Intrinsic value of Primoris Services - PRIM

Previous Close

$24.40

  Intrinsic Value

$18.94

stock screener

  Rating & Target

sell

-22%

Previous close

$24.40

 
Intrinsic value

$18.94

 
Up/down potential

-22%

 
Rating

sell

We calculate the intrinsic value of PRIM 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  3.53
  19.70
  18.23
  16.91
  15.72
  14.64
  13.68
  12.81
  12.03
  11.33
  10.70
  10.13
  9.61
  9.15
  8.74
  8.36
  8.03
  7.72
  7.45
  7.21
  6.99
  6.79
  6.61
  6.45
  6.30
  6.17
  6.06
  5.95
  5.85
  5.77
  5.69
Revenue, $m
  1,997
  2,390
  2,826
  3,304
  3,823
  4,383
  4,983
  5,621
  6,297
  7,011
  7,761
  8,546
  9,368
  10,225
  11,119
  12,049
  13,016
  14,021
  15,066
  16,152
  17,280
  18,453
  19,672
  20,940
  22,260
  23,634
  25,065
  26,557
  28,112
  29,733
  31,426
Variable operating expenses, $m
 
  2,304
  2,722
  3,180
  3,678
  4,215
  4,789
  5,401
  6,050
  6,734
  7,452
  8,193
  8,981
  9,802
  10,659
  11,550
  12,477
  13,441
  14,443
  15,483
  16,565
  17,689
  18,858
  20,074
  21,340
  22,657
  24,029
  25,458
  26,949
  28,504
  30,126
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
  1,939
  2,304
  2,722
  3,180
  3,678
  4,215
  4,789
  5,401
  6,050
  6,734
  7,452
  8,193
  8,981
  9,802
  10,659
  11,550
  12,477
  13,441
  14,443
  15,483
  16,565
  17,689
  18,858
  20,074
  21,340
  22,657
  24,029
  25,458
  26,949
  28,504
  30,126
Operating income, $m
  58
  86
  104
  124
  145
  169
  193
  220
  248
  277
  308
  353
  387
  423
  460
  498
  538
  580
  623
  668
  715
  763
  814
  866
  921
  978
  1,037
  1,098
  1,163
  1,230
  1,300
EBITDA, $m
  126
  157
  186
  217
  251
  288
  327
  369
  414
  460
  510
  561
  615
  671
  730
  791
  855
  921
  989
  1,061
  1,135
  1,212
  1,292
  1,375
  1,462
  1,552
  1,646
  1,744
  1,846
  1,953
  2,064
Interest expense (income), $m
  9
  7
  11
  16
  21
  27
  33
  39
  46
  54
  61
  69
  78
  87
  96
  106
  116
  126
  137
  148
  160
  172
  185
  198
  212
  226
  241
  256
  272
  289
  307
Earnings before tax, $m
  49
  79
  93
  108
  124
  142
  160
  180
  201
  224
  247
  284
  310
  336
  364
  393
  423
  454
  486
  520
  555
  591
  629
  668
  709
  752
  796
  842
  890
  941
  993
Tax expense, $m
  21
  21
  25
  29
  34
  38
  43
  49
  54
  60
  67
  77
  84
  91
  98
  106
  114
  123
  131
  140
  150
  160
  170
  180
  191
  203
  215
  227
  240
  254
  268
Net income, $m
  27
  58
  68
  79
  91
  103
  117
  132
  147
  163
  180
  207
  226
  245
  266
  287
  309
  331
  355
  379
  405
  431
  459
  488
  518
  549
  581
  615
  650
  687
  725

