Intrinsic value of Sprouts Farmers Market, Inc. - SFM

Previous Close

$18.76

  Intrinsic Value

$24.89

stock screener

  Rating & Target

buy

+33%

Previous close

$18.76

 
Intrinsic value

$24.89

 
Up/down potential

+33%

 
Rating

buy

We calculate the intrinsic value of SFM 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 2.3

 

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, %
  11.00
  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
Revenue, $m
  5,780
  6,381
  7,010
  7,667
  8,352
  9,066
  9,808
  10,580
  11,382
  12,216
  13,082
  13,983
  14,919
  15,892
  16,905
  17,959
  19,057
  20,201
  21,392
  22,635
  23,932
  25,286
  26,700
  28,177
  29,721
  31,335
  33,023
  34,789
  36,638
  38,573
Variable operating expenses, $m
  5,496
  6,062
  6,654
  7,273
  7,917
  8,589
  9,288
  10,014
  10,769
  11,554
  12,313
  13,161
  14,042
  14,958
  15,911
  16,903
  17,936
  19,012
  20,134
  21,304
  22,525
  23,799
  25,130
  26,520
  27,973
  29,492
  31,081
  32,743
  34,483
  36,305
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
  5,496
  6,062
  6,654
  7,273
  7,917
  8,589
  9,288
  10,014
  10,769
  11,554
  12,313
  13,161
  14,042
  14,958
  15,911
  16,903
  17,936
  19,012
  20,134
  21,304
  22,525
  23,799
  25,130
  26,520
  27,973
  29,492
  31,081
  32,743
  34,483
  36,305
Operating income, $m
  284
  319
  356
  395
  435
  477
  521
  566
  613
  662
  769
  822
  877
  935
  994
  1,056
  1,121
  1,188
  1,258
  1,331
  1,408
  1,487
  1,570
  1,657
  1,748
  1,843
  1,942
  2,046
  2,155
  2,269
EBITDA, $m
  436
  481
  529
  578
  630
  684
  740
  798
  858
  921
  987
  1,055
  1,125
  1,199
  1,275
  1,355
  1,437
  1,524
  1,613
  1,707
  1,805
  1,907
  2,014
  2,125
  2,242
  2,363
  2,491
  2,624
  2,763
  2,909
Interest expense (income), $m
  15
  31
  38
  44
  52
  59
  67
  75
  83
  92
  101
  110
  120
  130
  141
  152
  163
  175
  187
  200
  214
  228
  242
  257
  273
  290
  307
  325
  344
  364
  385
Earnings before tax, $m
  252
  281
  311
  343
  376
  410
  446
  483
  521
  561
  659
  702
  747
  794
  843
  893
  946
  1,001
  1,058
  1,118
  1,180
  1,245
  1,313
  1,384
  1,458
  1,536
  1,617
  1,702
  1,790
  1,883
Tax expense, $m
  68
  76
  84
  93
  102
  111
  120
  130
  141
  152
  178
  190
  202
  214
  228
  241
  255
  270
  286
  302
  319
  336
  354
  374
  394
  415
  437
  459
  483
  509
Net income, $m
  184
  205
  227
  250
  274
  299
  325
  352
  381
  410
  481
  513
  546
  580
  615
  652
  691
  731
  772
  816
  861
  909
  958
  1,010
  1,064
  1,121
  1,180
  1,242
  1,307
  1,375

