Intrinsic value of Waste Connections Inc. - WCN

Previous Close

$89.11

  Intrinsic Value

$373.30

stock screener

  Rating & Target

str. buy

+319%

Previous close

$89.11

 
Intrinsic value

$373.30

 
Up/down potential

+319%

 
Rating

str. buy

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of WCN 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 2016), $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 23.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  75.29
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  4,561
  7,298
  11,275
  16,861
  24,465
  34,517
  47,453
  63,695
  83,636
  107,619
  135,932
  168,796
  206,369
  248,745
  295,957
  347,993
  404,799
  466,295
  532,380
  602,948
  677,893
  757,116
  840,536
  928,088
  1,019,733
  1,115,457
  1,215,273
  1,319,222
  1,427,375
  1,539,830
  1,656,712
Variable operating expenses, $m
 
  5,774
  8,598
  12,564
  17,962
  25,098
  34,282
  45,813
  59,970
  76,996
  97,097
  119,835
  146,510
  176,594
  210,112
  247,054
  287,384
  331,042
  377,958
  428,058
  481,264
  537,508
  596,731
  658,887
  723,950
  791,908
  862,772
  936,570
  1,013,352
  1,093,188
  1,176,167
Fixed operating expenses, $m
 
  124
  127
  130
  134
  137
  140
  144
  147
  151
  155
  159
  163
  167
  171
  175
  180
  184
  189
  193
  198
  203
  208
  214
  219
  224
  230
  236
  242
  248
  254
Total operating expenses, $m
  3,950
  5,898
  8,725
  12,694
  18,096
  25,235
  34,422
  45,957
  60,117
  77,147
  97,252
  119,994
  146,673
  176,761
  210,283
  247,229
  287,564
  331,226
  378,147
  428,251
  481,462
  537,711
  596,939
  659,101
  724,169
  792,132
  863,002
  936,806
  1,013,594
  1,093,436
  1,176,421
Operating income, $m
  611
  1,400
  2,550
  4,167
  6,370
  9,282
  13,031
  17,738
  23,519
  30,472
  38,680
  48,802
  59,697
  71,984
  85,674
  100,763
  117,236
  135,069
  154,233
  174,697
  196,431
  219,405
  243,597
  268,987
  295,564
  323,324
  352,271
  382,417
  413,782
  446,394
  480,291
EBITDA, $m
  1,238
  2,286
  3,597
  5,439
  7,947
  11,264
  15,534
  20,895
  27,478
  35,396
  44,745
  55,596
  68,003
  81,996
  97,586
  114,770
  133,529
  153,837
  175,661
  198,966
  223,716
  249,879
  277,428
  306,342
  336,608
  368,221
  401,186
  435,516
  471,234
  508,372
  546,973
Interest expense (income), $m
  118
  171
  326
  550
  866
  1,295
  1,863
  2,594
  3,511
  4,637
  5,992
  7,591
  9,447
  11,569
  13,962
  16,628
  19,567
  22,776
  26,249
  29,981
  33,966
  38,199
  42,673
  47,385
  52,329
  57,505
  62,912
  68,549
  74,420
  80,528
  86,879
Earnings before tax, $m
  488
  1,228
  2,224
  3,617
  5,504
  7,986
  11,167
  15,145
  20,008
  25,834
  32,688
  41,211
  50,250
  60,415
  71,712
  84,135
  97,669
  112,293
  127,984
  144,716
  162,464
  181,206
  200,923
  221,602
  243,235
  265,819
  289,360
  313,868
  339,362
  365,866
  393,412
Tax expense, $m
  154
  332
  601
  977
  1,486
  2,156
  3,015
  4,089
  5,402
  6,975
  8,826
  11,127
  13,567
  16,312
  19,362
  22,716
  26,371
  30,319
  34,556
  39,073
  43,865
  48,926
  54,249
  59,833
  65,673
  71,771
  78,127
  84,744
  91,628
  98,784
  106,221
Net income, $m
  333
  897
  1,624
  2,640
  4,018
  5,830
  8,152
  11,056
  14,606
  18,859
  23,863
  30,084
  36,682
  44,103
  52,350
  61,418
  71,298
  81,974
  93,429
  105,643
  118,599
  132,280
  146,674
  161,770
  177,561
  194,048
  211,232
  229,124
  247,734
  267,082
  287,191

