Intrinsic value of Fidelity&Guaranty Life - FGL

Previous Close

$31.15

  Intrinsic Value

$416.32

stock screener

  Rating & Target

str. buy

+999%

  Value-price divergence*

0%

Previous close

$31.15

 
Intrinsic value

$416.32

 
Up/down potential

+999%

 
Rating

str. buy

 
Value-price divergence*

0%

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

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

We calculate the intrinsic value of FGL 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, %
  13.42
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  0
  1,893
  2,924
  4,373
  6,346
  8,953
  12,308
  16,521
  21,693
  27,913
  35,257
  43,781
  53,527
  64,518
  76,763
  90,260
  104,994
  120,944
  138,085
  156,388
  175,827
  196,375
  218,012
  240,721
  264,491
  289,319
  315,209
  342,171
  370,223
  399,390
  429,706
Variable operating expenses, $m
 
  1,518
  2,345
  3,507
  5,089
  7,180
  9,871
  13,250
  17,398
  22,387
  28,276
  35,112
  42,928
  51,743
  61,564
  72,388
  84,205
  96,997
  110,744
  125,424
  141,013
  157,493
  174,846
  193,058
  212,122
  232,034
  252,798
  274,421
  296,918
  320,311
  344,624
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
  1,008
  1,518
  2,345
  3,507
  5,089
  7,180
  9,871
  13,250
  17,398
  22,387
  28,276
  35,112
  42,928
  51,743
  61,564
  72,388
  84,205
  96,997
  110,744
  125,424
  141,013
  157,493
  174,846
  193,058
  212,122
  232,034
  252,798
  274,421
  296,918
  320,311
  344,624
Operating income, $m
  175
  375
  579
  866
  1,256
  1,773
  2,437
  3,271
  4,295
  5,527
  6,981
  8,669
  10,598
  12,774
  15,199
  17,871
  20,789
  23,947
  27,341
  30,965
  34,814
  38,882
  43,166
  47,663
  52,369
  57,285
  62,411
  67,750
  73,304
  79,079
  85,082
EBITDA, $m
  175
  536
  828
  1,238
  1,796
  2,535
  3,484
  4,677
  6,141
  7,902
  9,981
  12,394
  15,153
  18,265
  21,732
  25,553
  29,724
  34,239
  39,092
  44,274
  49,777
  55,594
  61,719
  68,148
  74,877
  81,906
  89,236
  96,869
  104,810
  113,067
  121,650
Interest expense (income), $m
  19
  22
  757
  1,896
  3,497
  5,675
  8,555
  12,261
  16,914
  22,627
  29,498
  37,609
  47,024
  57,789
  69,929
  83,455
  98,362
  114,637
  132,255
  151,187
  171,404
  192,875
  215,572
  239,471
  264,553
  290,809
  318,233
  346,829
  376,609
  407,594
  439,811
Earnings before tax, $m
  153
  353
  -178
  -1,030
  -2,240
  -3,903
  -6,118
  -8,990
  -12,619
  -17,100
  -22,517
  -28,940
  -36,426
  -45,014
  -54,730
  -65,583
  -77,574
  -90,690
  -104,914
  -120,222
  -136,591
  -153,993
  -172,405
  -191,808
  -212,184
  -233,523
  -255,821
  -279,079
  -303,305
  -328,515
  -354,729
Tax expense, $m
  56
  95
  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
  97
  258
  -178
  -1,030
  -2,240
  -3,903
  -6,118
  -8,990
  -12,619
  -17,100
  -22,517
  -28,940
  -36,426
  -45,014
  -54,730
  -65,583
  -77,574
  -90,690
  -104,914
  -120,222
  -136,591
  -153,993
  -172,405
  -191,808
  -212,184
  -233,523
  -255,821
  -279,079
  -303,305
  -328,515
  -354,729

