Intrinsic value of Fortis Inc. - FTS

Previous Close

$46.02

  Intrinsic Value

$185.09

stock screener

  Rating & Target

str. buy

+302%

  Value-price divergence*

-98%

Previous close

$46.02

 
Intrinsic value

$185.09

 
Up/down potential

+302%

 
Rating

str. buy

 
Value-price divergence*

-98%

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

We calculate the intrinsic value of FTS 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 19.2

 

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, %
  1.20
  28.30
  25.97
  23.87
  21.99
  20.29
  18.76
  17.38
  16.14
  15.03
  14.03
  13.12
  12.31
  11.58
  10.92
  10.33
  9.80
  9.32
  8.89
  8.50
  8.15
  7.83
  7.55
  7.29
  7.07
  6.86
  6.67
  6.51
  6.35
  6.22
  6.10
Revenue, $m
  6,838
  8,773
  11,052
  13,690
  16,700
  20,088
  23,856
  28,002
  32,523
  37,411
  42,659
  48,258
  54,199
  60,476
  67,081
  74,011
  81,262
  88,834
  96,727
  104,946
  113,497
  122,387
  131,626
  141,228
  151,205
  161,576
  172,357
  183,570
  195,236
  207,378
  220,023
Variable operating expenses, $m
 
  4,739
  5,648
  6,701
  7,903
  9,255
  10,759
  12,415
  14,219
  16,171
  18,265
  19,264
  21,636
  24,141
  26,778
  29,544
  32,439
  35,461
  38,612
  41,893
  45,306
  48,855
  52,543
  56,376
  60,359
  64,499
  68,803
  73,279
  77,936
  82,783
  87,830
Fixed operating expenses, $m
 
  1,499
  1,536
  1,574
  1,614
  1,654
  1,695
  1,738
  1,781
  1,826
  1,871
  1,918
  1,966
  2,015
  2,066
  2,117
  2,170
  2,225
  2,280
  2,337
  2,396
  2,456
  2,517
  2,580
  2,644
  2,710
  2,778
  2,848
  2,919
  2,992
  3,067
Total operating expenses, $m
  5,394
  6,238
  7,184
  8,275
  9,517
  10,909
  12,454
  14,153
  16,000
  17,997
  20,136
  21,182
  23,602
  26,156
  28,844
  31,661
  34,609
  37,686
  40,892
  44,230
  47,702
  51,311
  55,060
  58,956
  63,003
  67,209
  71,581
  76,127
  80,855
  85,775
  90,897
Operating income, $m
  1,444
  2,536
  3,867
  5,414
  7,183
  9,178
  11,401
  13,850
  16,523
  19,415
  22,522
  27,076
  30,597
  34,319
  38,238
  42,349
  46,653
  51,148
  55,835
  60,716
  65,795
  71,076
  76,566
  82,272
  88,202
  94,367
  100,776
  107,444
  114,381
  121,604
  129,126
EBITDA, $m
  2,427
  3,880
  5,240
  6,819
  8,625
  10,661
  12,930
  15,430
  18,159
  21,111
  24,283
  27,668
  31,263
  35,062
  39,061
  43,258
  47,651
  52,239
  57,023
  62,005
  67,189
  72,579
  78,182
  84,006
  90,059
  96,351
  102,893
  109,698
  116,779
  124,151
  131,829
Interest expense (income), $m
  644
  832
  1,174
  1,580
  2,051
  2,588
  3,192
  3,864
  4,603
  5,409
  6,281
  7,217
  8,215
  9,274
  10,394
  11,572
  12,807
  14,100
  15,450
  16,858
  18,324
  19,848
  21,434
  23,081
  24,793
  26,573
  28,422
  30,344
  32,344
  34,424
  36,589
Earnings before tax, $m
  858
  1,704
  2,693
  3,834
  5,132
  6,591
  8,209
  9,986
  11,920
  14,006
  16,241
  19,859
  22,382
  25,045
  27,844
  30,778
  33,846
  37,047
  40,384
  43,858
  47,471
  51,228
  55,132
  59,190
  63,409
  67,794
  72,355
  77,099
  82,037
  87,180
  92,537
Tax expense, $m
  145
  460
  727
  1,035
  1,386
  1,780
  2,216
  2,696
  3,218
  3,782
  4,385
  5,362
  6,043
  6,762
  7,518
  8,310
  9,138
  10,003
  10,904
  11,842
  12,817
  13,831
  14,886
  15,981
  17,120
  18,304
  19,536
  20,817
  22,150
  23,539
  24,985
Net income, $m
  660
  1,244
  1,966
  2,799
  3,747
  4,811
  5,993
  7,290
  8,701
  10,224
  11,856
  14,497
  16,339
  18,283
  20,326
  22,468
  24,707
  27,045
  29,480
  32,016
  34,654
  37,396
  40,246
  43,209
  46,288
  49,490
  52,819
  56,282
  59,887
  63,641
  67,552

