Intrinsic value of Tower International - TOWR

Previous Close

$32.65

  Intrinsic Value

$110.09

stock screener

  Rating & Target

str. buy

+237%

Previous close

$32.65

 
Intrinsic value

$110.09

 
Up/down potential

+237%

 
Rating

str. buy

We calculate the intrinsic value of TOWR 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 0.7

 

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, %
  3.90
  4.01
  4.11
  4.20
  4.28
  4.35
  4.42
  4.47
  4.53
  4.57
  4.62
  4.65
  4.69
  4.72
  4.75
  4.77
  4.80
  4.82
  4.83
  4.85
  4.87
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
Revenue, $m
  2,066
  2,148
  2,237
  2,331
  2,430
  2,536
  2,648
  2,766
  2,892
  3,024
  3,163
  3,311
  3,466
  3,630
  3,802
  3,983
  4,174
  4,376
  4,587
  4,810
  5,044
  5,290
  5,549
  5,821
  6,106
  6,407
  6,723
  7,055
  7,403
  7,770
Variable operating expenses, $m
  1,503
  1,563
  1,627
  1,696
  1,768
  1,844
  1,926
  2,011
  2,102
  2,198
  2,293
  2,400
  2,512
  2,631
  2,756
  2,887
  3,026
  3,171
  3,325
  3,486
  3,656
  3,834
  4,021
  4,219
  4,426
  4,644
  4,873
  5,113
  5,366
  5,631
Fixed operating expenses, $m
  444
  453
  463
  473
  484
  495
  505
  517
  528
  540
  551
  564
  576
  589
  602
  615
  628
  642
  656
  671
  685
  701
  716
  732
  748
  764
  781
  798
  816
  834
Total operating expenses, $m
  1,947
  2,016
  2,090
  2,169
  2,252
  2,339
  2,431
  2,528
  2,630
  2,738
  2,844
  2,964
  3,088
  3,220
  3,358
  3,502
  3,654
  3,813
  3,981
  4,157
  4,341
  4,535
  4,737
  4,951
  5,174
  5,408
  5,654
  5,911
  6,182
  6,465
Operating income, $m
  119
  132
  146
  162
  179
  197
  217
  238
  262
  286
  319
  348
  378
  410
  445
  482
  521
  562
  606
  653
  703
  755
  811
  870
  933
  999
  1,069
  1,143
  1,222
  1,305
EBITDA, $m
  183
  199
  215
  234
  253
  275
  298
  323
  349
  378
  408
  441
  476
  513
  552
  594
  638
  686
  736
  789
  845
  905
  968
  1,034
  1,105
  1,180
  1,259
  1,342
  1,431
  1,524
Interest expense (income), $m
  19
  21
  23
  25
  28
  30
  33
  36
  39
  42
  45
  49
  53
  56
  61
  65
  70
  75
  80
  85
  91
  97
  103
  110
  117
  124
  132
  140
  148
  157
  167
Earnings before tax, $m
  98
  109
  121
  134
  148
  164
  181
  200
  220
  241
  271
  295
  322
  350
  380
  412
  446
  482
  521
  562
  606
  652
  701
  754
  809
  867
  929
  995
  1,065
  1,138
Tax expense, $m
  26
  29
  33
  36
  40
  44
  49
  54
  59
  65
  73
  80
  87
  94
  103
  111
  120
  130
  141
  152
  164
  176
  189
  203
  218
  234
  251
  269
  287
  307
Net income, $m
  71
  79
  88
  98
  108
  120
  132
  146
  160
  176
  197
  215
  235
  255
  277
  301
  326
  352
  380
  410
  442
  476
  512
  550
  590
  633
  679
  726
  777
  831

