Intrinsic value of Standard Motor Products - SMP

Previous Close

$50.64

  Intrinsic Value

$39.00

stock screener

  Rating & Target

sell

-23%

Previous close

$50.64

 
Intrinsic value

$39.00

 
Up/down potential

-23%

 
Rating

sell

We calculate the intrinsic value of SMP 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 1.2

 

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, %
  5.50
  5.45
  5.40
  5.36
  5.33
  5.30
  5.27
  5.24
  5.22
  5.19
  5.17
  5.16
  5.14
  5.13
  5.11
  5.10
  5.09
  5.08
  5.08
  5.07
  5.06
  5.05
  5.05
  5.04
  5.04
  5.04
  5.03
  5.03
  5.03
  5.02
Revenue, $m
  1,177
  1,242
  1,309
  1,379
  1,452
  1,529
  1,610
  1,694
  1,782
  1,875
  1,972
  2,074
  2,180
  2,292
  2,409
  2,532
  2,661
  2,797
  2,938
  3,087
  3,244
  3,408
  3,580
  3,760
  3,950
  4,149
  4,357
  4,577
  4,807
  5,048
Variable operating expenses, $m
  1,068
  1,126
  1,186
  1,249
  1,315
  1,384
  1,456
  1,532
  1,611
  1,694
  1,769
  1,860
  1,956
  2,056
  2,161
  2,271
  2,387
  2,508
  2,635
  2,769
  2,909
  3,056
  3,211
  3,372
  3,542
  3,721
  3,908
  4,105
  4,311
  4,528
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
  1,068
  1,126
  1,186
  1,249
  1,315
  1,384
  1,456
  1,532
  1,611
  1,694
  1,769
  1,860
  1,956
  2,056
  2,161
  2,271
  2,387
  2,508
  2,635
  2,769
  2,909
  3,056
  3,211
  3,372
  3,542
  3,721
  3,908
  4,105
  4,311
  4,528
Operating income, $m
  109
  116
  123
  130
  137
  145
  154
  162
  171
  181
  203
  214
  225
  236
  248
  261
  274
  288
  303
  318
  334
  351
  369
  388
  407
  428
  449
  472
  496
  521
EBITDA, $m
  144
  151
  160
  168
  177
  187
  196
  207
  217
  229
  241
  253
  266
  280
  294
  309
  325
  341
  359
  377
  396
  416
  437
  459
  482
  506
  532
  558
  586
  616
Interest expense (income), $m
  1
  3
  4
  5
  6
  8
  9
  10
  11
  13
  14
  16
  17
  19
  21
  22
  24
  26
  28
  31
  33
  35
  38
  40
  43
  46
  49
  52
  56
  59
  63
Earnings before tax, $m
  106
  111
  117
  123
  130
  136
  144
  151
  159
  167
  188
  197
  206
  216
  226
  237
  248
  260
  272
  286
  299
  314
  329
  345
  361
  379
  397
  416
  436
  458
Tax expense, $m
  29
  30
  32
  33
  35
  37
  39
  41
  43
  45
  51
  53
  56
  58
  61
  64
  67
  70
  74
  77
  81
  85
  89
  93
  98
  102
  107
  112
  118
  124
Net income, $m
  77
  81
  86
  90
  95
  100
  105
  110
  116
  122
  137
  144
  150
  158
  165
  173
  181
  190
  199
  208
  218
  229
  240
  252
  264
  276
  290
  304
  319
  334