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  136
  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
  1,171
  1,239
  1,465
  1,713
  1,982
  2,272
  2,583
  2,914
  3,265
  3,634
  4,023
  4,431
  4,856
  5,301
  5,764
  6,246
  6,747
  7,269
  7,810
  8,373
  8,958
  9,566
  10,198
  10,856
  11,540
  12,252
  12,994
  13,767
  14,573
  15,414
  16,291
Adjusted assets (=assets-cash), $m
  1,035
  1,239
  1,465
  1,713
  1,982
  2,272
  2,583
  2,914
  3,265
  3,634
  4,023
  4,431
  4,856
  5,301
  5,764
  6,246
  6,747
  7,269
  7,810
  8,373
  8,958
  9,566
  10,198
  10,856
  11,540
  12,252
  12,994
  13,767
  14,573
  15,414
  16,291
Revenue / Adjusted assets
  1.929
  1.929
  1.929
  1.929
  1.929
  1.929
  1.929
  1.929
  1.929
  1.929
  1.929
  1.929
  1.929
  1.929
  1.929
  1.929
  1.929
  1.929
  1.929
  1.929
  1.929
  1.929
  1.929
  1.929
  1.929
  1.929
  1.929
  1.929
  1.929
  1.929
  1.929
Average production assets, $m
  315
  378
  447
  522
  604
  693
  787
  888
  995
  1,108
  1,226
  1,350
  1,480
  1,616
  1,757
  1,904
  2,056
  2,215
  2,380
  2,552
  2,730
  2,916
  3,108
  3,309
  3,517
  3,734
  3,960
  4,196
  4,442
  4,698
  4,965
Working capital, $m
  281
  244
  288
  337
  390
  447
  508
  573
  642
  715
  792
  872
  956
  1,043
  1,134
  1,229
  1,328
  1,430
  1,537
  1,647
  1,763
  1,882
  2,007
  2,136
  2,271
  2,411
  2,557
  2,709
  2,867
  3,033
  3,205
Total debt, $m
  262
  325
  460
  607
  767
  940
  1,125
  1,322
  1,530
  1,751
  1,982
  2,224
  2,478
  2,742
  3,018
  3,304
  3,603
  3,913
  4,235
  4,570
  4,918
  5,280
  5,656
  6,047
  6,454
  6,878
  7,319
  7,779
  8,259
  8,759
  9,281
Total liabilities, $m
  673
  737
  872
  1,019
  1,179
  1,352
  1,537
  1,734
  1,942
  2,163
  2,394
  2,636
  2,890
  3,154
  3,430
  3,716
  4,015
  4,325
  4,647
  4,982
  5,330
  5,692
  6,068
  6,459
  6,866
  7,290
  7,731
  8,191
  8,671
  9,171
  9,693
Total equity, $m
  497
  502
  593
  694
  803
  920
  1,046
  1,180
  1,322
  1,472
  1,629
  1,794
  1,967
  2,147
  2,334
  2,530
  2,733
  2,944
  3,163
  3,391
  3,628
  3,874
  4,130
  4,397
  4,674
  4,962
  5,263
  5,576
  5,902
  6,243
  6,598
Total liabilities and equity, $m
  1,170
  1,239
  1,465
  1,713
  1,982
  2,272
  2,583
  2,914
  3,264
  3,635
  4,023
  4,430
  4,857
  5,301
  5,764
  6,246
  6,748
  7,269
  7,810
  8,373
  8,958
  9,566
  10,198
  10,856
  11,540
  12,252
  12,994
  13,767
  14,573
  15,414
  16,291
Debt-to-equity ratio
  0.527
  0.650
  0.770
  0.880
  0.960
  1.020
  1.080
  1.120
  1.160
  1.190
  1.220
  1.240
  1.260
  1.280
  1.290
  1.310
  1.320
  1.330
  1.340
  1.350
  1.360
  1.360
  1.370
  1.380
  1.380
  1.390
  1.390
  1.400
  1.400
  1.400
  1.410
Adjusted equity ratio
  0.349
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  27
  58
  68
  79
  91
  103
  117
  132
  147
  163
  180
  207