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
  1,860
  2,053
  2,255
  2,467
  2,687
  2,917
  3,156
  3,404
  3,662
  3,931
  4,209
  4,499
  4,800
  5,113
  5,439
  5,778
  6,132
  6,500
  6,883
  7,283
  7,700
  8,136
  8,591
  9,066
  9,563
  10,082
  10,625
  11,193
  11,788
  12,411
Adjusted assets (=assets-cash), $m
  1,860
  2,053
  2,255
  2,467
  2,687
  2,917
  3,156
  3,404
  3,662
  3,931
  4,209
  4,499
  4,800
  5,113
  5,439
  5,778
  6,132
  6,500
  6,883
  7,283
  7,700
  8,136
  8,591
  9,066
  9,563
  10,082
  10,625
  11,193
  11,788
  12,411
Revenue / Adjusted assets
  3.108
  3.108
  3.109
  3.108
  3.108
  3.108
  3.108
  3.108
  3.108
  3.108
  3.108
  3.108
  3.108
  3.108
  3.108
  3.108
  3.108
  3.108
  3.108
  3.108
  3.108
  3.108
  3.108
  3.108
  3.108
  3.108
  3.108
  3.108
  3.108
  3.108
Average production assets, $m
  1,133
  1,251
  1,374
  1,503
  1,637
  1,777
  1,922
  2,074
  2,231
  2,394
  2,564
  2,741
  2,924
  3,115
  3,313
  3,520
  3,735
  3,959
  4,193
  4,437
  4,691
  4,956
  5,233
  5,523
  5,825
  6,142
  6,472
  6,819
  7,181
  7,560
Working capital, $m
  35
  38
  42
  46
  50
  54
  59
  63
  68
  73
  78
  84
  90
  95
  101
  108
  114
  121
  128
  136
  144
  152
  160
  169
  178
  188
  198
  209
  220
  231
Total debt, $m
  699
  824
  955
  1,092
  1,235
  1,384
  1,539
  1,700
  1,867
  2,041
  2,221
  2,409
  2,604
  2,807
  3,018
  3,238
  3,467
  3,705
  3,954
  4,213
  4,483
  4,766
  5,060
  5,368
  5,690
  6,027
  6,379
  6,747
  7,132
  7,536
Total liabilities, $m
  1,205
  1,330
  1,462
  1,599
  1,741
  1,890
  2,045
  2,206
  2,373
  2,547
  2,728
  2,915
  3,111
  3,313
  3,525
  3,744
  3,973
  4,212
  4,460
  4,719
  4,990
  5,272
  5,567
  5,875
  6,197
  6,533
  6,885
  7,253
  7,639
  8,042
Total equity, $m
  655
  723
  794
  868
  946
  1,027
  1,111
  1,198
  1,289
  1,384
  1,482
  1,584
  1,690
  1,800
  1,915
  2,034
  2,158
  2,288
  2,423
  2,564
  2,710
  2,864
  3,024
  3,191
  3,366
  3,549
  3,740
  3,940
  4,149
  4,369
Total liabilities and equity, $m
  1,860
  2,053
  2,256
  2,467
  2,687
  2,917
  3,156
  3,404
  3,662
  3,931
  4,210
  4,499
  4,801
  5,113
  5,440
  5,778
  6,131
  6,500
  6,883
  7,283
  7,700
  8,136
  8,591
  9,066
  9,563
  10,082
  10,625
  11,193
  11,788
  12,411
Debt-to-equity ratio
  1.070
  1.140
  1.200
  1.260
  1.310
  1.350
  1.390
  1.420
  1.450
  1.470
  1.500
  1.520
  1.540
  1.560
  1.580
  1.590
  1.610
  1.620
  1.630
  1.640
  1.650
  1.660
  1.670
  1.680
  1.690
  1.700
  1.710
  1.710
  1.720
  1.730
Adjusted equity ratio
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  184
  205
  227
  250
  274
  299
  325
  352
  381
  410
  481
  513
  546
  580
  615
  652
  691
  731
  772
  816
  861
  909
  958
  1,010
  1,064
  1,121
  1,180
  1,242
  1,307
  1,375
Depreciation, amort., depletion, $m
  152
  162
  173
  184
  195
  207
  219
  232
  245
  259
  217
  232
  248
  264
  281
  298
  317
  336
  355
  376
  398
  420
  443
  468
  494
  520
  549
  578
  609
  641
Funds from operations, $m
  336
  368
  400
  434
  469
  506
  545
  585
  626
  669
  699
  745
  793
  844
  896
  950
  1,007
  1,066
  1,128
  1,192
  1,259
  1,329
  1,402
  1,478
  1,558
  1,641
  1,729
  1,820
  1,916
  2,016
Change in working capital, $m
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
Cash from operations, $m
  333
  364
  396
  430
  465
  502
  540
  580
  621
  664
  693
  740
  788
  838
  890
  944
  1,000
  1,059
  1,121
  1,184
  1,251
  1,321
  1,393
  1,469
  1,549
  1,632
  1,719
  1,809
  1,904
  2,004
Maintenance CAPEX, $m
  -87
  -96
  -106
  -116
  -127
  -139
  -151
  -163
  -176
  -189
  -203
  -217
  -232
  -248
  -264
  -281
  -298
  -317
  -336
  -355
  -376
  -398
  -420
  -443
  -468
  -494
  -520
  -549
  -578
  -609
New CAPEX, $m
  -111
  -118
  -123
  -129
  -134
  -140
  -146
  -151
  -157
  -163
  -170
  -176
  -183
  -191
  -199
  -207
  -215
  -224
  -234
  -244
  -254
  -265
  -277
  -289
  -303
  -316
  -331
  -346
  -362
  -379
Cash from investing activities, $m
  -198
  -214
  -229
  -245
  -261
  -279
  -297
  -314
  -333
  -352
  -373
  -393
  -415
  -439
  -463
  -488
  -513
  -541
  -570
  -599
  -630
  -663
  -697
  -732
  -771
  -810
  -851
  -895
  -940
  -988
Free cash flow, $m
  135
  150
  167
  185
  204
  223
  244
  266
  288
  312
  321
  346
  372
  399
  427
  457
  487
  519
  551
  586
  621
  658
  696
  736
  778
  822
  867
  915
  964
  1,016
Issuance/(repayment) of debt, $m
  119
  125
  131
  137
  143
  149
  155
  161
  167
  174
  181
  188
  195
  203
  211
  220
  229
  238
  249
  259
  270
  282
  295
  308
  322
  337
  352
  368
  385
  404
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  
  119
  125
  131
  137
  143
  149
  155
  161
  167
  174
  181
  188
  195
  203
  211
  220
  229
  238
  249
  259
  270
  282
  295
  308
  322
  337
  352
  368
  385
  404
Total cash flow (excl. dividends), $m
  254
  275
  298
  322
  347
  372
  399
  427
  455
  485
  501
  534
  567
  602
  639
  676
  716
  757
  800
  845
  891
  940
  991
  1,044
  1,100
  1,158
  1,219
  1,283
  1,350
  1,420
Retained Cash Flow (-), $m
  -65
  -68
  -71
  -74
  -78
  -81
  -84
  -87
  -91
  -94
  -98
  -102
  -106
  -110
  -115
  -119
  -124
  -130
  -135
  -141
  -147
  -153
  -160
  -167
  -175
  -183
  -191
  -200
  -209
  -219
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
  188
  207
  227
  247
  269
  291
  315
  339
  365
  391
  403
  432
  461
  492
  524
  557
  592
  628
  665
  704
  744
  787
  831
  877
  925
  975
  1,028
  1,083
  1,140
  1,200
Discount rate, %
  5.50
  5.78
  6.06
  6.37
  6.69
  7.02
  7.37
  7.74
  8.13
  8.53
  8.96
  9.41
  9.88
  10.37
  10.89
  11.43
  12.01
  12.61
  13.24
  13.90
  14.59
  15.32
  16.09
  16.89
  17.74
  18.62
  19.56
  20.53
  21.56
  22.64
PV of cash for distribution, $m
  179
  185
  190
  193
  195
  194
  191
  187
  180
  172
  157
  147
  136
  124
  111
  99
  86
  74
  63
  52
  43
  34
  27
  21
  16
  11
  8
  6
  4
  3
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

