Intrinsic value of Container Store (The) - TCS

Previous Close

$6.55

  Intrinsic Value

$11.35

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  Rating & Target

str. buy

+73%

Previous close

$6.55

 
Intrinsic value

$11.35

 
Up/down potential

+73%

 
Rating

str. buy

We calculate the intrinsic value of TCS 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 0.3

 

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, %
  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
  836
  856
  878
  902
  930
  960
  992
  1,028
  1,066
  1,107
  1,151
  1,197
  1,247
  1,300
  1,356
  1,415
  1,478
  1,545
  1,615
  1,689
  1,767
  1,850
  1,937
  2,029
  2,125
  2,227
  2,334
  2,447
  2,565
  2,690
Variable operating expenses, $m
  265
  270
  276
  283
  290
  298
  306
  316
  326
  337
  305
  318
  331
  345
  360
  375
  392
  410
  428
  448
  469
  491
  514
  538
  564
  591
  619
  649
  681
  714
Fixed operating expenses, $m
  541
  553
  565
  577
  590
  603
  616
  630
  643
  658
  672
  687
  702
  717
  733
  749
  766
  783
  800
  817
  835
  854
  873
  892
  911
  931
  952
  973
  994
  1,016
Total operating expenses, $m
  806
  823
  841
  860
  880
  901
  922
  946
  969
  995
  977
  1,005
  1,033
  1,062
  1,093
  1,124
  1,158
  1,193
  1,228
  1,265
  1,304
  1,345
  1,387
  1,430
  1,475
  1,522
  1,571
  1,622
  1,675
  1,730
Operating income, $m
  31
  33
  37
  43
  50
  59
  70
  82
  96
  112
  173
  193
  214
  238
  263
  290
  320
  352
  387
  424
  463
  505
  551
  599
  650
  705
  763
  825
  890
  960
EBITDA, $m
  98
  101
  105
  112
  120
  130
  142
  155
  170
  187
  206
  227
  250
  275
  302
  331
  363
  397
  433
  472
  514
  559
  606
  657
  711
  769
  830
  895
  964
  1,037
Interest expense (income), $m
  15
  16
  16
  17
  18
  18
  19
  20
  21
  23
  24
  25
  27
  28
  30
  32
  34
  36
  38
  40
  42
  45
  48
  50
  53
  56
  60
  63
  67
  70
  74
Earnings before tax, $m
  15
  17
  20
  25
  32
  40
  49
  61
  74
  88
  148
  166
  186
  207
  231
  257
  284
  314
  347
  381
  418
  458
  500
  545
  594
  645
  700
  758
  820
  886
Tax expense, $m
  4
  4
  5
  7
  9
  11
  13
  16
  20
  24
  40
  45
  50
  56
  62
  69
  77
  85
  94
  103
  113
  124
  135
  147
  160
  174
  189
  205
  221
  239
Net income, $m
  11
  12
  15
  18
  23
  29
  36
  44
  54
  65
  108
  121
  136
  151
  169
  187
  208
  230
  253
  278
  305
  334
  365
  398
  433
  471
  511
  553
  599
  647