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  269
  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
  47,904
  60,925
  76,747
  95,069
  115,970
  139,497
  165,665
  194,461
  225,856
  259,802
  296,244
  335,123
  376,383
  419,970
  465,842
  513,965
  564,319
  616,900
  671,716
  728,793
  788,172
  849,907
  914,071
  980,748
  1,050,038
  1,122,056
  1,196,927
  1,274,792
  1,355,804
  1,440,127
  1,527,938
Adjusted assets (=assets-cash), $m
  47,635
  60,925
  76,747
  95,069
  115,970
  139,497
  165,665
  194,461
  225,856
  259,802
  296,244
  335,123
  376,383
  419,970
  465,842
  513,965
  564,319
  616,900
  671,716
  728,793
  788,172
  849,907
  914,071
  980,748
  1,050,038
  1,122,056
  1,196,927
  1,274,792
  1,355,804
  1,440,127
  1,527,938
Revenue / Adjusted assets
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
Average production assets, $m
  776
  991
  1,249
  1,547
  1,887
  2,270
  2,696
  3,164
  3,675
  4,227
  4,820
  5,453
  6,125
  6,834
  7,580
  8,363
  9,183
  10,038
  10,930
  11,859
  12,825
  13,830
  14,874
  15,959
  17,086
  18,258
  19,476
  20,743
  22,062
  23,434
  24,863
Working capital, $m
  -1,778
  -728
  -917
  -1,136
  -1,386
  -1,667
  -1,980
  -2,324
  -2,699
  -3,105
  -3,541
  -4,005
  -4,499
  -5,019
  -5,568
  -6,143
  -6,745
  -7,373
  -8,028
  -8,711
  -9,420
  -10,158
  -10,925
  -11,722
  -12,550
  -13,411
  -14,306
  -15,236
  -16,205
  -17,212
  -18,262
Total debt, $m
  22,759
  31,734
  42,714
  55,430
  69,935
  86,263
  104,423
  124,408
  146,196
  169,754
  195,045
  222,028
  250,662
  280,911
  312,746
  346,144
  381,090
  417,581
  455,623
  495,235
  536,443
  579,288
  623,817
  670,091
  718,178
  768,159
  820,119
  874,158
  930,380
  988,900
  1,049,841
Total liabilities, $m
  33,307
  42,282
  53,262
  65,978
  80,483
  96,811
  114,971
  134,956
  156,744
  180,302
  205,593
  232,576
  261,210
  291,459
  323,294
  356,692
  391,638
  428,129
  466,171
  505,783
  546,991
  589,836
  634,365
  680,639
  728,726
  778,707
  830,667
  884,706
  940,928
  999,448
  1,060,389
Total equity, $m
  14,597
  18,643
  23,485
  29,091
  35,487
  42,686
  50,693
  59,505
  69,112
  79,499
  90,651
  102,548
  115,173
  128,511
  142,548
  157,273
  172,682
  188,771
  205,545
  223,011
  241,181
  260,072
  279,706
  300,109
  321,312
  343,349
  366,260
  390,086
  414,876
  440,679
  467,549
Total liabilities and equity, $m
  47,904
  60,925
  76,747
  95,069
  115,970
  139,497
  165,664
  194,461
  225,856
  259,801
  296,244
  335,124
  376,383
  419,970
  465,842
  513,965
  564,320
  616,900
  671,716
  728,794
  788,172
  849,908
  914,071
  980,748
  1,050,038
  1,122,056
  1,196,927
  1,274,792
  1,355,804
  1,440,127
  1,527,938
Debt-to-equity ratio
  1.559
  1.700
  1.820
  1.910
  1.970
  2.020
  2.060
  2.090
  2.120
  2.140
  2.150
  2.170
  2.180
  2.190
  2.190
  2.200
  2.210
  2.210
  2.220
  2.220
  2.220
  2.230
  2.230
  2.230
  2.240
  2.240
  2.240
  2.240
  2.240
  2.240
  2.250
Adjusted equity ratio
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  660
  1,244
  1,966
  2,799
  3,747
  4,811
  5,993
  7,290
  8,701
  10,224
  11,856
  14,497
  16,339
  18,283
  20,326
  22,468
  24,707
  27,045
  29,480
  32,016
  34,654
  37,396
  40,246
  43,209
  46,288
  49,490
  52,819
  56,282
  59,887
  63,641
  67,552
Depreciation, amort., depletion, $m
  983
  1,344
  1,372
  1,405
  1,442
  1,483
  1,529
  1,580
  1,636
  1,696
  1,760
  593
  666
  743
  824
  909
  998
  1,091
  1,188
  1,289
