Intrinsic value of Encore Wire Corporation - WIRE

Previous Close

$60.84

  Intrinsic Value

$58.88

stock screener

  Rating & Target

hold

-3%

Previous close

$60.84

 
Intrinsic value

$58.88

 
Up/down potential

-3%

 
Rating

hold

We calculate the intrinsic value of WIRE 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 1.3

 

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, %
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.53
  5.47
  5.43
  5.38
  5.35
  5.31
  5.28
  5.25
  5.23
  5.20
  5.18
  5.17
  5.15
  5.13
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.06
  5.06
  5.05
Revenue, $m
  1,368
  1,450
  1,535
  1,624
  1,717
  1,814
  1,915
  2,021
  2,132
  2,247
  2,368
  2,495
  2,627
  2,766
  2,911
  3,064
  3,223
  3,390
  3,565
  3,749
  3,941
  4,143
  4,355
  4,577
  4,809
  5,054
  5,310
  5,579
  5,861
  6,157
Variable operating expenses, $m
  1,142
  1,208
  1,278
  1,350
  1,425
  1,504
  1,587
  1,673
  1,763
  1,857
  1,925
  2,028
  2,136
  2,248
  2,366
  2,490
  2,620
  2,755
  2,898
  3,047
  3,203
  3,367
  3,539
  3,720
  3,909
  4,108
  4,316
  4,535
  4,764
  5,005
Fixed operating expenses, $m
  115
  118
  121
  123
  126
  129
  132
  134
  137
  140
  144
  147
  150
  153
  157
  160
  164
  167
  171
  175
  178
  182
  186
  191
  195
  199
  203
  208
  212
  217
Total operating expenses, $m
  1,257
  1,326
  1,399
  1,473
  1,551
  1,633
  1,719
  1,807
  1,900
  1,997
  2,069
  2,175
  2,286
  2,401
  2,523
  2,650
  2,784
  2,922
  3,069
  3,222
  3,381
  3,549
  3,725
  3,911
  4,104
  4,307
  4,519
  4,743
  4,976
  5,222
Operating income, $m
  111
  123
  137
  151
  166
  181
  197
  214
  232
  250
  300
  320
  342
  365
  388
  413
  440
  467
  497
  527
  559
  593
  629
  666
  706
  747
  791
  837
  885
  936
EBITDA, $m
  158
  172
  186
  202
  217
  234
  251
  270
  289
  309
  330
  352
  376
  400
  426
  453
  481
  511
  542
  575
  610
  646
  685
  725
  767
  812
  859
  908
  960
  1,014
Interest expense (income), $m
  0
  0
  0
  1
  1
  1
  2
  2
  3
  3
  3
  4
  4
  5
  5
  6
  7
  7
  8
  9
  9
  10
  11
  12
  13
  13
  14
  15
  16
  18
  19
Earnings before tax, $m
  111
  123
  136
  150
  164
  179
  195
  211
  229
  247
  296
  316
  337
  359
  382
  407
  432
  459
  488
  518
  549
  582
  617
  654
  692
  733
  775
  820
  867
  917
Tax expense, $m
  30
  33
  37
  40
  44
  48
  53
  57
  62
  67
  80
  85
  91
  97
  103
  110
  117
  124
  132
  140
  148
  157
  167
  176
  187
  198
  209
  221
  234
  248
Net income, $m
  81
  90
  99
  109
  120
  131
  142
  154
  167
  180
  216
  231
  246
  262
  279
  297
  316
  335
  356
  378
  401
  425
  450
  477
  505
  535
  566
  599
  633
  669

