Intrinsic value of AAON - AAON

Previous Close

$33.45

  Intrinsic Value

$14.51

stock screener

  Rating & Target

str. sell

-57%

  Value-price divergence*

-20%

Previous close

$33.45

 
Intrinsic value

$14.51

 
Up/down potential

-57%

 
Rating

str. sell

 
Value-price divergence*

-20%

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

We calculate the intrinsic value of AAON 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 1.8

 

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, %
  6.96
  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
  384
  392
  401
  411
  423
  435
  449
  465
  481
  499
  518
  539
  561
  584
  609
  635
  663
  692
  723
  756
  791
  828
  866
  907
  950
  995
  1,043
  1,093
  1,146
  1,201
  1,260
Variable operating expenses, $m
 
  266
  272
  279
  287
  296
  306
  316
  327
  339
  352
  366
  381
  397
  414
  432
  451
  471
  492
  514
  538
  563
  589
  617
  646
  677
  709
  743
  779
  817
  857
Fixed operating expenses, $m
 
  45
  46
  47
  49
  50
  51
  52
  54
  55
  56
  58
  59
  61
  62
  64
  65
  67
  69
  70
  72
  74
  76
  78
  80
  82
  84
  86
  88
  90
  92
Total operating expenses, $m
  304
  311
  318
  326
  336
  346
  357
  368
  381
  394
  408
  424
  440
  458
  476
  496
  516
  538
  561
  584
  610
  637
  665
  695
  726
  759
  793
  829
  867
  907
  949
Operating income, $m
  80
  80
  82
  84
  87
  90
  93
  96
  100
  105
  110
  115
  120
  126
  133
  139
  147
  155
  163
  172
  181
  191
  201
  213
  224
  237
  250
  264
  279
  294
  311
EBITDA, $m
  93
  93
  96
  98
  101
  104
  108
  112
  117
  122
  127
  133
  139
  146
  153
  161
  169
  178
  187
  197
  208
  219
  231
  243
  257
  271
  285
  301
  318
  335
  353
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
Earnings before tax, $m
  80
  80
  82
  84
  87
  89
  93
  96
  100
  104
  109
  114
  120
  125
  132
  138
  146
  153
  161
  170
  179
  189
  199
  210
  222
  234
  247
  261
  276
  291
  307
Tax expense, $m
  27
  22
  22
  23
  23
  24
  25
  26
  27
  28
  29
  31
  32
  34
  36
  37
  39
  41
  44
  46
  48
  51
  54
  57
  60
  63
  67
  70
  74
  79
  83
Net income, $m
  53
  59
  60
  61
  63
  65
  68
  70
  73
  76
  80
  83
  87
  92
  96
  101
  106
  112
  118
  124
  131
  138
  146
  154
  162
  171
  181
  191
  201
  212
  224

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  44
  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
  257
  217
  222
  228
  234
  241
  249
  258
  267
  277
  287
  299
  311
  324
  338
  352
  368
  384
  401
  419
  439
  459
  481
  503
  527
  552
  578
  606
  635
  666
  699
Adjusted assets (=assets-cash), $m
  213
  217
  222
  228
  234
  241
  249
  258
  267
  277
  287
  299
  311
  324
  338
  352
  368
  384
  401
  419
  439
  459
  481
  503
  527
  552
  578
  606
  635
  666
  699
Revenue / Adjusted assets
  1.803
  1.806
  1.806
  1.803
  1.808
  1.805
  1.803
  1.802
  1.801
  1.801
  1.805
  1.803
  1.804
  1.802
  1.802
  1.804
  1.802
  1.802
  1.803
  1.804
  1.802
  1.804
  1.800
  1.803
  1.803
  1.803
  1.804
  1.804
  1.805
  1.803
  1.803
Average production assets, $m
  108
  110
  113
  115
  119
  122
  126
  131
  135
  140
  146
  151
  158
  164
  171
  178
  186
  195
  203
  213
  222
  233
  243
  255
  267
  280
  293
  307
  322
  338
  354
Working capital, $m
  102
  59
  61
  62
  64
  66
  68
  70
  73
  75
  78
  81
  85
  88
  92
  96
  100
  105
  109
  114
  119
  125
  131
  137
  143
  150
  157
  165
  173
  181
  190
Total debt, $m
  0
  1
  2
  3
  5
  7
  9
  11
  13
  15
  18
  20
  23
  26
  30
  33
  37
  41
  45
  49
  54
  59
  64
  69
  75
  81
  87
  94
  101
  108
  116
Total liabilities, $m
  51
  52
  53
  54
  56
  58
  60
  62
  64
  66
  69
  71
  74
  77
  81
  84
  88
  92
  96
  100
  105
  110
  115
  120
  126
  132
  138
  145
  152
  159
  167
Total equity, $m
  206
  165
  169
  173
  178
  184
  190
  196
  203
  211
  219
  227
  237
  246
  257
  268
  280
  292
  305
  319
  334
  349
  366
  383
  401
  420
  440
  461
  484
  507
  532
Total liabilities and equity, $m
  257
  217
  222
  227
  234
  242
  250
  258
  267
  277
  288
  298
  311
  323
  338
  352
  368
  384
  401
  419
  439
  459
  481
  503
  527
  552
  578
  606
  636
  666
  699
Debt-to-equity ratio
  0.000
  0.010
  0.010
  0.020
  0.030
  0.040
  0.050
  0.050
  0.060
  0.070
  0.080
  0.090
  0.100
  0.110
  0.120
  0.120
  0.130
  0.140
  0.150
  0.150
  0.160
  0.170
  0.170
  0.180
  0.190
  0.190
  0.200
  0.200
  0.210
  0.210
  0.220
Adjusted equity ratio
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761
  0.761

