Intrinsic value of US Ecology - ECOL

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$46.35

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$46.35

 
Intrinsic value

$18.31

 
Up/down potential

-60%

 
Rating

str. sell

 
Value-price divergence* premium content

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

We calculate the intrinsic value of ECOL 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 1.0

 

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, %
  -15.10
  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
  478
  488
  499
  512
  526
  542
  559
  578
  599
  621
  645
  671
  698
  727
  758
  790
  825
  862
  900
  941
  985
  1,030
  1,078
  1,129
  1,183
  1,239
  1,298
  1,361
  1,426
  1,495
  1,568
Variable operating expenses, $m
 
  426
  435
  446
  458
  471
  486
  502
  519
  537
  557
  559
  582
  606
  631
  659
  688
  718
  750
  785
  821
  859
  899
  941
  986
  1,033
  1,082
  1,134
  1,189
  1,246
  1,307
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
  406
  426
  435
  446
  458
  471
  486
  502
  519
  537
  557
  559
  582
  606
  631
  659
  688
  718
  750
  785
  821
  859
  899
  941
  986
  1,033
  1,082
  1,134
  1,189
  1,246
  1,307
Operating income, $m
  72
  62
  64
  66
  68
  71
  74
  77
  80
  84
  88
  112
  116
  121
  126
  132
  137
  144
  150
  157
  164
  172
  180
  188
  197
  206
  216
  227
  238
  249
  261
EBITDA, $m
  108
  107
  109
  112
  115
  119
  123
  127
  131
  136
  142
  147
  153
  160
  166
  173
  181
  189
  198
  207
  216
  226
  237
  248
  260
  272
  285
  299
  313
  328
  344
Interest expense (income), $m
  14
  13
  14
  14
  15
  16
  17
  18
  18
  20
  21
  22
  23
  24
  26
  27
  29
  31
  33
  35
  37
  39
  41
  44
  46
  49
  52
  55
  58
  61
  65
Earnings before tax, $m
  55
  48
  50
  51
  53
  55
  57
  59
  62
  65
  67
  90
  93
  97
  100
  104
  108
  113
  117
  122
  127
  133
  138
  144
  151
  158
  165
  172
  180
  188
  197
Tax expense, $m
  21
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
  36
  37
  39
  41
  43
  44
  46
  49
  51
  53
Net income, $m
  34
  35
  36
  37
  39
  40
  42
  43
  45
  47
  49
  66
  68
  71
  73
  76
  79
  82
  86
  89
  93
  97
  101
  105
  110
  115
  120
  126
  131
  137
  144