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
  757
  802
  849
  899
  950
  1,004
  1,060
  1,118
  1,180
  1,244
  1,311
  1,381
  1,454
  1,531
  1,611
  1,695
  1,784
  1,876
  1,973
  2,075
  2,181
  2,293
  2,410
  2,533
  2,662
  2,797
  2,939
  3,087
  3,244
  3,407
Adjusted assets (=assets-cash), $m
  757
  802
  849
  899
  950
  1,004
  1,060
  1,118
  1,180
  1,244
  1,311
  1,381
  1,454
  1,531
  1,611
  1,695
  1,784
  1,876
  1,973
  2,075
  2,181
  2,293
  2,410
  2,533
  2,662
  2,797
  2,939
  3,087
  3,244
  3,407
Revenue / Adjusted assets
  1.807
  1.808
  1.808
  1.806
  1.807
  1.807
  1.807
  1.808
  1.807
  1.806
  1.806
  1.807
  1.807
  1.807
  1.807
  1.808
  1.807
  1.807
  1.807
  1.807
  1.807
  1.807
  1.807
  1.807
  1.807
  1.807
  1.807
  1.807
  1.807
  1.807
Average production assets, $m
  310
  329
  348
  369
  390
  412
  435
  459
  484
  510
  538
  566
  596
  628
  661
  695
  732
  770
  809
  851
  895
  940
  988
  1,039
  1,092
  1,147
  1,205
  1,266
  1,330
  1,398
Working capital, $m
  283
  300
  318
  336
  355
  375
  396
  418
  441
  465
  490
  516
  544
  573
  603
  634
  667
  702
  738
  776
  816
  858
  901
  947
  996
  1,046
  1,099
  1,155
  1,213
  1,275
Total debt, $m
  6
  12
  19
  26
  33
  40
  48
  56
  64
  73
  82
  92
  102
  112
  123
  135
  147
  159
  173
  187
  201
  216
  233
  249
  267
  286
  305
  325
  347
  369
Total liabilities, $m
  104
  110
  116
  123
  130
  138
  145
  153
  162
  170
  180
  189
  199
  210
  221
  232
  244
  257
  270
  284
  299
  314
  330
  347
  365
  383
  403
  423
  444
  467
Total equity, $m
  653
  692
  733
  776
  820
  866
  915
  965
  1,018
  1,073
  1,131
  1,192
  1,255
  1,321
  1,390
  1,463
  1,539
  1,619
  1,703
  1,790
  1,882
  1,979
  2,080
  2,186
  2,297
  2,414
  2,536
  2,664
  2,799
  2,941
Total liabilities and equity, $m
  757
  802
  849
  899
  950
  1,004
  1,060
  1,118
  1,180
  1,243
  1,311
  1,381
  1,454
  1,531
  1,611
  1,695
  1,783
  1,876
  1,973
  2,074
  2,181
  2,293
  2,410
  2,533
  2,662
  2,797
  2,939
  3,087
  3,243
  3,408
Debt-to-equity ratio
  0.010
  0.020
  0.030
  0.030
  0.040
  0.050
  0.050
  0.060
  0.060
  0.070
  0.070
  0.080
  0.080
  0.080
  0.090
  0.090
  0.100
  0.100
  0.100
  0.100
  0.110
  0.110
  0.110
  0.110
  0.120
  0.120
  0.120
  0.120
  0.120
  0.130
Adjusted equity ratio
  0.863
  0.863
  0.863
  0.863
  0.863
  0.863
  0.863
  0.863
  0.863
  0.863
  0.863
  0.863
  0.863
  0.863
  0.863
  0.863
  0.863
  0.863
  0.863
  0.863
  0.863
  0.863
  0.863
  0.863
  0.863
  0.863
  0.863
  0.863
  0.863
  0.863

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  81
  90
  99
  109
  120
  131
  142
  154
  167
  180
  216
  231
  246
  262
  279
  297
  316
  335
  356
  378
  401
  425
  450
  477
  505
  535
  566
  599
  633
  669
Depreciation, amort., depletion, $m
  47
  48
  50
  51
  52
  53
  54
  56
  57
  59
  30
  32
  34
  35
  37
  39
  41
  43
  46
  48
  51
  53
  56
  59
  62
  65
  68
  72
  75
  79
Funds from operations, $m
  128
  138
  149
  160
  172
  184
  197
  210
  224
  239
  246
  263
  280
  298
  316
  336
  357
  379
  402
  426
  451
  478
  506
  536
  567
  600
  634
  670
  708
  748
Change in working capital, $m
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  35
  36
  38
  40
  42
  44
  46
  48
  51
  53
  56
  58
  61
Cash from operations, $m
  112
  121
  131
  142
  153
  164
  176
  188
  201
  215
  221
  236
  252
  269
  286
  305
  324
  344
  366
  388
  412
  436
  463
  490
  519
  549
  581
  615
  650
  687
Maintenance CAPEX, $m
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -46
  -48
  -51
  -53
  -56
  -59
  -62
  -65
  -68
  -72
  -75
New CAPEX, $m
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -53
  -55
  -58
  -61
  -64
  -67
Cash from investing activities, $m
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -49
  -51
  -53
  -56
  -59
  -62
  -65
  -68
  -72
  -75
  -79
  -83
  -88
  -92
  -97
  -101
  -106
  -112
  -117
  -123
  -129
  -136
  -142
Free cash flow, $m
  78
  85
  93
  102
  111
  120
  129
  140
  150
  161
  165
  177
  190
  204
  218
  233
  249
  265
  282
  301
  320
  340
  361
  384
  407
  432
  458
  485
  514
  545
Issuance/(repayment) of debt, $m
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  19
  20
  21
  22
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  
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  19
  20
  21
  22
Total cash flow (excl. dividends), $m
  84
  91
  100
  109
  118
  127
  137
  148
  159
  170
  174
  187
  200
  214
  229
  244
  261
  278
  296
  315
  334
  355
  377
  401
  425
  450
  477
  506
  536
  567
Retained Cash Flow (-), $m
  -38
  -39
  -41
  -43
  -44
  -46
  -48
  -51
  -53
  -55
  -58
  -60
  -63
  -66
  -69
  -73
  -76
  -80
  -84
  -88
  -92
  -96
  -101
  -106
  -111
  -117
  -122
  -128
  -135
  -141
Prev. year cash balance distribution, $m
  105
  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
  151
  52
  59
  66
  73
  81
  89
  97
  106
  115
  116
  126
  137
  148
  160
  172
  185
  198
  212
  227
  243
  259
  276
  294
  314
  334
  355
  377
  401
  426
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
  145
  48
  51
  54
  57
  59
  60
  61
  61
  60
  55
  54
  52
  50
  47
  44
  40
  36
  33
  29
  25
  21
  18
  15
  12
  10
  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

