Intrinsic value of American States Water - AWR

Previous Close

$48.88

  Intrinsic Value

$24.82

stock screener

  Rating & Target

sell

-49%

  Value-price divergence*

-47%

Previous close

$48.88

 
Intrinsic value

$24.82

 
Up/down potential

-49%

 
Rating

sell

 
Value-price divergence*

-47%

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

We calculate the intrinsic value of AWR 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, %
  -5.01
  5.30
  5.27
  5.24
  5.22
  5.20
  5.18
  5.16
  5.14
  5.13
  5.12
  5.10
  5.09
  5.08
  5.08
  5.07
  5.06
  5.06
  5.05
  5.05
  5.04
  5.04
  5.03
  5.03
  5.03
  5.02
  5.02
  5.02
  5.02
  5.02
  5.01
Revenue, $m
  339
  459
  483
  509
  535
  563
  592
  623
  655
  688
  724
  760
  799
  840
  882
  927
  974
  1,023
  1,075
  1,129
  1,186
  1,246
  1,309
  1,374
  1,444
  1,516
  1,592
  1,672
  1,756
  1,844
  1,937
Variable operating expenses, $m
 
  340
  358
  377
  397
  417
  439
  461
  485
  510
  536
  563
  592
  622
  654
  687
  722
  758
  796
  837
  879
  923
  969
  1,018
  1,069
  1,123
  1,179
  1,239
  1,301
  1,366
  1,435
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
  321
  340
  358
  377
  397
  417
  439
  461
  485
  510
  536
  563
  592
  622
  654
  687
  722
  758
  796
  837
  879
  923
  969
  1,018
  1,069
  1,123
  1,179
  1,239
  1,301
  1,366
  1,435
Operating income, $m
  115
  119
  125
  132
  139
  146
  153
  161
  170
  178
  187
  197
  207
  218
  229
  240
  253
  265
  279
  293
  308
  323
  339
  356
  374
  393
  413
  433
  455
  478
  502
EBITDA, $m
  154
  122
  129
  136
  143
  150
  158
  166
  174
  183
  193
  203
  213
  224
  235
  247
  260
  273
  286
  301
  316
  332
  349
  366
  385
  404
  424
  446
  468
  491
  516
Interest expense (income), $m
  22
  24
  27
  30
  33
  37
  40
  44
  48
  52
  56
  61
  66
  71
  76
  82
  87
  94
  100
  107
  114
  121
  129
  137
  145
  154
  164
  174
  184
  195
  206
Earnings before tax, $m
  94
  95
  98
  102
  105
  109
  113
  117
  122
  126
  131
  136
  141
  147
  153
  159
  165
  172
  179
  186
  194
  202
  210
  219
  229
  239
  249
  260
  271
  283
  296
Tax expense, $m
  34
  26
  27
  28
  28
  29
  31
  32
  33
  34
  35
  37
  38
  40
  41
  43
  45
  46
  48
  50
  52
  55
  57
  59
  62
  64
  67
  70
  73
  76
  80
Net income, $m
  60
  69
  72
  74
  77
  80
  83
  86
  89
  92
  96
  99
  103
  107
  111
  116
  120
  125
  130
  136
  142
  147
  154
  160
  167
  174
  182
  190
  198
  207
  216