Sprouts Farmers Market, Inc. is a food retailer. The Company operates as a grocery store that offers fresh, natural and organic food that includes fresh produce, bulk foods, vitamins and supplements, packaged groceries, meat and seafood, deli, baked goods, dairy products, frozen foods, body care and natural household items catering to consumers' interest in health and wellness. As of February 23, 2017, the Company operated 256 stores in 14 states. The Company categorizes the varieties of products it sells as perishable and non-perishable. The perishable product categories include produce, meat, seafood, deli and bakery. Its non-perishable product categories include grocery, vitamins and supplements, bulk items, dairy and dairy alternatives, frozen foods, beer and wine, and natural health and body care.

FINANCIAL RATIOS  of  Sprouts Farmers Market, Inc. (SFM)

Valuation Ratios
P/E Ratio 21.2
Price to Sales 0.7
Price to Book 3.9
Price to Tangible Book
Price to Cash Flow 10.4
Price to Free Cash Flow 36.5
Growth Rates
Sales Growth Rate 12.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 38.9%
Cap. Spend. - 3 Yr. Gr. Rate 15.9%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 55.4%
Total Debt to Equity 57.2%
Interest Coverage 14
Management Effectiveness
Return On Assets 9.3%
Ret/ On Assets - 3 Yr. Avg. 9.7%
Return On Total Capital 11.4%
Ret/ On T. Cap. - 3 Yr. Avg. 11.2%
Return On Equity 16.6%
Return On Equity - 3 Yr. Avg. 17.2%
Asset Turnover 2.8
Profitability Ratios
Gross Margin 29.2%
Gross Margin - 3 Yr. Avg. 29.4%
EBITDA Margin 7.3%
EBITDA Margin - 3 Yr. Avg. 8%
Operating Margin 5.3%
Oper. Margin - 3 Yr. Avg. 6%
Pre-Tax Margin 4.9%
Pre-Tax Margin - 3 Yr. Avg. 5.5%
Net Profit Margin 3.1%
Net Profit Margin - 3 Yr. Avg. 3.4%
Effective Tax Rate 37.7%
Eff/ Tax Rate - 3 Yr. Avg. 37.7%
Payout Ratio 0%

SFM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SFM stock intrinsic value calculation we used $5207 million for the last fiscal year's total revenue generated by Sprouts Farmers Market, Inc.. The default revenue input number comes from 0001 income statement of Sprouts Farmers Market, 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 SFM stock valuation model: a) initial revenue growth rate of 11% 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 5.5%, whose default value for SFM is calculated based on our internal credit rating of Sprouts Farmers Market, 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 Sprouts Farmers Market, 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 SFM stock the variable cost ratio is equal to 95.2%.

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 SFM 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 Sprouts Farmers Market, Inc..

Corporate tax rate of 27% is the nominal tax rate for Sprouts Farmers Market, 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 SFM 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 SFM are equal to 19.6%.

Life of production assets of 11.8 years is the average useful life of capital assets used in Sprouts Farmers Market, 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 SFM is equal to 0.6%. 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 - $589.196 million for Sprouts Farmers Market, 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 124.163 million for Sprouts Farmers Market, 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 Sprouts Farmers Market, Inc. at the current share price and the inputted number of shares is $2.3 billion.

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