Intrinsic value of Stantec Inc. - STN

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$31.69

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$31.69

 
Intrinsic value

$336.61

 
Up/down potential

+962%

 
Rating

str. buy

 
Value-price divergence* premium content

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*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 3.6

 

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
  44.60
  40.64
  37.08
  33.87
  30.98
  28.38
  26.05
  23.94
  22.05
  20.34
  18.81
  17.43
  16.18
  15.07
  14.06
  13.15
  12.34
  11.60
  10.94
  10.35
  9.81
  9.33
  8.90
  8.51
  8.16
  7.84
  7.56
  7.30
  7.07
  6.87
Revenue, $m
  3,098
  4,480
  6,300
  8,636
  11,561
  15,143
  19,441
  24,504
  30,371
  37,067
  44,607
  52,996
  62,232
  72,303
  83,196
  94,893
  107,375
  120,622
  134,620
  149,352
  164,809
  180,984
  197,875
  215,486
  233,823
  252,900
  272,734
  293,349
  314,772
  337,034
  360,172
Variable operating expenses, $m
 
  3,991
  5,538
  7,523
  10,010
  13,054
  16,707
  21,011
  25,998
  31,689
  38,098
  45,046
  52,896
  61,457
  70,716
  80,658
  91,268
  102,528
  114,426
  126,948
  140,087
  153,835
  168,193
  183,162
  198,748
  214,963
  231,823
  249,345
  267,554
  286,477
  306,144
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
  3,991
  5,538
  7,523
  10,010
  13,054
  16,707
  21,011
  25,998
  31,689
  38,098
  45,046
  52,896
  61,457
  70,716
  80,658
  91,268
  102,528
  114,426
  126,948
  140,087
  153,835
  168,193
  183,162
  198,748
  214,963
  231,823
  249,345
  267,554
  286,477
  306,144
Operating income, $m
  180
  489
  762
  1,113
  1,551
  2,089
  2,733
  3,493
  4,373
  5,377
  6,508
  7,950
  9,335
  10,846
  12,480
  14,235
  16,107
  18,094
  20,194
  22,404
  24,722
  27,149
  29,682
  32,324
  35,075
  37,936
  40,912
  44,004
  47,218
  50,557
  54,028
EBITDA, $m
  180
  741
  1,043
  1,429
  1,913
  2,506
  3,218
  4,056
  5,027
  6,135
  7,383
  8,771
  10,300
  11,967
  13,769
  15,705
  17,771
  19,964
  22,280
  24,719
  27,277
  29,954
  32,750
  35,664
  38,699
  41,856
  45,139
  48,551
  52,097
  55,781
  59,611
Interest expense (income), $m
  -38
  1
  36
  81
  140
  213
  303
  411
  538
  685
  852
  1,041
  1,252
  1,483
  1,735
  2,008
  2,301
  2,614
  2,946
  3,297
  3,666
  4,053
  4,459
  4,882
  5,323
  5,783
  6,261
  6,758
  7,275
  7,811
  8,369
Earnings before tax, $m
  181
  488
  726
  1,031
  1,411
  1,875
  2,430
  3,082
  3,835
  4,693
  5,656
  6,908
  8,084
  9,363
  10,745
  12,226
  13,805
  15,480
  17,247
  19,107
  21,056
  23,095
  25,224
  27,442
  29,751
  32,154
  34,651
  37,246
  39,943
  42,746
  45,659
Tax expense, $m
  50
  132
  196
  278
  381
  506
  656
  832
  1,036
  1,267
  1,527
  1,865
  2,183
  2,528
  2,901
  3,301
  3,727
  4,180
  4,657
  5,159
  5,685
  6,236
  6,810
  7,409
  8,033
  8,681
  9,356
  10,056
  10,785
  11,541
  12,328
Net income, $m
  131
  356
  530
  753
  1,030
  1,369
  1,774
  2,250
  2,800
  3,426
  4,129
  5,043
  5,901
  6,835
  7,844
  8,925
  10,078
  11,300
  12,591
  13,948
  15,371
  16,859
  18,413
  20,033
  21,719
  23,472
  25,295
  27,190
  29,158
  31,204
  33,331