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
Total assets, $m
  1,470
  1,546
  1,627
  1,713
  1,802
  1,896
  1,994
  2,097
  2,204
  2,318
  2,436
  2,560
  2,691
  2,828
  2,971
  3,122
  3,280
  3,446
  3,620
  3,802
  3,994
  4,195
  4,406
  4,628
  4,861
  5,105
  5,361
  5,630
  5,913
  6,209
  6,521
Adjusted assets (=assets-cash), $m
  1,470
  1,546
  1,627
  1,713
  1,802
  1,896
  1,994
  2,097
  2,204
  2,318
  2,436
  2,560
  2,691
  2,828
  2,971
  3,122
  3,280
  3,446
  3,620
  3,802
  3,994
  4,195
  4,406
  4,628
  4,861
  5,105
  5,361
  5,630
  5,913
  6,209
  6,521
Revenue / Adjusted assets
  0.231
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
Average production assets, $m
  32
  33
  35
  37
  39
  41
  43
  45
  47
  50
  52
  55
  58
  60
  64
  67
  70
  74
  77
  81
  85
  90
  94
  99
  104
  109
  115
  120
  126
  133
  139
Working capital, $m
  -11
  83
  87
  92
  97
  102
  107
  113
  119
  125
  131
  138
  145
  152
  160
  168
  176
  185
  195
  204
  215
  226
  237
  249
  261
  274
  288
  303
  318
  334
  351
Total debt, $m
  411
  461
  516
  572
  632
  694
  759
  827
  899
  974
  1,053
  1,135
  1,222
  1,313
  1,408
  1,508
  1,613
  1,723
  1,838
  1,960
  2,087
  2,221
  2,361
  2,508
  2,662
  2,825
  2,995
  3,173
  3,361
  3,558
  3,765
Total liabilities, $m
  976
  1,026
  1,081
  1,137
  1,197
  1,259
  1,324
  1,392
  1,464
  1,539
  1,618
  1,700
  1,787
  1,878
  1,973
  2,073
  2,178
  2,288
  2,403
  2,525
  2,652
  2,786
  2,926
  3,073
  3,227
  3,390
  3,560
  3,738
  3,926
  4,123
  4,330
Total equity, $m
  494
  519
  547
  575
  605
  637
  670
  704
  741
  779
  819
  860
  904
  950
  998
  1,049
  1,102
  1,158
  1,216
  1,278
  1,342
  1,410
  1,481
  1,555
  1,633
  1,715
  1,801
  1,892
  1,987
  2,086
  2,191
Total liabilities and equity, $m
  1,470
  1,545
  1,628
  1,712
  1,802
  1,896
  1,994
  2,096
  2,205
  2,318
  2,437
  2,560
  2,691
  2,828
  2,971
  3,122
  3,280
  3,446
  3,619
  3,803
  3,994
  4,196
  4,407
  4,628
  4,860
  5,105
  5,361
  5,630
  5,913
  6,209
  6,521
Debt-to-equity ratio
  0.832
  0.890
  0.940
  0.990
  1.040
  1.090
  1.130
  1.170
  1.210
  1.250
  1.290
  1.320
  1.350
  1.380
  1.410
  1.440
  1.460
  1.490
  1.510
  1.530
  1.560
  1.580
  1.590
  1.610
  1.630
  1.650
  1.660
  1.680
  1.690
  1.710
  1.720
Adjusted equity ratio
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  60
  69
  72
  74
  77
  80
  83
  86
  89
  92
  96
  99
  103
  107
  111
  116
  120
  125
  130
  136
  142
  147
  154
  160
  167
  174
  182
  190
  198
  207
  216
Depreciation, amort., depletion, $m
  39
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
Funds from operations, $m
  65
  73
  75
  78
  81
  84
  87
  90
  94
  97
  101
  105
  109
  113
  118
  123
  128
  133
  138
  144
  150
  156
  163
  170
  177
  185
  193
  202
  211
  220
  230
Change in working capital, $m
  -32
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  14
  15
  16
  17
Cash from operations, $m
  97
  69
  71
  74
  76
  79
  82
  85
  88
  91
  95
  98
  102
  106
  110
  114
  119
  124
  129
  134
  140
  146
  152
  158
  165
  172
  179
  187
  195
  204
  213
Maintenance CAPEX, $m
  0
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
New CAPEX, $m
  -130
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
Cash from investing activities, $m
  -131
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
Free cash flow, $m
  -34
  64
  66
  68
  71
  73
  76
  78
  81
  84
  87
  90
  94
  97
  101
  105
  109
  113
  118
  123
  128
  133
  138
  144
  150
  156
  163
  170
  177
  185
  193
Issuance/(repayment) of debt, $m
  62
  50
  54
  57
  59
  62
  65
  68
  72
  75
  79
  83
  87
  91
  95
  100
  105
  110
  116
  121
  127
  134
  140
  147
  154
  162
  170
  179
  188
  197
  207
Issuance/(repurchase) of shares, $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
Cash from financing (excl. dividends), $m  
  63
  50
  54
  57
  59
  62
  65
  68
  72
  75
  79
  83
  87
  91
  95
  100
  105
  110
  116
  121
  127
  134
  140
  147
  154
  162
  170
  179
  188
  197
  207
Total cash flow (excl. dividends), $m
  29
  114
  120
  125
  130
  135
  141
  147
  153
  159
  166
  173
  180
  188
  196
  205
  214
  223
  233
  244
  255
  266
  278
  291
  304
  318
  333
  349
  365
  382
  400
Retained Cash Flow (-), $m
  -28
  -25
  -27
  -29
  -30
  -31
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -53
  -56
  -58
  -61
  -64
  -68
  -71
  -74
  -78
  -82
  -86
  -90
  -95
  -100
  -105
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
 
  89
  93
  96
  100
  104
  108
  112
  116
  121
  126
  131
  136
  142
  148
  154
  161
  168
  175
  182
  190
  199
  207
  217
  226
  236
  247
  258
  270
  282
  295
Discount rate, %
 
  6.80
  7.14
  7.50
  7.87
  8.27
  8.68
  9.11
  9.57
  10.05
  10.55
  11.08
  11.63
  12.21
  12.82
  13.46
  14.14
  14.84
  15.59
  16.37
  17.18
  18.04
  18.94
  19.89
  20.89
  21.93
  23.03
  24.18
  25.39
  26.66
  27.99
PV of cash for distribution, $m
 
