Intrinsic value of Black Hills - BKH

Previous Close

$68.54

  Intrinsic Value

$1,162

stock screener

  Rating & Target

str. buy

+999%

  Value-price divergence*

+2903%

Previous close

$68.54

 
Intrinsic value

$1,162

 
Up/down potential

+999%

 
Rating

str. buy

 
Value-price divergence*

+2903%

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

We calculate the intrinsic value of BKH 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 3.7

 

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, %
  20.54
  45.90
  41.81
  38.13
  34.82
  31.83
  29.15
  26.74
  24.56
  22.61
  20.85
  19.26
  17.83
  16.55
  15.40
  14.36
  13.42
  12.58
  11.82
  11.14
  10.52
  9.97
  9.48
  9.03
  8.62
  8.26
  7.94
  7.64
  7.38
  7.14
  6.93
Revenue, $m
  0
  2,295
  3,255
  4,495
  6,061
  7,990
  10,319
  13,078
  16,290
  19,973
  24,136
  28,785
  33,919
  39,533
  45,620
  52,169
  59,171
  66,614
  74,488
  82,786
  91,499
  100,624
  110,158
  120,103
  130,461
  141,241
  152,450
  164,101
  176,209
  188,791
  201,868
Variable operating expenses, $m
 
  549
  724
  950
  1,235
  1,587
  2,012
  2,516
  3,102
  3,773
  4,533
  5,251
  6,188
  7,212
  8,322
  9,517
  10,794
  12,152
  13,588
  15,102
  16,691
  18,356
  20,095
  21,909
  23,799
  25,765
  27,810
  29,935
  32,144
  34,439
  36,824
Fixed operating expenses, $m
 
  980
  1,004
  1,030
  1,055
  1,082
  1,109
  1,136
  1,165
  1,194
  1,224
  1,254
  1,286
  1,318
  1,351
  1,385
  1,419
  1,455
  1,491
  1,528
  1,567
  1,606
  1,646
  1,687
  1,729
  1,772
  1,817
  1,862
  1,909
  1,956
  2,005
Total operating expenses, $m
  1,350
  1,529
  1,728
  1,980
  2,290
  2,669
  3,121
  3,652
  4,267
  4,967
  5,757
  6,505
  7,474
  8,530
  9,673
  10,902
  12,213
  13,607
  15,079
  16,630
  18,258
  19,962
  21,741
  23,596
  25,528
  27,537
  29,627
  31,797
  34,053
  36,395
  38,829
Operating income, $m
  223
  767
  1,527
  2,516
  3,770
  5,321
  7,198
  9,426
  12,024
  15,006
  18,380
  22,280
  26,446
  31,004
  35,947
  41,268
  46,958
  53,008
  59,409
  66,156
  73,241
  80,662
  88,417
  96,507
  104,934
  113,703
  122,823
  132,304
  142,156
  152,396
  163,038
EBITDA, $m
  412
  898
  1,658
  2,649
  3,903
  5,456
  7,334
  9,564
  12,164
  15,148
  18,524
  22,297
  26,466
  31,028
  35,975
  41,299
  46,993
  53,048
  59,454
  66,205
  73,296
  80,723
  88,483
  96,579
  105,012
  113,788
  122,915
  132,402
  142,262
  152,509
  163,159
Interest expense (income), $m
  113
  142
  238
  367
  532
  742
  999
  1,311
  1,679
  2,109
  2,601
  3,157
  3,778
  4,464
  5,214
  6,028
  6,903
  7,838
  8,833
  9,885
  10,994
  12,158
  13,377
  14,651
  15,980
  17,364
  18,804
  20,302
  21,859
  23,477
  25,158
Earnings before tax, $m
  93
  625
  1,288
  2,149
  3,237
  4,579
  6,199
  8,115
  10,345
  12,897
  15,779
  19,123
  22,668
  26,540
  30,733
  35,241
  40,055
  45,170
  50,577
  56,271
  62,248
  68,504
  75,040
  81,856
  88,954
  96,339
  104,019
  112,002
  120,297
  128,919
  137,880
Tax expense, $m
  10
  169
  348
  580
  874
  1,236
  1,674
  2,191
  2,793
  3,482
  4,260
  5,163
  6,120
  7,166
  8,298
  9,515
  10,815
  12,196
  13,656
  15,193
  16,807
  18,496
  20,261
  22,101
  24,018
  26,012
  28,085
  30,240
  32,480
  34,808
  37,228
Net income, $m
  73
  456
  940
  1,569
  2,363
  3,343
  4,525
  5,924
  7,552
  9,415
  11,519
  13,960
  16,548
  19,374
  22,435
  25,726
  29,240
  32,974
  36,921
  41,078
  45,441
  50,008
  54,779
  59,755
  64,936
  70,328
  75,934
  81,761
  87,817
  94,111
  100,652