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
  765
  782
  802
  825
  850
  877
  907
  939
  974
  1,012
  1,052
  1,094
  1,140
  1,188
  1,239
  1,294
  1,351
  1,412
  1,476
  1,544
  1,616
  1,691
  1,771
  1,854
  1,943
  2,036
  2,134
  2,236
  2,345
  2,459
Adjusted assets (=assets-cash), $m
  765
  782
  802
  825
  850
  877
  907
  939
  974
  1,012
  1,052
  1,094
  1,140
  1,188
  1,239
  1,294
  1,351
  1,412
  1,476
  1,544
  1,616
  1,691
  1,771
  1,854
  1,943
  2,036
  2,134
  2,236
  2,345
  2,459
Revenue / Adjusted assets
  1.093
  1.095
  1.095
  1.093
  1.094
  1.095
  1.094
  1.095
  1.094
  1.094
  1.094
  1.094
  1.094
  1.094
  1.094
  1.094
  1.094
  1.094
  1.094
  1.094
  1.093
  1.094
  1.094
  1.094
  1.094
  1.094
  1.094
  1.094
  1.094
  1.094
Average production assets, $m
  385
  394
  404
  415
  428
  441
  456
  473
  490
  509
  529
  551
  574
  598
  624
  651
  680
  711
  743
  777
  813
  851
  891
  933
  978
  1,024
  1,074
  1,125
  1,180
  1,237
Working capital, $m
  28
  28
  29
  30
  31
  32
  33
  34
  35
  37
  38
  40
  41
  43
  45
  47
  49
  51
  53
  56
  58
  61
  64
  67
  70
  73
  77
  81
  85
  89
Total debt, $m
  295
  307
  320
  335
  352
  370
  390
  412
  435
  460
  487
  516
  546
  578
  612
  649
  687
  728
  771
  816
  864
  914
  967
  1,023
  1,082
  1,144
  1,210
  1,278
  1,351
  1,427
Total liabilities, $m
  511
  522
  536
  551
  568
  586
  606
  628
  651
  676
  703
  731
  761
  794
  828
  864
  903
  943
  986
  1,031
  1,079
  1,130
  1,183
  1,239
  1,298
  1,360
  1,425
  1,494
  1,566
  1,642
Total equity, $m
  254
  260
  266
  274
  282
  291
  301
  312
  323
  336
  349
  363
  378
  394
  411
  429
  449
  469
  490
  513
  536
  561
  588
  616
  645
  676
  708
  743
  778
  816
Total liabilities and equity, $m
  765
  782
  802
  825
  850
  877
  907
  940
  974
  1,012
  1,052
  1,094
  1,139
  1,188
  1,239
  1,293
  1,352
  1,412
  1,476
  1,544
  1,615
  1,691
  1,771
  1,855
  1,943
  2,036
  2,133
  2,237
  2,344
  2,458
Debt-to-equity ratio
  1.160
  1.180
  1.200
  1.230
  1.250
  1.270
  1.300
  1.320
  1.350
  1.370
  1.390
  1.420
  1.440
  1.470
  1.490
  1.510
  1.530
  1.550
  1.570
  1.590
  1.610
  1.630
  1.650
  1.660
  1.680
  1.690
  1.710
  1.720
  1.740
  1.750
Adjusted equity ratio
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  11
  12
  15
  18
  23
  29
  36
  44
  54
  65
  108
  121
  136
  151
  169
  187
  208
  230
  253
  278
  305
  334
  365
  398
  433
  471
  511
  553
  599
  647
Depreciation, amort., depletion, $m
  67
  68
  68
  69
  70
  71
  72
  73
  74
  75
  33
  34
  36
  37
  39
  41
  42
  44
  46
  49
  51
  53
  56
  58
  61
  64
  67
  70
  74
  77
Funds from operations, $m
  78
  80
  83
  87
  93
  100
  108
  117
  128
  140
  141
  156
  171
  189
  208
  228
  250
  274
  299
  327
  356
  387
  421
  457
  495
  535
  578
  624
  672
  724
Change in working capital, $m
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
Cash from operations, $m
  78
  79
  82
  87
  92
  99
  107
  116
  126
  138
  140
  154
  170
  187
  206
  226
  248
  272
  297
  324
  354
  385
  418
  453
  491
  532
  574
  620
  668
  720
Maintenance CAPEX, $m
  -24
  -24
  -25
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -32
  -33
  -34
  -36
  -37
  -39
  -41
  -42
  -44
  -46
  -49
  -51
  -53
  -56
  -58
  -61
  -64
  -67
  -70
  -74
New CAPEX, $m
  -7
  -9
  -10
  -11
  -13
  -14
  -15
  -16
  -18
  -19
  -20
  -21
  -23
  -24
  -26
  -27
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -47
  -49
  -52
  -55
  -57
Cash from investing activities, $m
  -31
  -33
  -35
  -36
  -39
  -41
  -43
  -45
  -48
  -50
  -52
  -54
  -57
  -60
  -63
  -66
  -70
  -73
  -76
  -80
  -85
  -89
  -93
  -98
  -102
  -108
  -113
  -119
  -125
  -131
Free cash flow, $m
  47
  46
  48
  50
  54
  58
  64
  71
  79
  89
  88
  99
  113
  127
  143
  160
  178
  199
  220
  244
  269
  296
  325
  356
  389
  424
  461
  501
  544
  589
Issuance/(repayment) of debt, $m
  10
  12
  13
  15
  17
  18
  20
  22
  23
  25
  27
  29
  30
  32
  34
  36
  38
  41
  43
  45
  48
  50
  53
  56
  59
  62
  65
  69
  72
  76
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  
  10
  12
  13
  15
  17
  18
  20
  22
  23
  25
  27
  29
  30
  32
  34
  36
  38
  41
  43
  45
  48
  50
  53
  56
  59
  62
  65
  69
  72
  76
Total cash flow (excl. dividends), $m
  57
  58
  61
  65
  70
  77
  84
  93
  103
  114
  114
  128
  143
  159
  177
  196
  217
  239
  263
  289
  317
  346
  378
  412
  448
  486
  527
  570
  616
  665
Retained Cash Flow (-), $m
  -5
  -6
  -7
  -7
  -8
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -36
  -38
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
  52
  52
  54
  58
  62
  67
  74
  82
  91
  101
  101
  114
  128
  143
  160
  178
  198
  219
  242
  267
  293
  321
  351
  384
  418
  455
  494
  536
  580
  627
Discount rate, %
  8.20
  8.61
  9.04
  9.49
  9.97
  10.47
  10.99
  11.54
  12.12
  12.72
  13.36
  14.02
  14.73
  15.46
  16.24
  17.05
  17.90
  18.79
  19.73
  20.72
  21.76
  22.84
  23.99
  25.19
  26.45
  27.77
  29.16
  30.61
  32.15
  33.75
PV of cash for distribution, $m
  48
  44
  42
  40
  39
  37
  36
  34
  33
  31
  25
  24
  21
  19
  17
  14
  12
  10
  8
  6
  5
  3
  3
  2
  1
  1
  0
  0
  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
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The Container Store Group, Inc. is a specialty retailer of storage and organization products. The Company's segments include The Container Store (TCS), Elfa and Corporate/Other. The Company's TCS segment consists of its retail stores, Website and call center, as well as its installation and organizational services business. The Company's Elfa segment includes the manufacturing business that produces the elfa brand products that are sold domestically, exclusively through the TCS segment, as well as throughout Europe. Its Swedish subsidiary, Elfa International AB (Elfa), designs and manufactures component-based shelving and drawer systems and made-to-measure sliding doors. It merchandises over 11,000 products in each of its stores and online. Its stores are organized into various lifestyle departments, which include Bath, Box, Closets, Collections, Containers, Custom Closets, Food Storage, Gift Packaging, Hooks, Kitchen, Laundry, Office, Shelving, Storage, Trash and Travel.