  83
  81
  77
  74
  70
  65
  61
  56
  51
  46
  41
  36
  32
  27
  23
  19
  16
  13
  10
  8
  6
  5
  3
  2
  2
  1
  1
  0
  0
  0
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

American States Water Company, through its subsidiaries, provides water and electric services to residential, industrial, and other customers in the United States. It operates through three segments: Water, Electric, and Contracted Services. The company purchases, produces, distributes, and sells water, as well as distributes electricity. As of February 23, 2017, it served approximately 261,000 water customers located throughout 10 counties in Northern, Coastal, and Southern California; and approximately 24,000 electric customers located in the City of Big Bear and surrounding areas in San Bernardino County, California. The company also provides water and/or wastewater services, including the operation, maintenance, renewal, and replacement of the water and/or wastewater systems at various military installations. American States Water Company was founded in 1929 and is based in San Dimas, California.

FINANCIAL RATIOS  of  American States Water (AWR)

Valuation Ratios
P/E Ratio 29.8
Price to Sales 4.1
Price to Book 3.6
Price to Tangible Book
Price to Cash Flow 18.4
Price to Free Cash Flow -54.2
Growth Rates
Sales Growth Rate -5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 49.4%
Cap. Spend. - 3 Yr. Gr. Rate 6%
Financial Strength
Quick Ratio 0
Current Ratio 0.4
LT Debt to Equity 65%
Total Debt to Equity 83.2%
Interest Coverage 5
Management Effectiveness
Return On Assets 5.3%
Ret/ On Assets - 3 Yr. Avg. 4.7%
Return On Total Capital 7%
Ret/ On T. Cap. - 3 Yr. Avg. 7.2%
Return On Equity 12.5%
Return On Equity - 3 Yr. Avg. 12.3%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 35.6%
EBITDA Margin - 3 Yr. Avg. 32.2%
Operating Margin 26.4%
Oper. Margin - 3 Yr. Avg. 25.9%
Pre-Tax Margin 21.6%
Pre-Tax Margin - 3 Yr. Avg. 21.4%
Net Profit Margin 13.8%
Net Profit Margin - 3 Yr. Avg. 13.3%
Effective Tax Rate 36.2%
Eff/ Tax Rate - 3 Yr. Avg. 37.8%
Payout Ratio 55%

AWR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AWR stock intrinsic value calculation we used $436 million for the last fiscal year's total revenue generated by American States Water. The default revenue input number comes from 2016 income statement of American States Water. 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 AWR stock valuation model: a) initial revenue growth rate of 5.3% 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 6.8%, whose default value for AWR is calculated based on our internal credit rating of American States Water, 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 States Water.
    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 AWR stock the variable cost ratio is equal to 74.1%.

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 AWR 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 5.8% for American States Water.

Corporate tax rate of 27% is the nominal tax rate for American States Water. 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 AWR 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 AWR are equal to 7.2%.

Life of production assets of 10 years is the average useful life of capital assets used in American States Water 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 AWR is equal to 18.1%. 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 - $494 million for American States Water - 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 36.757 million for American States Water 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 States Water at the current share price and the inputted number of shares is $1.8 billion.

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COMPANY NEWS

▶ American States Water beats 2Q profit forecasts   [Aug-04-17 01:12AM  Associated Press]
▶ Better Buy: Aqua America, Inc. vs. American States Water   [Jul-11-17 08:16AM  Motley Fool]
▶ 3 History-Making Stocks   [Jun-16-17 02:01PM  Motley Fool]
▶ American States Water beats 1Q profit forecasts   [May-02-17 07:35PM  Associated Press]
▶ American States Water meets 4Q profit forecasts   [Feb-23-17 07:35PM  Associated Press]
▶ Better Buy: Aqua America vs. American States Water   [Feb-18-17 09:55PM  at Motley Fool]
▶ Top Water Stocks to Buy in 2017 -- and the Ones to Avoid   [Jan-27-17 06:27PM  at Motley Fool]
▶ 5 Solid Dividend Stocks Poised to Grow in 2017   [Jan-10-17 08:32AM  at Motley Fool]
▶ Is American States Water Co (AWR) A Good Stock To Buy?   [Dec-13-16 05:14AM  at Insider Monkey]
▶ Shutterfly, Inc. (SFLY): Are Hedge Funds Right About This Stock?   [Nov-28-16 01:22PM  at Insider Monkey]
▶ Three Dividend Kings Raising Dividends For 60+ Years   [Nov-07-16 08:58AM  at Insider Monkey]
Stock chart of AWR Financial statements of AWR
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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