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
  831
  876
  924
  973
  1,025
  1,079
  1,136
  1,196
  1,258
  1,323
  1,392
  1,463
  1,539
  1,618
  1,700
  1,787
  1,878
  1,974
  2,074
  2,179
  2,289
  2,405
  2,526
  2,654
  2,787
  2,928
  3,075
  3,230
  3,392
  3,562
Adjusted assets (=assets-cash), $m
  831
  876
  924
  973
  1,025
  1,079
  1,136
  1,196
  1,258
  1,323
  1,392
  1,463
  1,539
  1,618
  1,700
  1,787
  1,878
  1,974
  2,074
  2,179
  2,289
  2,405
  2,526
  2,654
  2,787
  2,928
  3,075
  3,230
  3,392
  3,562
Revenue / Adjusted assets
  1.416
  1.418
  1.417
  1.417
  1.417
  1.417
  1.417
  1.416
  1.417
  1.417
  1.417
  1.418
  1.417
  1.417
  1.417
  1.417
  1.417
  1.417
  1.417
  1.417
  1.417
  1.417
  1.417
  1.417
  1.417
  1.417
  1.417
  1.417
  1.417
  1.417
Average production assets, $m
  223
  235
  247
  261
  274
  289
  304
  320
  337
  354
  373
  392
  412
  433
  455
  479
  503
  529
  555
  584
  613
  644
  677
  711
  746
  784
  824
  865
  908
  954
Working capital, $m
  263
  277
  292
  307
  324
  341
  359
  378
  397
  418
  440
  462
  486
  511
  537
  565
  593
  624
  655
  688
  723
  760
  798
  839
  881
  925
  972
  1,021
  1,072
  1,126
Total debt, $m
  81
  100
  120
  141
  163
  186
  210
  235
  262
  289
  318
  349
  381
  414
  449
  486
  525
  565
  607
  652
  699
  748
  799
  853
  910
  970
  1,032
  1,098
  1,166
  1,239
Total liabilities, $m
  352
  372
  392
  413
  435
  458
  482
  507
  533
  561
  590
  621
  652
  686
  721
  758
  796
  837
  879
  924
  971
  1,020
  1,071
  1,125
  1,182
  1,241
  1,304
  1,369
  1,438
  1,510
Total equity, $m
  479
  505
  532
  560
  590
  622
  654
  689
  725
  762
  802
  843
  886
  932
  979
  1,029
  1,082
  1,137
  1,194
  1,255
  1,319
  1,385
  1,455
  1,528
  1,606
  1,686
  1,771
  1,860
  1,954
  2,052
Total liabilities and equity, $m
  831
  877
  924
  973
  1,025
  1,080
  1,136
  1,196
  1,258
  1,323
  1,392
  1,464
  1,538
  1,618
  1,700
  1,787
  1,878
  1,974
  2,073
  2,179
  2,290
  2,405
  2,526
  2,653
  2,788
  2,927
  3,075
  3,229
  3,392
  3,562
Debt-to-equity ratio
  0.170
  0.200
  0.230
  0.250
  0.280
  0.300
  0.320
  0.340
  0.360
  0.380
  0.400
  0.410
  0.430
  0.440
  0.460
  0.470
  0.480
  0.500
  0.510
  0.520
  0.530
  0.540
  0.550
  0.560
  0.570
  0.570
  0.580
  0.590
  0.600
  0.600
Adjusted equity ratio
  0.576
  0.576
  0.576
  0.576
  0.576
  0.576
  0.576
  0.576
  0.576
  0.576
  0.576
  0.576
  0.576
  0.576
  0.576
  0.576
  0.576
  0.576
  0.576
  0.576
  0.576
  0.576
  0.576
  0.576
  0.576
  0.576
  0.576
  0.576
  0.576
  0.576

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  77
  81
  86
  90
  95
  100
  105
  110
  116
  122
  137
  144
  150
  158
  165
  173
  181
  190
  199
  208
  218
  229
  240
  252
  264
  276
  290
  304
  319
  334
Depreciation, amort., depletion, $m
  35
  36
  37
  38
  40
  41
  43
  44
  46
  48
  37
  39
  41
  43
  46
  48
  50
  53
  56
  58
  61
  64
  68
  71
  75
  78
  82
  86
  91
  95
Funds from operations, $m
  112
  117
  123
  128
  135
  141
  148
  155
  162
  170
  174
  183
  192
  201
  211
  221
  231
  243
  254
  267
  280
  293
  308
  323
  338
  355
  372
  390
  409
  429
Change in working capital, $m
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  32
  33
  35
  37
  38
  40
  42
  44
  47
  49
  51
  54
Cash from operations, $m
  98
  103
  108
  113
  118
  124
  130
  136
  142
  149
  153
  160
  168
  176
  184
  193
  203
  213
  223
  234
  245
  257
  269
  282
  296
  310
  326
  341
  358
  376
Maintenance CAPEX, $m
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -46
  -48
  -50
  -53
  -56
  -58
  -61
  -64
  -68
  -71
  -75
  -78
  -82
  -86
  -91
New CAPEX, $m
  -11
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -38
  -39
  -41
  -43
  -46
Cash from investing activities, $m
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -49
  -51
  -53
  -56
  -59
  -62
  -65
  -69
  -72
  -76
  -80
  -84
  -88
  -92
  -97
  -102
  -107
  -113
  -117
  -123
  -129
  -137
Free cash flow, $m
  66
  68
  72
  75
  78
  82
  86
  89
  94
  98
  99
  104
  108
  114
  119
  125
  130
  137
  143
  150
  157
  164
  172
  181
  189
  198
  208
  218
  228
  239
Issuance/(repayment) of debt, $m
  19
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  33
  35
  37
  39
  40
  42
  45
  47
  49
  51
  54
  57
  60
  62
  66
  69
  72
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  
  19
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  33
  35
  37
  39
  40
  42
  45
  47
  49
  51
  54
  57
  60
  62
  66
  69
  72
Total cash flow (excl. dividends), $m
  84
  88
  92
  96
  100
  105
  110
  115
  120
  125
  128
  134
  140
  147
  154
  161
  169
  177
  186
  194
  204
  214
  224
  235
  246
  258
  270
  283
  297
  311
Retained Cash Flow (-), $m
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -34
  -36
  -38
  -39
  -41
  -43
  -45
  -48
  -50
  -52
  -55
  -58
  -61
  -64
  -67
  -70
  -73
  -77
  -81
  -85
  -89
  -94
  -98
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
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  31
  32
  34
Cash available for distribution, $m
  60
  62
  64
  67
  70
  74
  77
  80
  84
  88
  88
  93
  97
  102
  106
  111
  117
  122
  128
  134
  140
  147
  154
  161
  169
  177
  185
  194
  203
  213
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
  57
  56
  56
  55
  55
  53
  52
  50
  48
  46
  42
  40
  37
  34
  31
  28
  25
  22
  20
  17
  15
  12
  10
  8
  7
  5
  4
  3
  2
  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
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Standard Motor Products, Inc. is an independent manufacturer and distributor of replacement parts for motor vehicles in the automotive aftermarket industry with a complementary focus on heavy duty, industrial equipment and the original equipment service market. The Company's segments include Engine Management Segment and Temperature Control Segment. The Engine Management Segment manufactures and remanufactures ignition and emission parts, ignition wires, battery cables, fuel system parts and sensors for vehicle systems. The Temperature Control Segment manufactures and remanufactures air conditioning compressors, air conditioning and heating parts, engine cooling system parts, power window accessories and windshield washer system parts. The Company sells its products primarily to warehouse distributors, large retail chains, original equipment manufacturers and original equipment service part operations in the United States, Canada, Latin America and Europe.