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
  27,035
  43,018
  66,463
  99,396
  144,218
  203,471
  279,725
  375,473
  493,020
  634,397
  801,295
  995,026
  1,216,515
  1,466,310
  1,744,619
  2,051,362
  2,386,227
  2,748,733
  3,138,296
  3,554,284
  3,996,070
  4,463,079
  4,954,823
  5,470,929
  6,011,163
  6,575,440
  7,163,839
  7,776,605
  8,414,149
  9,077,051
  9,766,050
Adjusted assets (=assets-cash), $m
  27,035
  43,018
  66,463
  99,396
  144,218
  203,471
  279,725
  375,473
  493,020
  634,397
  801,295
  995,026
  1,216,515
  1,466,310
  1,744,619
  2,051,362
  2,386,227
  2,748,733
  3,138,296
  3,554,284
  3,996,070
  4,463,079
  4,954,823
  5,470,929
  6,011,163
  6,575,440
  7,163,839
  7,776,605
  8,414,149
  9,077,051
  9,766,050
Revenue / Adjusted assets
  0.000
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
Average production assets, $m
  1,007
  1,611
  2,489
  3,722
  5,400
  7,619
  10,474
  14,059
  18,461
  23,754
  30,004
  37,258
  45,551
  54,905
  65,326
  76,811
  89,350
  102,924
  117,510
  133,087
  149,629
  167,116
  185,528
  204,853
  225,082
  246,211
  268,243
  291,187
  315,059
  339,881
  365,680
Working capital, $m
  0
  161
  249
  372
  539
  761
  1,046
  1,404
  1,844
  2,373
  2,997
  3,721
  4,550
  5,484
  6,525
  7,672
  8,924
  10,280
  11,737
  13,293
  14,945
  16,692
  18,531
  20,461
  22,482
  24,592
  26,793
  29,085
  31,469
  33,948
  36,525
Total debt, $m
  400
  14,015
  35,116
  64,755
  105,095
  158,423
  227,052
  313,225
  419,017
  546,256
  696,464
  870,823
  1,070,163
  1,294,978
  1,545,456
  1,821,525
  2,122,903
  2,449,159
  2,799,765
  3,174,154
  3,571,762
  3,992,070
  4,434,640
  4,899,135
  5,385,345
  5,893,195
  6,422,754
  6,974,243
  7,548,033
  8,144,644
  8,764,744
Total liabilities, $m
  25,101
  38,716
  59,817
  89,456
  129,796
  183,124
  251,753
  337,926
  443,718
  570,957
  721,165
  895,524
  1,094,864
  1,319,679
  1,570,157
  1,846,226
  2,147,604
  2,473,860
  2,824,466
  3,198,855
  3,596,463
  4,016,771
  4,459,341
  4,923,836
  5,410,046
  5,917,896
  6,447,455
  6,998,944
  7,572,734
  8,169,345
  8,789,445
Total equity, $m
  1,934
  4,302
  6,646
  9,940
  14,422
  20,347
  27,973
  37,547
  49,302
  63,440
  80,129
  99,503
  121,652
  146,631
  174,462
  205,136
  238,623
  274,873
  313,830
  355,428
  399,607
  446,308
  495,482
  547,093
  601,116
  657,544
  716,384
  777,660
  841,415
  907,705
  976,605
Total liabilities and equity, $m
  27,035
  43,018
  66,463
  99,396
  144,218
  203,471
  279,726
  375,473
  493,020
  634,397
  801,294
  995,027
  1,216,516
  1,466,310
  1,744,619
  2,051,362
  2,386,227
  2,748,733
  3,138,296
  3,554,283
  3,996,070
  4,463,079
  4,954,823
  5,470,929
  6,011,162
  6,575,440
  7,163,839
  7,776,604
  8,414,149
  9,077,050
  9,766,050
Debt-to-equity ratio
  0.207
  3.260
  5.280
  6.510
  7.290
  7.790
  8.120
  8.340
  8.500
  8.610
  8.690
  8.750
  8.800
  8.830
  8.860
  8.880
  8.900
  8.910
  8.920
  8.930
  8.940
  8.940
  8.950
  8.950
  8.960
  8.960
  8.970
  8.970
  8.970
  8.970
  8.970
Adjusted equity ratio
  0.072
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  97
  258
  -178
  -1,030
  -2,240
  -3,903
  -6,118
  -8,990
  -12,619
  -17,100
  -22,517
  -28,940
  -36,426
  -45,014
  -54,730
  -65,583
  -77,574
  -90,690
  -104,914
  -120,222
  -136,591
  -153,993
  -172,405
  -191,808
  -212,184
  -233,523
  -255,821
  -279,079
  -303,305
  -328,515
  -354,729
Depreciation, amort., depletion, $m
  0
  161
  249
  372
  540
  762
  1,047
  1,406
  1,846
  2,375
  3,000
  3,726
  4,555
  5,490
  6,533
  7,681
  8,935
  10,292
  11,751
  13,309
  14,963
  16,712
  18,553
  20,485
  22,508
  24,621
  26,824
  29,119
  31,506
  33,988
  36,568
Funds from operations, $m
  85
  419
  71
  -658
