Intrinsic value of Altisource Residential - RESI

Previous Close

$10.82

  Intrinsic Value

$4.05

stock screener

  Rating & Target

str. sell

-63%

  Value-price divergence*

-53%

Previous close

$10.82

 
Intrinsic value

$4.05

 
Up/down potential

-63%

 
Rating

str. sell

 
Value-price divergence*

-53%

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

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

We calculate the intrinsic value of RESI 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 0.6

 

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, %
  -77.02
  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
  57
  58
  59
  61
  63
  65
  67
  69
  71
  74
  77
  80
  83
  87
  90
  94
  98
  103
  107
  112
  117
  123
  129
  135
  141
  148
  155
  162
  170
  178
  187
Variable operating expenses, $m
 
  14
  15
  15
  15
  16
  16
  17
  18
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  33
  35
  36
  38
  40
  42
  44
  46
Fixed operating expenses, $m
 
  250
  256
  263
  269
  276
  283
  290
  297
  305
  312
  320
  328
  336
  345
  353
  362
  371
  381
  390
  400
  410
  420
  431
  441
  452
  464
  475
  487
  499
  512
Total operating expenses, $m
  284
  264
  271
  278
  284
  292
  299
  307
  315
  323
  331
  340
  348
  357
  367
  376
  386
  396
  407
  418
  429
  440
  452
  464
  476
  488
  502
  515
  529
  543
  558
Operating income, $m
  -227
  -206
  -212
  -217
  -222
  -227
  -233
  -238
  -243
  -249
  -254
  -260
  -265
  -271
  -277
  -282
  -288
  -294
  -300
  -305
  -311
  -317
  -323
  -329
  -335
  -341
  -347
  -353
  -359
  -365
  -371
EBITDA, $m
  -200
  -206
  -212
  -217
  -222
  -227
  -233
  -238
  -243
  -249
  -254
  -260
  -265
  -271
  -277
  -282
  -288
  -294
  -300
  -305
  -311
  -317
  -323
  -329
  -335
  -341
  -347
  -353
  -359
  -365
  -371
Interest expense (income), $m
  40
  44
  45
  46
  48
  49
  51
  52
  54
  56
  58
  61
  63
  66
  68
  71
  75
  78
  82
  85
  89
  93
  98
  103
  107
  113
  118
  124
  130
  136
  143
Earnings before tax, $m
  -228
  -250
  -257
  -263
  -270
  -276
  -283
  -290
  -298
  -305
  -313
  -320
  -328
  -337
  -345
  -354
  -363
  -372
  -381
  -391
  -401
  -411
  -421
  -432
  -442
  -454
  -465
  -477
  -489
  -501
  -514
Tax expense, $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
Net income, $m
  -228
  -250
  -257
  -263
  -270
  -276
  -283
  -290
  -298
  -305
  -313
  -320
  -328
  -337
  -345
  -354
  -363
  -372
  -381
  -391
  -401
  -411
  -421
  -432
  -442
  -454
  -465
  -477
  -489
  -501
  -514

