As part of our process, we perform a rigorous discounted cash-flow methodology that dives into the true intrinsic worth of companies. In Uti Worldwide's (NASDAQ:UTIW) case, we think the firm is fairly valued at $19 per share, significantly higher than where it is currently trading. In the spirit of transparency, our report on Uti Worldwide and hundreds of other companies can be found here.

For some background, we think a comprehensive analysis of a firm's discounted cash-flow valuation, relative valuation versus industry peers, as well as an assessment of technical and momentum indicators is the best way to identify the most attractive stocks at the best time to buy. This process culminates in what we call our Valuentum Buying Index, which ranks stocks on a scale from 1 to 10, with 10 being the best. In the spirit of transparency, we show how the performance of our VBI has stacked up per underlying score:

If a company is undervalued both on a DCF and on a relative valuation basis and is showing improvement in technical and momentum indicators, it scores high on our scale. Uti Worldwide posts a VBI score of 4 on our scale, reflecting our 'fairly valued' DCF assessment of the company, its attractive relative valuation versus peers, and bearish techinicals. We use CH Robinson (NASDAQ:CHRW), Expeditors Intl (NASDAQ:EXPD), FedEx (NYSE:FDX), and United Parcel Service (NYSE:UPS) for our peer group analysis.

Before moving on, please view this video on how to read our reports, and then come right back.

**Our Report on Uti Worldwide**

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**Investment Considerations**

**Investment Highlights**

Uti Worldwide's business quality (an evaluation of our ValueCreationâ„¢ and ValueRiskâ„¢ ratings) ranks among the best of the firms in our coverage universe. The firm has been generating economic value for shareholders with relatively stable operating results for the past few years, a combination we view very positively.

The firm is trading at attractive valuation mulitples relative to peers, but our DCF process indicates a less compelling opportunity. If the firm's share price fell below $15 on improving technicals, we'd take a closer look at adding it to the market-beating portfolio of our Best Ideas Newsletter. In the spirit of transparency, we show the performance of our Best Ideas Newsletter below:

Uti Worldwide's cash flow generation and financial leverage aren't much to speak of. The firm's free cash flow margin has averaged about 1.2% during the past three years, lower than the mid-single-digit range we'd

expect for cash cows. However, the firm's cash flow should be sufficient to handle its low financial leverage.

**Business Quality**

**Economic Profit Analysis**

The best measure of a firm's ability to create value for shareholders is expressed by comparing its return on invested capital (ROIC) with its weighted average cost of capital (OTC:WACC). The gap or difference between ROIC and WACC is called the firm's economic profit spread. Uti Worldwide's 3-year historical return on invested capital (without goodwill) is 42.5%, which is above the estimate of its cost of capital of 10.3%. As such, we assign the firm a ValueCreationâ„¢ rating of EXCELLENT. In the chart below, we show the probable path of ROIC in the years ahead based on the estimated volatility of key drivers behind the measure. The solid grey line reflects the most likely outcome, in our opinion, and represents the scenario that results in our fair value estimate.

**Cash Flow Analysis**

Firms that generate a free cash flow margin (free cash flow divided by total revenue) above 5% are usually considered cash cows. Uti Worldwide's free cash flow margin has averaged about 1.2% during the past 3 years. As such, we think the firm's cash flow generation is relatively MEDIUM. The free cash flow measure shown above is derived by taking cash flow from operations less capital expenditures and differs from enterprise free cash flow (FCFF), which we use in deriving our fair value estimate for the company. For more information on the differences between these two measures, please visit our website at Valuentum.com. At Uti Worldwide, cash flow from operations decreased about 2% from levels registered two years ago, while capital expenditures expanded about 192% over the same time period.

**Valuation Analysis**

Our discounted cash flow model indicates that Uti Worldwide's shares are worth between $15.00 - $23.00 each. The margin of safety around our fair value estimate is driven by the firm's LOW ValueRiskâ„¢ rating, which is derived from the historical volatility of key valuation drivers. The estimated fair value of $19 per share represents a price-to-earnings (P/E) ratio of about 27.1 times last year's earnings and an implied EV/EBITDA multiple of about 2.6 times last year's EBITDA. Our model reflects a compound annual revenue growth rate of 5.6% during the next five years, a pace that is higher than the firm's 3-year historical compound annual growth rate of 2.6%. Our model reflects a 5-year projected average operating margin of 3.7%, which is below Uti Worldwide's trailing 3-year average. Beyond year 5, we assume free cash flow will grow at an annual rate of 2.1% for the next 15 years and 3% in perpetuity. For Uti Worldwide, we use a 10.3% weighted average cost of capital to discount future free cash flows.

**Margin of Safety Analysis**

We estimate Uti Worldwide's fair value at this point in time to be about $19 per share. As time passes, however, companies generate cash flow and pay out cash to shareholders in the form of dividends. The chart below compares the firm's current share price with the path of Uti Worldwide's expected equity value per share over the next three years, assuming our long-term projections prove accurate. The range between the resulting downside fair value and upside fair value in Year 3 represents our best estimate of the value of the firm's shares three years hence. This range of potential outcomes is also subject to change over time, should our views on the firm's future cash flow potential change. The expected fair value of $26 per share in Year 3 represents our existing fair value per share of $19 increased at an annual rate of the firm's cost of equity less its dividend yield. The upside and downside ranges are derived in the same way, but from the upper and lower bounds of our fair value estimate range.

**Future Path of Fair**

We estimate Uti Worldwide's fair value at this point in time to be about $19 per share. As time passes, however, companies generate cash flow and pay out cash to shareholders in the form of dividends. The chart below compares the firm's current share price with the path of Uti Worldwide's expected equity value per share over the next three years, assuming our long-term projections prove accurate. The range between the resulting downside fair value and upside fair value in Year 3 represents our best estimate of the value of the firm's shares three years hence. This range of potential outcomes is also subject to change over time, should our views on the firm's future cash flow potential change. The expected fair value of $26 per share in Year 3 represents our existing fair value per share of $19 increased at an annual rate of the firm's cost of equity less its dividend yield. The upside and downside ranges are derived in the same way, but from the upper and lower bounds of our fair value estimate range.

**Pro Forma Financial Statements**

**Disclosure: **I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.