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
  1,309
  1,361
  1,417
  1,477
  1,540
  1,607
  1,678
  1,753
  1,832
  1,916
  2,005
  2,098
  2,196
  2,300
  2,409
  2,524
  2,645
  2,773
  2,907
  3,048
  3,196
  3,352
  3,516
  3,689
  3,870
  4,060
  4,260
  4,471
  4,692
  4,924
Adjusted assets (=assets-cash), $m
  1,309
  1,361
  1,417
  1,477
  1,540
  1,607
  1,678
  1,753
  1,832
  1,916
  2,005
  2,098
  2,196
  2,300
  2,409
  2,524
  2,645
  2,773
  2,907
  3,048
  3,196
  3,352
  3,516
  3,689
  3,870
  4,060
  4,260
  4,471
  4,692
  4,924
Revenue / Adjusted assets
  1.578
  1.578
  1.579
  1.578
  1.578
  1.578
  1.578
  1.578
  1.579
  1.578
  1.578
  1.578
  1.578
  1.578
  1.578
  1.578
  1.578
  1.578
  1.578
  1.578
  1.578
  1.578
  1.578
  1.578
  1.578
  1.578
  1.578
  1.578
  1.578
  1.578
Average production assets, $m
  582
  606
  631
  657
  685
  715
  747
  780
  815
  853
  892
  934
  977
  1,024
  1,072
  1,123
  1,177
  1,234
  1,294
  1,356
  1,422
  1,492
  1,565
  1,641
  1,722
  1,807
  1,896
  1,989
  2,088
  2,191
Working capital, $m
  -254
  -264
  -275
  -287
  -299
  -312
  -326
  -340
  -356
  -372
  -389
  -407
  -426
  -446
  -468
  -490
  -513
  -538
  -564
  -592
  -620
  -651
  -682
  -716
  -751
  -788
  -827
  -868
  -911
  -956
Total debt, $m
  426
  467
  511
  558
  607
  660
  716
  775
  837
  903
  972
  1,046
  1,123
  1,205
  1,290
  1,381
  1,476
  1,576
  1,682
  1,792
  1,909
  2,032
  2,160
  2,296
  2,438
  2,588
  2,745
  2,911
  3,084
  3,267
Total liabilities, $m
  1,029
  1,070
  1,114
  1,161
  1,210
  1,263
  1,319
  1,378
  1,440
  1,506
  1,576
  1,649
  1,726
  1,808
  1,894
  1,984
  2,079
  2,179
  2,285
  2,396
  2,512
  2,635
  2,764
  2,899
  3,042
  3,191
  3,349
  3,514
  3,688
  3,870
Total equity, $m
  280
  291
  303
  316
  330
  344
  359
  375
  392
  410
  429
  449
  470
  492
  516
  540
  566
  593
  622
  652
  684
  717
  752
  789
  828
  869
  912
  957
  1,004
  1,054
Total liabilities and equity, $m
  1,309
  1,361
  1,417
  1,477
  1,540
  1,607
  1,678
  1,753
  1,832
  1,916
  2,005
  2,098
  2,196
  2,300
  2,410
  2,524
  2,645
  2,772
  2,907
  3,048
  3,196
  3,352
  3,516
  3,688
  3,870
  4,060
  4,261
  4,471
  4,692
  4,924
Debt-to-equity ratio
  1.520
  1.600
  1.680
  1.760
  1.840
  1.920
  1.990
  2.060
  2.130
  2.200
  2.270
  2.330
  2.390
  2.450
  2.500
  2.560
  2.610
  2.660
  2.700
  2.750
  2.790
  2.830
  2.870
  2.910
  2.940
  2.980
  3.010
  3.040
  3.070
  3.100
Adjusted equity ratio
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  71
  79
  88
  98
  108
  120
  132
  146
  160
  176
  197
  215
  235
  255
  277
  301
  326
  352
  380
  410
  442
  476
  512
  550
  590
  633
  679
  726
  777
  831
Depreciation, amort., depletion, $m
  65
