Intrinsic value of Mueller Water Products - MWA

Previous Close

$12.70

  Intrinsic Value

$3.93

stock screener

  Rating & Target

str. sell

-69%

Previous close

$12.70

 
Intrinsic value

$3.93

 
Up/down potential

-69%

 
Rating

str. sell

We calculate the intrinsic value of MWA 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 2.0

 

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, %
  -2.23
  3.10
  3.29
  3.46
  3.61
  3.75
  3.88
  3.99
  4.09
  4.18
  4.26
  4.34
  4.40
  4.46
  4.52
  4.57
  4.61
  4.65
  4.68
  4.71
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
Revenue, $m
  1,139
  1,174
  1,213
  1,255
  1,300
  1,349
  1,401
  1,457
  1,517
  1,580
  1,648
  1,719
  1,795
  1,875
  1,960
  2,049
  2,144
  2,243
  2,348
  2,459
  2,576
  2,699
  2,828
  2,964
  3,107
  3,258
  3,416
  3,583
  3,758
  3,942
  4,136
Variable operating expenses, $m
 
  1,094
  1,130
  1,170
  1,212
  1,257
  1,306
  1,358
  1,414
  1,473
  1,536
  1,602
  1,673
  1,748
  1,827
  1,910
  1,998
  2,091
  2,189
  2,292
  2,401
  2,515
  2,636
  2,762
  2,896
  3,036
  3,184
  3,339
  3,503
  3,674
  3,855
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
  1,018
  1,094
  1,130
  1,170
  1,212
  1,257
  1,306
  1,358
  1,414
  1,473
  1,536
  1,602
  1,673
  1,748
  1,827
  1,910
  1,998
  2,091
  2,189
  2,292
  2,401
  2,515
  2,636
  2,762
  2,896
  3,036
  3,184
  3,339
  3,503
  3,674
  3,855
Operating income, $m
  121
  80
  82
  85
  88
  92
  95
  99
  103
  107
  112
  117
  122
  128
  133
  139
  146
  153
  160
  167
  175
  184
  192
  202
  211
  222
  232
  244
  256
  268
  281
EBITDA, $m
  173
  133
  138
  143
  148
  153
  159
  166
  172
  179
  187
  195
  204
  213
  223
  233
  243
  255
  267
  279
  293
  306
  321
  337
  353
  370
  388
  407
  427
  448
  470
Interest expense (income), $m
  21
  21
  22
  23
  24
  26
  27
  29
  31
  33
  35
  37
  39
  42
  44
  47
  50
  53
  56
  60
  63
  67
  71
  75
  80
  84
  89
  94
  100
  105
  111
Earnings before tax, $m
  97
  59
  61
  62
  64
  66
  68
  70
  72
  75
  77
  80
  83
  86
  89
  92
  96
  100
  103
  108
  112
  116
  121
  126
  132
  137
  143
  149
  156
  163
  170
Tax expense, $m
  33
  16
  16
  17
  17
  18
  18
  19
  20
  20
  21
  22
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  36
  37
  39
  40
  42
  44
  46
Net income, $m
  64
  43
  44
  46
  47
  48
  50
  51
  53
  55
  56
  58
  60
  63
  65
  67
  70
  73
  76
  79
  82
  85
  89
  92
  96
  100
  105
  109
  114
  119
  124

