Intrinsic value of CPFL Energia ADR - CPL

Previous Close

$17.10

  Intrinsic Value

$34.01

stock screener

  Rating & Target

str. buy

+99%

  Value-price divergence*

-24%

Previous close

$17.10

 
Intrinsic value

$34.01

 
Up/down potential

+99%

 
Rating

str. buy

 
Value-price divergence*

-24%

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

We calculate the intrinsic value of CPL 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 8.7

 

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, %
  -7.22
  30.30
  27.77
  25.49
  23.44
  21.60
  19.94
  18.45
  17.10
  15.89
  14.80
  13.82
  12.94
  12.15
  11.43
  10.79
  10.21
  9.69
  9.22
  8.80
  8.42
  8.08
  7.77
  7.49
  7.24
  7.02
  6.82
  6.63
  6.47
  6.32
  6.19
Revenue, $m
  6,043
  7,874
  10,061
  12,625
  15,585
  18,952
  22,730
  26,923
  31,527
  36,537
  41,945
  47,743
  53,920
  60,469
  67,382
  74,651
  82,272
  90,242
  98,562
  107,233
  116,259
  125,648
  135,409
  145,553
  156,095
  167,050
  178,436
  190,275
  202,588
  215,400
  228,736
Variable operating expenses, $m
 
  6,779
  8,662
  10,870
  13,419
  16,317
  19,570
  23,180
  27,144
  31,458
  36,114
  41,105
  46,424
  52,062
  58,013
  64,272
  70,833
  77,696
  84,859
  92,324
  100,095
  108,179
  116,583
  125,317
  134,392
  143,824
  153,628
  163,820
  174,421
  185,452
  196,934
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
  5,147
  6,779
  8,662
  10,870
  13,419
  16,317
  19,570
  23,180
  27,144
  31,458
  36,114
  41,105
  46,424
  52,062
  58,013
  64,272
  70,833
  77,696
  84,859
  92,324
  100,095
  108,179
  116,583
  125,317
  134,392
  143,824
  153,628
  163,820
  174,421
  185,452
  196,934
Operating income, $m
  896
  1,095
  1,399
  1,755
  2,167
  2,635
  3,160
  3,743
  4,383
  5,080
  5,832
  6,638
  7,497
  8,407
  9,368
  10,379
  11,438
  12,547
  13,703
  14,909
  16,164
  17,469
  18,826
  20,237
  21,702
  23,225
  24,809
  26,454
  28,166
  29,948
  31,802
EBITDA, $m
  1,304
  1,625
  2,076
  2,606
  3,217
  3,911
  4,691
  5,557
  6,507
  7,541
  8,657
  9,853
  11,128
  12,480
  13,906
  15,407
  16,980
  18,625
  20,342
  22,131
  23,994
  25,932
  27,946
  30,040
  32,215
  34,476
  36,826
  39,270
  41,811
  44,455
  47,208
Interest expense (income), $m
  497
  457
  674
  934
  1,238
  1,589
  1,988
  2,436
  2,933
  3,479
  4,073
  4,715
  5,402
  6,135
  6,911
  7,731
  8,593
  9,497
  10,442
  11,428
  12,456
  13,527
  14,640
  15,798
  17,001
  18,251
  19,550
  20,900
  22,304
  23,764
  25,283
Earnings before tax, $m
  436
  638
  724
  821
  929
  1,046
  1,172
  1,307
  1,450
  1,600
  1,758
  1,923
  2,095
  2,273
  2,457
  2,648
  2,846
  3,050
  3,262
  3,481
  3,707
  3,942
  4,186
  4,439
  4,702
  4,975
  5,259
  5,555
  5,863
  6,184
  6,519
Tax expense, $m
  158
  172
  196
  222
  251
  282
  316
  353
  391
  432
  475
  519
  566
  614
  663
  715
  768
  824
  881
  940
  1,001
  1,064
  1,130
  1,199
  1,269
  1,343
  1,420
  1,500
  1,583
  1,670
  1,760
Net income, $m
  285
  466
  529
  600
  678
  763
  856
  954
  1,058
  1,168
  1,283
  1,404
  1,529
  1,659
  1,794
  1,933
  2,077
  2,227
  2,381
  2,541
  2,706
  2,878
  3,056
  3,241
  3,432
  3,632
  3,839
  4,055
  4,280
  4,514
  4,759

