Intrinsic value of Waste Connections Inc. - WCN

Previous Close

$80.06

  Intrinsic Value

$375.83

stock screener

  Rating & Target

str. buy

+369%

  Value-price divergence*

0%

Previous close

$80.06

 
Intrinsic value

$375.83

 
Up/down potential

+369%

 
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 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 14.3

 

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
  2,206
  3,473
  5,254
  7,678
  10,885
  15,012
  20,195
  26,558
  34,213
  43,249
  53,739
  65,733
  79,260
  94,331
  110,942
  129,077
  148,708
  169,805
  192,334
  216,259
  241,551
  268,182
  296,133
  325,391
  355,951
  387,818
  421,004
  455,533
  491,434
  528,750
Interest expense (income), $m
  118
  171
  326
  550
  866
  1,295
  1,863
  2,594
  3,511
  4,637
  5,992
  7,591
  9,447
  11,569
  13,962
  16,628
  19,567
  22,776
  26,249
  29,981
  33,966
  38,199
  42,673
  47,385
  52,329
  57,505
  62,912
  68,549
  74,420
  80,528
  86,879
Earnings before tax, $m
  488
  1,228
  2,224
  3,617
  5,504
  7,986
  11,167
  15,145
  20,008
  25,834
  32,688
  41,211
  50,250
  60,415
  71,712
  84,135
  97,669
  112,293
  127,984
  144,716
  162,464
  181,206
  200,923
  221,602
  243,235
  265,819
  289,360
  313,868
  339,362
  365,866
  393,412
Tax expense, $m
  154
  332
  601
  977
  1,486
  2,156
  3,015
  4,089
  5,402
  6,975
  8,826
  11,127
  13,567
  16,312
  19,362
  22,716
  26,371
  30,319
  34,556
  39,073
  43,865
  48,926
  54,249
  59,833
  65,673
  71,771
  78,127
  84,744
  91,628
  98,784
  106,221
Net income, $m
  333
  897
  1,624
  2,640
  4,018
  5,830
  8,152
  11,056
  14,606
  18,859
  23,863
  30,084
  36,682
  44,103
  52,350
  61,418
  71,298
  81,974
  93,429
  105,643
  118,599
  132,280
  146,674
  161,770
  177,561
  194,048
  211,232
  229,124
  247,734
  267,082
  287,191