  -1,700
  -3,141
  -5,070
  -7,584
  -10,773
  -14,725
  -19,517
  -25,215
  -31,871
  -39,524
  -48,197
  -57,902
  -68,639
  -80,397
  -93,163
  -106,914
  -121,628
  -137,281
  -153,853
  -171,322
  -189,676
  -208,902
  -228,997
  -249,960
  -271,799
  -294,526
  -318,161
Change in working capital, $m
  -280
  60
  88
  123
  168
  222
  285
  358
  440
  529
  624
  725
  828
  934
  1,041
  1,147
  1,252
  1,356
  1,457
  1,556
  1,652
  1,747
  1,839
  1,930
  2,020
  2,110
  2,201
  2,292
  2,384
  2,479
  2,577
Cash from operations, $m
  365
  359
  -17
  -781
  -1,868
  -3,362
  -5,356
  -7,942
  -11,213
  -15,253
  -20,141
  -25,939
  -32,699
  -40,458
  -49,238
  -59,049
  -69,891
  -81,753
  -94,620
  -108,470
  -123,280
  -139,028
  -155,692
  -173,253
  -191,696
  -211,013
  -231,197
  -252,252
  -274,184
  -297,006
  -320,738
Maintenance CAPEX, $m
  0
  -101
  -161
  -249
  -372
  -540
  -762
  -1,047
  -1,406
  -1,846
  -2,375
  -3,000
  -3,726
  -4,555
  -5,490
  -6,533
  -7,681
  -8,935
  -10,292
  -11,751
  -13,309
  -14,963
  -16,712
  -18,553
  -20,485
  -22,508
  -24,621
  -26,824
  -29,119
  -31,506
  -33,988
New CAPEX, $m
  -8
  -604
  -878
  -1,233
  -1,678
  -2,219
  -2,855
  -3,585
  -4,401
  -5,294
  -6,249
  -7,254
  -8,293
  -9,353
  -10,421
  -11,486
  -12,539
  -13,574
  -14,587
  -15,576
  -16,542
  -17,487
  -18,413
  -19,325
  -20,228
  -21,129
  -22,032
  -22,944
  -23,872
  -24,822
  -25,799
Cash from investing activities, $m
  -1,186
  -705
  -1,039
  -1,482
  -2,050
  -2,759
  -3,617
  -4,632
  -5,807
  -7,140
  -8,624
  -10,254
  -12,019
  -13,908
  -15,911
  -18,019
  -20,220
  -22,509
  -24,879
  -27,327
  -29,851
  -32,450
  -35,125
  -37,878
  -40,713
  -43,637
  -46,653
  -49,768
  -52,991
  -56,328
  -59,787
Free cash flow, $m
  -821
  -346
  -1,056
  -2,263
  -3,918
  -6,121
  -8,973
  -12,574
  -17,020
  -22,393
  -28,766
  -36,194
  -44,719
  -54,367
  -65,149
  -77,068
  -90,111
  -104,262
  -119,499
  -135,797
  -153,131
  -171,477
  -190,816
  -211,131
  -232,410
  -254,650
  -277,851
  -302,021
  -327,174
  -353,333
  -380,525
Issuance/(repayment) of debt, $m
  1,197
  13,615
  21,100
  29,639
  40,340
  53,327
  68,629
  86,173
  105,792
  127,239
  150,208
  174,358
  199,340
  224,815
  250,478
  276,069
  301,378
  326,256
  350,607
  374,389
  397,608
  420,308
  442,570
  464,496
  486,210
  507,849
  529,559
  551,489
  573,790
  596,611
  620,100
Issuance/(repurchase) of shares, $m
  1
  2,110
  2,522
  4,324
  6,723
  9,828
  13,743
  18,564
  24,374
  31,238
  39,207
  48,314
  58,575
  69,994
  82,561
  96,257
  111,060
  126,940
  143,870
  161,821
  180,769
  200,694
  221,580
  243,418
  266,207
  289,951
  314,661
  340,356
  367,060
  394,805
  423,629
Cash from financing (excl. dividends), $m  
  1,198
  15,725
  23,622
  33,963
  47,063
  63,155
  82,372
  104,737
  130,166
  158,477
  189,415
  222,672
  257,915
  294,809
  333,039
  372,326
  412,438
  453,196
  494,477
  536,210
  578,377
  621,002
  664,150
  707,914
  752,417
  797,800
  844,220
  891,845
  940,850
  991,416
  1,043,729
Total cash flow (excl. dividends), $m
  377
  15,379
  22,567
  31,699
  43,144
  57,034
  73,400
  92,163
  113,146
  136,084
  160,649
  186,478
  213,196
  240,442
  267,890
  295,259
  322,327
  348,934
  374,978
  400,413
  425,246
  449,525
  473,333
  496,783
  520,007
  543,151
  566,370
  589,824
  613,675
  638,083
  663,204
Retained Cash Flow (-), $m
  -432
  -2,368
  -2,522
  -4,324
  -6,723
  -9,828
  -13,743
  -18,564
  -24,374
  -31,238
  -39,207
  -48,314
  -58,575
  -69,994
  -82,561
  -96,257
  -111,060
  -126,940
  -143,870
  -161,821
  -180,769
  -200,694
  -221,580
  -243,418
  -266,207
  -289,951
  -314,661
  -340,356
  -367,060
  -394,805
  -423,629
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
 
