Intrinsic value of Stantec Inc. - STN

Previous Close

$31.57

  Intrinsic Value

$179.07

stock screener

  Rating & Target

str. buy

+467%

  Value-price divergence*

0%

Previous close

$31.57

 
Intrinsic value

$179.07

 
Up/down potential

+467%

 
Rating

str. buy

 
Value-price divergence*

0%

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

We calculate the intrinsic value of STN 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 3.7

 

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, %
  30.50
  39.00
  35.60
  32.54
  29.79
  27.31
  25.08
  23.07
  21.26
  19.64
  18.17
  16.86
  15.67
  14.60
  13.64
  12.78
  12.00
  11.30
  10.67
  10.10
  9.59
  9.13
  8.72
  8.35
  8.01
  7.71
  7.44
  7.20
  6.98
  6.78
  6.60
Revenue, $m
  3,098
  4,306
  5,839
  7,739
  10,045
  12,787
  15,994
  19,684
  23,869
  28,556
  33,745
  39,433
  45,612
  52,272
  59,404
  66,994
  75,034
  83,513
  92,424
  101,762
  111,523
  121,710
  132,323
  143,370
  154,858
  166,801
  179,213
  192,110
  205,514
  219,446
  233,933
Variable operating expenses, $m
 
  3,843
  5,146
  6,761
  8,721
  11,052
  13,778
  16,914
  20,471
  24,455
  28,866
  33,518
  38,770
  44,431
  50,493
  56,945
  63,778
  70,985
  78,560
  86,497
  94,794
  103,452
  112,474
  121,863
  131,629
  141,780
  152,330
  163,292
  174,685
  186,528
  198,842
Fixed operating expenses, $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
Total operating expenses, $m
  2,919
  3,843
  5,146
  6,761
  8,721
  11,052
  13,778
  16,914
  20,471
  24,455
  28,866
  33,518
  38,770
  44,431
  50,493
  56,945
  63,778
  70,985
  78,560
  86,497
  94,794
  103,452
  112,474
  121,863
  131,629
  141,780
  152,330
  163,292
  174,685
  186,528
  198,842
Operating income, $m
  180
  463
  693
  978
  1,324
  1,735
  2,216
  2,770
  3,398
  4,101
  4,879
  5,915
  6,842
  7,841
  8,911
  10,050
  11,256
  12,527
  13,864
  15,265
  16,729
  18,257
  19,849
  21,506
  23,230
  25,021
  26,883
  28,818
  30,828
  32,918
  35,091
EBITDA, $m
  180
  713
  966
  1,281
  1,662
  2,116
  2,647
  3,258
  3,950
  4,726
  5,585
  6,526
  7,549
  8,651
  9,832
  11,088
  12,419
  13,822
  15,297
  16,842
  18,458
  20,144
  21,900
  23,728
  25,630
  27,607
  29,661
  31,795
  34,014
  36,320
  38,717
Interest expense (income), $m
  -38
  1
  31
  70
  117
  175
  244
  324
  417
  522
  639
  769
  912
  1,067
  1,233
  1,412
  1,602
  1,804
  2,016
  2,240
  2,474
  2,718
  2,973
  3,239
  3,516
  3,804
  4,103
  4,414
  4,738
  5,074
  5,423
Earnings before tax, $m
  181
  462
  662
  908
  1,206
  1,560
  1,972
  2,446
  2,981
  3,579
  4,240
  5,146
  5,930
  6,775
  7,677
  8,637
  9,653
  10,724
  11,848
  13,025
  14,256
  15,539
  16,876
  18,267
  19,713
  21,217
  22,780
  24,403
  26,091
  27,845
  29,669
Tax expense, $m
  50
  125
  179
  245
  326
  421
  533
  660
  805
  966
  1,145
  1,389
  1,601
  1,829
  2,073
  2,332
  2,606
  2,895
  3,199
  3,517
  3,849
  4,196
  4,556
  4,932
  5,323
  5,729
  6,150
  6,589
  7,044
  7,518
  8,011
Net income, $m
  131
  337
  483
  663
  881
  1,139
  1,440
  1,785
  2,176
  2,613
  3,095
  3,757
  4,329
  4,945
  5,605
  6,305
  7,047
  7,828
  8,649
  9,508
  10,407
  11,343
  12,319
  13,335
  14,391
  15,488
  16,629
  17,814
  19,046
  20,327
  21,658