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,953
  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
  13,333
  16,438
  21,003
  26,358
  32,537
  39,565
  47,454
  56,207
  65,819
  76,278
  87,569
  99,672
  112,569
  126,241
  140,671
  155,847
  171,757
  188,397
  205,766
  223,868
  242,713
  262,314
  282,691
  303,869
  325,876
  348,746
  372,518
  397,233
  422,939
  449,686
  477,529
Adjusted assets (=assets-cash), $m
  11,380
  16,438
  21,003
  26,358
  32,537
  39,565
  47,454
  56,207
  65,819
  76,278
  87,569
  99,672
  112,569
  126,241
  140,671
  155,847
  171,757
  188,397
  205,766
  223,868
  242,713
  262,314
  282,691
  303,869
  325,876
  348,746
  372,518
  397,233
  422,939
  449,686
  477,529
Revenue / Adjusted assets
  0.531
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
Average production assets, $m
  6,144
  8,008
  10,232
  12,840
  15,850
  19,274
  23,117
  27,381
  32,063
  37,158
  42,658
  48,554
  54,837
  61,497
  68,527
  75,920
  83,670
  91,776
  100,238
  109,056
  118,236
  127,784
  137,711
  148,028
  158,748
  169,889
  181,470
  193,509
  206,032
  219,061
  232,625
Working capital, $m
  747
  -39
  -50
  -63
  -78
  -95
  -114
  -135
  -158
  -183
  -210
  -239
  -270
  -302
  -337
  -373
  -411
  -451
  -493
  -536
  -581
  -628
  -677
  -728
  -780
  -835
  -892
  -951
  -1,013
  -1,077
  -1,144
Total debt, $m
  7,162
  9,500
  13,152
  17,435
  22,379
  28,001
  34,312
  41,315
  49,004
  57,371
  66,404
  76,086
  86,404
  97,342
  108,886
  121,026
  133,755
  147,067
  160,962
  175,444
  190,519
  206,200
  222,502
  239,444
  257,050
  275,346
  294,363
  314,136
  334,700
  356,098
  378,372
Total liabilities, $m
  10,813
  13,151
  16,803
  21,086
  26,030
  31,652
  37,963
  44,966
  52,655
  61,022
  70,055
  79,737
  90,055
  100,993
  112,537
  124,677
  137,406
  150,718
  164,613
  179,095
  194,170
  209,851
  226,153
  243,095
  260,701
  278,997
  298,014
  317,787
  338,351
  359,749
  382,023
Total equity, $m
  2,520
  3,288
  4,201
  5,272
  6,507
  7,913
  9,491
  11,241
  13,164
  15,256
  17,514
  19,934
  22,514
  25,248
  28,134
  31,169
  34,351
  37,679
  41,153
  44,774
  48,543
  52,463
  56,538
  60,774
  65,175
  69,749
  74,504
  79,447
  84,588
  89,937
  95,506
Total liabilities and equity, $m
  13,333
  16,439
  21,004
  26,358
  32,537
  39,565
  47,454
  56,207
  65,819
  76,278
  87,569
  99,671
  112,569
  126,241
  140,671
  155,846
  171,757
  188,397
  205,766
  223,869
  242,713
  262,314
  282,691
  303,869
  325,876
  348,746
  372,518
  397,234
  422,939
  449,686
  477,529
Debt-to-equity ratio
  2.842
  2.890
  3.130
  3.310
  3.440
  3.540
  3.620
  3.680
  3.720
  3.760
  3.790
  3.820
  3.840
  3.860
  3.870
  3.880
  3.890
  3.900
  3.910
  3.920
  3.920
  3.930
  3.940
  3.940
  3.940
  3.950
  3.950
  3.950
  3.960
  3.960
  3.960
Adjusted equity ratio
  0.050
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  285
  466
  529
  600
  678
  763
  856
  954
  1,058
  1,168
  1,283
  1,404
  1,529
  1,659
  1,794
  1,933
  2,077
  2,227
  2,381
  2,541
  2,706
  2,878
  3,056
  3,241
  3,432
  3,632
  3,839
  4,055
  4,280
  4,514
  4,759
Depreciation, amort., depletion, $m
  408
  531
  678
  851
  1,050
  1,277
  1,531
  1,814
  2,124
  2,461
  2,825
  3,216
  3,632
  4,073
  4,538
  5,028
  5,541
  6,078
  6,638
  7,222
  7,830
  8,463
  9,120
  9,803
  10,513
  11,251
  12,018
  12,815
  13,644
  14,507
  15,406
