Intrinsic value of Public Service Enterprise Group - PEG

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$44.43

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$44.43

 
Intrinsic value

$23.27

 
Up/down potential

-48%

 
Rating

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 PEG 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 22.7

 

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, %
  -13.00
  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
  9,061
  9,242
  9,455
  9,698
  9,971
  10,273
  10,605
  10,966
  11,357
  11,778
  12,230
  12,713
  13,229
  13,779
  14,363
  14,982
  15,639
  16,334
  17,069
  17,845
  18,665
  19,530
  20,443
  21,404
  22,418
  23,485
  24,609
  25,791
  27,036
  28,345
  29,723
Variable operating expenses, $m
 
  6,664
  6,817
  6,992
  7,189
  7,407
  7,646
  7,906
  8,188
  8,491
  8,817
  9,164
  9,536
  9,932
  10,353
  10,799
  11,273
  11,774
  12,303
  12,863
  13,454
  14,078
  14,736
  15,429
  16,159
  16,929
  17,739
  18,591
  19,488
  20,432
  21,425
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
  7,513
  6,664
  6,817
  6,992
  7,189
  7,407
  7,646
  7,906
  8,188
  8,491
  8,817
  9,164
  9,536
  9,932
  10,353
  10,799
  11,273
  11,774
  12,303
  12,863
  13,454
  14,078
  14,736
  15,429
  16,159
  16,929
  17,739
  18,591
  19,488
  20,432
  21,425
Operating income, $m
  1,548
  2,579
  2,638
  2,706
  2,782
  2,866
  2,959
  3,060
  3,169
  3,286
  3,413
  3,549
  3,693
  3,847
  4,010
  4,183
  4,366
  4,560
  4,765
  4,982
  5,211
  5,452
  5,707
  5,976
  6,259
  6,556
  6,870
  7,200
  7,548
  7,913
  8,298
EBITDA, $m
  3,024
  4,084
  4,178
  4,286
  4,406
  4,540
  4,686
  4,846
  5,019
  5,205
  5,405
  5,618
  5,846
  6,089
  6,347
  6,621
  6,911
  7,218
  7,543
  7,886
  8,248
  8,631
  9,034
  9,459
  9,907
  10,378
  10,875
  11,398
  11,948
  12,526
  13,135
Interest expense (income), $m
  365
  398
  415
  436
  461
  489
  520
  554
  591
  631
  674
  720
  769
  822
  878
  938
  1,001
  1,069
  1,140
  1,215
  1,294
  1,378
  1,466
  1,560
  1,658
  1,762
  1,871
  1,986
  2,107
  2,234
  2,368
Earnings before tax, $m
  1,298
  2,181
  2,223
  2,270
  2,321
  2,377
  2,439
  2,506
  2,578
  2,656
  2,739
  2,829
  2,924
  3,025
  3,131
  3,245
  3,365
  3,491
  3,626
  3,767
  3,917
  4,074
  4,241
  4,416
  4,600
  4,795
  4,999
  5,215
  5,441
  5,679
  5,930
Tax expense, $m
  411
  589
  600
  613
  627
  642
  659
  677
  696
  717
  740
  764
  789
  817
  845
  876
  908
  943
  979
  1,017
  1,058
  1,100
  1,145
  1,192
  1,242
  1,295
  1,350
  1,408
  1,469
  1,533
  1,601
Net income, $m
  887
  1,592
  1,623
  1,657
  1,694
  1,735
  1,780
  1,829
  1,882
  1,939
  1,999
  2,065
  2,134
  2,208
  2,286
  2,369
  2,456
  2,549
  2,647
  2,750
  2,859
  2,974
  3,096
  3,224
  3,358
  3,500
  3,650
  3,807
  3,972
  4,146
  4,329