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
  15,002
  23,694
  36,606
  54,745
  79,432
  112,067
  154,067
  206,803
  271,545
  349,412
  441,336
  548,040
  670,031
  807,612
  960,899
  1,129,847
  1,314,283
  1,513,944
  1,728,507
  1,957,624
  2,200,951
  2,458,170
  2,729,012
  3,013,272
  3,310,822
  3,621,613
  3,945,691
  4,283,190
  4,634,336
  4,999,448
  5,378,934
Adjusted assets (=assets-cash), $m
  14,793
  23,694
  36,606
  54,745
  79,432
  112,067
  154,067
  206,803
  271,545
  349,412
  441,336
  548,040
  670,031
  807,612
  960,899
  1,129,847
  1,314,283
  1,513,944
  1,728,507
  1,957,624
  2,200,951
  2,458,170
  2,729,012
  3,013,272
  3,310,822
  3,621,613
  3,945,691
  4,283,190
  4,634,336
  4,999,448
  5,378,934
Revenue / Adjusted assets
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
Average production assets, $m
  1,067
  1,708
  2,638
  3,946
  5,725
  8,077
  11,104
  14,905
  19,571
  25,183
  31,808
  39,498
  48,290
  58,206
  69,254
  81,430
  94,723
  109,113
  124,577
  141,090
  158,627
  177,165
  196,685
  217,173
  238,618
  261,017
  284,374
  308,698
  334,006
  360,320
  387,671
Working capital, $m
  69
  -197
  -304
  -455
  -661
  -932
  -1,281
  -1,720
  -2,258
  -2,906
  -3,670
  -4,557
  -5,572
  -6,716
  -7,991
  -9,396
  -10,930
  -12,590
  -14,374
  -16,280
  -18,303
  -20,442
  -22,694
  -25,058
  -27,533
  -30,117
  -32,812
  -35,619
  -38,539
  -41,575
  -44,731
Total debt, $m
  4,904
  9,308
  15,725
  24,740
  37,010
  53,229
  74,103
  100,313
  132,490
  171,190
  216,876
  269,908
  330,537
  398,915
  475,099
  559,066
  650,731
  749,962
  856,600
  970,471
  1,091,405
  1,219,242
  1,353,851
  1,495,128
  1,643,010
  1,797,474
  1,958,541
  2,126,277
  2,300,797
  2,482,258
  2,670,862
Total liabilities, $m
  7,372
  11,776
  18,193
  27,208
  39,478
  55,697
  76,571
  102,781
  134,958
  173,658
  219,344
  272,376
  333,005
  401,383
  477,567
  561,534
  653,199
  752,430
  859,068
  972,939
  1,093,873
  1,221,710
  1,356,319
  1,497,596
  1,645,478
  1,799,942
  1,961,009
  2,128,745
  2,303,265
  2,484,726
  2,673,330
Total equity, $m
  7,630
  11,918
  18,413
  27,537
  39,954
  56,370
  77,496
  104,022
  136,587
  175,754
  221,992
  275,664
  337,026
  406,229
  483,332
  568,313
  661,085
  761,514
  869,439
  984,685
  1,107,078
  1,236,459
  1,372,693
  1,515,676
  1,665,343
  1,821,672
  1,984,683
  2,154,444
  2,331,071
  2,514,722
  2,705,604
Total liabilities and equity, $m
  15,002
  23,694
  36,606
  54,745
  79,432
  112,067
  154,067
  206,803
  271,545
  349,412
  441,336
  548,040
  670,031
  807,612
  960,899
  1,129,847
  1,314,284
  1,513,944
  1,728,507
  1,957,624
  2,200,951
  2,458,169
  2,729,012
  3,013,272
  3,310,821
  3,621,614
  3,945,692
  4,283,189
  4,634,336
  4,999,448
  5,378,934
Debt-to-equity ratio
  0.643
  0.780
  0.850
  0.900
  0.930
  0.940
  0.960
  0.960
  0.970
  0.970
  0.980
  0.980
  0.980
  0.980
  0.980
  0.980
  0.980
  0.980
  0.990
  0.990
  0.990
  0.990
  0.990
  0.990
  0.990
  0.990
  0.990
  0.990
  0.990
  0.990
  0.990
Adjusted equity ratio
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  333
  897
  1,624
  2,640
  4,018
  5,830
  8,152
  11,056
  14,606
  18,859
  23,863
  30,084
  36,682
  44,103
  52,350
  61,418
  71,298
  81,974
  93,429
  105,643
  118,599
  132,280
  146,674
  161,770
  177,561
  194,048
  211,232
  229,124
  247,734
  267,082
  287,191
Depreciation, amort., depletion, $m
  627
  807
  923
  1,086
  1,309
  1,603
  1,981
  2,456
  3,040
  3,741
  4,569
  4,937
  6,036
  7,276
  8,657
  10,179
  11,840
  13,639
  15,572
  17,636
  19,828
  22,146
  24,586
  27,147
  29,827
  32,627
  35,547
  38,587
  41,751
  45,040
  48,459
Funds from operations, $m
  1,026
  1,703
  2,547
  3,727
  5,326
  7,433
  10,133
  13,512
  17,645
  22,600
  28,432
  35,022
  42,719
  51,379
  61,007
  71,597
  83,139
  95,613
  109,001
  123,279
  138,427
  154,426
  171,260
  188,916
  207,388
  226,675
  246,779
  267,711
  289,485
  312,122
  335,649
Change in working capital, $m
  -48
  -74
  -107
  -151
  -205
  -271
  -349
  -439
  -538
  -648
  -764
  -887
  -1,014
  -1,144
  -1,275
  -1,405
  -1,534
  -1,660
  -1,784
  -1,905
  -2,024
  -2,139
  -2,252
  -2,364
  -2,474
  -2,585
  -2,695
  -2,807
  -2,920
  -3,036
  -3,156
Cash from operations, $m
  1,074
  1,777
  2,654
  3,878
  5,532
  7,704
  10,483
  13,950
  18,184
  23,248
  29,196
  35,909
  43,733
  52,523
  62,281
  73,002
  84,672
  97,274
  110,785
  125,184
  140,451
  156,565
  173,512
  191,280
  209,863
  229,259
  249,474
  270,518
  292,405
  315,159
  338,805
Maintenance CAPEX, $m
  0
  -133
  -213
  -330
  -493
  -716
  -1,010
  -1,388
  -1,863
  -2,446
  -3,148
  -3,976
  -4,937
  -6,036
  -7,276
  -8,657
  -10,179
  -11,840
  -13,639
  -15,572
  -17,636
  -19,828
  -22,146
  -24,586
  -27,147
  -29,827
  -32,627
  -35,547
  -38,587
  -41,751
  -45,040
New CAPEX, $m
  -466
  -641
  -931
  -1,307
  -1,779
  -2,352
  -3,027
  -3,801
  -4,666
  -5,612
  -6,625
  -7,690
  -8,792
  -9,916
  -11,048
  -12,176
  -13,293
  -14,390
  -15,464
  -16,513
  -17,537
  -18,538
  -19,520
  -20,487
  -21,445
  -22,399
  -23,357
  -24,324
  -25,308
  -26,314
  -27,350
Cash from investing activities, $m
  -400
  -774
  -1,144
  -1,637
  -2,272
  -3,068
  -4,037
  -5,189
  -6,529
  -8,058
  -9,773
  -11,666
  -13,729
  -15,952
  -18,324
  -20,833
  -23,472
  -26,230
  -29,103
  -32,085
  -35,173
  -38,366
  -41,666
  -45,073
  -48,592
  -52,226
  -55,984
  -59,871
  -63,895
  -68,065
  -72,390
Free cash flow, $m
  674
  1,003
  1,510
  2,241
  3,259
  4,637
  6,446
  8,762
  11,654
  15,189
  19,423
  24,243
  30,004
  36,571
  43,958
  52,169
  61,201
  71,043
  81,682
  93,099
  105,278
  118,199
  131,846
  146,207
  161,271
  177,033
  193,490
  210,647
  228,510
  247,094
  266,415
Issuance/(repayment) of debt, $m
  -332
  4,421
  6,418
  9,015
  12,270
  16,220
  20,874
  26,210
  32,177
  38,700
  45,686
  53,032
  60,630
  68,378
  76,184
  83,967
  91,665
  99,231
  106,638
  113,871
  120,933
  127,838
  134,609
  141,277
  147,882
  154,464
  161,067
  167,737
  174,520
  181,461
  188,605
Issuance/(repurchase) of shares, $m
  27
  3,583
  4,872
  6,483
  8,400
  10,585
  12,973
  15,470
  17,960
  20,308
  22,375
  23,587
  24,679
  25,101
  24,754
  23,562
  21,473
  18,455
  14,497
  9,603
  3,794
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -354
  8,004
  11,290
  15,498
  20,670
  26,805
  33,847
  41,680
  50,137
  59,008
  68,061
  76,619
  85,309
  93,479
  100,938
  107,529
  113,138
  117,686
  121,135
  123,474
  124,727
  127,838
  134,609
  141,277
  147,882
  154,464
  161,067
  167,737
  174,520
  181,461
  188,605
Total cash flow (excl. dividends), $m
  319
  9,007
  12,799
  17,739
  23,929
  31,442
  40,293
  50,442
  61,791
  74,198
  87,485
  100,862
  115,313
  130,049
  144,895
  159,698
  174,339
  188,730
  202,816
  216,574
  230,005
  246,036
  266,455
  287,485
  309,153
  331,496
  354,557
  378,383
  403,030
  428,554
  455,020
Retained Cash Flow (-), $m
  -4,948
  -4,480
  -6,495
  -9,124
  -12,418
  -16,415
  -21,126
  -26,526
  -32,565
  -39,167
  -46,238
  -53,672
  -61,362
  -69,204
  -77,103
  -84,981
  -92,771
  -100,429
  -107,925
  -115,246
  -122,393
  -129,381
  -136,234
  -142,983
  -149,667
  -156,328
  -163,011
  -169,762
  -176,626
  -183,651
  -190,882
Prev. year cash balance distribution, $m
 