FINANCIAL RATIOS  of  Standard Motor Products (SMP)

Valuation Ratios
P/E Ratio 19.3
Price to Sales 1.1
Price to Book 2.6
Price to Tangible Book
Price to Cash Flow 11.8
Price to Free Cash Flow 15
Growth Rates
Sales Growth Rate 8.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 16.7%
Cap. Spend. - 3 Yr. Gr. Rate 13.8%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 12.5%
Interest Coverage 100
Management Effectiveness
Return On Assets 8.4%
Ret/ On Assets - 3 Yr. Avg. 7.3%
Return On Total Capital 12.8%
Ret/ On T. Cap. - 3 Yr. Avg. 11.4%
Return On Equity 14.4%
Return On Equity - 3 Yr. Avg. 12.8%
Asset Turnover 1.5
Profitability Ratios
Gross Margin 30.4%
Gross Margin - 3 Yr. Avg. 29.6%
EBITDA Margin 11.3%
EBITDA Margin - 3 Yr. Avg. 10.4%
Operating Margin 9.3%
Oper. Margin - 3 Yr. Avg. 8.6%
Pre-Tax Margin 9.4%
Pre-Tax Margin - 3 Yr. Avg. 8.4%
Net Profit Margin 5.7%
Net Profit Margin - 3 Yr. Avg. 4.9%
Effective Tax Rate 37.4%
Eff/ Tax Rate - 3 Yr. Avg. 36%
Payout Ratio 25%

SMP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SMP stock intrinsic value calculation we used $1116 million for the last fiscal year's total revenue generated by Standard Motor Products. The default revenue input number comes from 2017 income statement of Standard Motor Products. 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 SMP stock valuation model: a) initial revenue growth rate of 5.5% 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 SMP is calculated based on our internal credit rating of Standard Motor Products, 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 Standard Motor Products.
    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 SMP stock the variable cost ratio is equal to 90.8%.

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 SMP 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 Standard Motor Products.

Corporate tax rate of 27% is the nominal tax rate for Standard Motor Products. 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 SMP stock is equal to 0.7%.

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 SMP are equal to 18.9%.

Life of production assets of 10 years is the average useful life of capital assets used in Standard Motor Products 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 SMP is equal to 22.3%. 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 - $454 million for Standard Motor Products - 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 23 million for Standard Motor Products 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 Standard Motor Products at the current share price and the inputted number of shares is $1.2 billion.

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COMPANY NEWS

▶ Standard Motor Products: 2Q Earnings Snapshot   [Jul-26-18 08:44AM  Associated Press]
▶ Standard Motor Products: 1Q Earnings Snapshot   [May-03-18 08:50AM  Associated Press]
▶ /C O R R E C T I O N -- Standard Motor Products, Inc./   [May-02-18 10:09AM  PR Newswire]
▶ Standard Motor Products posts 4Q loss   [08:55AM  Associated Press]
▶ BWD Automotive Releases 324 New Part Numbers   [Dec-21-17 08:30AM  PR Newswire]
▶ New Strong Sell Stocks for November 7th   [Nov-07-17 08:38AM  Zacks]
▶ Standard Motor Products posts 3Q profit   [Oct-26-17 09:11AM  Associated Press]
▶ Pres Trump set to unveil new tax plan   [09:11AM  Yahoo Finance]
▶ Yahoo Finance Live: Market Movers - Sep 27th, 2017   [07:20AM  Yahoo Finance Video]
▶ BWD Automotive Releases 332 New Part Numbers   [Aug-24-17 08:30AM  PR Newswire]
▶ Standard Motor Products posts 2Q profit   [Jul-31-17 11:02PM  Associated Press]
▶ Profit From The Aging Population Of Cars   [Jul-11-17 07:53PM  Forbes]
▶ BWD Automotive Releases 109 New Part Numbers   [Jun-29-17 08:30AM  PR Newswire]
▶ BWD Automotive Releases 87 New Part Numbers   [Jun-05-17 08:29AM  PR Newswire]
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