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  423
  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
  40,070
  40,359
  41,287
  42,348
  43,540
  44,860
  46,308
  47,885
  49,592
  51,431
  53,405
  55,517
  57,770
  60,169
  62,719
  65,424
  68,291
  71,326
  74,536
  77,927
  81,507
  85,285
  89,270
  93,469
  97,894
  102,555
  107,462
  112,626
  118,061
  123,779
  129,793
Adjusted assets (=assets-cash), $m
  39,647
  40,359
  41,287
  42,348
  43,540
  44,860
  46,308
  47,885
  49,592
  51,431
  53,405
  55,517
  57,770
  60,169
  62,719
  65,424
  68,291
  71,326
  74,536
  77,927
  81,507
  85,285
  89,270
  93,469
  97,894
  102,555
  107,462
  112,626
  118,061
  123,779
  129,793
Revenue / Adjusted assets
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
Average production assets, $m
  28,013
  28,577
  29,234
  29,986
  30,829
  31,764
  32,789
  33,906
  35,115
  36,417
  37,814
  39,310
  40,905
  42,604
  44,409
  46,325
  48,355
  50,504
  52,776
  55,177
  57,713
  60,388
  63,209
  66,183
  69,316
  72,616
  76,090
  79,747
  83,595
  87,644
  91,902
Working capital, $m
  -22
  453
  463
  475
  489
  503
  520
  537
  556
  577
  599
  623
  648
  675
  704
  734
  766
  800
  836
  874
  915
  957
  1,002
  1,049
  1,098
  1,151
  1,206
  1,264
  1,325
  1,389
  1,456
Total debt, $m
  11,783
  11,843
  12,464
  13,174
  13,971
  14,854
  15,823
  16,878
  18,020
  19,251
  20,571
  21,984
  23,491
  25,096
  26,802
  28,612
  30,530
  32,560
  34,707
  36,976
  39,371
  41,899
  44,564
  47,374
  50,334
  53,452
  56,735
  60,190
  63,826
  67,651
  71,675
Total liabilities, $m
  26,940
  27,000
  27,621
  28,331
  29,128
  30,011
  30,980
  32,035
  33,177
  34,408
  35,728
  37,141
  38,648
  40,253
  41,959
  43,769
  45,687
  47,717
  49,864
  52,133
  54,528
  57,056
  59,721
  62,531
  65,491
  68,609
  71,892
  75,347
  78,983
  82,808
  86,832
Total equity, $m
  13,130
  13,359
  13,666
  14,017
  14,412
  14,849
  15,328
  15,850
  16,415
  17,024
  17,677
  18,376
  19,122
  19,916
  20,760
  21,655
  22,604
  23,609
  24,671
  25,794
  26,979
  28,229
  29,548
  30,938
  32,403
  33,946
  35,570
  37,279
  39,078
  40,971
  42,962
Total liabilities and equity, $m
  40,070
  40,359
  41,287
  42,348
  43,540
  44,860
  46,308
  47,885
  49,592
  51,432
  53,405
  55,517
  57,770
  60,169
  62,719
  65,424
  68,291
  71,326
  74,535
  77,927
  81,507
  85,285
  89,269
  93,469
  97,894
  102,555
  107,462
  112,626
  118,061
  123,779
  129,794
Debt-to-equity ratio
  0.897
  0.890
  0.910
  0.940
  0.970
  1.000
  1.030
  1.060
  1.100
  1.130
  1.160
  1.200
  1.230
  1.260
  1.290
  1.320
  1.350
  1.380
  1.410
  1.430
  1.460
  1.480
  1.510
  1.530
  1.550
  1.570
  1.600
  1.610
  1.630
  1.650
  1.670
Adjusted equity ratio
  0.330
  0.331
  0.331
  0.331
  0.331
  0.331
  0.331
  0.331
  0.331
  0.331
  0.331
  0.331
  0.331
  0.331
  0.331
  0.331
  0.331
  0.331
  0.331
  0.331
  0.331
  0.331
  0.331
  0.331
  0.331
  0.331
  0.331
  0.331
  0.331
  0.331
  0.331