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  106
  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
  2,285
  2,236
  2,288
  2,346
  2,412
  2,486
  2,566
  2,653
  2,748
  2,850
  2,959
  3,076
  3,201
  3,334
  3,475
  3,625
  3,784
  3,952
  4,130
  4,318
  4,516
  4,725
  4,946
  5,179
  5,424
  5,682
  5,954
  6,240
  6,541
  6,858
  7,191
Adjusted assets (=assets-cash), $m
  2,179
  2,236
  2,288
  2,346
  2,412
  2,486
  2,566
  2,653
  2,748
  2,850
  2,959
  3,076
  3,201
  3,334
  3,475
  3,625
  3,784
  3,952
  4,130
  4,318
  4,516
  4,725
  4,946
  5,179
  5,424
  5,682
  5,954
  6,240
  6,541
  6,858
  7,191
Revenue / Adjusted assets
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
Average production assets, $m
  -18
  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
Working capital, $m
  0
  29
  30
  31
  31
  32
  33
  34
  36
  37
  38
  40
  42
  43
  45
  47
  49
  51
  54
  56
  59
  61
  64
  67
  71
  74
  77
  81
  85
  89
  93
Total debt, $m
  1,365
  1,294
  1,325
  1,360
  1,400
  1,444
  1,493
  1,545
  1,603
  1,664
  1,730
  1,801
  1,876
  1,957
  2,042
  2,132
  2,228
  2,330
  2,437
  2,551
  2,671
  2,797
  2,930
  3,071
  3,219
  3,375
  3,539
  3,712
  3,894
  4,085
  4,287
Total liabilities, $m
  1,422
  1,351
  1,382
  1,417
  1,457
  1,501
  1,550
  1,602
  1,660
  1,721
  1,787
  1,858
  1,933
  2,014
  2,099
  2,189
  2,285
  2,387
  2,494
  2,608
  2,728
  2,854
  2,987
  3,128
  3,276
  3,432
  3,596
  3,769
  3,951
  4,142
  4,344
Total equity, $m
  863
  886
  906
  929
  955
  984
  1,016
  1,051
  1,088
  1,128
  1,172
  1,218
  1,268
  1,320
  1,376
  1,435
  1,498
  1,565
  1,635
  1,710
  1,788
  1,871
  1,959
  2,051
  2,148
  2,250
  2,358
  2,471
  2,590
  2,716
  2,848
Total liabilities and equity, $m
  2,285
  2,237
  2,288
  2,346
  2,412
  2,485
  2,566
  2,653
  2,748
  2,849
  2,959
  3,076
  3,201
  3,334
  3,475
  3,624
  3,783
  3,952
  4,129
  4,318
  4,516
  4,725
  4,946
  5,179
  5,424
  5,682
  5,954
  6,240
  6,541
  6,858
  7,192
Debt-to-equity ratio
  1.582
  1.460
  1.460
  1.460
  1.470
  1.470
  1.470
  1.470
  1.470
  1.470
  1.480
  1.480
  1.480
  1.480
  1.480
  1.490
  1.490
  1.490
  1.490
  1.490
  1.490
  1.490
  1.500
  1.500
  1.500
  1.500
  1.500
  1.500
  1.500
  1.500
  1.510
Adjusted equity ratio
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396
  0.396

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -228
  -250
  -257
  -263
  -270
  -276
  -283
  -290
  -298
  -305
  -313
  -320
  -328
  -337
  -345
  -354
  -363
  -372
  -381
  -391
  -401
  -411
  -421
  -432
  -442
  -454
  -465
  -477
  -489
  -501
  -514
Depreciation, amort., depletion, $m
  27
  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
Funds from operations, $m
  -31
  -250
  -257
  -263
  -270
  -276
  -283
  -290
  -298
  -305
  -313
  -320
  -328
  -337
  -345
  -354
  -363
  -372
  -381
  -391
  -401
  -411
  -421
  -432
  -442
  -454
  -465
  -477
  -489
  -501
  -514
Change in working capital, $m
  82
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
Cash from operations, $m
  -113
  -251
  -257
  -264
  -271
  -277
  -284
  -291
  -299
  -306
  -314
  -322
  -330
  -338
  -347
  -356
  -365
  -374
  -383
  -393
  -403
  -413
  -424
  -435
  -446
  -457
  -469
  -481
  -493
  -505
  -518
Maintenance CAPEX, $m
  0
  4
  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
New CAPEX, $m
  -300
  -18
  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 investing activities, $m
  565
  -14
  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
Free cash flow, $m
  452
  -265
  -257
  -264
  -271
  -277
  -284
  -291
  -299
  -306
  -314
  -322
  -330
  -338
  -347
  -356
  -365
  -374
  -383
  -393
  -403
  -413
  -424
  -435
  -446
  -457
  -469
  -481
  -493
  -505
  -518
Issuance/(repayment) of debt, $m
  0
  35
  31
  36
  40
  44
  48
  53
  57
  62
  66
  71
  75
  80
  85
  91
  96
  102
  107
  113
  120
  126
  133
  141
  148
  156
  164
  173
  182
  191
  201
Issuance/(repurchase) of shares, $m
  -21
  273
  277
  286
  296
  305
  315
  325
  335
  345
  356
  367
  378
  389
  401
  413
  426
  438
  452
  465
  479
  494
  508
  524
  540
  556
  573
  590
  608
  627
  646
Cash from financing (excl. dividends), $m  
  -424
  308
  308
  322
  336
  349
  363
  378
  392
  407
  422
  438
  453
  469
  486
  504
  522
  540
  559
  578
  599
  620
  641
  665
  688
  712
  737
  763
  790
  818
  847
Total cash flow (excl. dividends), $m
  28
  43
  51
  58
  65
  72
  79
  86
  93
  101
  108
  115
  123
  131
  139
  148
  157
  166
  176
  185
  196
  207
  218
  230
  242
  255
  268
  282
  297
  313
  329
Retained Cash Flow (-), $m
  289
  -273
  -277
  -286
  -296
  -305
  -315
  -325
  -335
  -345
  -356
  -367
  -378
  -389
  -401
  -413
  -426
  -438
  -452
  -465
  -479
  -494
  -508
  -524
  -540
  -556
  -573
  -590
  -608
  -627
  -646
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
 
