Is Chefs' Warehouse undervalued based on future cash flows and its price relative to the stock market?
Value is all about what a company is worth versus what price it is available for. If you went into a grocery store and all the bananas were on sale at half price, they could be considered undervalued.
INTRINSIC VALUE BASED ON FUTURE CASH FLOWS
Here we compare the current
share price of Chefs' Warehouse to its discounted cash flow value.
The discounted cash flow value is simply looking at what the company is worth today, based on estimates of how much money it is expected to make in the future.
How is this discounted cash flow calculated?
Amount off the current price Chefs' Warehouse is available for.
Share price is $15.95 vs Future cash flow value of $28.85
Current Discount Checks
For Chefs' Warehouse to be considered undervalued it must be available for at least 20% below the current price. Less than 40% is even better.
- Chefs' Warehouse's share price is below the future cash flow value, and at a significant discount (> 20%).
- Chefs' Warehouse's share price is below the future cash flow value, and at a substantial discount (> 40%).
We assess Chefs' Warehouse's value by looking at:
- Is the discounted cash flow value less than 20%, or 40% of the share price? (2 checks) (Click here or on bar chart for details of DCF calculation.)
- Is the PE ratio less than the market average, and/ or less than the Food and Staples Retailing industry average (and greater than 0)? (2 checks)
- Is the PEG ratio within a reasonable range (0 to 1)? (1 check)
- Is the PB ratio less than the Food and Staples Retailing industry average (and greater than 0)? (1 check)
Chefs' Warehouse has a total score of 4/6, see the detailed checks below.
Note: We use GAAP Earnings per Share in all our calculations including PE and PEG Ratio.
Note 2: PEG ratio is based on analysts EPS growth expectations in 1 year (2645.4%).
Full details on the Value part of the Simply Wall St company analysis model.
Discounted cash flow (Free cash flow to Equity)
The calculations below outline how an intrinsic value for Chefs' Warehouse is arrived at by discounting future cash flows to their present value. We use analyst's estimates of cash flows going forward 5 years.
5 year cash flow forecast
See our documentation to learn about this calculation.
|Levered FCF (USD, Millions)
Discounted (@ 8.8%)
Present value of next 5 years cash flows:
Terminal Value = FCF2021 × (1 + g) ÷ (Discount Rate – g)
Terminal Value = $57 × (1 + 2.3%) ÷ (8.75% – 2.3%)
Terminal value based on the Perpetuity Method where growth (g) = 2.3%:
Present value of terminal value:
Equity Value (Total value) = Present value of next 5 years cash flows + terminal value
Value = Total value / Shares Outstanding ($760 / 26)
Value per share:
Current discount (share price of $15.95): 45%
Estimate of Discount Rate
The discount rate, or required rate of return, is estimated by calculating the Cost of Equity.
Discount rate = Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium)
Discount rate = 8.75% = 2.33% + (0.837 * 7.67%)
Estimate of Bottom Up Beta
The Levered Beta is the Unlevered Beta adjusted for financial leverage. It is limited to 0.8 to 2.0 (practical range for a stable firm).
Levered Beta = Unlevered beta (1 + (1- tax rate) (Debt/Equity))
0.837 = 0.539 (1 + (1- 30%) (78.96%))
Levered Beta used in calculation = 0.837
- The risk free rate of 2.33% is from the 10 year government bond rate in US.
- The bottom-up beta is estimated by analysing other companies in the same industry.
- The Equity Risk Premium is calculated by subtracting the risk free rate from the market return premium (10%) (source: Buffet).
- The dividend discount model is automatically used for companies in the following industries: Banks, Insurance, Real Estate Investment Trusts (REITs), Diversified Financial Services and Capital Markets.
How is Chefs' Warehouse expected to perform in the next 1 to 3 years based on estimates from 5 analysts?
The future performance of a company is measured in the same way as past performance, by looking at estimated growth and how much profit it is expected to make.
