Intrinsic value of American Realty Investors - ARL

Previous Close

$8.62

  Intrinsic Value

$1.91

stock screener

  Rating & Target

str. sell

-78%

  Value-price divergence*

+18%

Previous close

$8.62

 
Intrinsic value

$1.91

 
Up/down potential

-78%

 
Rating

str. sell

 
Value-price divergence*

+18%

Our model is not good at valuating stocks of financial companies, such as ARL.

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

We calculate the intrinsic value of ARL 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 0.1

 

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, %
  15.38
  10.30
  9.77
  9.29
  8.86
  8.48
  8.13
  7.82
  7.53
  7.28
  7.05
  6.85
  6.66
  6.50
  6.35
  6.21
  6.09
  5.98
  5.88
  5.80
  5.72
  5.64
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
  5.28
  5.25
Revenue, $m
  120
  132
  145
  159
  173
  188
  203
  219
  235
  252
  270
  288
  308
  328
  349
  370
  393
  416
  441
  466
  493
  521
  550
  580
  612
  645
  680
  716
  754
  794
  835
Variable operating expenses, $m
 
  59
  64
  70
  76
  83
  90
  97
  104
  111
  119
  128
  136
  145
  154
  164
  174
  184
  195
  206
  218
  230
  243
  256
  270
  285
  300
  316
  333
  351
  369
Fixed operating expenses, $m
 
  54
  56
  57
  59
  60
  61
  63
  65
  66
  68
  70
  71
  73
  75
  77
  79
  81
  83
  85
  87
  89
  91
  94
  96
  98
  101
  103
  106
  108
  111
Total operating expenses, $m
  105
  113
  120
  127
  135
  143
  151
  160
  169
  177
  187
  198
  207
  218
  229
  241
  253
  265
  278
  291
  305
  319
  334
  350
  366
  383
  401
  419
  439
  459
  480
Operating income, $m
  15
  20
  25
  32
  38
  45
  52
  59
  67
  75
  83
  91
  100
  110
  120
  130
  140
  152
  163
  175
  188
  202
  216
  230
  246
  262
  279
  296
  315
  334
  355
EBITDA, $m
  39
  52
  61
  70
  80
  90
  101
  112
  124
  136
  149
  162
  175
  190
  205
  220
  236
  253
  271
  289
  308
  328
  350
  372
  395
  419
  444
  471
  499
  528
  559
Interest expense (income), $m
  51
  53
  60
  67
  74
  82
  90
  98
  107
  116
  125
  135
  145
  155
  166
  177
  189
  201
  214
  227
  241
  256
  271
  287
  303
  321
  339
  358
  377
  398
  420
Earnings before tax, $m
  -2
  -33
  -34
  -35
  -36
  -37
  -38
  -39
  -40
  -41
  -42
  -43
  -44
  -45
  -46
  -47
  -49
  -50
  -51
  -52
  -53
  -54
  -56
  -57
  -58
  -59
  -60
  -61
  -63
  -64
  -65
Tax expense, $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
  0
Net income, $m
  -3
  -33
  -34
  -35
  -36
  -37
  -38
  -39
  -40
  -41
  -42
  -43
  -44
  -45
  -46
  -47
  -49
  -50
  -51
  -52
  -53
  -54
  -56
  -57
  -58
  -59
  -60
  -61
  -63
  -64
  -65