Funds from operations, $m
  1,344
  996
  1,206
  1,450
  1,728
  2,040
  2,387
  2,767
  3,182
  3,629
  4,109
  4,619
  5,161
  5,732
  6,332
  6,961
  7,618
  8,304
  9,019
  9,763
  10,537
  11,341
  12,176
  13,044
  13,945
  14,883
  15,857
  16,870
  17,924
  19,022
  20,164
Change in working capital, $m
  -121
  -9
  -11
  -13
  -15
  -17
  -19
  -21
  -23
  -25
  -27
  -29
  -31
  -33
  -35
  -36
  -38
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -59
  -62
  -64
  -67
Cash from operations, $m
  1,465
  1,005
  1,217
  1,463
  1,743
  2,057
  2,406
  2,788
  3,205
  3,654
  4,136
  4,648
  5,192
  5,764
  6,366
  6,997
  7,656
  8,344
  9,061
  9,806
  10,582
  11,387
  12,225
  13,094
  13,998
  14,937
  15,914
  16,929
  17,986
  19,086
  20,231
Maintenance CAPEX, $m
  0
  -407
  -530
  -678
  -850
  -1,050
  -1,276
  -1,531
  -1,813
  -2,123
  -2,461
  -2,825
  -3,216
  -3,632
  -4,073
  -4,538
  -5,028
  -5,541
  -6,078
  -6,638
  -7,222
  -7,830
  -8,463
  -9,120
  -9,803
  -10,513
  -11,251
  -12,018
  -12,815
  -13,644
  -14,507
New CAPEX, $m
  -708
  -1,864
  -2,224
  -2,608
  -3,010
  -3,424
  -3,843
  -4,264
  -4,682
  -5,095
  -5,500
  -5,896
  -6,283
  -6,660
  -7,030
  -7,393
  -7,751
  -8,106
  -8,461
  -8,818
  -9,180
  -9,549
  -9,927
  -10,317
  -10,721
  -11,141
  -11,580
  -12,040
  -12,522
  -13,030
  -13,564
Cash from investing activities, $m
  -1,206
  -2,271
  -2,754
  -3,286
  -3,860
  -4,474
  -5,119
  -5,795
  -6,495
  -7,218
  -7,961
  -8,721
  -9,499
  -10,292
  -11,103
  -11,931
  -12,779
  -13,647
  -14,539
  -15,456
  -16,402
  -17,379
  -18,390
  -19,437
  -20,524
  -21,654
  -22,831
  -24,058
  -25,337
  -26,674
  -28,071
Free cash flow, $m
  259
  -1,266
  -1,537
  -1,823
  -2,118
  -2,416
  -2,714
  -3,006
  -3,291
  -3,564
  -3,825
  -4,073
  -4,307
  -4,527
  -4,736
  -4,934
  -5,122
  -5,303
  -5,478
  -5,650
  -5,820
  -5,991
  -6,165
  -6,342
  -6,526
  -6,717
  -6,917
  -7,128
  -7,352
  -7,588
  -7,840
Issuance/(repayment) of debt, $m
  -77
  3,067
  3,652
  4,284
  4,943
  5,622
  6,311
  7,002
  7,690
  8,367
  9,032
  9,683
  10,318
  10,938
  11,544
  12,140
  12,728
  13,312
  13,895
  14,482
  15,076
  15,681
  16,302
  16,942
  17,606
  18,296
  19,017
  19,772
  20,565
  21,398
  22,274
Issuance/(repurchase) of shares, $m
  0
  302
  384
  471
  558
  642
  722
  797
  864
  924
  975
  1,017
  1,050
  1,075
  1,092
  1,102
  1,105
  1,101
  1,093
  1,080
  1,062
  1,042
  1,020
  995
  969
  942
  915
  888
  861
  835
  810
Cash from financing (excl. dividends), $m  
  -33
  3,369
  4,036
  4,755
  5,501
  6,264
  7,033
  7,799
  8,554
  9,291
  10,007
  10,700
  11,368
  12,013
  12,636
  13,242
  13,833
  14,413
  14,988
  15,562
  16,138
  16,723
  17,322
  17,937
  18,575
  19,238
  19,932
  20,660
  21,426
  22,233
  23,084
Total cash flow (excl. dividends), $m
  225
  2,103
  2,500
  2,932
  3,383
  3,848
  4,320
  4,793
  5,263
  5,727
  6,182
  6,627
  7,061
  7,486
  7,901
  8,309
  8,711
  9,111
  9,510
  9,911
  10,318
  10,732
  11,157
  11,595
  12,049
  12,522
  13,015
  13,532
  14,074
  14,644
  15,244
Retained Cash Flow (-), $m
  -94
  -768
  -913
  -1,071
  -1,236
  -1,406
  -1,578
  -1,751
  -1,922
  -2,092
  -2,258
  -2,421
  -2,579
  -2,734
  -2,886
  -3,035
  -3,182
  -3,328
  -3,474
  -3,620
  -3,769
  -3,920
  -4,075
  -4,236
  -4,401
  -4,574
  -4,754
  -4,943
  -5,141
  -5,349
  -5,569
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
 