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
  5,863
  8,246
  11,304
  15,132
  19,821
  25,446
  32,074
  39,752
  48,516
  58,386
  69,366
  81,455
  94,638
  108,896
  124,205
  140,543
  157,883
  176,204
  195,487
  215,719
  236,890
  258,999
  282,049
  306,051
  331,021
  356,982
  383,965
  412,005
  441,144
  471,429
Adjusted assets (=assets-cash), $m
  4,053
  5,863
  8,246
  11,304
  15,132
  19,821
  25,446
  32,074
  39,752
  48,516
  58,386
  69,366
  81,455
  94,638
  108,896
  124,205
  140,543
  157,883
  176,204
  195,487
  215,719
  236,890
  258,999
  282,049
  306,051
  331,021
  356,982
  383,965
  412,005
  441,144
  471,429
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
  694
  977
  1,339
  1,792
  2,347
  3,013
  3,798
  4,707
  5,745
  6,914
  8,214
  9,646
  11,207
  12,895
  14,708
  16,643
  18,696
  20,866
  23,150
  25,545
  28,053
  30,671
  33,400
  36,243
  39,199
  42,274
  45,469
  48,790
  52,240
  55,827
Working capital, $m
  510
  538
  756
  1,036
  1,387
  1,817
  2,333
  2,941
  3,644
  4,448
  5,353
  6,360
  7,468
  8,676
  9,984
  11,387
  12,885
  14,475
  16,154
  17,922
  19,777
  21,718
  23,745
  25,858
  28,059
  30,348
  32,728
  35,202
  37,773
  40,444
  43,221
Total debt, $m
  125
  1,023
  2,327
  3,999
  6,093
  8,658
  11,735
  15,360
  19,561
  24,354
  29,753
  35,759
  42,372
  49,583
  57,382
  65,756
  74,693
  84,178
  94,199
  104,747
  115,814
  127,395
  139,489
  152,097
  165,226
  178,884
  193,085
  207,845
  223,183
  239,122
  255,688
Total liabilities, $m
  2,309
  3,207
  4,511
  6,183
  8,277
  10,842
  13,919
  17,544
  21,745
  26,538
  31,937
  37,943
  44,556
  51,767
  59,566
  67,940
  76,877
  86,362
  96,383
  106,931
  117,998
  129,579
  141,673
  154,281
  167,410
  181,068
  195,269
  210,029
  225,367
  241,306
  257,872
Total equity, $m
  1,976
  2,656
  3,736
  5,121
  6,855
  8,979
  11,527
  14,529
  18,008
  21,978
  26,449
  31,423
  36,899
  42,871
  49,330
  56,265
  63,666
  71,521
  79,820
  88,556
  97,721
  107,311
  117,327
  127,768
  138,641
  149,952
  161,713
  173,936
  186,638
  199,838
  213,558
Total liabilities and equity, $m
  4,285
  5,863
  8,247
  11,304
  15,132
  19,821
  25,446
  32,073
  39,753
  48,516
  58,386
  69,366
  81,455
  94,638
  108,896
  124,205
  140,543
  157,883
  176,203
  195,487
  215,719
  236,890
  259,000
  282,049
  306,051
  331,020
  356,982
  383,965
  412,005
  441,144
  471,430
Debt-to-equity ratio
  0.063
  0.390
  0.620
  0.780
  0.890
  0.960
  1.020
  1.060
  1.090
  1.110
  1.120
  1.140
  1.150
  1.160
  1.160
  1.170
  1.170
  1.180
  1.180
  1.180
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.200
  1.200
  1.200
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
  356
  530
  753
  1,030
  1,369
  1,774
  2,250
  2,800
  3,426
  4,129
  5,043
  5,901
  6,835
  7,844
  8,925
  10,078
  11,300
  12,591
  13,948
  15,371
  16,859
  18,413
  20,033
  21,719
  23,472
  25,295
  27,190
  29,158
  31,204
  33,331
Depreciation, amort., depletion, $m
  0
  252
  280
  317
  362
  418
  484
  563
  654
  757
  874
  821
  965
  1,121
  1,290
  1,471
  1,664
  1,870
  2,087
  2,315
  2,555
  2,805
  3,067
  3,340
  3,624
  3,920
  4,227
  4,547
  4,879
  5,224
  5,583
Funds from operations, $m
  -1,904
  609
  811
  1,069
  1,392
  1,787
  2,258
  2,813
  3,453
  4,183
  5,003
  5,865
  6,866
  7,956
  9,133
  10,396
  11,742
  13,170
  14,677
  16,263
  17,926
  19,665
  21,480
  23,373
  25,343
  27,392
  29,522
  31,737
  34,037
  36,428
  38,913
Change in working capital, $m
  -2,190
  166
  218
  280
  351
  430
  516
  608
  704
  803
  905
  1,007
  1,108
  1,209
  1,307
  1,404
  1,498
  1,590
  1,680
  1,768
  1,855
  1,941
  2,027
  2,113
  2,200
  2,289
  2,380
  2,474
  2,571
  2,671
  2,777
Cash from operations, $m