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  14
  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
  6,515
  9,484
  13,449
  18,576
  25,044
  33,017
  42,641
  54,042
  67,316
  82,533
  99,737
  118,948
  140,162
  163,361
  188,512
  215,576
  244,508
  275,265
  307,804
  342,090
  378,094
  415,800
  455,198
  496,292
  539,097
  583,639
  629,958
  678,103
  728,136
  780,128
  834,163
Adjusted assets (=assets-cash), $m
  6,501
  9,484
  13,449
  18,576
  25,044
  33,017
  42,641
  54,042
  67,316
  82,533
  99,737
  118,948
  140,162
  163,361
  188,512
  215,576
  244,508
  275,265
  307,804
  342,090
  378,094
  415,800
  455,198
  496,292
  539,097
  583,639
  629,958
  678,103
  728,136
  780,128
  834,163
Revenue / Adjusted assets
  0.000
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
Average production assets, $m
  6
  7
  10
  13
  18
  24
  31
  39
  49
  60
  72
  86
  102
  119
  137
  157
  178
  200
  223
  248
  274
  302
  330
  360
  391
  424
  457
  492
  529
  566
  606
Working capital, $m
  -61
  41
  59
  81
  109
  144
  186
  235
  293
  360
  434
  518
  611
  712
  821
  939
  1,065
  1,199
  1,341
  1,490
  1,647
  1,811
  1,983
  2,162
  2,348
  2,542
  2,744
  2,954
  3,172
  3,398
  3,634
Total debt, $m
  3,314
  5,546
  8,527
  12,383
  17,247
  23,242
  30,480
  39,053
  49,035
  60,479
  73,417
  87,863
  103,816
  121,261
  140,175
  160,527
  182,284
  205,413
  229,882
  255,665
  282,741
  311,095
  340,723
  371,625
  403,815
  437,311
  472,142
  508,348
  545,972
  585,070
  625,705
Total liabilities, $m
  4,901
  7,132
  10,113
  13,969
  18,833
  24,828
  32,066
  40,639
  50,621
  62,065
  75,003
  89,449
  105,402
  122,847
  141,761
  162,113
  183,870
  206,999
  231,468
  257,251
  284,327
  312,681
  342,309
  373,211
  405,401
  438,897
  473,728
  509,934
  547,558
  586,656
  627,291
Total equity, $m
  1,615
  2,352
  3,335
  4,607
  6,211
  8,188
  10,575
  13,402
  16,694
  20,468
  24,735
  29,499
  34,760
  40,513
  46,751
  53,463
  60,638
  68,266
  76,335
  84,838
  93,767
  103,118
  112,889
  123,080
  133,696
  144,743
  156,230
  168,170
  180,578
  193,472
  206,873
Total liabilities and equity, $m
  6,516
  9,484
  13,448
  18,576
  25,044
  33,016
  42,641
  54,041
  67,315
  82,533
  99,738
  118,948
  140,162
  163,360
  188,512
  215,576
  244,508
  275,265
  307,803
  342,089
  378,094
  415,799
  455,198
  496,291
  539,097
  583,640
  629,958
  678,104
  728,136
  780,128
  834,164
Debt-to-equity ratio
  2.052
  2.360
  2.560
  2.690
  2.780
  2.840
  2.880
  2.910
  2.940
  2.950
  2.970
  2.980
  2.990
  2.990
  3.000
  3.000
  3.010
  3.010
  3.010
  3.010
  3.020
  3.020
  3.020
  3.020
  3.020
  3.020
  3.020
  3.020
  3.020
  3.020
  3.020
Adjusted equity ratio
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248
  0.248