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  7
  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
  776
  784
  802
  822
  846
  871
  899
  930
  963
  999
  1,037
  1,078
  1,122
  1,169
  1,218
  1,271
  1,326
  1,385
  1,448
  1,514
  1,583
  1,656
  1,734
  1,815
  1,901
  1,992
  2,087
  2,187
  2,293
  2,404
  2,521
Adjusted assets (=assets-cash), $m
  769
  784
  802
  822
  846
  871
  899
  930
  963
  999
  1,037
  1,078
  1,122
  1,169
  1,218
  1,271
  1,326
  1,385
  1,448
  1,514
  1,583
  1,656
  1,734
  1,815
  1,901
  1,992
  2,087
  2,187
  2,293
  2,404
  2,521
Revenue / Adjusted assets
  0.622
  0.622
  0.622
  0.623
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
Average production assets, $m
  455
  464
  475
  487
  501
  516
  533
  551
  570
  591
  614
  638
  664
  692
  721
  752
  785
  820
  857
  896
  937
  981
  1,027
  1,075
  1,126
  1,179
  1,236
  1,295
  1,358
  1,424
  1,493
Working capital, $m
  52
  51
  52
  54
  55
  57
  59
  61
  63
  65
  68
  70
  73
  76
  80
  83
  87
  90
  95
  99
  103
  108
  113
  119
  124
  130
  136
  143
  150
  157
  165
Total debt, $m
  280
  284
  296
  309
  324
  340
  358
  377
  399
  421
  446
  472
  500
  530
  561
  595
  630
  668
  708
  750
  794
  841
  890
  942
  997
  1,055
  1,116
  1,180
  1,247
  1,318
  1,392
Total liabilities, $m
  496
  500
  512
  525
  540
  556
  574
  593
  615
  637
  662
  688
  716
  746
  777
  811
  846
  884
  924
  966
  1,010
  1,057
  1,106
  1,158
  1,213
  1,271
  1,332
  1,396
  1,463
  1,534
  1,608
Total equity, $m
  280
  284
  290
  298
  306
  315
  326
  337
  349
  362
  375
  390
  406
  423
  441
  460
  480
  501
  524
  548
  573
  600
  628
  657
  688
  721
  756
  792
  830
  870
  913
Total liabilities and equity, $m
  776
  784
  802
  823
  846
  871
  900
  930
  964
  999
  1,037
  1,078
  1,122
  1,169
  1,218
  1,271
  1,326
  1,385
  1,448
  1,514
  1,583
  1,657
  1,734
  1,815
  1,901
  1,992
  2,088
  2,188
  2,293
  2,404
  2,521
Debt-to-equity ratio
  1.000
  1.000
  1.020
  1.040
  1.060
  1.080
  1.100
  1.120
  1.140
  1.170
  1.190
  1.210
  1.230
  1.250
  1.270
  1.290
  1.310
  1.330
  1.350
  1.370
  1.390
  1.400
  1.420
  1.430
  1.450
  1.460
  1.480
  1.490
  1.500
  1.510
  1.530
Adjusted equity ratio
  0.358
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  34
  35
  36
  37
  39
  40
  42
  43
  45
  47
  49
  66
  68
  71
  73
  76
  79
  82
  86
  89
  93
  97
  101
  105
  110
  115
  120
  126
  131
  137
  144
Depreciation, amort., depletion, $m
  36
  45
  46
  46
  47
  48
  49
  50
  51
  52
  54
  35
  37
  38
  40
  42
  44
  46
  48
  50
  52
  54
  57
  60
  63
  66
  69
  72
  75
  79
  83
Funds from operations, $m
  76
  80
  82
  84
  86
  88
  91
  93
  96
  99
  103
  101
  105
  109
  113
  118
  123
  128
  133
  139
  145
  151
  158
  165
  173
  181
  189
  198
  207
  216
  226
Change in working capital, $m
  1
  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
Cash from operations, $m
  75
  84
  81
  83
  84
  87
  89
  91
  94
  97
  100
  98
  102
  106
  110
  114
  119
  124
  129
  135
  140
  147
  153
  160
  167
  175
  183
  191
  200
  209
  219
Maintenance CAPEX, $m
  0
  -25
  -26
  -26
  -27
  -28
  -29
  -30
  -31
  -32
  -33
  -34
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -54
  -57
  -60
  -63
  -66
  -69
  -72
  -75
  -79
New CAPEX, $m
  -36
  -9
  -11
  -12
  -14
  -15
  -17
  -18
  -20
  -21
  -23
  -24
  -26
  -28
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -46
  -48
  -51
  -54
  -56
  -59
  -63
  -66
  -69
Cash from investing activities, $m
  -42
  -34
  -37
  -38
  -41
  -43
  -46
  -48
  -51
  -53
  -56
  -58
  -61
  -65
  -67
  -71
  -75
  -79
  -83
  -87
  -91
  -95
  -100
  -105
  -111
  -117
  -122
  -128
  -135
  -141
  -148
Free cash flow, $m
  33
  50
  44
  44
  44
  44
  44
  44
  44
  44
  45
  40
  41
  41
  42
  43
  44
  45
  47
  48
  49
  51
  53
  55
  56
  58
  61
  63
  65
  68
  71
Issuance/(repayment) of debt, $m
  -16
  9
  12
  13
  15
  16
  18
  20
  21
  23
  24
  26
  28
  30
  32
  34
  36
  38
  40
  42
  44
  47
  49
  52
  55
  58
  61
  64
  67
  71
  75
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  
  -16
  9
  12
  13
  15
  16
  18
  20
  21
  23
  24
  26
  28
  30
  32
  34
  36
  38
  40
  42
  44
  47
  49
  52
  55
  58
  61
  64
  67
  71
  75
Total cash flow (excl. dividends), $m
  17
  59
  56
  57
  58
  60
  61
  63
  65
  67
  69
  66
  69
  71
  74
  77
  80
  83
  86
  90
  94
  98
  102
  107
  111
  116
  121
  127
  133
  139
  145
Retained Cash Flow (-), $m
  -24
  -6
  -7
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -38
  -40
  -42
Prev. year cash balance distribution, $m
 
  2
  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
 
  55
  49
  50
  50
  51
  51
  52
  53
  54
  55
  51
  53
  54
  56
  58
  60
  62
  64
  66
  69
  71
  74
  77
  80
  83
  87
  91
  94
  99
  103
Discount rate, %
 