  67
  69
  72
  75
  78
  81
  84
  88
  92
  89
  93
  98
  102
  107
  112
  118
  123
  129
  136
  142
  149
  156
  164
  172
  181
  190
  199
  209
  219
Funds from operations, $m
  136
  146
  158
  170
  183
  198
  213
  230
  248
  268
  287
  309
  332
  358
  384
  413
  443
  476
  510
  546
  585
  625
  669
  714
  763
  814
  868
  925
  986
  1,050
Change in working capital, $m
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -43
  -45
Cash from operations, $m
  145
  156
  168
  181
  196
  211
  227
  245
  264
  284
  304
  327
  352
  378
  406
  435
  467
  500
  536
  573
  613
  656
  700
  748
  798
  851
  907
  966
  1,029
  1,095
Maintenance CAPEX, $m
  -56
  -58
  -61
  -63
  -66
  -69
  -72
  -75
  -78
  -82
  -85
  -89
  -93
  -98
  -102
  -107
  -112
  -118
  -123
  -129
  -136
  -142
  -149
  -156
  -164
  -172
  -181
  -190
  -199
  -209
New CAPEX, $m
  -22
  -23
  -25
  -26
  -28
  -30
  -32
  -33
  -35
  -37
  -39
  -42
  -44
  -46
  -49
  -51
  -54
  -57
  -60
  -63
  -66
  -69
  -73
  -77
  -81
  -85
  -89
  -94
  -98
  -103
Cash from investing activities, $m
  -78
  -81
  -86
  -89
  -94
  -99
  -104
  -108
  -113
  -119
  -124
  -131
  -137
  -144
  -151
  -158
  -166
  -175
  -183
  -192
  -202
  -211
  -222
  -233
  -245
  -257
  -270
  -284
  -297
  -312
Free cash flow, $m
  67
  75
  83
  92
  102
  112
  124
  137
  150
  165
  179
  196
  214
  234
  255
  277
  301
  326
  353
  381
  412
  444
  478
  515
  553
  594
  637
  683
  732
  783
Issuance/(repayment) of debt, $m
  39
  41
  44
  47
  50
  53
  56
  59
  62
  66
  70
  73
  77
  81
  86
  90
  95
  100
  105
  111
  117
  123
  129
  135
  142
  150
  157
  165
  174
  182
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  
  39
  41
  44
  47
  50
  53
  56
  59
  62
  66
  70
  73
  77
  81
  86
  90
  95
  100
  105
  111
  117
  123
  129
  135
  142
  150
  157
  165
  174
  182
Total cash flow (excl. dividends), $m
  106
  116
  127
  139
  151
  165
  180
  196
  213
  231
  249
  270
  292
  315
  341
  367
  396
  426
  458
  492
  528
  567
  607
  650
  696
  744
  795
  848
  905
  965
Retained Cash Flow (-), $m
  -10
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -50
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
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
Cash available for distribution, $m
  96
  105
  115
  126
  138
  151
  165
  180
  196
  213
  230
  250
  271
  293
  317
  343
  370
  399
  429
  462
  497
  533
  572
  613
  657
  703
  752
  803
  858
  916
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
  92
  96
  100
  104
  107
  109
  111
  112
  112
  112
  109
  107
  103
  98
  93
  87
  80
  73
  66
  59
  51
  44
  37
  31
  26
  21
  16
  12
  9
  7
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