  226
  245
  266
  287
  309
  331
  355
  379
  405
  431
  459
  488
  518
  549
  581
  615
  650
  687
  725
Depreciation, amort., depletion, $m
  68
  71
  81
  93
  106
  119
  134
  149
  166
  183
  201
  208
  228
  249
  270
  293
  316
  341
  366
  393
  420
  449
  478
  509
  541
  574
  609
  646
  683
  723
  764
Funds from operations, $m
  19
  128
  149
  172
  196
  223
  251
  281
  313
  346
  382
  415
  454
  494
  536
  580
  625
  672
  721
  772
  825
  880
  937
  997
  1,059
  1,123
  1,190
  1,260
  1,333
  1,409
  1,489
Change in working capital, $m
  -44
  40
  44
  49
  53
  57
  61
  65
  69
  73
  76
  80
  84
  87
  91
  95
  99
  103
  107
  111
  115
  120
  124
  129
  135
  140
  146
  152
  159
  165
  173
Cash from operations, $m
  63
  88
  105
  123
  143
  166
  190
  216
  244
  274
  305
  335
  370
  407
  445
  485
  526
  570
  615
  661
  710
  760
  813
  867
  924
  983
  1,044
  1,108
  1,175
  1,244
  1,316
Maintenance CAPEX, $m
  0
  -48
  -58
  -69
  -80
  -93
  -107
  -121
  -137
  -153
  -170
  -189
  -208
  -228
  -249
  -270
  -293
  -316
  -341
  -366
  -393
  -420
  -449
  -478
  -509
  -541
  -574
  -609
  -646
  -683
  -723
New CAPEX, $m
  -58
  -63
  -69
  -75
  -82
  -88
  -95
  -101
  -107
  -113
  -118
  -124
  -130
  -135
  -141
  -147
  -153
  -159
  -165
  -172
  -178
  -185
  -193
  -200
  -209
  -217
  -226
  -236
  -246
  -256
  -267
Cash from investing activities, $m
  -59
  -111
  -127
  -144
  -162
  -181
  -202
  -222
  -244
  -266
  -288
  -313
  -338
  -363
  -390
  -417
  -446
  -475
  -506
  -538
  -571
  -605
  -642
  -678
  -718
  -758
  -800
  -845
  -892
  -939
  -990
Free cash flow, $m
  4
  -23
  -22
  -21
  -19
  -16
  -11
  -6
  0
  8
  16
  22
  32
  43
  55
  68
  81
  94
  109
  124
  139
  155
  172
  189
  207
  225
  244
  263
  284
  304
  326
Issuance/(repayment) of debt, $m
  -14
  121
  134
  147
  160
  173
  185
  197
  209
  220
  231
  242
  253
  264
  276
  287
  298
  310
  322
  335
  348
  362
  376
  391
  407
  424
  441
  460
  480
  500
  522
Issuance/(repurchase) of shares, $m
  -4
  25
  24
  22
  18
  14
  9
  2
  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  
  -17
  146
  158
  169
  178
  187
  194
  199
  209
  220
  231
  242
  253
  264
  276
  287
  298
  310
  322
  335
  348
  362
  376
  391
  407
  424
  441
  460
  480
  500
  522
Total cash flow (excl. dividends), $m
  -14
  124
  136
  148
  160
  171
  182
  193
  209
  228
  248
  265
  286
  308
  331
  354
  379
  404
  431
  458
  487
  517
  548
  580
  614
  649
  685
  723
  763
  805
  848
Retained Cash Flow (-), $m
  -14
  -83
  -91
  -100
  -109
  -118
  -126
  -134
  -142
  -150
  -157
  -165
  -172
  -180
  -188
  -195
  -203
  -211
  -219
  -228
  -237
  -246
  -256
  -266
  -277
  -288
  -300
  -313
  -326
  -341
  -355
Prev. year cash balance distribution, $m
 