  286
  626
  592
  789
  1,041
  1,357
  1,743
  2,205
  2,749
  3,380
  4,098
  4,858
  5,757
  6,747
  7,826
  8,992
  10,244
  11,580
  12,998
  14,495
  16,071
  17,724
  19,453
  21,259
  23,142
  25,103
  27,142
  29,263
  31,467
  33,757
  36,137
Maintenance CAPEX, $m
  0
  -48
  -69
  -98
  -134
  -179
  -235
  -301
  -380
  -471
  -575
  -691
  -821
  -965
  -1,121
  -1,290
  -1,471
  -1,664
  -1,870
  -2,087
  -2,315
  -2,555
  -2,805
  -3,067
  -3,340
  -3,624
  -3,920
  -4,227
  -4,547
  -4,879
  -5,224
New CAPEX, $m
  -58
  -214
  -282
  -362
  -453
  -555
  -666
  -785
  -909
  -1,038
  -1,169
  -1,300
  -1,432
  -1,561
  -1,688
  -1,813
  -1,935
  -2,053
  -2,170
  -2,284
  -2,396
  -2,507
  -2,618
  -2,730
  -2,842
  -2,957
  -3,074
  -3,195
  -3,320
  -3,451
  -3,586
Cash from investing activities, $m
  -1,137
  -262
  -351
  -460
  -587
  -734
  -901
  -1,086
  -1,289
  -1,509
  -1,744
  -1,991
  -2,253
  -2,526
  -2,809
  -3,103
  -3,406
  -3,717
  -4,040
  -4,371
  -4,711
  -5,062
  -5,423
  -5,797
  -6,182
  -6,581
  -6,994
  -7,422
  -7,867
  -8,330
  -8,810
Free cash flow, $m
  -851
  364
  241
  329
  454
  622
  842
  1,119
  1,460
  1,871
  2,355
  2,866
  3,504
  4,221
  5,017
  5,890
  6,839
  7,862
  8,958
  10,125
  11,360
  12,662
  14,030
  15,463
  16,960
  18,522
  20,148
  21,840
  23,599
  25,427
  27,326
Issuance/(repayment) of debt, $m
  486
  992
  1,303
  1,672
  2,094
  2,564
  3,077
  3,625
  4,200
  4,794
  5,398
  6,007
  6,612
  7,211
  7,799
  8,374
  8,936
  9,485
  10,022
  10,548
  11,067
  11,581
  12,094
  12,608
  13,129
  13,659
  14,201
  14,760
  15,338
  15,939
  16,566
Issuance/(repurchase) of shares, $m
  591
  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 from financing (excl. dividends), $m  
  1,041
  992
  1,303
  1,672
  2,094
  2,564
  3,077
  3,625
  4,200
  4,794
  5,398
  6,007
  6,612
  7,211
  7,799
  8,374
  8,936
  9,485
  10,022
  10,548
  11,067
  11,581
  12,094
  12,608
  13,129
  13,659
  14,201
  14,760
  15,338
  15,939
  16,566
Total cash flow (excl. dividends), $m
  190
  1,357
  1,544
  2,002
  2,548
  3,187
  3,919
  4,744
  5,660
  6,665
  7,753
  8,873
  10,117
  11,432
  12,816
  14,264
  15,775
  17,347
  18,980
  20,673
  22,427
  24,243
  26,124
  28,071
  30,089
  32,180
  34,349
  36,600
  38,937
  41,366
  43,893
Retained Cash Flow (-), $m
  -653
  -818
  -1,079
  -1,385
  -1,734
  -2,124
  -2,548
  -3,002
  -3,478
  -3,970
  -4,471
  -4,974
  -5,476
  -5,972
  -6,459
  -6,935
  -7,401
  -7,855
  -8,299
  -8,735
  -9,165
  -9,591
  -10,015
  -10,442
  -10,873
  -11,311
  -11,761
  -12,223
  -12,702
  -13,200
  -13,719
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
 
  677
  465
  617
  814
  1,063
  1,370
  1,742
  2,182
  2,695
  3,283
  3,898
  4,641
  5,460
  6,357
  7,329
  8,375
  9,492
  10,681
  11,937
  13,262
  14,652
  16,108
  17,629
  19,216
  20,869
  22,588
  24,376
  26,235
  28,166
  30,173
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
 
  649
  425
  537
  670
  824
  995
  1,177
  1,364
  1,548
  1,721
  1,851
  1,980
  2,076
  2,134
  2,152
  2,128
  2,065
  1,967
  1,838
  1,685
  1,516
  1,337
  1,155
  979
  812
  659
  523
  406
  307
  227
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

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 27.6
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 15.9
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 44.6% 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 113.477 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 $3.6 billion.


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Stock chart of STN Financial statements of STN
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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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