  -230
  -226
  -228
  -231
  -233
  -236
  -239
  -242
  -245
  -248
  -251
  -255
  -258
  -262
  -265
  -269
  -272
  -276
  -280
  -283
  -287
  -291
  -294
  -298
  -301
  -304
  -308
  -311
  -314
  -317
Discount rate, %
 
  10.50
  11.03
  11.58
  12.16
  12.76
  13.40
  14.07
  14.77
  15.51
  16.29
  17.10
  17.96
  18.86
  19.80
  20.79
  21.83
  22.92
  24.07
  25.27
  26.53
  27.86
  29.25
  30.72
  32.25
  33.86
  35.56
  37.33
  39.20
  41.16
  43.22
PV of cash for distribution, $m
 
  -208
  -184
  -164
  -146
  -128
  -111
  -95
  -80
  -67
  -55
  -44
  -35
  -27
  -21
  -16
  -11
  -8
  -6
  -4
  -3
  -2
  -1
  -1
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  68.9
  47.6
  32.8
  22.5
  15.5
  10.6
  7.3
  5.0
  3.4
  2.4
  1.6
  1.1
  0.8
  0.6
  0.4
  0.3
  0.2
  0.1
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Altisource Residential Corporation is a real estate investment trust (REIT). The Company focuses on acquiring, owning and managing single-family rental (SFR) properties throughout the United States. The Company conducts its activities through its subsidiary, Altisource Residential, L.P., and its subsidiaries. The Company also converts a portion of the real estate owned (REO) properties that it acquires through resolution of its mortgage loans into SFR properties. The Company has also entered into property management service agreements with two third-party property managers: Altisource Portfolio Solutions, SA (ASPS) and Main Street Renewal, LLC (MSR), to provide, among other things, leasing and lease management, operations, maintenance, repair and property management services in respect of its SFR portfolios. As of December 31, 2016, the Company had 10,533 properties, consisting of 9,939 properties held for use and 594 held for sale.

FINANCIAL RATIOS  of  Altisource Residential (RESI)

Valuation Ratios
P/E Ratio -2.5
Price to Sales 10.2
Price to Book 0.7
Price to Tangible Book
Price to Cash Flow -5.1
Price to Free Cash Flow -1.4
Growth Rates
Sales Growth Rate -77%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 150%
Cap. Spend. - 3 Yr. Gr. Rate 118.7%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 0%
Total Debt to Equity 158.2%
Interest Coverage -5
Management Effectiveness
Return On Assets -7.9%
Ret/ On Assets - 3 Yr. Avg. 0.9%
Return On Total Capital -9.8%
Ret/ On T. Cap. - 3 Yr. Avg. -0.8%
Return On Equity -22.6%
Return On Equity - 3 Yr. Avg. -2.8%
Asset Turnover 0
Profitability Ratios
Gross Margin 5.3%
Gross Margin - 3 Yr. Avg. 58.3%
EBITDA Margin -282.5%
EBITDA Margin - 3 Yr. Avg. -75.7%
Operating Margin -398.2%
Oper. Margin - 3 Yr. Avg. -124.8%
Pre-Tax Margin -400%
Pre-Tax Margin - 3 Yr. Avg. -124.6%
Net Profit Margin -400%
Net Profit Margin - 3 Yr. Avg. -124.6%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio -16.7%

RESI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RESI stock intrinsic value calculation we used $57 million for the last fiscal year's total revenue generated by Altisource Residential. The default revenue input number comes from 2016 income statement of Altisource Residential. 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 RESI 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 10.5%, whose default value for RESI is calculated based on our internal credit rating of Altisource Residential, 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 Altisource Residential.
    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 RESI stock the variable cost ratio is equal to 24.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $244 million in the base year in the intrinsic value calculation for RESI 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 Altisource Residential.

Corporate tax rate of 27% is the nominal tax rate for Altisource Residential. 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 RESI 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 RESI are equal to 0%.

Life of production assets of -0.6 years is the average useful life of capital assets used in Altisource Residential 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 RESI is equal to 50%. 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 - $863 million for Altisource Residential - 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 53.316 million for Altisource Residential 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 Altisource Residential at the current share price and the inputted number of shares is $0.6 billion.

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COMPANY NEWS

▶ Altisource Residential reports 2Q loss   [Aug-08-17 05:22PM  Associated Press]
▶ Altisource Residential reports 1Q loss   [May-09-17 09:45AM  Associated Press]
▶ Altisource Residential reports 4Q loss   [07:57AM  Associated Press]
Financial statements of RESI
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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