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  18
  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
  1,175
  1,298
  1,424
  1,557
  1,695
  1,838
  1,988
  2,143
  2,305
  2,473
  2,647
  2,828
  3,017
  3,213
  3,417
  3,629
  3,850
  4,080
  4,320
  4,571
  4,832
  5,105
  5,390
  5,687
  5,998
  6,324
  6,664
  7,020
  7,392
  7,783
  8,191
Adjusted assets (=assets-cash), $m
  1,157
  1,298
  1,424
  1,557
  1,695
  1,838
  1,988
  2,143
  2,305
  2,473
  2,647
  2,828
  3,017
  3,213
  3,417
  3,629
  3,850
  4,080
  4,320
  4,571
  4,832
  5,105
  5,390
  5,687
  5,998
  6,324
  6,664
  7,020
  7,392
  7,783
  8,191
Revenue / Adjusted assets
  0.104
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
Average production assets, $m
  878
  968
  1,063
  1,161
  1,264
  1,371
  1,483
  1,599
  1,719
  1,844
  1,974
  2,110
  2,250
  2,396
  2,549
  2,707
  2,872
  3,044
  3,223
  3,409
  3,604
  3,808
  4,020
  4,242
  4,474
  4,717
  4,971
  5,236
  5,514
  5,805
  6,110
Working capital, $m
  0
  -13
  -15
  -16
  -17
  -19
  -20
  -22
  -24
  -25
  -27
  -29
  -31
  -33
  -35
  -37
  -39
  -42
  -44
  -47
  -49
  -52
  -55
  -58
  -61
  -65
  -68
  -72
  -75
  -79
  -84
Total debt, $m
  851
  961
  1,074
  1,193
  1,317
  1,445
  1,579
  1,718
  1,863
  2,013
  2,170
  2,332
  2,501
  2,677
  2,859
  3,050
  3,248
  3,454
  3,669
  3,893
  4,127
  4,372
  4,627
  4,894
  5,172
  5,464
  5,769
  6,088
  6,422
  6,771
  7,137
Total liabilities, $m
  1,053
  1,163
  1,276
  1,395
  1,519
  1,647
  1,781
  1,920
  2,065
  2,215
  2,372
  2,534
  2,703
  2,879
  3,061
  3,252
  3,450
  3,656
  3,871
  4,095
  4,329
  4,574
  4,829
  5,096
  5,374
  5,666
  5,971
  6,290
  6,624
  6,973
  7,339
Total equity, $m
  122
  135
  148
  162
  176
  191
  207
  223
  240
  257
  275
  294
  314
  334
  355
  377
  400
  424
  449
  475
  503
  531
  561
  591
  624
  658
  693
  730
  769
  809
  852
Total liabilities and equity, $m
  1,175
  1,298
  1,424
  1,557
  1,695
  1,838
  1,988
  2,143
  2,305
  2,472
  2,647
  2,828
  3,017
  3,213
  3,416
  3,629
  3,850
  4,080
  4,320
  4,570
  4,832
  5,105
  5,390
  5,687
  5,998
  6,324
  6,664
  7,020
  7,393
  7,782
  8,191
Debt-to-equity ratio
  6.975
  7.120
  7.250
  7.370
  7.470
  7.560
  7.640
  7.710
  7.770
  7.830
  7.880
  7.930
  7.970
  8.010
  8.050
  8.080
  8.110
  8.140
  8.170
  8.190
  8.210
  8.230
  8.260
  8.270
  8.290
  8.310
  8.320
  8.340
  8.350
  8.370
  8.380
Adjusted equity ratio
  0.090
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104
  0.104