  1,336
  1,587
  1,861
  2,148
  2,442
  2,742
  3,042
  3,340
  3,635
  3,924
  4,206
  4,482
  4,751
  5,015
  5,274
  5,529
  5,783
  6,036
  6,291
  6,549
  6,812
  7,081
  7,360
  7,648
  7,948
  8,261
  8,589
  8,933
  9,295
  9,676
Discount rate, %
 
  7.50
  7.88
  8.27
  8.68
  9.12
  9.57
  10.05
  10.55
  11.08
  11.63
  12.22
  12.83
  13.47
  14.14
  14.85
  15.59
  16.37
  17.19
  18.05
  18.95
  19.90
  20.89
  21.94
  23.04
  24.19
  25.40
  26.67
  28.00
  29.40
  30.87
PV of cash for distribution, $m
 
  1,243
  1,363
  1,466
  1,539
  1,579
  1,584
  1,556
  1,497
  1,412
  1,305
  1,184
  1,053
  919
  787
  661
  544
  439
  347
  269
  204
  151
  109
  77
  53
  35
  23
  15
  9
  5
  3
Current shareholders' claim on cash, %
  100
  96.7
  93.5
  90.6
  87.9
  85.4
  83.2
  81.3
  79.5
  77.9
  76.5
  75.3
  74.1
  73.1
  72.2
  71.4
  70.7
  70.0
  69.4
  68.9
  68.5
  68.0
  67.7
  67.3
  67.0
  66.7
  66.5
  66.2
  66.0
  65.8
  65.7

CPFL Energia S.A., together with its subsidiaries, generates, transmits, distributes, and commercializes electricity to industrial, residential, commercial, rural, and other consumers; and provides energy-related services in Brazil. The company generates electricity through hydroelectric, thermoelectric biomass, solar energy, and wind power plants. It also manufactures, commercializes, rents, and maintains electro-mechanical equipment; and provides administrative, call center, IT, collection, telecommunication, energy transmission, and energy efficiency management services, as well as maintenance services for energy generation companies. As of December 31, 2015, the company distributed electricity to approximately 7.8 million consumers; and had installed capacity of approximately 3,164 megawatts, as well as 247,422 kilometers of distribution lines, including 369,526 distribution transformers. CPFL Energia S.A. was founded in 1998 and is headquartered in São Paulo, Brazil.