  1,394
  1,503
  1,617
  1,735
  1,857
  1,985
  2,117
  2,255
  2,398
  2,547
  2,702
Funds from operations, $m
  1,906
  2,588
  3,338
  4,203
  5,188
  6,294
  7,522
  8,870
  10,337
  11,920
  13,617
  15,090
  17,005
  19,025
  21,150
  23,377
  25,705
  28,136
  30,669
  33,305
  36,048
  38,899
  41,863
  44,944
  48,145
  51,474
  54,936
  58,537
  62,285
  66,188
  70,254
Change in working capital, $m
  22
  -161
  -189
  -219
  -250
  -281
  -313
  -344
  -375
  -406
  -436
  -465
  -493
  -521
  -548
  -575
  -602
  -628
  -655
  -682
  -710
  -738
  -767
  -797
  -828
  -861
  -895
  -931
  -968
  -1,008
  -1,050
Cash from operations, $m
  1,884
  2,749
  3,527
  4,422
  5,438
  6,576
  7,835
  9,215
  10,712
  12,326
  14,052
  15,554
  17,498
  19,546
  21,698
  23,952
  26,307
  28,764
  31,324
  33,987
  36,758
  39,637
  42,630
  45,741
  48,974
  52,335
  55,831
  59,468
  63,254
  67,196
  71,304
Maintenance CAPEX, $m
  0
  -84
  -108
  -136
  -168
  -205
  -247
  -293
  -344
  -399
  -460
  -524
  -593
  -666
  -743
  -824
  -909
  -998
  -1,091
  -1,188
  -1,289
  -1,394
  -1,503
  -1,617
  -1,735
  -1,857
  -1,985
  -2,117
  -2,255
  -2,398
  -2,547
New CAPEX, $m
  -2,061
  -215
  -257
  -298
  -340
  -383
  -426
  -469
  -511
  -552
  -593
  -633
  -671
  -709
  -746
  -783
  -819
  -856
  -892
  -929
  -966
  -1,005
  -1,044
  -1,085
  -1,127
  -1,172
  -1,218
  -1,267
  -1,318
  -1,372
  -1,429
Cash from investing activities, $m
  -6,891
  -299
  -365
  -434
  -508
  -588
  -673
  -762
  -855
  -951
  -1,053
  -1,157
  -1,264
  -1,375
  -1,489
  -1,607
  -1,728
  -1,854
  -1,983
  -2,117
  -2,255
  -2,399
  -2,547
  -2,702
  -2,862
  -3,029
  -3,203
  -3,384
  -3,573
  -3,770
  -3,976
Free cash flow, $m
  -5,007
  2,449
  3,162
  3,988
  4,930
  5,988
  7,162
  8,453
  9,858
  11,374
  13,000
  14,398
  16,234
  18,171
  20,209
  22,345
  24,579
  26,910
  29,341
  31,871
  34,502
  37,239
  40,083
  43,039
  46,111
  49,306
  52,628
  56,084
  59,681
  63,426
  67,328
Issuance/(repayment) of debt, $m
  4,285
  9,244
  10,981
  12,715
  14,506
  16,328
  18,160
  19,985
  21,788
  23,558
  25,291
  26,982
  28,634
  30,250
  31,835
  33,397
  34,946
  36,491
  38,043
  39,612
  41,209
  42,844
  44,529
  46,274
  48,088
  49,980
  51,961
  54,038
  56,222
  58,520
  60,941
Issuance/(repurchase) of shares, $m
  -155
  2,802
  2,875
  2,808
  2,649
  2,388
  2,015
  1,522
  905
  163
  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  
  5,438
  12,046
  13,856
  15,523
  17,155
  18,716
  20,175
  21,507
  22,693
  23,721
  25,291
  26,982
  28,634
  30,250
  31,835
  33,397
  34,946
  36,491
  38,043
  39,612
  41,209
  42,844
  44,529
  46,274
  48,088
  49,980
  51,961
  54,038
  56,222
  58,520
  60,941
Total cash flow (excl. dividends), $m
  415
  14,495
  17,018
  19,511
  22,085
  24,703
  27,337
  29,960
  32,551
  35,096
  38,290
  41,380
  44,868
  48,421
  52,044
  55,742
  59,525
  63,401
  67,383
  71,482
  75,711
  80,083
  84,612
  89,313
  94,199
  99,286
  104,589
  110,122
  115,903
  121,946
  128,269
Retained Cash Flow (-), $m
  -4,717
  -4,046
  -4,842
  -5,606
  -6,396
  -7,199
  -8,007
  -8,812
  -9,607
  -10,387
  -11,151
  -11,897
  -12,625
  -13,338
  -14,037
  -14,726
  -15,408
  -16,090
  -16,774
  -17,466
  -18,170
  -18,891
  -19,634
  -20,403
  -21,203
  -22,037
  -22,911
  -23,827
  -24,790
  -25,803
  -26,870
Prev. year cash balance distribution, $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 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
 