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  195
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  1,281
  1,119
  1,156
  1,196
  1,240
  1,286
  1,336
  1,389
  1,446
  1,507
  1,571
  1,639
  1,711
  1,787
  1,868
  1,954
  2,044
  2,139
  2,239
  2,344
  2,455
  2,573
  2,696
  2,826
  2,962
  3,106
  3,257
  3,416
  3,583
  3,758
  3,943
Adjusted assets (=assets-cash), $m
  1,086
  1,119
  1,156
  1,196
  1,240
  1,286
  1,336
  1,389
  1,446
  1,507
  1,571
  1,639
  1,711
  1,787
  1,868
  1,954
  2,044
  2,139
  2,239
  2,344
  2,455
  2,573
  2,696
  2,826
  2,962
  3,106
  3,257
  3,416
  3,583
  3,758
  3,943
Revenue / Adjusted assets
  1.049
  1.049
  1.049
  1.049
  1.048
  1.049
  1.049
  1.049
  1.049
  1.048
  1.049
  1.049
  1.049
  1.049
  1.049
  1.049
  1.049
  1.049
  1.049
  1.049
  1.049
  1.049
  1.049
  1.049
  1.049
  1.049
  1.049
  1.049
  1.049
  1.049
  1.049
Average production assets, $m
  597
  615
  636
  658
  681
  707
  734
  764
  795
  828
  863
  901
  941
  983
  1,027
  1,074
  1,123
  1,176
  1,231
  1,289
  1,350
  1,414
  1,482
  1,553
  1,628
  1,707
  1,790
  1,877
  1,969
  2,066
  2,167
Working capital, $m
  426
  244
  252
  261
  270
  281
  291
  303
  316
  329
  343
  358
  373
  390
  408
  426
  446
  467
  488
  511
  536
  561
  588
  617
  646
  678
  711
  745
  782
  820
  860
Total debt, $m
  484
  504
  533
  565
  599
  636
  675
  717
  762
  810
  860
  914
  971
  1,031
  1,095
  1,162
  1,233
  1,308
  1,387
  1,471
  1,558
  1,651
  1,748
  1,850
  1,958
  2,071
  2,191
  2,316
  2,448
  2,586
  2,732
Total liabilities, $m
  862
  883
  912
  944
  978
  1,015
  1,054
  1,096
  1,141
  1,189
  1,239
  1,293
  1,350
  1,410
  1,474
  1,541
  1,612
  1,687
  1,766
  1,850
  1,937
  2,030
  2,127
  2,229
  2,337
  2,450
  2,570
  2,695
  2,827
  2,965
  3,111
Total equity, $m
  418
  236
  244
  252
  262
  271
  282
  293
  305
  318
  331
  346
  361
  377
  394
  412
  431
  451
  472
  495
  518
  543
  569
  596
  625
  655
  687
  721
  756
  793
  832
Total liabilities and equity, $m
  1,280
  1,119
  1,156
  1,196
  1,240
  1,286
  1,336
  1,389
  1,446
  1,507
  1,570
  1,639
  1,711
  1,787
  1,868
  1,953
  2,043
  2,138
  2,238
  2,345
  2,455
  2,573
  2,696
  2,825
  2,962
  3,105
  3,257
  3,416
  3,583
  3,758
  3,943
Debt-to-equity ratio
  1.158
  2.130
  2.190
  2.240
  2.290
  2.340
  2.390
  2.450
  2.500
  2.550
  2.600
  2.640
  2.690
  2.730
  2.780
  2.820
  2.860
  2.900
  2.940
  2.970
  3.010
  3.040
  3.070
  3.100
  3.130
  3.160
  3.190
  3.210
  3.240
  3.260
  3.280
Adjusted equity ratio
  0.205
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  64
  43
  44
  46
  47
  48
  50
  51
  53
  55
  56
  58
  60
  63
  65
  67
  70
  73
  76
  79
  82
  85
  89
  92
  96
  100
  105
  109
  114
  119
  124
Depreciation, amort., depletion, $m
  52
  54
  55
  57
  59
  61
  64
  66
  69
  72
  75
  78
  82
  85
  89
  93
  98
  102
  107
  112
  117
  123
  129
  135
  142
  148
  156
  163
  171
  180
  188
Funds from operations, $m
  151
  97
  100
  103
  106
  110
  113
  118
  122
  127
  131
  137
  142
  148
  154
  161
  168
  175
  183
  191
  199
  208
  217
  227
  238
  249
  260
  272
  285
  298
  313
Change in working capital, $m
  6
  7
  8
  9
  9
  10
  11
  12
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  30
  31
  33
  35
  36
  38
  40
Cash from operations, $m
  145
  89
  92
  94
  97
  99
  103
  106
  110
  113
  117
  122
  126
  131
  137
  142
  148
  154
  161
  168
  175
  182
  191
  199
  208
  217
  227
  238
  249
  260
  272
Maintenance CAPEX, $m
  0
  -52
  -54
  -55
  -57
  -59
  -61
  -64
  -66
  -69
  -72
  -75
  -78
  -82
  -85
  -89
  -93
  -98
  -102
  -107
  -112
  -117
  -123
  -129
  -135
  -142
  -148
  -156
  -163
  -171
  -180
New CAPEX, $m
  -39
  -18
  -20
  -22
  -24
  -26
  -27
  -29
  -31
  -33
  -35
  -37
  -40
  -42
  -44
  -47
  -49
  -52
  -55
  -58
  -61
  -64
  -68
  -71
  -75
  -79
  -83
  -87
  -92
  -97
  -101
Cash from investing activities, $m
  -39
  -70
  -74
  -77
  -81
  -85
  -88
  -93
  -97
  -102
  -107
  -112
  -118
  -124
  -129
  -136
  -142
  -150
  -157
  -165
  -173
  -181
  -191
  -200
  -210
  -221
  -231
  -243
  -255
  -268
  -281
Free cash flow, $m
  106
  19
  18
  17
  16
  15
  14
  13
  12
  11
  10
  9
  8
  8
  7
  6
  5
  4
  3
  3
  2
  1
  0
  -1
  -2
  -3
  -4
  -5
  -6
  -8
  -9
Issuance/(repayment) of debt, $m
  -5
  26
  29
  32
  34
  37
  39
  42
  45
  48
  51
  54
  57
  60
  64
  67
  71
  75
  79
  83
  88
  92
  97
  102
  108
  113
  119
  125
  132
  139
  146
Issuance/(repurchase) of shares, $m
  3
  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  
  -8
  26
  29
  32
  34
  37
  39
  42
  45
  48
  51
  54
  57
  60
  64
  67
  71
  75
  79
  83
  88
  92
  97
  102
  108
  113
  119
  125
  132
  139
  146
Total cash flow (excl. dividends), $m
  98
  45
  47
  48
  50
  51
  53
  55
  57
  59
  61
  63
  65
  68
  70
  73
  76
  79
  82
  86
  89
  93
  97
  101
  106
  110
  115
  120
  125
  131
  137
Retained Cash Flow (-), $m
  -52
  -7
  -8
  -8
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -34
  -35
  -37
  -39
Prev. year cash balance distribution, $m
 