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  53
  59
  60
  61
  63
  65
  68
  70
  73
  76
  80
  83
  87
  92
  96
  101
  106
  112
  118
  124
  131
  138
  146
  154
  162
  171
  181
  191
  201
  212
  224
Depreciation, amort., depletion, $m
  13
  13
  14
  14
  14
  15
  15
  16
  16
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  26
  27
  28
  29
  31
  32
  34
  35
  37
  39
  41
  43
Funds from operations, $m
  55
  72
  73
  75
  77
  80
  83
  86
  89
  93
  97
  102
  106
  111
  117
  123
  129
  135
  142
  150
  158
  166
  175
  184
  194
  205
  216
  228
  240
  253
  267
Change in working capital, $m
  -9
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  6
  7
  7
  8
  8
  8
  9
Cash from operations, $m
  64
  71
  72
  74
  76
  78
  81
  84
  87
  90
  94
  98
  103
  108
  113
  119
  125
  131
  138
  145
  152
  161
  169
  178
  188
  198
  209
  220
  232
  245
  258
Maintenance CAPEX, $m
  0
  -13
  -13
  -14
  -14
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
New CAPEX, $m
  -27
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
Cash from investing activities, $m
  -17
  -15
  -16
  -17
  -17
  -18
  -19
  -19
  -21
  -21
  -22
  -24
  -24
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -36
  -37
  -39
  -40
  -43
  -45
  -47
  -49
  -52
  -55
  -57
Free cash flow, $m
  47
  56
  56
  57
  59
  60
  62
  64
  66
  69
  72
  75
  79
  82
  86
  91
  95
  100
  105
  111
  117
  123
  130
  137
  145
  153
  162
  171
  180
  190
  201
Issuance/(repayment) of debt, $m
  0
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
Issuance/(repurchase) of shares, $m
  -17
  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  
  -18
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
Total cash flow (excl. dividends), $m
  29
  57
  57
  59
  60
  62
  64
  66
  69
  71
  74
  78
  81
  85
  90
  94
  99
  104
  110
  115
  122
  128
  135
  143
  151
  159
  168
  177
  187
  198
  209
Retained Cash Flow (-), $m
  -27
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
Prev. year cash balance distribution, $m
 
  44
  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
 
  97
  54
  54
  55
  56
  58
  60
  62
  64
  66
  69
  72
  76
  79
  83
  87
  92
  96
  102
  107
  113
  119
  126
  133
  140
  148
  156
  165
  174
  184
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
 
  93
  49
  47
  45
  44
  42
  40
  39
  37
  35
  33
  31
  29
  27
  24
  22
  20
  18
  16
  14
  12
  10
  8
  7
  5
  4
  3
  3
  2
  1
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
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AAON, Inc. is engaged in the engineering, manufacturing, marketing and sale of air conditioning and heating equipment consisting of standard, semi-custom and custom rooftop units, chillers, packaged outdoor mechanical rooms, air handling units, makeup air units, energy recovery units, condensing units, geothermal/water-source heat pumps and coils. Its products serve the commercial and industrial new construction and replacement markets. Its rooftop and condensing unit markets consist of units installed on commercial or industrial structures of less than 10 stories in height. Its air handling units, self-contained units, geothermal/water-source heat pumps, chillers, packaged outdoor mechanical rooms and coils are applicable to all sizes of commercial and industrial buildings. The replacement market consists of products installed to replace existing units/components that are worn or damaged.