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  209
  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
  15,002
  23,694
  36,606
  54,745
  79,432
  112,067
  154,067
  206,803
  271,545
  349,412
  441,336
  548,040
  670,031
  807,612
  960,899
  1,129,847
  1,314,283
  1,513,944
  1,728,507
  1,957,624
  2,200,951
  2,458,170
  2,729,012
  3,013,272
  3,310,822
  3,621,613
  3,945,691
  4,283,190
  4,634,336
  4,999,448
  5,378,934
Adjusted assets (=assets-cash), $m
  14,793
  23,694
  36,606
  54,745
  79,432
  112,067
  154,067
  206,803
  271,545
  349,412
  441,336
  548,040
  670,031
  807,612
  960,899
  1,129,847
  1,314,283
  1,513,944
  1,728,507
  1,957,624
  2,200,951
  2,458,170
  2,729,012
  3,013,272
  3,310,822
  3,621,613
  3,945,691
  4,283,190
  4,634,336
  4,999,448
  5,378,934
Revenue / Adjusted assets
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
Average production assets, $m
  1,469
  2,350
  3,630
  5,429
  7,878
  11,114
  15,280
  20,510
  26,931
  34,653
  43,770
  54,352
  66,451
  80,096
  95,298
  112,054
  130,345
  150,147
  171,426
  194,149
  218,282
  243,791
  270,652
  298,844
  328,354
  359,177
  391,318
  424,790
  459,615
  495,825
  533,461
Working capital, $m
  69
  -197
  -304
  -455
  -661
  -932
  -1,281
  -1,720
  -2,258
  -2,906
  -3,670
  -4,557
  -5,572
  -6,716
  -7,991
  -9,396
  -10,930
  -12,590
  -14,374
  -16,280
  -18,303
  -20,442
  -22,694
  -25,058
  -27,533
  -30,117
  -32,812
  -35,619
  -38,539
  -41,575
  -44,731
Total debt, $m
  4,904
  9,308
  15,725
  24,740
  37,010
  53,229
  74,103
  100,313
  132,490
  171,190
  216,876
  269,908
  330,537
  398,915
  475,099
  559,066
  650,731
  749,962
  856,600
  970,471
  1,091,405
  1,219,242
  1,353,851
  1,495,128
  1,643,010
  1,797,474
  1,958,541
  2,126,277
  2,300,797
  2,482,258
  2,670,862
Total liabilities, $m
  7,372
  11,776
  18,193
  27,208
  39,478
  55,697
  76,571
  102,781
  134,958
  173,658
  219,344
  272,376
  333,005
  401,383
  477,567
  561,534
  653,199
  752,430
  859,068
  972,939
  1,093,873
  1,221,710
  1,356,319
  1,497,596
  1,645,478
  1,799,942
  1,961,009
  2,128,745
  2,303,265
  2,484,726
  2,673,330
Total equity, $m
  7,630
  11,918
  18,413
  27,537
  39,954
  56,370
  77,496
  104,022
  136,587
  175,754
  221,992
  275,664
  337,026
  406,229
  483,332
  568,313
  661,085
  761,514
  869,439
  984,685
  1,107,078
  1,236,459
  1,372,693
  1,515,676
  1,665,343
  1,821,672
  1,984,683
  2,154,444
  2,331,071