  10,449
  12,177
  13,905
  15,689
  17,504
  19,330
  21,148
  22,944
  24,708
  27,139
  29,483
  32,243
  35,083
  38,007
  41,017
  44,116
  47,312
  50,609
  54,016
  57,541
  61,192
  64,978
  68,910
  72,996
  77,249
  81,678
  86,295
  91,113
  96,143
  101,399
Discount rate, %
 
  10.00
  10.50
  11.03
  11.58
  12.16
  12.76
  13.40
  14.07
  14.77
  15.51
  16.29
  17.10
  17.96
  18.86
  19.80
  20.79
  21.83
  22.92
  24.07
  25.27
  26.53
  27.86
  29.25
  30.72
  32.25
  33.86
  35.56
  37.33
  39.20
  41.16
PV of cash for distribution, $m
 
  9,499
  9,972
  10,160
  10,123
  9,864
  9,402
  8,769
  8,003
  7,149
  6,416
  5,606
  4,848
  4,098
  3,385
  2,730
  2,149
  1,649
  1,233
  898
  635
  437
  291
  188
  118
  71
  42
  23
  13
  7
  3
Current shareholders' claim on cash, %
  100
  87.2
  78.1
  71.6
  66.9
  63.7
  61.4
  60.1
  59.4
  59.3
  59.3
  59.3
  59.3
  59.3
  59.3
  59.3
  59.3
  59.3
  59.3
  59.3
  59.3
  59.3
  59.3
  59.3
  59.3
  59.3
  59.3
  59.3
  59.3
  59.3
  59.3