  13,012
  20,045
  27,376
  36,422
  47,207
  59,656
  73,599
  88,772
  104,846
  121,443
  138,165
  154,621
  170,449
  185,329
  199,001
  211,267
  221,994
  231,108
  238,592
  244,477
  248,831
  251,754
  253,365
  253,800
  253,200
  251,709
  249,469
  246,615
  243,278
  239,575
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  12,475
  18,350
  23,824
  29,990
  36,591
  43,295
  49,722
  55,485
  60,229
  63,668
  65,612
  65,982
  64,808
  62,218
  58,423
  53,688
  48,302
  42,561
  36,736
  31,066
  25,737
  20,889
  16,606
  12,927
  9,850
  7,344
  5,354
  3,816
  2,656
  1,804
Current shareholders' claim on cash, %
  100
  46.6
  28.8
  17.1
  10.0
  5.8
  3.4
  2.0
  1.2
  0.7
  0.4
  0.3
  0.2
  0.1
  0.1
  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
  0.0

Fidelity & Guaranty Life, through its subsidiaries, provides annuities and life insurance products in the United States. It offers fixed indexed annuities, fixed rate annuities, single premium immediate annuities, and indexed universal life insurance policies. The company distributes its products to various age groups in the middle-income market through independent agents, managing general agents, and specialty brokerage firms, as well as to selected institutional markets. Fidelity & Guaranty Life was formerly known as Harbinger F&G, LLC and changed its name to Fidelity & Guaranty Life in August 2013. The company was founded in 1959 and is headquartered in Des Moines, Iowa. Fidelity & Guaranty Life operates as a subsidiary of FS Holdco II Ltd.