  2,514,722
  2,705,604
Total liabilities and equity, $m
  15,002
  23,694
  36,606
  54,745
  79,432
  112,067
  154,067
  206,803
  271,545
  349,412
  441,336
  548,040
  670,031
  807,612
  960,899
  1,129,847
  1,314,284
  1,513,944
  1,728,507
  1,957,624
  2,200,951
  2,458,169
  2,729,012
  3,013,272
  3,310,821
  3,621,614
  3,945,692
  4,283,189
  4,634,336
  4,999,448
  5,378,934
Debt-to-equity ratio
  0.643
  0.780
  0.850
  0.900
  0.930
  0.940
  0.960
  0.960
  0.970
  0.970
  0.980
  0.980
  0.980
  0.980
  0.980
  0.980
  0.980
  0.980
  0.990
  0.990
  0.990
  0.990
  0.990
  0.990
  0.990
  0.990
  0.990
  0.990
  0.990
  0.990
  0.990
Adjusted equity ratio
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  333
  897
  1,624
  2,640
  4,018
  5,830
  8,152
  11,056
  14,606
  18,859
  23,863
  30,084
  36,682
  44,103
  52,350
  61,418
  71,298
  81,974
  93,429
  105,643
  118,599
  132,280
  146,674
  161,770
  177,561
  194,048
  211,232
  229,124
  247,734
  267,082
  287,191
Depreciation, amort., depletion, $m
  627
  887
  1,047
  1,272
  1,578
  1,982
  2,503
  3,157
  3,960
  4,925
  6,064
  6,794
  8,306
  10,012
  11,912
  14,007
  16,293
  18,768
  21,428
  24,269
  27,285
  30,474
  33,832
  37,356
  41,044
  44,897
  48,915
  53,099
  57,452
  61,978
  66,683
Funds from operations, $m
  1,026
  1,784
  2,671
  3,912
  5,596
  7,813
  10,655
  14,213
  18,565
  23,784
  29,927
  36,878
  44,989
  54,115
  64,262
  75,425
  87,591
  100,743
  114,857
  129,912
  145,884
  162,754
  180,506
  199,125
  218,606
  238,945
  260,147
  282,222
  305,186
  329,061
  353,873
Change in working capital, $m
  -48
  -74
  -107
  -151
  -205
  -271
  -349
  -439
  -538
  -648
  -764
  -887
  -1,014
  -1,144
  -1,275
  -1,405
  -1,534
  -1,660
  -1,784
  -1,905
  -2,024
  -2,139
  -2,252
  -2,364
  -2,474
  -2,585
  -2,695
  -2,807
  -2,920
  -3,036
  -3,156
Cash from operations, $m
  1,074
  1,858
  2,778
  4,063
  5,801
  8,084
  11,005
  14,651
  19,104
  24,432
  30,691
  37,766
  46,003
  55,259
  65,537
  76,830
  89,125
  102,403
  116,641
  131,817
  147,908
  164,893
  182,758
  201,489
  221,080
  241,529
  262,842
  285,029
  308,106
  332,097
  357,029
Maintenance CAPEX, $m
  0
  -184
  -294
  -454
  -679
  -985
  -1,389
  -1,910
  -2,564
  -3,366
  -4,332
  -5,471
  -6,794
  -8,306
  -10,012
  -11,912
  -14,007
  -16,293
  -18,768
  -21,428
  -24,269
  -27,285
  -30,474
  -33,832
  -37,356
  -41,044
  -44,897
  -48,915
  -53,099
  -57,452
  -61,978
New CAPEX, $m
