Intrinsic value of Stantec Inc. - STN

Previous Close

$34.05

  Intrinsic Value

$43.49

stock screener

  Rating & Target

buy

+28%

Previous close

$34.05

 
Intrinsic value

$43.49

 
Up/down potential

+28%

 
Rating

buy

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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  3,098
  3,160
  3,233
  3,316
  3,409
  3,512
  3,626
  3,749
  3,883
  4,027
  4,181
  4,347
  4,523
  4,711
  4,911
  5,122
  5,347
  5,585
  5,836
  6,101
  6,382
  6,678
  6,989
  7,318
  7,665
  8,030
  8,414
  8,818
  9,244
  9,691
  10,162
Variable operating expenses, $m
 
  2,869
  2,931
  3,001
  3,080
  3,168
  3,265
  3,370
  3,483
  3,606
  3,737
  3,695
  3,845
  4,004
  4,174
  4,354
  4,545
  4,747
  4,960
  5,186
  5,424
  5,676
  5,941
  6,221
  6,515
  6,825
  7,152
  7,495
  7,857
  8,238
  8,638
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
  2,869
  2,931
  3,001
  3,080
  3,168
  3,265
  3,370
  3,483
  3,606
  3,737
  3,695
  3,845
  4,004
  4,174
  4,354
  4,545
  4,747
  4,960
  5,186
  5,424
  5,676
  5,941
  6,221
  6,515
  6,825
  7,152
  7,495
  7,857
  8,238
  8,638
Operating income, $m
  180
  291
  302
  315
  329
  344
  361
  380
  400
  421
  444
  652
  679
  707
  737
  768
  802
  838
  875
  915
  957
  1,002
  1,048
  1,098
  1,150
  1,204
  1,262
  1,323
  1,387
  1,454
  1,524
EBITDA, $m
  180
  523
  535
  549
  564
  581
  600
  621
  643
  666
  692
  719
  749
  780
  813
  848
  885
  924
  966
  1,010
  1,056
  1,105
  1,157
  1,211
  1,269
  1,329
  1,393
  1,459
  1,530
  1,604
  1,682
Interest expense (income), $m
  -38
  1
  3
  5
  7
  9
  12
  14
  18
  21
  24
  28
  32
  37
  42
  47
  52
  58
  64
  70
  76
  83
  91
  99
  107
  116
  125
  134
  145
  155
  166
Earnings before tax, $m
  181
  290
  299
  310
  322
  335
  350
  365
  382
  400
  420
  624
  646
  670
  695
  722
  750
  780
  812
  845
  881
  918
  958
  999
  1,043
  1,089
  1,137
  1,188
  1,242
  1,299
  1,358
Tax expense, $m
  50
  78
  81
  84
  87
  90
  94
  99
  103
  108
  113
  168
  174
  181
  188
  195
  203
  211
  219
  228
  238
  248
  259
  270
  282
  294
  307
  321
  335
  351
  367
Net income, $m
  131
  212
  219
  226
  235
  245
  255
  267
  279
  292
  307
  455
  472
  489
  507
  527
  548
  570
  593
  617
  643
  670
  699
  729
  761
  795
  830
  868
  907
  948
  991