FINANCIAL RATIOS  of  CPFL Energia ADR (CPL)

Valuation Ratios
P/E Ratio 61.1
Price to Sales 2.9
Price to Book 6.9
Price to Tangible Book
Price to Cash Flow 11.9
Price to Free Cash Flow 23
Growth Rates
Sales Growth Rate -7.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 57%
Cap. Spend. - 3 Yr. Gr. Rate 5.2%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 237.6%
Total Debt to Equity 284.2%
Interest Coverage 2
Management Effectiveness
Return On Assets 4.6%
Ret/ On Assets - 3 Yr. Avg. 4.9%
Return On Total Capital 3%
Ret/ On T. Cap. - 3 Yr. Avg. 3.3%
Return On Equity 11.5%
Return On Equity - 3 Yr. Avg. 12.3%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 22.2%
EBITDA Margin - 3 Yr. Avg. 22.1%
Operating Margin 14.8%
Oper. Margin - 3 Yr. Avg. 14.7%
Pre-Tax Margin 7.2%
Pre-Tax Margin - 3 Yr. Avg. 7.7%
Net Profit Margin 4.7%
Net Profit Margin - 3 Yr. Avg. 4.8%
Effective Tax Rate 36.2%
Eff/ Tax Rate - 3 Yr. Avg. 39.1%
Payout Ratio 25.6%

CPL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CPL stock intrinsic value calculation we used $6043 million for the last fiscal year's total revenue generated by CPFL Energia ADR. The default revenue input number comes from 2016 income statement of CPFL Energia ADR. 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 CPL stock valuation model: a) initial revenue growth rate of 30.3% 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 7.5%, whose default value for CPL is calculated based on our internal credit rating of CPFL Energia ADR, 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 CPFL Energia ADR.
    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 CPL stock the variable cost ratio is equal to 86.1%.

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 CPL 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 7.1% for CPFL Energia ADR.

Corporate tax rate of 27% is the nominal tax rate for CPFL Energia ADR. 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 CPL 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 CPL are equal to 101.7%.

Life of production assets of 15.1 years is the average useful life of capital assets used in CPFL Energia ADR 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 CPL is equal to -0.5%. 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 - $2520 million for CPFL Energia ADR - 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 510.043 million for CPFL Energia ADR 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 CPFL Energia ADR at the current share price and the inputted number of shares is $8.7 billion.

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COMPANY NEWS

▶ ETFs with exposure to CPFL Energia SA : August 4, 2017   [Aug-03-17 08:02PM  Capital Cube]
▶ ETFs with exposure to CPFL Energia SA : July 13, 2017   [Jul-13-17 03:47PM  Capital Cube]
▶ ETFs with exposure to CPFL Energia SA : May 19, 2017   [May-19-17 01:46PM  Capital Cube]
▶ ETFs with exposure to CPFL Energia SA : April 12, 2017   [Apr-12-17 01:10PM  Capital Cube]
▶ 4 Stocks With Great 12-Month Performances   [Feb-16-17 02:19PM  GuruFocus.com]
▶ ETFs with exposure to CPFL Energia SA : January 12, 2017   [Jan-12-17 01:56PM  Capital Cube]
▶ ETFs with exposure to CPFL Energia SA : December 14, 2016   [Dec-14-16 12:53PM  Capital Cube]
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▶ [$$] China's State Grid to Acquire Additional Stake in Brazil's CPFL   [Sep-26-16 06:51AM  at The Wall Street Journal]
▶ [$$] Chinas State Grid Pursues Energy Deal in Brazil   [Aug-10-16 12:08AM  at The Wall Street Journal]
▶ Chinas State Grid eyes $13 billion utility deal in Brazil   [Aug-09-16 09:12PM  at MarketWatch]
▶ [$$] China Inc. Pursues Power, Glory With Big Brazil Deal   [08:33PM  at The Wall Street Journal]
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▶ Welcome China, Latin America Is Waiting   [03:07AM  at Bloomberg]
▶ Chinas State Grid Said in Talks to Buy CPFL Energia Stake   [Jun-22-16 01:35PM  at Bloomberg]
▶ 7 Brazil Stocks To Watch As Impeachment Unfolds   [May-12-16 01:22PM  at Barrons.com]
▶ CPFL ENERGY INC Financials   [01:04PM  EDGAR Online Financials]
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Stock chart of CPL Financial statements of CPL
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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