  192
  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
 
  4,719
  6,304
  8,615
  11,511
  15,026
  19,168
  23,916
  29,226
  35,030
  41,247
  47,190
  53,951
  60,846
  67,792
  74,718
  81,568
  88,301
  94,891
  101,328
  107,612
  116,655
  130,221
  144,502
  159,486
  175,168
  191,546
  208,622
  226,403
  244,903
  264,138
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
 
  4,422
  5,503
  6,957
  8,538
  10,159
  11,716
  13,101
  14,215
  14,980
  15,344
  15,101
  14,676
  13,892
  12,818
  11,533
  10,125
  8,674
  7,252
  5,918
  4,713
  3,755
  3,017
  2,356
  1,787
  1,316
  941
  651
  437
  283
  177
Current shareholders' claim on cash, %
  100
  79.6
  65.3
  55.0
  47.3
  41.5
  36.9
  33.4
  30.6
  28.3
  26.5
  25.1
  23.9
  23.0
  22.3
  21.7
  21.3
  21.0
  20.8
  20.7
  20.6
  20.6
  20.6
  20.6
  20.6
  20.6
  20.6
  20.6
  20.6
  20.6
  20.6

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 42.1
Price to Sales 3.1
Price to Book 1.8
Price to Tangible Book
Price to Cash Flow 13.1
Price to Free Cash Flow 23.1
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 12
Current Ratio 0
LT Debt to Equity 64%
Total Debt to Equity 64.3%
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 23.4%.

Life of production assets of 8 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 -2.7%. 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 178.747 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 $14.3 billion.

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Stock chart of WCN Financial statements of WCN
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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