  -466
  -881
  -1,281
  -1,799
  -2,448
  -3,237
  -4,165
  -5,230
  -6,421
  -7,723
  -9,117
  -10,582
  -12,099
  -13,645
  -15,202
  -16,756
  -18,292
  -19,802
  -21,279
  -22,723
  -24,132
  -25,510
  -26,861
  -28,192
  -29,510
  -30,823
  -32,141
  -33,472
  -34,825
  -36,210
  -37,636
Cash from investing activities, $m
  -400
  -1,065
  -1,575
  -2,253
  -3,127
  -4,222
  -5,554
  -7,140
  -8,985
  -11,089
  -13,449
  -16,053
  -18,893
  -21,951
  -25,214
  -28,668
  -32,299
  -36,095
  -40,047
  -44,151
  -48,401
  -52,795
  -57,335
  -62,024
  -66,866
  -71,867
  -77,038
  -82,387
  -87,924
  -93,662
  -99,614
Free cash flow, $m
  674
  793
  1,204
  1,810
  2,674
  3,863
  5,450
  7,511
  10,119
  13,343
  17,243
  21,712
  27,111
  33,308
  40,322
  48,162
  56,827
  66,308
  76,593
  87,666
  99,507
  112,098
  125,423
  139,466
  154,215
  169,662
  185,804
  202,642
  220,182
  238,435
  257,415
Issuance/(repayment) of debt, $m
  -332
  4,421
  6,418
  9,015
  12,270
  16,220
  20,874
  26,210
  32,177
  38,700
  45,686
  53,032
  60,630
  68,378
  76,184
  83,967
  91,665
  99,231
  106,638
  113,871
  120,933
  127,838
  134,609
  141,277
  147,882
  154,464
  161,067
  167,737
  174,520
  181,461
  188,605
Issuance/(repurchase) of shares, $m
  27
  3,583
  4,872
  6,483
  8,400
  10,585
  12,973
  15,470
  17,960
  20,308
  22,375
  23,587
  24,679
  25,101
  24,754
  23,562
  21,473
  18,455
  14,497
  9,603
  3,794
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -354
  8,004
  11,290
  15,498
  20,670
  26,805
  33,847
  41,680
  50,137
  59,008
  68,061
  76,619
  85,309
  93,479
  100,938
  107,529
  113,138
  117,686
  121,135
  123,474
  124,727
  127,838
  134,609
  141,277
  147,882
  154,464
  161,067
  167,737
  174,520
  181,461
  188,605
Total cash flow (excl. dividends), $m
  319
  8,796
  12,493
  17,309
  23,343
  30,668
  39,297
  49,191
  60,256
  72,351
  85,304
  98,331
  112,420
  126,787
  141,260
  155,691
  169,965
  183,995
  197,728
  211,140
  224,234
  239,936
  260,032
  280,743
  302,097
  324,126
  346,871
  370,379
  394,702
  419,895
  446,020
Retained Cash Flow (-), $m
  -6,105
  -4,480
  -6,495
  -9,124
  -12,418
  -16,415
  -21,126
  -26,526
  -32,565
  -39,167
  -46,238
  -53,672
  -61,362
  -69,204
  -77,103
  -84,981
  -92,771
  -100,429
  -107,925
  -115,246
  -122,393
  -129,381
  -136,234
  -142,983
  -149,667
  -156,328
  -163,011
  -169,762
  -176,626
  -183,651
  -190,882
Prev. year cash balance distribution, $m
 
