Intrinsic value of Waste Connections Inc. - WCN

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$125.58

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$125.58

 
Intrinsic value

$172.14

 
Up/down potential

+37%

 
Rating

buy

 
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*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 22.2

 

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, %
  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
  2,514
  3,949
  5,965
  8,711
  12,341
  17,014
  22,883
  30,088
  38,754
  48,986
  60,863
  74,442
  89,757
  106,820
  125,628
  146,159
  168,386
  192,272
  217,778
  244,866
  273,502
  303,653
  335,299
  368,424
  403,024
  439,103
  476,676
  515,768
  556,416
  598,663
Interest expense (income), $m
  118
  171
  328
  556
  877
  1,314
  1,891
  2,634
  3,566
  4,711
  6,088
  7,714
  9,601
  11,758
  14,191
  16,902
  19,890
  23,152
  26,683
  30,477
  34,529
  38,832
  43,381
  48,171
  53,198
  58,460
  63,957
  69,688
  75,656
  81,866
  88,323
Earnings before tax, $m
  488
  1,228
  2,222
  3,611
  5,493
  7,968
  11,140
  15,105
  19,953
  25,760
  32,592
  41,088
  50,096
  60,226
  71,483
  83,861
  97,346
  111,917
  127,550
  144,220
  161,902
  180,573
  200,216
  220,816
  242,366
  264,864
  288,315
  312,729
  338,125
  364,528
  391,967
Tax expense, $m
  154
  332
  600
  975
  1,483
  2,151
  3,008
  4,078
  5,387
  6,955
  8,800
  11,094
  13,526
  16,261
  19,300
  22,642
  26,283
  30,218
  34,439
  38,939
  43,713
  48,755
  54,058
  59,620
  65,439
  71,513
  77,845
  84,437
  91,294
  98,423
  105,831
Net income, $m
  333
  897
  1,622
  2,636
  4,010
  5,817
  8,132
  11,027
  14,565
  18,805
  23,792
  29,994
  36,570
  43,965
  52,182
  61,219
  71,063
  81,700
  93,112
  105,281
  118,188
  131,818
  146,157
  161,196
  176,927
  193,351
  210,470
  228,292
  246,832
  266,105
  286,136

