This is part 2 in a series of blogs valuing CROX. See my valuation of CROX’s asset replacement value in part 1 here.
We can calculate Earnings Power Value (EPV) with the following formula:
EPV = ((EBIT – one time gains or losses + reported depreciation – capex)(1-effective tax rate))/wacc
In this case according to the 10-K for 2023 these values were:
EBIT = $1,036,783.
Asset impairments = $9,287
Depreciation = $23,000 (change in accumulated depreciation yoy. )
Capital Expenditures = $115,600
Effective tax rate, the average of the last 2 years of tax rates was 16% (I will use that here), but we can assume 21% going forward.
Adjusted EBIT = $800.86
To find Wacc:
Total debt 1.641B
Market value of equity 6.41B
the company is highly levered so lets say that the cost of equity is 12%, debt interest expense was about 10%
This brings us to a WACC of 11.16%
Summary
Following the above process we get an EPV of 7.2B
Recall from part 1 that asset replacement value is 4.8B-5.6B
So there is about a 27% difference there.
EV is ~7B
EV to EBIT is ~ 7
As Greenwald suggests, an EPV higher than its AV indicates a possible franchise business. So the opportunity here is really around growth.
We have some questions to ask here:
- Does Crox have a franchise business, with sustainable competitive advantages?
- If so, what parts of the business have that?
- And how much growth can we anticipate from that franchise segment?
- How is management allocating capital?
I will answer these questions in a future post.
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