Fortis Inc. operates as an electric and gas utility company in Canada, the United States, and the Caribbean. It generates, transmits, and distributes electricity to approximately 417,000 retail customers in southeastern Arizona, including the greater Tucson metropolitan area in Pima county, as well as parts of Cochise county approximately 94,000 retail customers in Arizona’s Mohave and Santa Cruz counties with an aggregate capacity of 2,799 megawatts (MW) comprising 54 MW of solar capacity. The company also sells wholesale electricity to other entities in the western United States; owns gas-fired and hydroelectric generating capacity totaling 64 MW; and distributes natural gas to approximately 982,000 customers in approximately 135 communities in British Columbia, Canada. In addition, it owns and operates the electricity distribution system that serves approximately 539,000 customers in southern and central Alberta; owns 4 hydroelectric generating facilities with a combined capacity of 225 MW; and provides operation, maintenance, and management services to hydroelectric generating facilities. Further, the company distributes electricity in the island portion of Newfoundland and Labrador serving approximately 262,000 customers with an installed generating capacity of 139 MW, including 97 MW is hydroelectric generation; and on Prince Edward Island serving approximately 78,000 customers through generating facilities with a combined capacity of 150 MW. Additionally, it provides integrated electric utility service to approximately 65,000 customers in Fort Erie, Cornwall, Gananoque, Port Colborne and the District of Algoma in Ontario; approximately 28,000 customers on Grand Cayman, Cayman Islands; and approximately 14,000 customers on certain islands in Turks and Caicos, as well as holds long-term contracted generation assets in British Columbia and Belize. Fortis Inc. was founded in 1977 and is based in St. John's, Canada.

FINANCIAL RATIOS  of  Fortis Inc. (FTS)

Valuation Ratios
P/E Ratio 28
Price to Sales 2.7
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 9.8
Price to Free Cash Flow -104.4
Growth Rates
Sales Growth Rate 1.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -9.4%
Cap. Spend. - 3 Yr. Gr. Rate 11.9%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 145.8%
Total Debt to Equity 155.9%
Interest Coverage 2
Management Effectiveness
Return On Assets 3.1%
Ret/ On Assets - 3 Yr. Avg. 3.8%
Return On Total Capital 2.2%
Ret/ On T. Cap. - 3 Yr. Avg. 2.8%
Return On Equity 5.4%
Return On Equity - 3 Yr. Avg. 6.4%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 36.3%
EBITDA Margin - 3 Yr. Avg. 34.8%
Operating Margin 21.1%
Oper. Margin - 3 Yr. Avg. 20%
Pre-Tax Margin 12.5%
Pre-Tax Margin - 3 Yr. Avg. 12.2%
Net Profit Margin 9.7%
Net Profit Margin - 3 Yr. Avg. 9.5%
Effective Tax Rate 16.9%
Eff/ Tax Rate - 3 Yr. Avg. 17.5%
Payout Ratio 58.8%

FTS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FTS stock intrinsic value calculation we used $6838 million for the last fiscal year's total revenue generated by Fortis Inc.. The default revenue input number comes from 2016 income statement of Fortis 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 FTS stock valuation model: a) initial revenue growth rate of 28.3% 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 10%, whose default value for FTS is calculated based on our internal credit rating of Fortis 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 Fortis 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 FTS stock the variable cost ratio is equal to 58%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1462 million in the base year in the intrinsic value calculation for FTS 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 3.7% for Fortis Inc..

Corporate tax rate of 27% is the nominal tax rate for Fortis 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 FTS 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 FTS are equal to 11.3%.

Life of production assets of 9.2 years is the average useful life of capital assets used in Fortis 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 FTS is equal to -8.3%. 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 - $14597 million for Fortis 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 416.497 million for Fortis 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 Fortis Inc. at the current share price and the inputted number of shares is $19.2 billion.

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Stock chart of FTS Financial statements of FTS
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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