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  73
  456
  940
  1,569
  2,363
  3,343
  4,525
  5,924
  7,552
  9,415
  11,519
  13,960
  16,548
  19,374
  22,435
  25,726
  29,240
  32,974
  36,921
  41,078
  45,441
  50,008
  54,779
  59,755
  64,936
  70,328
  75,934
  81,761
  87,817
  94,111
  100,652
Depreciation, amort., depletion, $m
  189
  131
  132
  133
  134
  135
  136
  138
  140
  142
  144
  17
  20
  24
  27
  31
  36
  40
  45
  50
  55
  60
  66
  72
  78
  85
  91
  98
  106
  113
  121
Funds from operations, $m
  229
  587
  1,072
  1,702
  2,497
  3,478
  4,661
  6,062
  7,691
  9,557
  11,663
  13,977
  16,568
  19,398
  22,462
  25,757
  29,276
  33,014
  36,966
  41,127
  45,496
  50,069
  54,845
  59,827
  65,015
  70,412
  76,025
  81,860
  87,923
  94,224
  100,773
Change in working capital, $m
  -91
  13
  17
  22
  28
  35
  42
  50
  58
  66
  75
  84
  92
  101
  110
  118
  126
  134
  142
  149
  157
  164
  172
  179
  186
  194
  202
  210
  218
  226
  235
Cash from operations, $m
  320
  577
  1,055
  1,679
  2,469
  3,443
  4,619
  6,012
  7,633
  9,491
  11,588
  13,893
  16,475
  19,297
  22,353
  25,639
  29,150
  32,880
  36,824
  40,978
  45,339
  49,904
  54,674
  59,648
  64,828
  70,218
  75,824
  81,650
  87,705
  93,998
  100,538
Maintenance CAPEX, $m
  0
  -1
  -1
  -2
  -3
  -4
  -5
  -6
  -8
  -10
  -12
  -14
  -17
  -20
  -24
  -27
  -31
  -36
  -40
  -45
  -50
  -55
  -60
  -66
  -72
  -78
  -85
  -91
  -98
  -106
  -113
New CAPEX, $m
  -475
  -1
  -3
  -4
  -5
  -6
  -7
  -8
  -10
  -11
  -12
  -14
  -15
  -17
  -18
  -20
  -21
  -22
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -32
  -34
  -35
  -36
  -38
  -39
Cash from investing activities, $m
  -1,589
  -2
  -4
  -6
  -8
  -10
  -12
  -14
  -18
  -21
  -24
  -28
  -32
  -37
  -42
  -47
  -52
  -58
  -64
  -70
  -76
  -82
  -89
  -96
  -103
  -110
  -119
  -126
  -134
  -144
  -152
Free cash flow, $m
  -1,269
  574
  1,051
  1,674
  2,461
  3,433
  4,607
  5,998
  7,616
  9,470
  11,564
  13,865
  16,443
  19,259
  22,311
  25,592
  29,098
  32,822
  36,760
  40,908
  45,263
  49,822
  54,585
  59,552
  64,725
  70,108
  75,705
  81,523
  87,570
  93,854
  100,385
Issuance/(repayment) of debt, $m
  623
  2,246
  2,982
  3,856
  4,864
  5,995
  7,238
  8,573
  9,982
  11,444
  12,938
  14,446
  15,953
  17,445
  18,914
  20,352
  21,757
  23,129
  24,469
  25,783
  27,076
  28,354
  29,627
  30,903
  32,189
  33,496
  34,832
  36,205
  37,625
  39,098
  40,634
Issuance/(repurchase) of shares, $m
  122
  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  
  929
  2,246
  2,982
  3,856
  4,864
  5,995
  7,238
  8,573
  9,982
  11,444
  12,938
  14,446
  15,953
  17,445
  18,914
  20,352
  21,757
  23,129
  24,469
  25,783
  27,076
  28,354
  29,627
  30,903
  32,189
  33,496
  34,832
  36,205
  37,625
  39,098
  40,634
Total cash flow (excl. dividends), $m
  -339
  2,820
  4,032
  5,530
  7,325
  9,429
  11,845
  14,571
  17,598
  20,913
  24,502
  28,311
  32,396
  36,705
  41,225
  45,944
  50,855
  55,951
  61,230
  66,691
  72,339
  78,177
  84,212
  90,454
  96,914
  103,604
  110,537
  117,729
  125,195
  132,952
  141,020
Retained Cash Flow (-), $m
  -149
  -737
  -983
  -1,272
  -1,604
  -1,977
  -2,387
  -2,827
  -3,292
  -3,774
  -4,267
  -4,764
  -5,261
  -5,753
  -6,238
  -6,712
  -7,175
  -7,628
  -8,070
  -8,503
  -8,929
  -9,351
  -9,771
  -10,191
  -10,616
  -11,047
  -11,487
  -11,940
  -12,408
  -12,894
  -13,401
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
 