  78
  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
 
  119
  44
  47
  50
  53
  56
  59
  67
  78
  90
  100
  113
  128
  143
  159
  176
  193
  212
  230
  250
  271
  292
  314
  337
  360
  385
  410
  437
  464
  493
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
 
  114
  41
  41
  42
  41
  41
  40
  42
  45
  47
  47
  48
  49
  48
  47
  45
  42
  39
  35
  32
  28
  24
  21
  17
  14
  11
  9
  7
  5
  4
Current shareholders' claim on cash, %
  100
  97.7
  96.0
  94.7
  93.7
  93.1
  92.7
  92.7
  92.7
  92.7
  92.7
  92.7
  92.7
  92.7
  92.7
  92.7
  92.7
  92.7
  92.7
  92.7
  92.7
  92.7
  92.7
  92.7
  92.7
  92.7
  92.7
  92.7
  92.7
  92.7
  92.7

Primoris Services Corporation is a holding company. The Company holds various subsidiaries, through which it operates as a specialty contractor and infrastructure company. The Company provides a range of construction, fabrication, maintenance, replacement, water and wastewater, and engineering services to public utilities, petrochemical companies, energy companies, municipalities, state departments of transportation and other customers. It operates in three segments: the West Construction Services segment (West segment), the East Construction Services segment (East segment) and the Energy segment. The Company installs, replaces, repairs and rehabilitates natural gas, refined product, water and wastewater pipeline systems; large diameter gas and liquid pipeline facilities, and heavy civil projects, earthwork and site development.

FINANCIAL RATIOS  of  Primoris Services (PRIM)

Valuation Ratios
P/E Ratio 46.6
Price to Sales 0.6
Price to Book 2.5
Price to Tangible Book
Price to Cash Flow 20
Price to Free Cash Flow 251.7
Growth Rates
Sales Growth Rate 3.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -13.4%
Cap. Spend. - 3 Yr. Gr. Rate -7.8%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 41%
Total Debt to Equity 52.7%
Interest Coverage 6
Management Effectiveness
Return On Assets 2.8%
Ret/ On Assets - 3 Yr. Avg. 4.3%
Return On Total Capital 3.6%
Ret/ On T. Cap. - 3 Yr. Avg. 6.1%
Return On Equity 5.5%
Return On Equity - 3 Yr. Avg. 9.4%
Asset Turnover 1.7
Profitability Ratios
Gross Margin 10.1%
Gross Margin - 3 Yr. Avg. 10.9%
EBITDA Margin 6.3%
EBITDA Margin - 3 Yr. Avg. 7.1%
Operating Margin 2.9%
Oper. Margin - 3 Yr. Avg. 3.8%
Pre-Tax Margin 2.5%
Pre-Tax Margin - 3 Yr. Avg. 3.5%
Net Profit Margin 1.4%
Net Profit Margin - 3 Yr. Avg. 2.1%
Effective Tax Rate 42.9%
Eff/ Tax Rate - 3 Yr. Avg. 39.8%
Payout Ratio 40.7%

PRIM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PRIM stock intrinsic value calculation we used $1997 million for the last fiscal year's total revenue generated by Primoris Services. The default revenue input number comes from 2016 income statement of Primoris Services. 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 PRIM stock valuation model: a) initial revenue growth rate of 19.7% 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 PRIM is calculated based on our internal credit rating of Primoris Services, 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 Primoris Services.
    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 PRIM stock the variable cost ratio is equal to 96.5%.

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 PRIM 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 Primoris Services.

Corporate tax rate of 27% is the nominal tax rate for Primoris Services. 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 PRIM 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 PRIM are equal to 15.8%.

Life of production assets of 6.5 years is the average useful life of capital assets used in Primoris Services 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 PRIM is equal to 10.2%. 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 - $497 million for Primoris Services - 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 52.961 million for Primoris Services 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 Primoris Services at the current share price and the inputted number of shares is $1.3 billion.

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COMPANY NEWS

▶ New Strong Sell Stocks for January 8th   [Jan-08-18 08:30AM  Zacks]
▶ Primoris Services tops Street 3Q forecasts   [Nov-06-17 06:07PM  Associated Press]
▶ Primoris Services tops Street 2Q forecasts   [Aug-08-17 04:46PM  Associated Press]
▶ Primoris Services meets 1Q profit forecasts   [May-08-17 05:58PM  Associated Press]
▶ Primoris Services misses 4Q profit forecasts   [06:45AM  Associated Press]
Financial statements of PRIM
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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