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  232
  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
  4,285
  5,636
  7,643
  10,130
  13,147
  16,738
  20,935
  25,764
  31,242
  37,377
  44,169
  51,614
  59,701
  68,419
  77,753
  87,689
  98,212
  109,310
  120,974
  133,196
  145,973
  159,306
  173,198
  187,657
  202,694
  218,326
  234,571
  251,453
  268,997
  287,233
  306,195
Adjusted assets (=assets-cash), $m
  4,053
  5,636
  7,643
  10,130
  13,147
  16,738
  20,935
  25,764
  31,242
  37,377
  44,169
  51,614
  59,701
  68,419
  77,753
  87,689
  98,212
  109,310
  120,974
  133,196
  145,973
  159,306
  173,198
  187,657
  202,694
  218,326
  234,571
  251,453
  268,997
  287,233
  306,195
Revenue / Adjusted assets
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
  0.764
Average production assets, $m
  481
  667
  905
  1,200
  1,557
  1,982
  2,479
  3,051
  3,700
  4,426
  5,230
  6,112
  7,070
  8,102
  9,208
  10,384
  11,630
  12,944
  14,326
  15,773
  17,286
  18,865
  20,510
  22,222
  24,003
  25,854
  27,778
  29,777
  31,855
  34,014
  36,260
Working capital, $m
  510
  517
  701
  929
  1,205
  1,534
  1,919
  2,362
  2,864
  3,427
  4,049
  4,732
  5,473
  6,273
  7,128
  8,039
  9,004
  10,022
  11,091
  12,211
  13,383
  14,605
  15,879
  17,204
  18,583
  20,016
  21,506
  23,053
  24,662
  26,334
  28,072
Total debt, $m
  125
  899
  1,997
  3,357
  5,008
  6,971
  9,267
  11,909
  14,905
  18,261
  21,976
  26,049
  30,473
  35,241
  40,347
  45,782
  51,538
  57,609
  63,989
  70,674
  77,663
  84,956
  92,555
  100,464
  108,690
  117,240
  126,127
  135,361
  144,957
  154,933
  165,305
Total liabilities, $m
  2,309
  3,083
  4,181
  5,541
  7,192
  9,155
  11,451
  14,093
  17,089
  20,445
  24,160
  28,233
  32,657
  37,425
  42,531
  47,966
  53,722
  59,793
  66,173
  72,858
  79,847
  87,140
  94,739
  102,648
  110,874
  119,424
  128,311
  137,545
  147,141
  157,117
  167,489
Total equity, $m
  1,976
  2,553
  3,462
  4,589
  5,956
  7,582
  9,483
  11,671
  14,153
  16,932
  20,009
  23,381
  27,045
  30,994
  35,222
  39,723
  44,490
  49,517
  54,801
  60,338
  66,126
  72,166
  78,459
  85,008
  91,820
  98,902
  106,261
  113,908
  121,856
  130,117
  138,706
Total liabilities and equity, $m
  4,285
  5,636
  7,643
  10,130
  13,148
  16,737
  20,934
  25,764
  31,242
  37,377
  44,169
  51,614
  59,702
  68,419
  77,753
  87,689
  98,212
  109,310
  120,974
  133,196
  145,973
  159,306
  173,198
  187,656
  202,694
  218,326
  234,572
  251,453
  268,997
  287,234
  306,195
Debt-to-equity ratio
  0.063
  0.350
  0.580
  0.730
  0.840
  0.920
  0.980
  1.020
  1.050
  1.080
  1.100
  1.110
  1.130
  1.140
  1.150
  1.150
  1.160
  1.160
  1.170
  1.170
  1.170
  1.180
  1.180
  1.180
  1.180
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
Adjusted equity ratio
  0.430
  0.453
  0.453
  0.453
  0.453
  0.453
  0.453
  0.453
  0.453
  0.453
  0.453
  0.453
  0.453
  0.453
  0.453
  0.453
  0.453
  0.453
  0.453
  0.453
  0.453
  0.453
  0.453
  0.453
  0.453
  0.453
  0.453
  0.453
  0.453
  0.453
  0.453