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -3
  -33
  -34
  -35
  -36
  -37
  -38
  -39
  -40
  -41
  -42
  -43
  -44
  -45
  -46
  -47
  -49
  -50
  -51
  -52
  -53
  -54
  -56
  -57
  -58
  -59
  -60
  -61
  -63
  -64
  -65
Depreciation, amort., depletion, $m
  24
  32
  35
  39
  42
  46
  49
  53
  57
  61
  66
  70
  75
  80
  85
  90
  96
  101
  107
  114
  120
  127
  134
  141
  149
  157
  166
  175
  184
  194
  204
Funds from operations, $m
  28
  -1
  1
  4
  6
  9
  12
  14
  17
  21
  24
  27
  31
  35
  39
  43
  47
  52
  57
  62
  67
  73
  78
  85
  91
  98
  105
  113
  121
  130
  139
Change in working capital, $m
  11
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
Cash from operations, $m
  17
  0
  3
  5
  8
  10
  13
  16
  19
  22
  26
  29
  33
  37
  41
  45
  49
  54
  59
  64
  70
  75
  81
  88
  94
  102
  109
  117
  125
  134
  143
Maintenance CAPEX, $m
  0
  -29
  -32
  -35
  -39
  -42
  -46
  -49
  -53
  -57
  -61
  -66
  -70
  -75
  -80
  -85
  -90
  -96
  -101
  -107
  -114
  -120
  -127
  -134
  -141
  -149
  -157
  -166
  -175
  -184
  -194
New CAPEX, $m
  -92
  -90
  -95
  -99
  -103
  -107
  -111
  -116
  -120
  -125
  -130
  -135
  -141
  -146
  -152
  -158
  -165
  -172
  -179
  -187
  -195
  -203
  -212
  -222
  -232
  -243
  -254
  -266
  -278
  -291
  -305
Cash from investing activities, $m
  -61
  -119
  -127
  -134
  -142
  -149
  -157
  -165
  -173
  -182
  -191
  -201
  -211
  -221
  -232
  -243
  -255
  -268
  -280
  -294
  -309
  -323
  -339
  -356
  -373
  -392
  -411
  -432
  -453
  -475
  -499
Free cash flow, $m
  -44
  -119
  -124
  -129
  -134
  -139
  -144
  -149
  -155
  -160
  -166
  -172
  -178
  -185
  -191
  -198
  -206
  -213
  -222
  -230
  -239
  -248
  -258
  -268
  -279
  -290
  -302
  -314
  -327
  -341
  -355
Issuance/(repayment) of debt, $m
  46
  110
  114
  119
  124
  129
  134
  139
  145
  150
  156
  162
  169
  176
  183
  190
  198
  206
  215
  224
  234
  244
  255
  267
  279
  291
  305
  319
  334
  350
  366
Issuance/(repurchase) of shares, $m
  0
  46
  47
  49
  50
  52
  53
  55
  57
  58
  60
  62
  64
  66
  68
  70
  72
  74
  76
  78
  80
  83
  85
  88
  90
  93
  96
  98
  101
  104
  107
Cash from financing (excl. dividends), $m  
  47
  156
  161
  168
  174
  181
  187
  194
  202
  208
  216
  224
  233
  242
  251
  260
  270
  280
  291
  302
  314
  327
  340
  355
  369
  384
  401
  417
  435
  454
  473
Total cash flow (excl. dividends), $m
  3
  36
  37
  38
  40
  42
  43
  45
  47
  49
  50
  52
  54
  57
  59
  61
  64
  67
  69
  72
  76
  79
  82
  86
  90
  94
  98
  103
  108
  113
  118
Retained Cash Flow (-), $m
  1
  -46
  -47
  -49
  -50
  -52
  -53
  -55
  -57
  -58
  -60
  -62
  -64
  -66
  -68
  -70
  -72
  -74
  -76
  -78
  -80
  -83
  -85
  -88
  -90
  -93
  -96
  -98
  -101
  -104
  -107
Prev. year cash balance distribution, $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 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
 
  -10
  -11
  -11
  -10
  -10
  -10
  -10
  -10
  -10
  -10
  -10
  -9
  -9
  -9
  -8
  -8
  -7
  -6
  -6
  -5
  -4
  -3
  -2
  0
  1
  3
  5
  6
  9
  11
Discount rate, %
 
  14.00
  14.70
  15.44
  16.21
  17.02
  17.87
  18.76
  19.70
  20.68
  21.72
  22.80
  23.94
  25.14
  26.40
  27.72
  29.10
  30.56
  32.09
  33.69
  35.38
  37.15
  39.00
  40.95
  43.00
  45.15
  47.41
  49.78
  52.27
  54.88
  57.63
PV of cash for distribution, $m
 