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
  15,123
  23,848
  36,846
  55,103
  79,951
  112,800
  155,074
  208,154
  273,320
  351,696
  444,221
  551,621
  674,410
  812,891
  967,180
  1,137,232
  1,322,873
  1,523,839
  1,739,805
  1,970,419
  2,215,336
  2,474,236
  2,746,849
  3,032,967
  3,332,461
  3,645,284
  3,971,480
  4,311,184
  4,664,626
  5,032,124
  5,414,091
Adjusted assets (=assets-cash), $m
  14,914
  23,848
  36,846
  55,103
  79,951
  112,800
  155,074
  208,154
  273,320
  351,696
  444,221
  551,621
  674,410
  812,891
  967,180
  1,137,232
  1,322,873
  1,523,839
  1,739,805
  1,970,419
  2,215,336
  2,474,236
  2,746,849
  3,032,967
  3,332,461
  3,645,284
  3,971,480
  4,311,184
  4,664,626
  5,032,124
  5,414,091
Revenue / Adjusted assets
  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
Average production assets, $m
  4,268
  6,831
  10,553
  15,782
  22,899
  32,308
  44,416
  59,619
  78,283
  100,731
  127,232
  157,993
  193,162
  232,825
  277,016
  325,721
  378,892
  436,452
  498,308
  564,360
  634,508
  708,661
  786,741
  868,690
  954,470
  1,044,068
  1,137,495
  1,234,792
  1,336,023
  1,441,281
  1,550,682
Working capital, $m
  190
  -29
  -45
  -67
  -98
  -138
  -190
  -255
  -335
  -430
  -544
  -675
  -825
  -995
  -1,184
  -1,392
  -1,619
  -1,865
  -2,130
  -2,412
  -2,712
  -3,028
  -3,362
  -3,712
  -4,079
  -4,462
  -4,861
  -5,277
  -5,710
  -6,159
  -6,627
Total debt, $m
  4,889
  9,368
  15,893
  25,058
  37,532
  54,022
  75,243
  101,889
  134,603
  173,947
  220,395
  274,310
  335,950
  405,467
  482,920
  568,286
  661,478
  762,363
  870,778
  986,546
  1,109,495
  1,239,463
  1,376,314
  1,519,945
  1,670,291
  1,827,329
  1,991,079
  2,161,611
  2,339,038
  2,523,522
  2,715,270
Total liabilities, $m
  7,493
  11,972
  18,497
  27,662
  40,136
  56,626
  77,847
  104,493
  137,207
  176,551
  222,999
  276,914
  338,554
  408,071
  485,524
  570,890
  664,082
  764,967
  873,382
  989,150
  1,112,099
  1,242,067
  1,378,918
  1,522,549
  1,672,895
  1,829,933
  1,993,683
  2,164,215
  2,341,642
  2,526,126
  2,717,874
Total equity, $m
  7,630
  11,876
  18,349
  27,441
  39,816
  56,174
  77,227
  103,661
  136,113
  175,145
  221,222
  274,707
  335,856
  404,820
  481,656
  566,341
  658,791
  758,872
  866,423
  981,269
  1,103,237
  1,232,170
  1,367,931
  1,510,418
  1,659,566
  1,815,351
  1,977,797
  2,146,970
  2,322,984
  2,505,998
  2,696,217
Total liabilities and equity, $m
  15,123
  23,848
  36,846
  55,103
  79,952
  112,800
  155,074
  208,154
  273,320
  351,696
  444,221
  551,621
  674,410
  812,891
  967,180
  1,137,231
  1,322,873
  1,523,839
  1,739,805
  1,970,419
  2,215,336
  2,474,237
  2,746,849
  3,032,967
  3,332,461
  3,645,284
  3,971,480
  4,311,185
  4,664,626
  5,032,124
  5,414,091
Debt-to-equity ratio
  0.641
  0.790
  0.870
  0.910
  0.940
  0.960
  0.970
  0.980
  0.990
  0.990
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.010
  1.010
  1.010
  1.010
  1.010
  1.010
  1.010
  1.010
  1.010
  1.010
  1.010
  1.010
  1.010
Adjusted equity ratio
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  333
  897
  1,622
  2,636
  4,010
  5,817
  8,132
  11,027
  14,565
  18,805
  23,792
  29,994
  36,570
  43,965
  52,182
  61,219
  71,063
  81,700
  93,112
  105,281
  118,188
  131,818
  146,157
  161,196
  176,927
  193,351
  210,470
  228,292
  246,832
  266,105
  286,136
Depreciation, amort., depletion, $m
  627
  1,115
  1,399
  1,798
  2,341
  3,059
  3,984
  5,144
  6,569
  8,283
  10,306
  12,061
  14,745
  17,773
  21,146
  24,864
  28,923
  33,317
  38,039
  43,081
  48,436
  54,096
  60,057
  66,312
  72,860
  79,700
  86,832
  94,259
  101,987
  110,021
  118,373
Funds from operations, $m
  1,026
  2,011
  3,021
  4,434
  6,351
  8,876
  12,116
  16,171
  21,134
  27,088
  34,098
  42,055
  51,315
  61,738
  73,329
  86,083
  99,986
  115,017
  131,151
  148,362
  166,624
  185,915
  206,214
  227,508
  249,787
  273,051
  297,301
  322,551
  348,818
  376,127
  404,509
Change in working capital, $m
  -48
  -11
  -16
  -22
  -30
  -40
  -52
  -65
  -80
  -96
  -113
  -131
  -150
  -170
  -189
  -208
  -227
  -246
  -264
  -282
  -300
  -317
  -334
  -350
  -367
  -383
  -399
  -416
  -433
  -450
  -468
Cash from operations, $m
  1,074
  5,599
  3,037
  4,456
  6,381
  8,916
  12,167
  16,236
  21,214
  27,184
  34,211
  42,186
  51,465
  61,907
  73,517
  86,291
  100,213
  115,263
  131,415
  148,644
  166,924
  186,231
  206,548
  227,858
  250,154
  273,433
  297,701
  322,967
  349,251
  376,577
  404,976
Maintenance CAPEX, $m
  0
  -326
  -521
  -806
  -1,205
  -1,748
  -2,466
  -3,391
  -4,551
  -5,976
  -7,689
  -9,712
  -12,061
  -14,745
  -17,773
  -21,146
  -24,864
  -28,923
  -33,317
  -38,039
  -43,081
  -48,436
  -54,096
  -60,057
  -66,312
  -72,860
  -79,700
  -86,832
  -94,259
  -101,987
  -110,021
New CAPEX, $m
  -466
  -2,563
  -3,723
  -5,229
  -7,117
  -9,408
  -12,108
  -15,203
  -18,664
  -22,448
  -26,501
  -30,761
  -35,169
  -39,663
  -44,191
  -48,706
  -53,171
  -57,560
  -61,856
  -66,052
  -70,148
  -74,153
  -78,081
  -81,949
  -85,780
  -89,598
  -93,428
  -97,297
  -101,231
  -105,257
  -109,401
Cash from investing activities, $m
  -400
  -2,889
  -4,244
  -6,035
  -8,322
  -11,156
  -14,574
  -18,594
  -23,215
  -28,424
  -34,190
  -40,473
  -47,230
  -54,408
  -61,964
  -69,852
  -78,035
  -86,483
  -95,173
  -104,091
  -113,229
  -122,589
  -132,177
  -142,006
  -152,092
  -162,458
  -173,128
  -184,129
  -195,490
  -207,244
  -219,422
Free cash flow, $m
  674
  2,710
  -1,207
  -1,578
  -1,941
  -2,240
  -2,407
  -2,358
  -2,001
  -1,240
  21
  1,713
  4,236
  7,499
  11,554
  16,439
  22,178
  28,780
  36,242
  44,553
  53,695
  63,643
  74,371
  85,853
  98,062
  110,976
  124,573
  138,839
  153,761
  169,333
  185,554
Issuance/(repayment) of debt, $m
  -332
  4,481
  6,525
  9,165
  12,474
  16,490
  21,222
  26,646
  32,713
  39,345
  46,447
  53,915
  61,640
  69,517
  77,453
  85,366
  93,192
  100,885
  108,415
  115,769
  122,948
  129,968
  136,851
  143,631
  150,346
  157,037
  163,750
  170,532
  177,427
  184,484
  191,747
Issuance/(repurchase) of shares, $m
  27
  0
  1,155
  1,505
  1,841
  2,109
  2,238
  2,146
  1,741
  927
  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  
  -354
  4,481
  7,680
  10,670
  14,315
  18,599
  23,460
  28,792
  34,454
  40,272
  46,447
  53,915
  61,640
  69,517
  77,453
  85,366
  93,192
  100,885
  108,415
  115,769
  122,948
  129,968
  136,851
  143,631
  150,346
  157,037
  163,750
  170,532
  177,427
  184,484
  191,747
Total cash flow (excl. dividends), $m
  319
  7,191
  5,317
  7,587
  10,533
  14,250
  18,815
  24,289
  30,712
  38,105
  46,468
  55,628
  65,876
  77,016
  89,007
  101,805
  115,370
  129,664
  144,657
  160,322
  176,643
  193,610
  211,222
  229,484
  248,408
  268,013
  288,323
  309,370
  331,188
  353,817
  377,301
Retained Cash Flow (-), $m
  -4,948
  -4,453
  -6,473
  -9,092
  -12,375
  -16,359
  -21,052
  -26,434
  -32,452
  -39,031
  -46,077
  -53,486
  -61,149
  -68,963
  -76,836
  -84,686
  -92,450
  -100,081
  -107,551
  -114,846
  -121,969
  -128,932
  -135,761
  -142,487
  -149,148
  -155,786
  -162,446
  -169,173
  -176,014
  -183,014
  -190,220
Prev. year cash balance distribution, $m
 