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
  4,136
  4,231
  4,340
  4,462
  4,597
  4,746
  4,907
  5,082
  5,271
  5,473
  5,689
  5,920
  6,166
  6,428
  6,705
  6,999
  7,310
  7,639
  7,986
  8,353
  8,740
  9,149
  9,579
  10,032
  10,510
  11,013
  11,542
  12,099
  12,685
  13,301
Adjusted assets (=assets-cash), $m
  4,053
  4,136
  4,231
  4,340
  4,462
  4,597
  4,746
  4,907
  5,082
  5,271
  5,473
  5,689
  5,920
  6,166
  6,428
  6,705
  6,999
  7,310
  7,639
  7,986
  8,353
  8,740
  9,149
  9,579
  10,032
  10,510
  11,013
  11,542
  12,099
  12,685
  13,301
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
  490
  501
  514
  528
  544
  562
  581
  602
  624
  648
  674
  701
  730
  761
  794
  829
  866
  905
  946
  989
  1,035
  1,083
  1,134
  1,188
  1,245
  1,304
  1,367
  1,433
  1,502
  1,575
Working capital, $m
  510
  379
  388
  398
  409
  421
  435
  450
  466
  483
  502
  522
  543
  565
  589
  615
  642
  670
  700
  732
  766
  801
  839
  878
  920
  964
  1,010
  1,058
  1,109
  1,163
  1,219
Total debt, $m
  125
  78
  130
  190
  257
  331
  412
  500
  596
  699
  810
  928
  1,054
  1,189
  1,332
  1,484
  1,644
  1,814
  1,994
  2,184
  2,385
  2,597
  2,820
  3,056
  3,304
  3,565
  3,840
  4,130
  4,434
  4,755
  5,092
Total liabilities, $m
  2,309
  2,262
  2,314
  2,374
  2,441
  2,515
  2,596
  2,684
  2,780
  2,883
  2,994
  3,112
  3,238
  3,373
  3,516
  3,668
  3,828
  3,998
  4,178
  4,368
  4,569
  4,781
  5,004
  5,240
  5,488
  5,749
  6,024
  6,314
  6,618
  6,939
  7,276
Total equity, $m
  1,976
  1,874
  1,917
  1,966
  2,021
  2,083
  2,150
  2,223
  2,302
  2,388
  2,479
  2,577
  2,682
  2,793
  2,912
  3,037
  3,170
  3,311
  3,460
  3,618
  3,784
  3,959
  4,144
  4,339
  4,545
  4,761
  4,989
  5,229
  5,481
  5,746
  6,026
Total liabilities and equity, $m
  4,285
  4,136
  4,231
  4,340
  4,462
  4,598
  4,746
  4,907
  5,082
  5,271
  5,473
  5,689
  5,920
  6,166
  6,428
  6,705
  6,998
  7,309
  7,638
  7,986
  8,353
  8,740
  9,148
  9,579
  10,033
  10,510
  11,013
  11,543
  12,099
  12,685
  13,302
Debt-to-equity ratio
  0.063
  0.040
  0.070
  0.100
  0.130
  0.160
  0.190
  0.230
  0.260
  0.290
  0.330
  0.360
  0.390
  0.430
  0.460
  0.490
  0.520
  0.550
  0.580
  0.600
  0.630
  0.660
  0.680
  0.700
  0.730
  0.750
  0.770
  0.790
  0.810
  0.830
  0.850
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
  212
  219
  226
  235
  245
  255
  267
  279
  292
  307
  455
  472
  489
  507
  527
  548
  570
  593
  617
  643
  670
  699
  729
  761
  795
  830
  868
  907
  948
  991
Depreciation, amort., depletion, $m
  0
  232
  233
  234
  236
  237
  239
  241
  243
  245
  248
  67
  70
  73
  76
  79
  83
  87
  90
  95
  99
  104
  108
  113
  119
  124
  130
  137
  143
  150
  158
Funds from operations, $m
  -1,904
  444
  451
  461
  471
  482
  494
  507
  522
  538
  554
  523
  542
  562
  583
  606
  630
  656
  683
  712
  742
  774
  807
  843
  880
  919
  961
  1,004
  1,050
  1,098
  1,149
Change in working capital, $m
  -2,190
  7
  9
  10
  11
  12
  14
  15
  16
  17
  19
  20
  21
  23
  24
  25
  27
  29
  30
  32
  34
  35
  37
  39
  42
  44
  46
  49
  51
  54
  57
Cash from operations, $m
  286
  436
  443
  451
  459
  469
  481
  493
  506
  520
  536
  503
  521
  539
  560
  581
  604
  628
  653
  680
  708
  738
  770
  803
  838
  876
  915
  956
  999
  1,044
  1,092
Maintenance CAPEX, $m
  0
  -48
  -49
  -50
  -51
  -53
  -54
  -56
  -58
  -60
  -62
  -65
  -67
  -70
  -73
  -76
  -79
  -83
  -87
  -90
  -95
  -99
  -104
  -108
  -113
  -119
  -124
  -130
  -137
  -143
  -150
New CAPEX, $m
  -58
  -9
  -11
  -13
  -14
  -16
  -18
  -19
  -21
  -22
  -24
  -26
  -27
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -46
  -48
  -51
  -54
  -57
  -60
  -63
  -66
  -69
  -73
Cash from investing activities, $m
  -1,137
  -57
  -60
  -63
  -65
  -69
  -72
  -75
  -79
  -82
  -86
  -91
  -94
  -99
  -104
  -109
  -114
  -120
  -126
  -131
  -138
  -145
  -152
  -159
  -167
  -176
  -184
  -193
  -203
  -212
  -223
Free cash flow, $m
  -851
  379
  382
  388
  394
  401
  409
  417
  427
  438
  449
  412
  426
  440
  456
  472
  489
  508
  527
  548
  570
  594
  618
  644
  671
  700
  731
  763
  796
  832
  869
Issuance/(repayment) of debt, $m
  486
  47
  52
  59
  67
  74
  81
  88
  96
  103
  111
  118
  126
  134
  143
  152
  161
  170
  180
  190
  201
  212
  223
  235
  248
  261
  275
  290
  305
  321
  337
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
  47
  52
  59
  67
  74
  81
  88
  96
  103
  111
  118
  126
  134
  143
  152
  161
  170
  180
  190
  201
  212
  223
  235
  248
  261
  275
  290
  305
  321
  337
Total cash flow (excl. dividends), $m
  190
  426
  435
  447
  460
  475
  490
  506
  523
  541
  560
  531
  552
  575
  598
  624
  650
  678
  707
  738
  771
  805
  841
  879
  919
  961
  1,006
  1,052
  1,101
  1,152
  1,206
Retained Cash Flow (-), $m
  -653
  -36
  -43
  -49
  -55
  -61
  -67
  -73
  -79
  -85
  -92
  -98
  -105
  -111
  -118
  -126
  -133
  -141
  -149
  -157
  -166
  -175
  -185
  -195
  -205
  -216
  -228
  -240
  -252
  -265
  -279
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
 