FINANCIAL RATIOS  of  Fidelity&Guaranty Life (FGL)

Valuation Ratios
P/E Ratio 18.8
Price to Sales 1.5
Price to Book 0.9
Price to Tangible Book
Price to Cash Flow 5
Price to Free Cash Flow 5.1
Growth Rates
Sales Growth Rate 13.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 14.3%
Cap. Spend. - 3 Yr. Gr. Rate 14.9%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 15.5%
Total Debt to Equity 20.7%
Interest Coverage 9
Management Effectiveness
Return On Assets 0.4%
Ret/ On Assets - 3 Yr. Avg. 0.6%
Return On Total Capital 4.7%
Ret/ On T. Cap. - 3 Yr. Avg. 6.9%
Return On Equity 5.6%
Return On Equity - 3 Yr. Avg. 8.3%
Asset Turnover 0
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 14.5%
EBITDA Margin - 3 Yr. Avg. 19.5%
Operating Margin 14.8%
Oper. Margin - 3 Yr. Avg. 17.4%
Pre-Tax Margin 12.9%
Pre-Tax Margin - 3 Yr. Avg. 15.4%
Net Profit Margin 8.2%
Net Profit Margin - 3 Yr. Avg. 11.1%
Effective Tax Rate 36.6%
Eff/ Tax Rate - 3 Yr. Avg. 28.5%
Payout Ratio 15.5%

FGL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FGL stock intrinsic value calculation we used $1183 million for the last fiscal year's total revenue generated by Fidelity&Guaranty Life. The default revenue input number comes from 2016 income statement of Fidelity&Guaranty Life. 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 FGL stock valuation model: a) initial revenue growth rate of 60% 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 4.3%, whose default value for FGL is calculated based on our internal credit rating of Fidelity&Guaranty Life, 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 Fidelity&Guaranty Life.
    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 FGL stock the variable cost ratio is equal to 80.2%.

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 FGL 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 5.4% for Fidelity&Guaranty Life.

Corporate tax rate of 27% is the nominal tax rate for Fidelity&Guaranty Life. 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 FGL 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 FGL are equal to 85.1%.

Life of production assets of 10 years is the average useful life of capital assets used in Fidelity&Guaranty Life 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 FGL is equal to 8.5%. 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 - $1934 million for Fidelity&Guaranty Life - 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 59.023 million for Fidelity&Guaranty Life 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 Fidelity&Guaranty Life at the current share price and the inputted number of shares is $1.8 billion.

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COMPANY NEWS

▶ China insurance mogul said unable to work, reported detained   [Jun-14-17 06:32AM  Associated Press]
▶ [$$] CF Corp to Buy Fidelity & Guaranty Life   [08:44AM  The Wall Street Journal]
▶ Fidelity & Guaranty posts 2Q profit   [May-03-17 07:43PM  Associated Press]
▶ FGL Scraps $1.6B Anbang Deal   [09:36PM  Bloomberg]
▶ Top Ranked Value Stocks to Buy for March 31st   [Mar-31-17 10:46AM  Zacks]
▶ [$$] Deadline Extended for Fidelity & Guaranty, Anbang Deal   [Feb-09-17 06:06PM  at The Wall Street Journal]
▶ HRG Group, Inc. Reports First Quarter Results   [Feb-07-17 04:30PM  PR Newswire]
▶ Fidelity & Guaranty Life Declares Quarterly Dividend   [Feb-02-17 05:22PM  PR Newswire]
▶ Is Fidelity & Guaranty Life (FGL) a Good Stock to Buy?   [Dec-12-16 02:14PM  at Insider Monkey]
▶ Hedge Funds Are Crazy About Community Health Systems (CYH)   [Nov-24-16 12:00PM  at Insider Monkey]
▶ Fidelity & Guaranty Life Declares Quarterly Dividend   [Nov-10-16 06:39PM  PR Newswire]
Stock chart of FGL Financial statements of FGL Annual reports of FGL
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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