Future estimates come from professional analysts. Just like forecasting the weather, they don’t always get it right!
Expected earnings growth over 3 years.
Future Earnings growth analysis
Is Chefs' Warehouse expected to grow at an attractive rate? We look at the 1 year and 3 year growth below.
Are Chefs' Warehouse's annual earnings growth expected to exceed 3.4% over the next 3 years?
- After 1 year
- After 3 years
1 & 3 year estimated growth in earnings
Past and Future Earnings per Share
The accuracy of the analysts who estimate the future performance data can be gauged below. We look back 3 years and see if they were any good at predicting what actually occured. We also show the highest and lowest estimates looking forward to see if there is a wide range.
Analysts growth expectations
2 year growth check
Which of the these is expected to increase by over 50% in 2 year's time?
Performance in 3 years
In the same way as past performance we look at the future estimated return (profit) compared to the available funds. We do this looking forward 3 years.
- Chefs' Warehouse is not expected to perform strongly, Return on Equity (ROE) in 3 years is estimated to be below 20%.
Improvement & Relative to industry
- Expected to be less than the Food and Staples Retailing industry average.
- An improvement in Chefs' Warehouse's performance (ROE) is expected over the next 3 years.
Future performance checks
We assess Chefs' Warehouse's future performance by looking at:
- Is the growth in earnings expected to beat the low risk savings rate, plus a premium to keep pace with inflation, in 1 year and 3 years? (2 checks)
- Does the average analyst expect Revenue to increase by 50% or more in 2 years? (1 check)
- Does the average analyst expect Operating Cash Flow to increase by 50% or more in 2 years? (1 check)
- Does the average analyst expect Net Income (Profit) to increase by 50% or more in 2 years? (1 check)
- Is the Return on Equity in 3 years expected to be over 20%? (1 check)
Some of the above checks will fail if the company is expected to be loss making in the relevant year.
Chefs' Warehouse has a total score of 3/6, see the detailed checks below.
Note: If no +3 year data is available, +2.5 year data may be used.
Note 2: We use GAAP per Share in all our calculations.
Full details on the Future part of the Simply Wall St company analysis model.
How has Chefs' Warehouse performed over the past 5 years?
The past performance of a company can be measured by how much growth it has experienced and how much profit it makes relative to the funds and assets it has available.
Past earnings growth
Below we compare Chefs' Warehouse's growth in the last year to its industry (Food and Staples Retailing).
Past Earnings growth analysis
We also check if the company has grown in the past 5 years, and whether it has maintained that growth in the year.
- Chefs' Warehouse's earnings growth has not matched the industry average in the past year.
- Chefs' Warehouse's 1 year earnings growth is negative.
- Chefs' Warehouse earnings have fallen over the past 5 years.
Chefs' Warehouse's revenue and profit over the past 5 years is shown below, any years where they have experienced a loss will show up in red.
Performance last year
We want to ensure a company is making the most of what it has available. This is done by comparing the return (profit) to a company's available funds, assets and capital.
- Poor return on shareholders funds (ROE) last year.
- Chefs' Warehouse performed worse than the Food and Staples Retailing industry average based on return on assets (ROA) last year.
- Return based on revenue producing assets (ROCE) is negative or zero.
Past performance checks
We assess Chefs' Warehouse's performance over the past 5 years by checking for:
- Has earnings per share (EPS) increased in past 5 years? (1 check)
- Has the EPS growth in the last year exceeded that of the Food and Staples Retailing industry? (1 check)
- Is the current EPS growth higher than the average annual growth over the past 5 years? (1 check)
- Is the Return on Equity (ROE) higher than 20%? (1 check)
- Is the Return on Assets (ROA) above industry average? (1 check)
- Has the Return on Capital Employed (ROCE) increased from 3 years ago? (1 check)
The above checks will fail if the company has reported a loss in the most recent earnings report. Some checks require at least 3 or 5 years worth of data.