  529
  391
  398
  405
  413
  422
  433
  444
  455
  468
  433
  448
  463
  480
  498
  517
  537
  558
  581
  605
  630
  656
  684
  714
  745
  778
  812
  849
  887
  927
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
 
  507
  358
  346
  334
  320
  307
  292
  277
  262
  246
  206
  191
  176
  161
  146
  131
  117
  103
  89
  77
  65
  54
  45
  36
  29
  23
  17
  13
  10
  7
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. is a provider of professional services in the area of infrastructure and facilities for clients in the public and private sectors. The Company's operates through four segments Consulting Services-Canada, Consulting Services-United States, Consulting Services-Global and Construction Services. The Company's services include engineering, architecture, interior design, landscape architecture, surveying, environmental sciences, construction services, project management, and project economics, from initial project concept and planning through to design, construction, commissioning, maintenance, decommissioning and remediation. The Company provides professional consulting services in engineering, architecture, interior design, landscape architecture, surveying, environmental services, project management and project economics in the area of infrastructure and facilities, principally under fee-for-service agreements with clients.

FINANCIAL RATIOS  of  Stantec Inc. (STN)

Valuation Ratios
P/E Ratio 29.7
Price to Sales 1.3
Price to Book 2
Price to Tangible Book
Price to Cash Flow 13.6
Price to Free Cash Flow 17
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 2% 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 114.05 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 $3.9 billion.

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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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