Tower International, Inc. is a global manufacturer of engineered automotive structural metal components and assemblies primarily serving original equipment manufacturers (OEMs). The Company's product portfolio includes body-structure stampings, frame and other chassis structures, and welded assemblies for small and large cars, crossovers, pickups and sport utility vehicles (SUVs). The Company offers body structures and assemblies, including structural metal components, such as body pillars, roof rails and side sills. The Company also offers Class A surfaces and assemblies, which are components of the exterior skin of the vehicle, such as body sides, hoods, doors, fenders and pickup truck boxes. The Company's lower vehicle frames and structures include chassis structures. Its products include pickup truck and SUV full frames, automotive engine and rear suspension cradles, floor pan components and cross members that form the basic lower body structure of the vehicle.

FINANCIAL RATIOS  of  Tower International (TOWR)

Valuation Ratios
P/E Ratio 17
Price to Sales 0.3
Price to Book 3.2
Price to Tangible Book
Price to Cash Flow 4.6
Price to Free Cash Flow 23.7
Growth Rates
Sales Growth Rate 6.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -3.3%
Cap. Spend. - 3 Yr. Gr. Rate 8.3%
Financial Strength
Quick Ratio 2
Current Ratio 0.2
LT Debt to Equity 171.2%
Total Debt to Equity 187.5%
Interest Coverage 5
Management Effectiveness
Return On Assets 4.5%
Ret/ On Assets - 3 Yr. Avg. 9.8%
Return On Total Capital 6.3%
Ret/ On T. Cap. - 3 Yr. Avg. 14.5%
Return On Equity 19.2%
Return On Equity - 3 Yr. Avg. 72.6%
Asset Turnover 1.6
Profitability Ratios
Gross Margin 12.4%
Gross Margin - 3 Yr. Avg. 12.1%
EBITDA Margin 8.6%
EBITDA Margin - 3 Yr. Avg. 8.5%
Operating Margin 5.3%
Oper. Margin - 3 Yr. Avg. 4.8%
Pre-Tax Margin 3.9%
Pre-Tax Margin - 3 Yr. Avg. 3.3%
Net Profit Margin 2%
Net Profit Margin - 3 Yr. Avg. 4.7%
Effective Tax Rate 24.3%
Eff/ Tax Rate - 3 Yr. Avg. -52.6%
Payout Ratio 23.1%

TOWR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TOWR stock intrinsic value calculation we used $1988 million for the last fiscal year's total revenue generated by Tower International. The default revenue input number comes from 2017 income statement of Tower International. 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 TOWR stock valuation model: a) initial revenue growth rate of 3.9% 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 TOWR is calculated based on our internal credit rating of Tower International, 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 Tower International.
    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 TOWR stock the variable cost ratio is equal to 72.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $434 million in the base year in the intrinsic value calculation for TOWR 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 Tower International.

Corporate tax rate of 27% is the nominal tax rate for Tower International. 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 TOWR stock is equal to 0.1%.

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 TOWR are equal to 28.2%.

Life of production assets of 10 years is the average useful life of capital assets used in Tower International 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 TOWR is equal to -12.3%. 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 - $270 million for Tower International - 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 20 million for Tower International 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 Tower International at the current share price and the inputted number of shares is $0.7 billion.

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COMPANY NEWS

▶ Tower International Declares Quarterly Dividend   [Jul-17-18 02:00PM  PR Newswire]
▶ June Top Stocks To Look Out For   [Jun-14-18 07:02AM  Simply Wall St.]
▶ [$$] Property prices boom in Budapest   [May-25-18 06:00AM  Financial Times]
▶ Tower: 1Q Earnings Snapshot   [May-03-18 09:52AM  Associated Press]
▶ Tower International Declares Quarterly Dividend   [Apr-19-18 01:00PM  PR Newswire]
▶ Tower reports 4Q loss   [09:12AM  Associated Press]
▶ Tower International Declares Quarterly Dividend   [Jan-26-18 01:00PM  PR Newswire]
▶ Tower beats Street 3Q forecasts   [Oct-30-17 08:11AM  Associated Press]
▶ Tower International Declares Quarterly Dividend   [Oct-20-17 02:00PM  PR Newswire]
▶ Tower tops 2Q profit forecasts   [Jul-26-17 09:56PM  Associated Press]
▶ Cars and Small-but-Strong Energy Stocks in Play   [May-19-17 05:20PM  TheStreet.com]
▶ Tower beats Street 1Q forecasts   [May-02-17 08:17AM  Associated Press]
▶ Tower International Declares Quarterly Dividend   [Apr-21-17 01:00PM  PR Newswire]
▶ Auto supplier planning $50 million in Kentucky plant expansions   [Mar-30-17 01:43PM  at bizjournals.com]
▶ Auto supplier planning $50 million in Kentucky plant expansions   [01:43PM  American City Business Journals]
▶ Tower beats 4Q profit forecasts   [08:26AM  Associated Press]
▶ Hedge Funds Are Dumping Tower International Inc (TOWR)   [Dec-07-16 09:21PM  at Insider Monkey]
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