FINANCIAL RATIOS  of  AAON (AAON)

Valuation Ratios
P/E Ratio 33.2
Price to Sales 4.6
Price to Book 8.5
Price to Tangible Book
Price to Cash Flow 27.5
Price to Free Cash Flow 47.6
Growth Rates
Sales Growth Rate 7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 28.6%
Cap. Spend. - 3 Yr. Gr. Rate 24.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 21.6%
Ret/ On Assets - 3 Yr. Avg. 20.5%
Return On Total Capital 27.5%
Ret/ On T. Cap. - 3 Yr. Avg. 26.5%
Return On Equity 27.5%
Return On Equity - 3 Yr. Avg. 26.5%
Asset Turnover 1.6
Profitability Ratios
Gross Margin 30.7%
Gross Margin - 3 Yr. Avg. 30.5%
EBITDA Margin 24.2%
EBITDA Margin - 3 Yr. Avg. 23.3%
Operating Margin 20.8%
Oper. Margin - 3 Yr. Avg. 20%
Pre-Tax Margin 20.8%
Pre-Tax Margin - 3 Yr. Avg. 19.9%
Net Profit Margin 13.8%
Net Profit Margin - 3 Yr. Avg. 13%
Effective Tax Rate 33.8%
Eff/ Tax Rate - 3 Yr. Avg. 34.8%
Payout Ratio 24.5%

AAON stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AAON stock intrinsic value calculation we used $384 million for the last fiscal year's total revenue generated by AAON. The default revenue input number comes from 2016 income statement of AAON. 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 AAON 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 AAON is calculated based on our internal credit rating of AAON, 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 AAON.
    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 AAON stock the variable cost ratio is equal to 68%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $44 million in the base year in the intrinsic value calculation for AAON 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 AAON.

Corporate tax rate of 27% is the nominal tax rate for AAON. 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 AAON 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 AAON are equal to 28.1%.

Life of production assets of 8.3 years is the average useful life of capital assets used in AAON 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 AAON is equal to 15.1%. 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 - $206 million for AAON - 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 52.516 million for AAON 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 AAON at the current share price and the inputted number of shares is $1.8 billion.

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COMPANY NEWS

▶ ETFs with exposure to AAON, Inc. : August 7, 2017   [Aug-07-17 04:15PM  Capital Cube]
▶ Aaon posts 2Q profit   [Aug-04-17 01:47AM  Associated Press]
▶ AAON Reports Second Quarter Sales and Earnings   [Aug-03-17 07:00AM  GlobeNewswire]
▶ ETFs with exposure to AAON, Inc. : July 7, 2017   [Jul-07-17 02:22PM  Capital Cube]
▶ ETFs with exposure to AAON, Inc. : June 19, 2017   [Jun-19-17 02:48PM  Capital Cube]
▶ Workiva Simplifies SOX Compliance for AAON   [May-31-17 09:03AM  Business Wire]
▶ New Strong Sell Stocks for May 11th   [May-11-17 09:14AM  Zacks]
▶ Aaon posts 1Q profit   [May-04-17 09:36AM  Associated Press]
▶ AAON, Inc. Value Analysis (NASDAQ:AAON) : April 24, 2017   [Apr-24-17 03:02PM  Capital Cube]
▶ Aaon posts 4Q profit   [Feb-23-17 09:53AM  Associated Press]
▶ AAON Is a Stock With Room to Grow   [Feb-10-17 07:19AM  TheStreet.com]
▶ Here is What Hedge Funds Think About Banner Corporation (BANR)   [Dec-05-16 08:17AM  at Insider Monkey]
▶ AAON Announces 18% Increase in Cash Dividend   [07:00AM  GlobeNewswire]
Financial statements of AAON
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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