  189
  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
 
  227
  39
  40
  41
  42
  43
  44
  45
  46
  47
  49
  50
  52
  53
  55
  57
  59
  61
  64
  66
  68
  71
  74
  77
  80
  83
  87
  90
  94
  98
Discount rate, %
 
  5.10
  5.36
  5.62
  5.90
  6.20
  6.51
  6.83
  7.18
  7.54
  7.91
  8.31
  8.72
  9.16
  9.62
  10.10
  10.60
  11.13
  11.69
  12.27
  12.89
  13.53
  14.21
  14.92
  15.66
  16.45
  17.27
  18.13
  19.04
  19.99
  20.99
PV of cash for distribution, $m
 
  216
  35
  34
  32
  31
  29
  27
  26
  24
  22
  20
  18
  17
  15
  13
  11
  10
  8
  7
  6
  5
  4
  3
  2
  2
  1
  1
  1
  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

Mueller Water Products, Inc. is a manufacturer and marketer of products and services used in the transmission, distribution and measurement of water in North America. The Company operates through three segments: Mueller Co., Anvil and Mueller Technologies. The Mueller Co. segment manufactures valves for water and gas systems, and dry-barrel and wet-barrel fire hydrants. The Anvil segment manufactures and sources a range of products, including a range of fittings, couplings, hangers and related products. The Mueller Technologies segment offers metering systems, leak detection, pipe condition assessment and other products and services for the water infrastructure industry. The Mueller Technologies segment includes Mueller Systems and Echologics businesses. The Company offers a range of water infrastructure, flow control and piping component system products and services in the United States and Canada.