FINANCIAL RATIOS  of  Container Store (The) (TCS)

Valuation Ratios
P/E Ratio 21
Price to Sales 0.4
Price to Book 1.4
Price to Tangible Book
Price to Cash Flow 7
Price to Free Cash Flow 19.7
Growth Rates
Sales Growth Rate 3.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -37%
Cap. Spend. - 3 Yr. Gr. Rate -9.6%
Financial Strength
Quick Ratio 2
Current Ratio 0.1
LT Debt to Equity 140.5%
Total Debt to Equity 142.8%
Interest Coverage 3
Management Effectiveness
Return On Assets 3.2%
Ret/ On Assets - 3 Yr. Avg. 3.2%
Return On Total Capital 2.8%
Ret/ On T. Cap. - 3 Yr. Avg. 2.7%
Return On Equity 7%
Return On Equity - 3 Yr. Avg. 7%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 58%
Gross Margin - 3 Yr. Avg. 58.3%
EBITDA Margin 9.3%
EBITDA Margin - 3 Yr. Avg. 8.7%
Operating Margin 5%
Oper. Margin - 3 Yr. Avg. 4.7%
Pre-Tax Margin 2.9%
Pre-Tax Margin - 3 Yr. Avg. 2.6%
Net Profit Margin 1.8%
Net Profit Margin - 3 Yr. Avg. 1.8%
Effective Tax Rate 37.5%
Eff/ Tax Rate - 3 Yr. Avg. 32.8%
Payout Ratio 0%

TCS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TCS stock intrinsic value calculation we used $820 million for the last fiscal year's total revenue generated by Container Store (The). The default revenue input number comes from 0001 income statement of Container Store (The). 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 TCS 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 8.2%, whose default value for TCS is calculated based on our internal credit rating of Container Store (The), 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 Container Store (The).
    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 TCS stock the variable cost ratio is equal to 31.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $529 million in the base year in the intrinsic value calculation for TCS 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 5.5% for Container Store (The).

Corporate tax rate of 27% is the nominal tax rate for Container Store (The). 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 TCS 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 TCS are equal to 46%.

Life of production assets of 16 years is the average useful life of capital assets used in Container Store (The) 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 TCS is equal to 3.3%. 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 - $248.707 million for Container Store (The) - 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 48.913 million for Container Store (The) 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 Container Store (The) at the current share price and the inputted number of shares is $0.3 billion.

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