  192
  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
 
  4,509
  5,998
  8,185
  10,926
  14,252
  18,172
  22,665
  27,690
  33,184
  39,067
  44,659
  51,058
  57,583
  64,156
  70,711
  77,193
  83,565
  89,803
  95,894
  101,841
  110,555
  123,798
  137,760
  152,429
  167,797
  183,860
  200,618
  218,075
  236,244
  255,138
Discount rate, %
 
  6.70
  7.04
  7.39
  7.76
  8.14
  8.55
  8.98
  9.43
  9.90
  10.39
  10.91
  11.46
  12.03
  12.63
  13.27
  13.93
  14.63
  15.36
  16.12
  16.93
  17.78
  18.67
  19.60
  20.58
  21.61
  22.69
  23.82
  25.01
  26.26
  27.58
PV of cash for distribution, $m
 
  4,225
  5,235
  6,609
  8,104
  9,635
  11,107
  12,416
  13,468
  14,190
  14,533
  14,292
  13,889
  13,147
  12,130
  10,915
  9,582
  8,208
  6,863
  5,601
  4,460
  3,559
  2,868
  2,246
  1,708
  1,261
  903
  626
  420
  273
  171
Current shareholders' claim on cash, %
  100
  86.4
  76.3
  68.4
  62.2
  57.3
  53.3
  50.0
  47.4
  45.2
  43.4
  41.9
  40.7
  39.8
  39.0
  38.4
  37.9
  37.6
  37.4
  37.2
  37.2
  37.2
  37.2
  37.2
  37.2
  37.2
  37.2
  37.2
  37.2
  37.2
  37.2

Waste Connections, Inc. is a solid waste services company in North America. The Company provides waste collection, transfer, disposal and recycling services in markets in the United States and Canada. The Company operates through six segments: Southern segment, Western segment, Eastern segment, Canada segment, Central segment and E&P segment. Through its R360 Environmental Solutions subsidiary, it also provides non-hazardous exploration and production, or E&P, waste treatment, recovery and disposal services in various natural resource producing areas in the United States. It also provides intermodal services for the rail haul movement of cargo and solid waste containers in the Pacific Northwest through a network of intermodal facilities. As of December 31, 2016, it served residential, commercial, industrial and exploration and production (E&P) customers in 40 states and the District of Columbia in the United States and five provinces in Canada.

FINANCIAL RATIOS  of  Waste Connections Inc. (WCN)

Valuation Ratios
P/E Ratio 70.3
Price to Sales 5.1
Price to Book 3.1
Price to Tangible Book
Price to Cash Flow 21.8
Price to Free Cash Flow 38.5
Growth Rates
Sales Growth Rate 75.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 33.5%
Cap. Spend. - 3 Yr. Gr. Rate 4.4%
Financial Strength
Quick Ratio 12
Current Ratio 0
LT Debt to Equity 64%
Total Debt to Equity 64.3%
Interest Coverage 5
Management Effectiveness
Return On Assets 4.3%
Ret/ On Assets - 3 Yr. Avg. 4.8%
Return On Total Capital 4.1%
Ret/ On T. Cap. - 3 Yr. Avg. 4.4%
Return On Equity 7.3%
Return On Equity - 3 Yr. Avg. 9.3%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 42.1%
Gross Margin - 3 Yr. Avg. 38.7%
EBITDA Margin 27%
EBITDA Margin - 3 Yr. Avg. 25.6%
Operating Margin 13.4%
Oper. Margin - 3 Yr. Avg. 12.3%
Pre-Tax Margin 10.7%
Pre-Tax Margin - 3 Yr. Avg. 8.9%
Net Profit Margin 7.3%
Net Profit Margin - 3 Yr. Avg. 6.7%
Effective Tax Rate 31.6%
Eff/ Tax Rate - 3 Yr. Avg. 24.7%
Payout Ratio 37.5%

WCN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the WCN stock intrinsic value calculation we used $4561 million for the last fiscal year's total revenue generated by Waste Connections Inc.. The default revenue input number comes from 2016 income statement of Waste Connections Inc.. 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 WCN stock valuation model: a) initial revenue growth rate of 60% 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 6.7%, whose default value for WCN is calculated based on our internal credit rating of Waste Connections Inc., 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 Waste Connections Inc..
    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 WCN stock the variable cost ratio is equal to 84%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $121 million in the base year in the intrinsic value calculation for WCN 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 3.5% for Waste Connections Inc..

Corporate tax rate of 27% is the nominal tax rate for Waste Connections Inc.. 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 WCN 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 WCN are equal to 32.2%.

Life of production assets of 8 years is the average useful life of capital assets used in Waste Connections Inc. 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 WCN is equal to -2.7%. 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 - $7630 million for Waste Connections Inc. - 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 262.781 million for Waste Connections Inc. 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 Waste Connections Inc. at the current share price and the inputted number of shares is $23.4 billion.

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Financial statements of WCN
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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