.780
  0.800
  0.820
  0.840
  0.860
  0.880
  0.890
  0.910
  0.930
  0.940
  0.960
Adjusted equity ratio
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  69
  70
  73
  75
  78
  81
  84
  87
  91
  96
  132
  137
  142
  148
  154
  160
  167
  174
  182
  190
  199
  208
  218
  228
  239
  251
  263
  276
  289
  303
Depreciation, amort., depletion, $m
  65
  66
  67
  67
  68
  69
  70
  71
  72
  73
  30
  31
  33
  34
  36
  37
  39
  41
  42
  44
  46
  49
  51
  53
  56
  59
  61
  64
  67
  71
Funds from operations, $m
  134
  136
  139
  142
  145
  149
  153
  158
  163
  168
  162
  168
  175
  182
  189
  197
  206
  215
  225
  235
  245
  257
  269
  282
  295
  309
  324
  340
  357
  374
Change in working capital, $m
  13
  15
  17
  19
  21
  23
  25
  27
  29
  31
  33
  36
  38
  40
  43
  45
  48
  51
  54
  57
  60
  63
  67
  70
  74
  78
  82
  86
  91
  95
Cash from operations, $m
  122
  122
  122
  123
  125
  126
  128
  131
  134
  137
  129
  133
  137
  142
  147
  152
  158
  164
  171
  178
  186
  194
  202
  211
  221
  231
  242
  254
  266
  279
Maintenance CAPEX, $m
  -21
  -22
  -22
  -23
  -24
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -36
  -37
  -39
  -41
  -42
  -44
  -46
  -49
  -51
  -53
  -56
  -59
  -61
  -64
  -67
New CAPEX, $m
  -6
  -6
  -7
  -8
  -8
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -33
  -34
  -36
  -38
Cash from investing activities, $m
  -27
  -28
  -29
  -31
  -32
  -33
  -35
  -37
  -39
  -40
  -42
  -44
  -46
  -49
  -51
  -54
  -56
  -59
  -62
  -65
  -68
  -71
  -76
  -79
  -82
  -87
  -92
  -95
  -100
  -105
Free cash flow, $m
  94
  94
  93
  93
  93
  93
  93
  94
  95
  96
  86
  88
  90
  93
  95
  98
  102
  105
  109
  113
  117
  122
  127
  133
  138
  145
  151
  158
  166
  173
Issuance/(repayment) of debt, $m
  22
  25
  29
  33
  36
  40
  43
  47
  50
  54
  58
  61
  65
  70
  74
  78
  83
  88
  93
  98
  103
  109
  115
  121
  127
  134
  141
  148
  156
  164
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  
  22
  25
  29
  33
  36
  40
  43
  47
  50
  54
  58
  61
  65
  70
  74
  78
  83
  88
  93
  98
  103
  109
  115
  121
  127
  134
  141
  148
  156
  164
Total cash flow (excl. dividends), $m
  117
  119
  122
  125
  129
  132
  136
  141
  145
  150
  144
  150
  156
  162
  169
  177
  184
  193
  201
  211
  220
  231
  242
  253
  266
  278
  292
  306
  322
  337
Retained Cash Flow (-), $m
  -17
  -20
  -23
  -26
  -29
  -32
  -35
  -37
  -40
  -43
  -46
  -49
  -52
  -56
  -59
  -63
  -66
  -70
  -74
  -78
  -83
  -87
  -92
  -97
  -102
  -107
  -113
  -119
  -125
  -132
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
  100
  99
  99
  99
  100
  101
  102
  103
  105
  107
  98
  100
  103
  106
  110
  114
  118
  122
  127
  132
  138
  144
  150
  157
  164
  171
  179
  188
  196
  206
Discount rate, %
  6.10
  6.41
  6.73
  7.06
  7.41
  7.79
  8.17
  8.58
  9.01
  9.46
  9.94
  10.43
  10.95
  11.50
  12.08
  12.68
  13.32
  13.98
  14.68
  15.41
  16.19
  16.99
  17.84
  18.74
  19.67
  20.66
  21.69
  22.77
  23.91
  25.11
PV of cash for distribution, $m
  94
  87
  81
  75
  70
  64
  59
  53
  48
  43
  34
  31
  27
  23
  20
  17
  14
  12
  9
  8
  6
  5
  3
  3
  2
  1
  1
  1
  0
  0
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

ScanSource, Inc. is a provider of technology products and solutions. The Company and its subsidiaries provide solutions for technology manufacturers and sell to resellers in technology markets, such as point-of-sale (POS) and Barcode, Networking and Security, Communications and Emerging Technologies. It operates through two segments: Worldwide Barcode & Security and Worldwide Communications & Services. The Barcode & Security distribution segment focuses on automatic identification and data capture (AIDC), POS, electronic physical security and three dimensional (3D) printing technologies. The Communications & Services distribution segment focuses on communications technologies and services. As of June 30, 2016, the Company marketed over 100,000 products from approximately 400 hardware and software vendors to approximately 35,000 reseller customers from distribution centers in Mississippi, Virginia, Florida, Mexico, Colombia, Brazil, Belgium, France, Germany and the United Kingdom.

FINANCIAL RATIOS  of  ScanSource, Inc. (SCSC)

Valuation Ratios
P/E Ratio 14.2
Price to Sales 0.3
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 10.3
Price to Free Cash Flow 11.8
Growth Rates
Sales Growth Rate 0.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 1.8%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 11.6%
Total Debt to Equity 11.6%
Interest Coverage 35
Management Effectiveness
Return On Assets 4.4%
Ret/ On Assets - 3 Yr. Avg. 4.5%
Return On Total Capital 7.7%
Ret/ On T. Cap. - 3 Yr. Avg. 7.8%
Return On Equity 8.6%
Return On Equity - 3 Yr. Avg. 8.2%
Asset Turnover 2.2
Profitability Ratios
Gross Margin 10.8%
Gross Margin - 3 Yr. Avg. 10.3%
EBITDA Margin 3.6%
EBITDA Margin - 3 Yr. Avg. 3.5%
Operating Margin 2.5%
Oper. Margin - 3 Yr. Avg. 2.8%
Pre-Tax Margin 2.9%
Pre-Tax Margin - 3 Yr. Avg. 2.9%
Net Profit Margin 1.9%
Net Profit Margin - 3 Yr. Avg. 1.9%
Effective Tax Rate 32.4%
Eff/ Tax Rate - 3 Yr. Avg. 33.6%
Payout Ratio 0%

SCSC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SCSC stock intrinsic value calculation we used $3846 million for the last fiscal year's total revenue generated by ScanSource, Inc.. The default revenue input number comes from 0001 income statement of ScanSource, 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 SCSC 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 6.1%, whose default value for SCSC is calculated based on our internal credit rating of ScanSource, 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 ScanSource, 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 SCSC stock the variable cost ratio is equal to 96%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $49 million in the base year in the intrinsic value calculation for SCSC 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 ScanSource, Inc..

Corporate tax rate of 27% is the nominal tax rate for ScanSource, 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 SCSC 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 SCSC are equal to 6.5%.

Life of production assets of 11.6 years is the average useful life of capital assets used in ScanSource, 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 SCSC is equal to 16.3%. 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 - $866.376 million for ScanSource, 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 25.702 million for ScanSource, 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 ScanSource, Inc. at the current share price and the inputted number of shares is $1.0 billion.

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