FINANCIAL RATIOS  of  Mueller Water Products (MWA)

Valuation Ratios
P/E Ratio 32.1
Price to Sales 1.8
Price to Book 4.9
Price to Tangible Book
Price to Cash Flow 14.2
Price to Free Cash Flow 19.4
Growth Rates
Sales Growth Rate -2.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 2.6%
Cap. Spend. - 3 Yr. Gr. Rate 1.6%
Financial Strength
Quick Ratio 33
Current Ratio 0.8
LT Debt to Equity 114.4%
Total Debt to Equity 115.8%
Interest Coverage 6
Management Effectiveness
Return On Assets 6.2%
Ret/ On Assets - 3 Yr. Avg. 5.9%
Return On Total Capital 7.3%
Ret/ On T. Cap. - 3 Yr. Avg. 5.7%
Return On Equity 16.3%
Return On Equity - 3 Yr. Avg. 13.8%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 32%
Gross Margin - 3 Yr. Avg. 30.4%
EBITDA Margin 14.9%
EBITDA Margin - 3 Yr. Avg. 14.2%
Operating Margin 10.6%
Oper. Margin - 3 Yr. Avg. 9.3%
Pre-Tax Margin 8.5%
Pre-Tax Margin - 3 Yr. Avg. 6.4%
Net Profit Margin 5.6%
Net Profit Margin - 3 Yr. Avg. 4.3%
Effective Tax Rate 34%
Eff/ Tax Rate - 3 Yr. Avg. 32.5%
Payout Ratio 25%

MWA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MWA stock intrinsic value calculation we used $1139 million for the last fiscal year's total revenue generated by Mueller Water Products. The default revenue input number comes from 2016 income statement of Mueller Water Products. 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 MWA stock valuation model: a) initial revenue growth rate of 3.1% 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 5.1%, whose default value for MWA is calculated based on our internal credit rating of Mueller Water Products, 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 Mueller Water Products.
    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 MWA stock the variable cost ratio is equal to 93.2%.

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 MWA 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 Mueller Water Products.

Corporate tax rate of 27% is the nominal tax rate for Mueller Water Products. 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 MWA 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 MWA are equal to 52.4%.

Life of production assets of 11.5 years is the average useful life of capital assets used in Mueller Water Products 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 MWA is equal to 20.8%. 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 - $418 million for Mueller Water Products - 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 158.408 million for Mueller Water Products 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 Mueller Water Products at the current share price and the inputted number of shares is $2.0 billion.

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COMPANY NEWS

▶ Mueller Water Products meets 4Q profit forecasts   [05:49AM  Associated Press]
▶ Mueller Water Products Announces Quarterly Dividend   [Oct-25-17 06:06PM  GlobeNewswire]
▶ What is Behind Mueller Water Products Incs (MWA) Superior ROE?   [Sep-29-17 04:57PM  Simply Wall St.]
▶ Mueller Water Products meets 3Q profit forecasts   [Aug-03-17 05:41PM  Associated Press]
▶ Mueller Water Products Announces Quarterly Dividend   [Aug-01-17 10:40AM  GlobeNewswire]
▶ Mueller Water Products meets 2Q profit forecasts   [Apr-27-17 07:08PM  Associated Press]
▶ Mueller Water Products misses 1Q profit forecasts   [Feb-02-17 06:14PM  Associated Press]
▶ Mueller Water Products to Acquire Singer Valve   [Jan-30-17 08:33AM  GlobeNewswire]
▶ [$$] One Equity Backs Pipe-Products Producer   [Jan-09-17 03:56PM  at The Wall Street Journal]
Financial statements of MWA
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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