  207
  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
 
  2,944
  0
  0
  0
  0
  0
  0
  0
  0
  391
  2,142
  4,727
  8,053
  12,171
  17,119
  22,921
  29,583
  37,106
  45,476
  54,674
  64,678
  75,461
  86,997
  99,260
  112,227
  125,878
  140,197
  155,174
  170,803
  187,081
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
 
  2,760
  0
  0
  0
  0
  0
  0
  0
  0
  145
  686
  1,286
  1,839
  2,301
  2,643
  2,845
  2,906
  2,836
  2,656
  2,395
  2,082
  1,748
  1,418
  1,112
  843
  618
  438
  299
  197
  126
Current shareholders' claim on cash, %
  100
  100.0
  96.8
  94.1
  92.0
  90.3
  89.1
  88.3
  87.8
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6

Waste Connections, Inc., an integrated municipal solid waste (MSW) services company, provides solid waste collection, transfer, disposal, and recycling services primarily in the United States. The company operates through four segments: Western, Central, Eastern, and Exploration and Production (E&P). It offers collection services to residential, commercial, industrial, and E&P customers; landfill disposal services; and recycling services for various recyclable materials, including compost, cardboard, office paper, plastic containers, glass bottles, and ferrous and aluminum metals. The company also owns and operates transfer stations that receive compact and load waste to be transported to landfills or treatment facilities via truck, rail, or barge; and intermodal services for the rail haul movement of cargo and solid waste containers in the Pacific Northwest through a network of intermodal facilities. In addition, it provides E&P waste treatment, recovery, and disposal services for waste resulting from oil and natural gas exploration and production activity, such as drilling fluids, drill cuttings, completion fluids, and flowback water; production wastes and produced water during a wellÂ’s operating life; contaminated soils that require treatment during site reclamation; and substances that require clean-up after a spill, reserve pit clean-up, or pipeline rupture. Further, the company offers container and chassis sales and leasing services to its customers. As of March 31, 2016, it owned or operated a network of 154 solid waste collection operations; 70 transfer stations; 7 intermodal facilities; 37 recycling operations; 62 active MSW, E&P, and/or non-MSW landfills; 24 E&P liquid waste injection wells; and 18 E&P waste treatment and oil recovery facilities. Waste Connections, Inc. was founded in 1997 and is based in Vaughan, Canada.

FINANCIAL RATIOS  of  Waste Connections Inc. (WCN)

Valuation Ratios
P/E Ratio 66.1
Price to Sales 4.8
Price to Book 2.9
Price to Tangible Book
Price to Cash Flow 20.5
Price to Free Cash Flow 36.2
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 105
Current Ratio 0.1
LT Debt to Equity 64%
Total Debt to Equity 64.1%
Interest Coverage 5
Management Effectiveness
Return On Assets 3.8%
Ret/ On Assets - 3 Yr. Avg. 4.3%
Return On Total Capital 3.7%
Ret/ On T. Cap. - 3 Yr. Avg. 3.9%
Return On Equity 6.5%
Return On Equity - 3 Yr. Avg. 8.1%
Asset Turnover 0.4
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 93.6%.

Life of production assets of 13.1 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 -0.4%. 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 176.751 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 $22.2 billion.


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