  2,083
  3,049
  4,258
  5,721
  7,452
  9,458
  11,744
  14,306
  17,139
  20,235
  23,547
  27,135
  30,952
  34,987
  39,232
  43,679
  48,323
  53,160
  58,188
  63,409
  68,826
  74,441
  80,263
  86,299
  92,557
  99,050
  105,789
  112,787
  120,058
  127,619
Discount rate, %
 
  10.30
  10.82
  11.36
  11.92
  12.52
  13.15
  13.80
  14.49
  15.22
  15.98
  16.78
  17.62
  18.50
  19.42
  20.39
  21.41
  22.48
  23.61
  24.79
  26.03
  27.33
  28.70
  30.13
  31.64
  33.22
  34.88
  36.62
  38.45
  40.38
  42.40
PV of cash for distribution, $m
 
  1,888
  2,483
  3,084
  3,646
  4,132
  4,508
  4,750
  4,845
  4,790
  4,595
  4,275
  3,872
  3,408
  2,916
  2,424
  1,959
  1,538
  1,172
  866
  621
  431
  289
  188
  118
  71
  41
  23
  12
  6
  3
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

Black Hills Corporation, through its subsidiaries, operates as a diversified energy company in the United States. The company’s Electric Utilities segment generates, transmits, and distributes electricity to approximately 207,200 electric customers in South Dakota, Wyoming, Colorado, and Montana; and distributes natural gas to approximately 44,200 gas utility customers in Cheyenne, Wyoming. This segment owns 841 megawatts of generation capacity and 8,703 miles of electric transmission and distribution lines. Its Gas Utilities segment distributes natural gas to approximately 547,300 natural gas utility customers in Colorado, Nebraska, Iowa, and Kansas. This segment owns 645 miles of intrastate gas transmission pipelines and 19,494 miles of gas distribution mains and service lines. The company’s Power Generation segment produces electric power and sells the electric capacity and energy primarily to its utilities under long-term contracts. Its Coal Mining segment produces coal at its coal mine located near Gillette, Wyoming and sells the coal to electric generation facilities. The company’s Oil and Gas segment explores, develops, and produces crude oil and natural gas primarily in the Rocky Mountain region. This segment’s principal assets include the operating interests in the properties in the San Juan basin, the Powder River basin, and the Piceance basin; and non-operated interests in wells located in various states. As of December 31, 2015, it had total reserves of approximately 105 billion cubic feet equivalent of natural gas, crude oil, and natural gas liquids. Black Hills Corporation also provides appliance repair services to approximately 64,000 residential customers; and constructs gas infrastructure facilities and electrical systems for gas transportation and electric utilities customers. The company was founded in 1941 and is headquartered in Rapid City, South Dakota.