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  887
  1,592
  1,623
  1,657
  1,694
  1,735
  1,780
  1,829
  1,882
  1,939
  1,999
  2,065
  2,134
  2,208
  2,286
  2,369
  2,456
  2,549
  2,647
  2,750
  2,859
  2,974
  3,096
  3,224
  3,358
  3,500
  3,650
  3,807
  3,972
  4,146
  4,329
Depreciation, amort., depletion, $m
  1,476
  1,506
  1,540
  1,580
  1,624
  1,673
  1,727
  1,786
  1,850
  1,918
  1,992
  2,069
  2,153
  2,242
  2,337
  2,438
  2,545
  2,658
  2,778
  2,904
  3,038
  3,178
  3,327
  3,483
  3,648
  3,822
  4,005
  4,197
  4,400
  4,613
  4,837
Funds from operations, $m
  3,270
  3,098
  3,163
  3,237
  3,318
  3,409
  3,508
  3,615
  3,732
  3,857
  3,991
  4,134
  4,287
  4,450
  4,623
  4,807
  5,001
  5,207
  5,424
  5,654
  5,897
  6,153
  6,422
  6,707
  7,007
  7,322
  7,654
  8,004
  8,372
  8,759
  9,166
Change in working capital, $m
  -41
  9
  10
  12
  13
  15
  16
  18
  19
  21
  22
  24
  25
  27
  29
  30
  32
  34
  36
  38
  40
  42
  45
  47
  50
  52
  55
  58
  61
  64
  67
Cash from operations, $m
  3,311
  4,460
  3,153
  3,225
  3,305
  3,394
  3,492
  3,598
  3,713
  3,836
  3,969
  4,111
  4,262
  4,423
  4,595
  4,776
  4,969
  5,173
  5,388
  5,616
  5,857
  6,110
  6,378
  6,660
  6,957
  7,270
  7,599
  7,946
  8,311
  8,695
  9,098
Maintenance CAPEX, $m
  0
  -1,474
  -1,504
  -1,539
  -1,578
  -1,623
  -1,672
  -1,726
  -1,785
  -1,848
  -1,917
  -1,990
  -2,069
  -2,153
  -2,242
  -2,337
  -2,438
  -2,545
  -2,658
  -2,778
  -2,904
  -3,038
  -3,178
  -3,327
  -3,483
  -3,648
  -3,822
  -4,005
  -4,197
  -4,400
  -4,613
New CAPEX, $m
  -4,298
  -564
  -657
  -751
  -843
  -935
  -1,025
  -1,117
  -1,209
  -1,302
  -1,398
  -1,495
  -1,595
  -1,699
  -1,805
  -1,916
  -2,030
  -2,149
  -2,273
  -2,401
  -2,535
  -2,675
  -2,821
  -2,974
  -3,133
  -3,300
  -3,474
  -3,657
  -3,848
  -4,049
  -4,258
Cash from investing activities, $m
  -4,248
  -2,038
  -2,161
  -2,290
  -2,421
  -2,558
  -2,697
  -2,843
  -2,994
  -3,150
  -3,315
  -3,485
  -3,664
  -3,852
  -4,047
  -4,253
  -4,468
  -4,694
  -4,931
  -5,179
  -5,439
  -5,713
  -5,999
  -6,301
  -6,616
  -6,948
  -7,296
  -7,662
  -8,045
  -8,449
  -8,871
Free cash flow, $m
  -937
  2,422
  992
  935
  883
  837
  794
  755
  719
  686
  655
  625
  598
  572
  547
  523
  501
  479
  458
  437
  417
  398
  378
  359
  340
  322
  303
  284
  265
  246
  227
Issuance/(repayment) of debt, $m
  1,875
  483
  621
  710
  797
  883
  969
  1,055
  1,142
  1,230
  1,320
  1,413
  1,507
  1,605
  1,706
  1,810
  1,918
  2,030
  2,147
  2,269
  2,395
  2,528
  2,666
  2,810
  2,960
  3,118
  3,283
  3,455
  3,636
  3,825
  4,023
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  
  1,796
  483
  621
  710
  797
  883
  969
  1,055
  1,142
  1,230
  1,320
  1,413
  1,507
  1,605
  1,706
  1,810
  1,918
  2,030
  2,147
  2,269
  2,395
  2,528
  2,666
  2,810
  2,960
  3,118
  3,283
  3,455
  3,636
  3,825
  4,023
Total cash flow (excl. dividends), $m
  859
  2,905
  1,613
  1,645
  1,680
  1,720
  1,763
  1,810
  1,861
  1,916
  1,975
  2,038
  2,105
  2,177
  2,253
  2,333
  2,419
  2,509
  2,605
  2,706
  2,813
  2,925
  3,044
  3,169
  3,301
  3,439
  3,586
  3,739
  3,901
  4,072
  4,251
Retained Cash Flow (-), $m
  -64
  -229
  -307
  -351
  -394
  -437
  -479
  -522
  -565
  -609
  -653
  -699
  -746
  -794
  -844
  -896
  -949
  -1,005
  -1,062
  -1,122
  -1,185
  -1,251
  -1,319
  -1,390
  -1,465
  -1,543
  -1,624
  -1,710
  -1,799
  -1,893
  -1,991
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
 
  2,676
  1,305
  1,293
  1,286
  1,283
  1,284
  1,288
  1,296
  1,308
  1,322
  1,339
  1,359
  1,383
  1,409
  1,438
  1,470
  1,505
  1,543
  1,583
  1,627
  1,675
  1,725
  1,779
  1,836
  1,897
  1,961
  2,030
  2,102
  2,179
  2,260
Discount rate, %
 