  7.30
  7.67
  8.05
  8.45
  8.87
  9.32
  9.78
  10.27
  10.79
  11.32
  11.89
  12.49
  13.11
  13.77
  14.45
  15.18
  15.93
  16.73
  17.57
  18.45
  19.37
  20.34
  21.35
  22.42
  23.54
  24.72
  25.96
  27.25
  28.62
  30.05
PV of cash for distribution, $m
 
  52
  43
  39
  36
  33
  30
  27
  24
  22
  19
  15
  13
  11
  9
  8
  6
  5
  4
  3
  2
  2
  1
  1
  1
  0
  0
  0
  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

US Ecology, Inc., through its subsidiaries, provides environmental services to commercial and government entities in the United States. It operates in two segments, Environmental Services; and Field & Industrial Services. The Environmental Services segment offers hazardous material management services, including transportation, recycling, treatment, and disposal of hazardous and non-hazardous waste at its landfill, wastewater, and other treatment facilities. The Field & Industrial Services segment provides packaging and collection of hazardous waste; on-site management, waste characterization, and transportation and disposal of non-hazardous and hazardous waste at customer sites; and high-pressure cleaning, tank cleaning, decontamination, remediation, transportation, spill cleanup and emergency response, and other services. It serves oil refineries, chemical production plants, steel mills, real estate developers, waste brokers/aggregators serving small manufacturers, and other industrial customers. The company was formerly known as American Ecology Corporation and changed its name to US Ecology, Inc. in February 2010. US Ecology, Inc. was founded in 1952 and is headquartered in Boise, Idaho.

FINANCIAL RATIOS  of  US Ecology (ECOL)

Valuation Ratios
P/E Ratio 29.7
Price to Sales 2.1
Price to Book 3.6
Price to Tangible Book
Price to Cash Flow 13.5
Price to Free Cash Flow 25.9
Growth Rates
Sales Growth Rate -15.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -7.7%
Cap. Spend. - 3 Yr. Gr. Rate 11.4%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 98.2%
Total Debt to Equity 100%
Interest Coverage 5
Management Effectiveness
Return On Assets 5.5%
Ret/ On Assets - 3 Yr. Avg. 5.7%
Return On Total Capital 6.1%
Ret/ On T. Cap. - 3 Yr. Avg. 6.4%
Return On Equity 12.7%
Return On Equity - 3 Yr. Avg. 12.9%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 31%
Gross Margin - 3 Yr. Avg. 31.3%
EBITDA Margin 22%
EBITDA Margin - 3 Yr. Avg. 21.2%
Operating Margin 15.1%
Oper. Margin - 3 Yr. Avg. 14.6%
Pre-Tax Margin 11.5%
Pre-Tax Margin - 3 Yr. Avg. 11.2%
Net Profit Margin 7.1%
Net Profit Margin - 3 Yr. Avg. 6.7%
Effective Tax Rate 38.2%
Eff/ Tax Rate - 3 Yr. Avg. 40.2%
Payout Ratio 47.1%

ECOL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ECOL stock intrinsic value calculation we used $478 million for the last fiscal year's total revenue generated by US Ecology. The default revenue input number comes from 2016 income statement of US Ecology. 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 ECOL 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 7.3%, whose default value for ECOL is calculated based on our internal credit rating of US Ecology, 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 US Ecology.
    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 ECOL stock the variable cost ratio is equal to 87.4%.

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 ECOL 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 4.9% for US Ecology.

Corporate tax rate of 27% is the nominal tax rate for US Ecology. 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 ECOL 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 ECOL are equal to 95.2%.

Life of production assets of 18 years is the average useful life of capital assets used in US Ecology 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 ECOL is equal to 10.5%. 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 - $280 million for US Ecology - 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 22.199 million for US Ecology 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 US Ecology at the current share price and the inputted number of shares is $1.0 billion.


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COMPANY NEWS

▶ 9 Small-Cap Stocks With Wide Moats   [Apr-12-17 06:00AM  Morningstar]
▶ US Ecology misses Street 4Q forecasts   [04:58PM  Associated Press]
▶ Is Forward Pharma A/S (FWP) A Good Stock to Buy?   [Dec-13-16 05:43AM  at Insider Monkey]
▶ Is US Ecology Inc. (ECOL) A Good Stock To Buy?   [Dec-10-16 01:27PM  at Insider Monkey]
▶ US Ecology Inc. (ECOL): Bares Capital Management Cuts Exposure   [May-12-16 01:58PM  at Insider Monkey]
▶ US Ecology beats Street 1Q forecasts   [Apr-28-16 07:11PM  AP]
▶ Why U.S. Ecology Increased 19.3% in March   [Apr-09-16 09:30AM  at Motley Fool]
Stock chart of ECOL Financial statements of ECOL
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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