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  131
  337
  483
  663
  881
  1,139
  1,440
  1,785
  2,176
  2,613
  3,095
  3,757
  4,329
  4,945
  5,605
  6,305
  7,047
  7,828
  8,649
  9,508
  10,407
  11,343
  12,319
  13,335
  14,391
  15,488
  16,629
  17,814
  19,046
  20,327
  21,658
Depreciation, amort., depletion, $m
  0
  250
  273
  303
  338
  381
  431
  488
  553
  625
  706
  611
  707
  810
  921
  1,038
  1,163
  1,294
  1,433
  1,577
  1,729
  1,886
  2,051
  2,222
  2,400
  2,585
  2,778
  2,978
  3,185
  3,401
  3,626
Funds from operations, $m
  -1,904
  587
  756
  966
  1,219
  1,520
  1,871
  2,273
  2,729
  3,238
  3,801
  4,368
  5,036
  5,756
  6,525
  7,344
  8,210
  9,123
  10,081
  11,086
  12,135
  13,230
  14,370
  15,557
  16,791
  18,074
  19,407
  20,792
  22,232
  23,728
  25,284
Change in working capital, $m
  -2,190
  145
  184
  228
  277
  329
  385
  443
  502
  562
  623
  683
  741
  799
  856
  911
  965
  1,017
  1,069
  1,121
  1,171
  1,222
  1,274
  1,326
  1,379
  1,433
  1,489
  1,548
  1,608
  1,672
  1,738
Cash from operations, $m
  286
  442
  572
  738
  943
  1,191
  1,486
  1,830
  2,227
  2,676
  3,178
  3,685
  4,295
  4,956
  5,670
  6,433
  7,245
  8,105
  9,012
  9,965
  10,964
  12,008
  13,097
  14,231
  15,412
  16,641
  17,917
  19,244
  20,623
  22,056
  23,546
Maintenance CAPEX, $m
  0
  -48
  -67
  -91
  -120
  -156
  -198
  -248
  -305
  -370
  -443
  -523
  -611
  -707
  -810
  -921
  -1,038
  -1,163
  -1,294
  -1,433
  -1,577
  -1,729
  -1,886
  -2,051
  -2,222
  -2,400
  -2,585
  -2,778
  -2,978
  -3,185
  -3,401
New CAPEX, $m
  -58
  -187
  -238
  -295
  -357
  -425
  -497
  -572
  -649
  -726
  -804
  -882
  -958
  -1,032
  -1,105
  -1,177
  -1,246
  -1,314
  -1,381
  -1,447
  -1,513
  -1,579
  -1,645
  -1,712
  -1,781
  -1,851
  -1,924
  -1,999
  -2,078
  -2,160
  -2,245
Cash from investing activities, $m
  -1,137
  -235
  -305
  -386
  -477
  -581
  -695
  -820
  -954
  -1,096
  -1,247
  -1,405
  -1,569
  -1,739
  -1,915
  -2,098
  -2,284
  -2,477
  -2,675
  -2,880
  -3,090
  -3,308
  -3,531
  -3,763
  -4,003
  -4,251
  -4,509
  -4,777
  -5,056
  -5,345
  -5,646
Free cash flow, $m
  -851
  207
  268
  353
  465
  610
  791
  1,011
  1,273
  1,579
  1,931
  2,281
  2,726
  3,217
  3,754
  4,336
  4,961
  5,628
  6,336
  7,085
  7,873
  8,700
  9,565
  10,468
  11,409
  12,389
  13,408
  14,467
  15,568
  16,711
  17,899
Issuance/(repayment) of debt, $m
  486
  868
  1,098
  1,360
  1,650
  1,964
  2,296
  2,642
  2,996
  3,356
  3,715
  4,072
  4,424
  4,769
  5,106
  5,435
  5,756
  6,071
  6,380
  6,686
  6,989
  7,293
  7,599
  7,909
  8,226
  8,551
  8,886
  9,234
  9,597
  9,975
  10,372
Issuance/(repurchase) of shares, $m
  591
  378
  426
  464
  486
  487
  461
  402
  305
  166
  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  
  1,041
  1,246
  1,524
  1,824
  2,136
  2,451
  2,757
  3,044
  3,301
  3,522
  3,715
  4,072
  4,424
  4,769
  5,106
  5,435
  5,756
  6,071
  6,380
  6,686
  6,989
  7,293
  7,599
  7,909
  8,226
  8,551
  8,886
  9,234
  9,597
  9,975
  10,372
Total cash flow (excl. dividends), $m
  190
  1,453
  1,792
  2,177
  2,602
  3,061
  3,548
  4,055
  4,575
  5,101
  5,647
  6,353
  7,150
  7,986
  8,860
  9,770
  10,717
  11,699
  12,717
  13,771
  14,863
  15,993
  17,164
  18,377
  19,635
  20,940
  22,294
  23,702
  25,165
  26,686
  28,271
Retained Cash Flow (-), $m
  -653
  -715
  -909
  -1,127
  -1,367
  -1,626
  -1,901
  -2,188
  -2,482
  -2,779
  -3,077
  -3,372
  -3,664
  -3,949
  -4,228
  -4,501
  -4,767
  -5,027
  -5,284
  -5,537
  -5,788
  -6,040
  -6,293
  -6,550
  -6,812
  -7,081
  -7,359
  -7,647
  -7,947
  -8,261
  -8,590
Prev. year cash balance distribution, $m
 