  -9
  -8
  -7
  -6
  -5
  -4
  -3
  -2
  -2
  -1
  -1
  -1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  74.8
  57.1
  44.1
  34.6
  27.4
  22.0
  17.8
  14.5
  11.9
  9.9
  8.2
  6.9
  5.8
  4.9
  4.2
  3.6
  3.1
  2.7
  2.3
  2.0
  1.8
  1.5
  1.3
  1.2
  1.0
  0.9
  0.8
  0.7
  0.7
  0.6

American Realty Investors, Inc. engages in the acquisition, development, and ownership of residential, hotel, and commercial real estate properties. The company leases apartment units to residents; leases office, industrial, and retail space to various for-profit businesses, as well as local, state, and federal agencies; and sells properties and land. As of December 31, 2015, its portfolio comprised 48 residential apartment communities totaling 7,983 units; and 9 commercial properties, including 5 office buildings, 1 industrial warehouse, and 3 retail centers comprising approximately 2.2 million square feet. The company also owned or controlled 3,812 acres of improved and unimproved land. American Realty Investors, Inc. was founded in 1961 and is headquartered in Dallas, Texas. American Realty Investors, Inc. is a subsidiary of Realty Advisors LLC.

FINANCIAL RATIOS  of  American Realty Investors (ARL)

Valuation Ratios
P/E Ratio -44.6
Price to Sales 1.1
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow 7.9
Price to Free Cash Flow -1.8
Growth Rates
Sales Growth Rate 15.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -55.6%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 697.5%
Total Debt to Equity 697.5%
Interest Coverage 1
Management Effectiveness
Return On Assets 4.2%
Ret/ On Assets - 3 Yr. Avg. 3.7%
Return On Total Capital -0.3%
Ret/ On T. Cap. - 3 Yr. Avg. 1.2%
Return On Equity -2.4%
Return On Equity - 3 Yr. Avg. 8.3%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 47.5%
Gross Margin - 3 Yr. Avg. 47.5%
EBITDA Margin 60.8%
EBITDA Margin - 3 Yr. Avg. 55.8%
Operating Margin 12.5%
Oper. Margin - 3 Yr. Avg. 6.1%
Pre-Tax Margin -1.7%
Pre-Tax Margin - 3 Yr. Avg. -9.4%
Net Profit Margin -2.5%
Net Profit Margin - 3 Yr. Avg. 11.6%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 37%
Payout Ratio -33.3%

ARL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ARL stock intrinsic value calculation we used $120 million for the last fiscal year's total revenue generated by American Realty Investors. The default revenue input number comes from 2016 income statement of American Realty Investors. 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 ARL stock valuation model: a) initial revenue growth rate of 10.3% 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 14%, whose default value for ARL is calculated based on our internal credit rating of American Realty Investors, 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 American Realty Investors.
    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 ARL stock the variable cost ratio is equal to 44.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $53 million in the base year in the intrinsic value calculation for ARL 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 6.2% for American Realty Investors.

Corporate tax rate of 27% is the nominal tax rate for American Realty Investors. 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 ARL 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 ARL are equal to 731.3%.

Life of production assets of 36.6 years is the average useful life of capital assets used in American Realty Investors 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 ARL is equal to -10%. 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 - $122 million for American Realty Investors - 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 15.939 million for American Realty Investors 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 American Realty Investors at the current share price and the inputted number of shares is $0.1 billion.

RELATED COMPANIES Price Int.Val. Rating

COMPANY NEWS

▶ ARL reports 2Q loss   [Aug-14-17 11:08PM  Associated Press]
▶ ARL reports 1Q loss   [May-16-17 11:44AM  Associated Press]
▶ ARL posts 4Q profit   [Apr-03-17 04:52PM  Associated Press]
▶ American Realty Investors reports Q1 EPS 25c vs. (2c) a year ago   [May-15  01:45PM  at theflyonthewall.com]
Stock chart of ARL Financial statements of ARL
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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