  6.90
  7.25
  7.61
  7.99
  8.39
  8.81
  9.25
  9.71
  10.19
  10.70
  11.24
  11.80
  12.39
  13.01
  13.66
  14.34
  15.06
  15.81
  16.61
  17.44
  18.31
  19.22
  20.18
  21.19
  22.25
  23.37
  24.53
  25.76
  27.05
  28.40
PV of cash for distribution, $m
 
  2,503
  1,135
  1,038
  946
  858
  774
  694
  618
  546
  478
  415
  356
  303
  254
  211
  172
  139
  110
  85
  65
  49
  36
  26
  18
  12
  8
  5
  3
  2
  1
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

Public Service Enterprise Group Incorporated, through its subsidiaries, operates as an energy company primarily in the Northeastern and Mid- Atlantic United States. The company operates nuclear, coal, gas, oil-fired, and renewable generation facilities with a generation capacity of approximately 11,678 megawatts. It sells electricity, natural gas, emissions credits, and a series of energy-related products. The company also transmits electricity; and distributes electricity and gas to residential, commercial, and industrial customers, as well as invests in solar generation projects, and implements energy efficiency and demand response programs. In addition, it offers appliance services and repairs to customers. As of December 31, 2015, the company’s electric transmission and distribution system included 24,022 circuit miles, of which 8,226 circuit miles were underground; and 848,496 poles, of which 549,636 poles were jointly-owned, as well as 4 electric distribution headquarters and 5 sub-headquarters. It also owned and operated 18,112 miles of gas mains; owned 12 gas distribution headquarters and 2 sub-headquarters; owned 1 meter shop; operated 60 natural gas metering and regulating stations; and owned 43 switching stations with an aggregate installed capacity of 29,090 megavolt-amperes (MVA) and 246 substations with an aggregate installed capacity of 8,179 MVA. Public Service Enterprise Group Incorporated was founded in 1985 and is headquartered in Newark, New Jersey.

FINANCIAL RATIOS  of  Public Service Enterprise Group (PEG)

Valuation Ratios
P/E Ratio 25.3
Price to Sales 2.5
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 6.8
Price to Free Cash Flow -22.7
Growth Rates
Sales Growth Rate -13%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 11.3%
Cap. Spend. - 3 Yr. Gr. Rate 8.9%
Financial Strength
Quick Ratio 0
Current Ratio 0.2
LT Debt to Equity 83%
Total Debt to Equity 89.7%
Interest Coverage 5
Management Effectiveness
Return On Assets 2.9%
Ret/ On Assets - 3 Yr. Avg. 4.5%
Return On Total Capital 3.7%
Ret/ On T. Cap. - 3 Yr. Avg. 6.2%
Return On Equity 6.8%
Return On Equity - 3 Yr. Avg. 10.9%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 34.6%
EBITDA Margin - 3 Yr. Avg. 37.7%
Operating Margin 17.1%
Oper. Margin - 3 Yr. Avg. 23%
Pre-Tax Margin 14.3%
Pre-Tax Margin - 3 Yr. Avg. 20.9%
Net Profit Margin 9.8%
Net Profit Margin - 3 Yr. Avg. 13.3%
Effective Tax Rate 31.7%
Eff/ Tax Rate - 3 Yr. Avg. 35.7%
Payout Ratio 93.6%

PEG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PEG stock intrinsic value calculation we used $9061 million for the last fiscal year's total revenue generated by Public Service Enterprise Group. The default revenue input number comes from 2016 income statement of Public Service Enterprise Group. 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 PEG 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 6.9%, whose default value for PEG is calculated based on our internal credit rating of Public Service Enterprise Group, 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 Public Service Enterprise Group.
    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 PEG stock the variable cost ratio is equal to 72.1%.

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 PEG 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 3.5% for Public Service Enterprise Group.

Corporate tax rate of 27% is the nominal tax rate for Public Service Enterprise Group. 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 PEG 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 PEG are equal to 309.2%.

Life of production assets of 19 years is the average useful life of capital assets used in Public Service Enterprise Group 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 PEG is equal to 4.9%. 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 - $13130 million for Public Service Enterprise Group - 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 509.879 million for Public Service Enterprise Group 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 Public Service Enterprise Group at the current share price and the inputted number of shares is $22.7 billion.


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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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