Chefs' Warehouse has a total score of 0/6, see the detailed checks below.
Note: We use GAAP Earnings per Share in all our calculations.
Full details on the Past part of the Simply Wall St company analysis model.
How is Chefs' Warehouse's financial health and their level of debt?
A company's financial position is much like your own financial position, it includes everything you own (assets) and owe (liabilities).
The boxes below represent the relative size of what makes up Chefs' Warehouse's finances.
The net worth of a company is the difference between its assets and liabilities.
- Chefs' Warehouse is able to meet its short term (1 year) commitments with its holdings of cash and other short term assets.
- Chefs' Warehouse's long term commitments exceed its cash and other short term assets.
This treemap shows a more detailed breakdown of Chefs' Warehouse's finances.
If any of them are yellow this indicates they may be out of proportion and red means they relate to one of the checks below.
Liabilities and shares
The 'shares' portion represents any funds contributed by the owners (shareholders) and any profits.
- High level of stock/ inventory/ unsold assets.
- Total debt is not covered by total short term assets.
Nearly all companies have debt. Debt in itself isn’t bad, however if the debt is too high, or the company can’t afford to pay the interest on its debts this may have impacts in the future.
The graphic below shows equity (available funds) and debt, we ideally want to see the red area (debt) decreasing.
If there is any debt we look at the companies capability to repay it, and whether the level has increased over the past 5 years.
- The level of debt (172%) compared to net worth is high (greater 40%).
- The level of debt compared to net worth has increased over the past 5 years (158% vs 172% today).
- Total debt is not well covered by annual operating cash flow (less than 20% of total debt).
- Interest on debt is not strongly covered (ideally 3x) by earnings (EBIT is 0.8x annual interest expense).
Financial health checks
We assess Chefs' Warehouse's financial health by checking for:
Full details on the Health part of the Simply Wall St company analysis model.
- Are short term assets greater than short term liabilities? (1 check)
- Are short term assets greater than long term liabilities? (1 check)
- Has the debt to equity ratio increased in the past 5 years? (1 check)
- Is the debt to equity ratio over 40%? (1 check)
- Is the debt covered by short term assets? (1 check)
- Are earnings greater than 5x the interest on debt (if comapany pays interest at all)? (1 check)
Chefs' Warehouse has a total score of 1/6, see the detailed checks below.
What is Chefs' Warehouse's current dividend yield, its reliability and sustainability?
Dividends are regular cash payments to you from the company, similar to a bank paying you interest on a savings account.
Annual Dividend Income
Current annual income from Chefs' Warehouse dividends.
If you bought $2,000 of Chefs' Warehouse shares you are expected to receive $0 in your first year as a dividend.
Here we look how much dividend is being paid, if any. Is it above what you can get in a savings account?
It is up there with the best dividend paying companies?
- Paying below low risk savings rate. (2.25%)
- Paying below the markets top dividend payers. (3.18%)
Historical dividend yield
It is important to see if the dividend for a company is stable, and not wildly increasing/decreasing each year. This graph shows you the historical rate to count toward your assessment of the stock.
We also check to see if the dividend has increased in the past 10 years.
- Not paying a notable dividend.
- Not paying a notable dividend.
Current Payout to shareholders
What portion of Chefs' Warehouse's earnings are paid to the shareholders as a dividend.
- Not paying a notable dividend.
Future Payout to shareholders
- Insufficient estimate data to determine if a dividend will be paid in 3 years.
Income/ dividend checks
We assess Chefs' Warehouse's dividend by checking for:
Full details on the Dividends part of the Simply Wall St company analysis model.
- Firstly is the company paying a notable dividend (greater than 0.5%) - if not then the rest of the checks are ignored.