  138
  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
 
  876
  883
  1,050
  1,235
  1,435
  1,647
  1,867
  2,093
  2,322
  2,570
  2,980
  3,486
  4,037
  4,631
  5,269
  5,950
  6,671
  7,433
  8,234
  9,074
  9,953
  10,871
  11,827
  12,823
  13,859
  14,935
  16,054
  17,217
  18,425
  19,681
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  840
  808
  914
  1,017
  1,112
  1,195
  1,261
  1,308
  1,334
  1,347
  1,415
  1,488
  1,535
  1,555
  1,547
  1,512
  1,452
  1,369
  1,268
  1,153
  1,030
  902
  775
  653
  539
  436
  345
  266
  201
  148
Current shareholders' claim on cash, %
  100
  90.0
  82.6
  77.0
  72.8
  69.7
  67.5
  66.0
  65.1
  64.7
  64.7
  64.7
  64.7
  64.7
  64.7
  64.7
  64.7
  64.7
  64.7
  64.7
  64.7
  64.7
  64.7
  64.7
  64.7
  64.7
  64.7
  64.7
  64.7
  64.7
  64.7

Stantec Inc. provides professional consulting services in the area of infrastructure and facilities for clients in the public and private sectors in Canada, the United States, and internationally. Its services include planning, engineering, architecture, interior design, landscape architecture, surveying, environmental sciences, project management, and project economics for infrastructure and facilities projects. The company operates through three business operating units: Buildings, Energy & Resources, and Infrastructure. The Buildings business operating unit provides pre-design, design, and construction administration services in planning, architecture, buildings engineering, and interior design services for vertical infrastructure in the airports and aviation, commercial, education, healthcare, industrial, and science and technology. The Energy & Resources business operating unit offers industrial engineering services, project management, and construction management services, as well as environmental services in the mining, oil and gas, and power sectors. The Infrastructure business operating unit provides front-end design and engineering services, and project and construction management services in community development, transportation, and water sectors. The company was formerly known as Stanley Technology Group Inc. and changed its name to Stantec Inc. in October 1998. Stantec Inc. was founded in 1954 and is headquartered in Edmonton, Canada.

FINANCIAL RATIOS  of  Stantec Inc. (STN)

Valuation Ratios
P/E Ratio 27.5
Price to Sales 1.2
Price to Book 1.8
Price to Tangible Book
Price to Cash Flow 12.6
Price to Free Cash Flow 15.8
Growth Rates
Sales Growth Rate 30.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 52.6%
Cap. Spend. - 3 Yr. Gr. Rate 1.8%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 1.6%
Total Debt to Equity 6.3%
Interest Coverage -4
Management Effectiveness
Return On Assets 3.1%
Ret/ On Assets - 3 Yr. Avg. 6.1%
Return On Total Capital 7.3%
Ret/ On T. Cap. - 3 Yr. Avg. 11.6%
Return On Equity 7.9%
Return On Equity - 3 Yr. Avg. 12.5%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 54.1%
Gross Margin - 3 Yr. Avg. 54.5%
EBITDA Margin 4.6%
EBITDA Margin - 3 Yr. Avg. 7.7%
Operating Margin 5.8%
Oper. Margin - 3 Yr. Avg. 8.5%
Pre-Tax Margin 5.8%
Pre-Tax Margin - 3 Yr. Avg. 8.5%
Net Profit Margin 4.2%
Net Profit Margin - 3 Yr. Avg. 6.3%
Effective Tax Rate 27.6%
Eff/ Tax Rate - 3 Yr. Avg. 26.7%
Payout Ratio 35.1%

STN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the STN stock intrinsic value calculation we used $3098 million for the last fiscal year's total revenue generated by Stantec Inc.. The default revenue input number comes from 2016 income statement of Stantec 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 STN stock valuation model: a) initial revenue growth rate of 39% 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 4.3%, whose default value for STN is calculated based on our internal credit rating of Stantec 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 Stantec 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 STN stock the variable cost ratio is equal to 90.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for STN 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 Stantec Inc..

Corporate tax rate of 27% is the nominal tax rate for Stantec 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 STN 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 STN are equal to 15.5%.

Life of production assets of 10 years is the average useful life of capital assets used in Stantec 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 STN is equal to 12%. 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 - $1976 million for Stantec 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 115.809 million for Stantec 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 Stantec Inc. at the current share price and the inputted number of shares is $3.7 billion.

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Stock chart of STN Financial statements of STN
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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