FINANCIAL RATIOS  of  Black Hills (BKH)

Valuation Ratios
P/E Ratio 50.1
Price to Sales 2.3
Price to Book 2.3
Price to Tangible Book
Price to Cash Flow 11.4
Price to Free Cash Flow -23.6
Growth Rates
Sales Growth Rate 20.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 4.4%
Cap. Spend. - 3 Yr. Gr. Rate 6%
Financial Strength
Quick Ratio 0
Current Ratio 0.4
LT Debt to Equity 198.8%
Total Debt to Equity 205.2%
Interest Coverage 2
Management Effectiveness
Return On Assets 3.1%
Ret/ On Assets - 3 Yr. Avg. 2.6%
Return On Total Capital 1.8%
Ret/ On T. Cap. - 3 Yr. Avg. 1.8%
Return On Equity 4.7%
Return On Equity - 3 Yr. Avg. 4.1%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 25.1%
EBITDA Margin - 3 Yr. Avg. 22.8%
Operating Margin 14.2%
Oper. Margin - 3 Yr. Avg. 11.7%
Pre-Tax Margin 5.9%
Pre-Tax Margin - 3 Yr. Avg. 5.3%
Net Profit Margin 4.6%
Net Profit Margin - 3 Yr. Avg. 3.9%
Effective Tax Rate 10.8%
Eff/ Tax Rate - 3 Yr. Avg. 28.4%
Payout Ratio 120.5%

BKH stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BKH stock intrinsic value calculation we used $1573 million for the last fiscal year's total revenue generated by Black Hills. The default revenue input number comes from 2016 income statement of Black Hills. 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 BKH stock valuation model: a) initial revenue growth rate of 45.9% 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 10.3%, whose default value for BKH is calculated based on our internal credit rating of Black Hills, 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 Black Hills.
    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 BKH stock the variable cost ratio is equal to 26.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $956 million in the base year in the intrinsic value calculation for BKH 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 4.3% for Black Hills.

Corporate tax rate of 27% is the nominal tax rate for Black Hills. 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 BKH 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 BKH are equal to 0.3%.

Life of production assets of 4.4 years is the average useful life of capital assets used in Black Hills 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 BKH is equal to 1.8%. 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 - $1615 million for Black Hills - 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 54.16 million for Black Hills 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 Black Hills at the current share price and the inputted number of shares is $3.7 billion.

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COMPANY NEWS

▶ Kansas City Southern: Coal Growth Story Is Intact in Week 15   [Apr-21-17 02:35PM  Market Realist]
▶ Kansas City Southern: Coal Pushed Volumes Up in Week 14   [Apr-18-17 05:35PM  Market Realist]
▶ A Revival In The Rockies For Natural Gas   [Feb-15-17 11:12AM  at Forbes]
▶ Hickenlooper's picks for Colorado PUC sail through Senate confirmation   [05:11PM  American City Business Journals]
▶ Black Hills beats 4Q profit forecasts   [Feb-01-17 06:22PM  Associated Press]
▶ Is Black Hills Corp (BKH) Going to Burn Investors?   [Dec-08-16 03:00PM  at Insider Monkey]
▶ Chairman of Colorado Public Utilities Commission to resign   [Dec-06-16 03:40PM  at bizjournals.com]
▶ Microsoft announces largest wind energy purchase to date   [Nov-14-16 06:00AM  PR Newswire]
▶ Black Hills Corp. Announces Quarterly Dividend   [Oct-25-16 04:12PM  GlobeNewswire]
▶ Trump Had A Point About His Own Taxes In The Debate   [Oct-20-16 05:43PM  at Forbes]
▶ Black Hills Corp. to Present at 2016 InvestMNt Conference   [Aug-23-16 01:11PM  GlobeNewswire]
▶ Black Hills Corp. Announces Quarterly Dividend   [Jul-29-16 05:52PM  GlobeNewswire]
Stock chart of BKH Financial statements of BKH
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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