- Current dividend yield, is there one at all, is it higher than the low risk savings rate, and is it above the top 25% of dividend payers? (2 checks)
- Have they paid a dividend for 10 years, and during this period has the dividend been volatile (drop of more than 25%)? (1 check)
- If they have paid a dividend for 10 years has it increased in this time? (1 check)
- How sustainable is the dividend, can Chefs' Warehouse afford to pay it from its earnings today and in 3 years (Payout ratio less than 90%)? (2 checks)
Chefs' Warehouse has a total score of 0/6, see the detailed checks below.
What is the CEO of Chefs' Warehouse's salary, the management and board of directors tenure and is there insider trading?
Management is one of the most important areas of a company. We look at unreasonable CEO compensation, how long the team and board of directors have been around for and insider trading.
Mr. Christopher Pappas, also known as Chris, serves as Chairman, Chief Executive Officer and President at Qzina Specialty Foods, Inc. Mr. Pappas Founded The Chefs' Warehouse, Inc., an affiliate of DAIRYLAND Inc. in 1985 and has been its Chairman, President and Chief executive officer since March 1, 2011, April 11, 2009 and 1985 respectively. Mr. Pappas oversees all of business activities, with a focus on product procurement, sales, marketing, strategy development, business development and operations. He served as the President of Chefs' Warehouse Holdings LLC from its formation to January 1, 2007. He serves as a Director at F.A.B., Inc. Mr. Pappas played basketball professionally in Europe for several years following his graduation from Adelphi University in 1981 with a Bachelor of Arts degree in Business Administration.
- CEO's compensation has been consistent with company performance over the past year.
- CEO's compensation is higher than average for a company of this size and profit level.
Management Team Tenure
Average tenure of the Chefs' Warehouse management team:
- The average tenure for the Chefs' Warehouse management team is over 5 years, this suggests they are a seasoned and experienced team.
Founder and Vice Chairman
Chief Financial Officer and Assistant Corporate Secretary
General Counsel and Corporate Secretary
Chief Human Resources Officer
Executive Vice President of Supply Chain and Business Intelligence
Board of Directors Tenure
Average tenure of the Chefs' Warehouse board of directors:
- The average tenure for the Chefs' Warehouse board of directors is over 10 years, this suggests they are a seasoned and experienced board.
Board of Directors
Founder and Vice Chairman
Recent Insider Trading
- No insider transactions in the past 3 months.
Who owns this company?
We assess Chefs' Warehouse's management by checking for:
- Is the CEO's compensation unreasonable compared to market cap and profit (greater than 0.5% of the company's profit + 0.03% of market cap)? (1 check)
- Has the CEO's compensation increased more than 20% whilst the EPS is down more then 20%? (1 check)
- Is the average tenure of the management team less than 2 years? (1 check)
- Is the average tenure of the board of directors team less than 3 years? (1 check)
Chefs' Warehouse has a total score of 6/6, this is not included on the snowflake, see the detailed checks below.
Note: We use the top 6 management executives and board members in our calculations.
Note 2: Insider trading include any internal stakeholders and these transactions
Full details on the Management part of the Simply Wall St company analysis model.
The Chefs’ Warehouse, Inc., together with its subsidiaries, distributes specialty food products in the United States and Canada. Its product portfolio includes approximately 43,000 stock-keeping units comprising specialty food products, such as artisan charcuterie, specialty cheeses, unique oils and vinegars, truffles, caviar, chocolate, and pastry products. The company also offers a line of center-of-the-plate products, including custom cut beef, seafood, and hormone-free poultry, as well as food products, such as cooking oils, butter, eggs, milk, and flour. It serves menu-driven independent restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools, bakeries, patisseries, chocolatiers, cruise lines, casinos, and specialty food stores. The Chefs’ Warehouse, Inc. markets its center-of-the-plate products directly to consumers through a mail and e-commerce platform. The company was founded in 1985 and is headquartered in Ridgefield, Connecticut.
100 East Ridge Road, Ridgefield, 06877, United States
Chefs' Warehouse employees.
|Sector:||Food and Staples Retailing|