Encore Wire Corporation is a manufacturer of electrical building wire and cable. The Company is a supplier of building wire for interior electrical wiring in commercial and industrial buildings, homes, apartments, and manufactured housing. The Company manufactures electric building wire, principally NM-B cable, for use primarily as interior wiring in homes, apartments and manufactured housing, and THHN/THWN-2 cable and metal-clad and armored cable for use primarily as wiring in commercial and industrial buildings. It offers an electrical building wire product line that consists primarily of UF-B cable and other types of wire products, including metal-clad and armored cable. All of these products are manufactured with copper or aluminum as the conductor. NM-B cable consists of either two or three insulated copper wire conductors, with an uninsulated ground wire, all sheathed in a polyvinyl chloride (PVC) jacket.

FINANCIAL RATIOS  of  Encore Wire Corporation (WIRE)

Valuation Ratios
P/E Ratio 37.1
Price to Sales 1.3
Price to Book 2.2
Price to Tangible Book
Price to Cash Flow 21.4
Price to Free Cash Flow 90.1
Growth Rates
Sales Growth Rate -7.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 2.3%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 5.3%
Ret/ On Assets - 3 Yr. Avg. 6.7%
Return On Total Capital 6.1%
Ret/ On T. Cap. - 3 Yr. Avg. 7.7%
Return On Equity 6.1%
Return On Equity - 3 Yr. Avg. 7.7%
Asset Turnover 1.5
Profitability Ratios
Gross Margin 12.8%
Gross Margin - 3 Yr. Avg. 12.3%
EBITDA Margin 7.2%
EBITDA Margin - 3 Yr. Avg. 7.3%
Operating Margin 5.4%
Oper. Margin - 3 Yr. Avg. 5.8%
Pre-Tax Margin 5.4%
Pre-Tax Margin - 3 Yr. Avg. 5.8%
Net Profit Margin 3.6%
Net Profit Margin - 3 Yr. Avg. 3.8%
Effective Tax Rate 33.3%
Eff/ Tax Rate - 3 Yr. Avg. 33.5%
Payout Ratio 5.9%

WIRE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the WIRE stock intrinsic value calculation we used $1289 million for the last fiscal year's total revenue generated by Encore Wire Corporation. The default revenue input number comes from 0001 income statement of Encore Wire Corporation. 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 WIRE stock valuation model: a) initial revenue growth rate of 6.1% 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 WIRE is calculated based on our internal credit rating of Encore Wire Corporation, 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 Encore Wire Corporation.
    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 WIRE stock the variable cost ratio is equal to 83.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $113 million in the base year in the intrinsic value calculation for WIRE 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 Encore Wire Corporation.

Corporate tax rate of 27% is the nominal tax rate for Encore Wire Corporation. 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 WIRE 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 WIRE are equal to 22.7%.

Life of production assets of 17.7 years is the average useful life of capital assets used in Encore Wire Corporation 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 WIRE is equal to 20.7%. 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 - $720.456 million for Encore Wire Corporation - 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 20.798 million for Encore Wire Corporation 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 Encore Wire Corporation at the current share price and the inputted number of shares is $1.3 billion.

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