Intrinsic value of Sterling Construction - STRL

Previous Close

$9.51

  Intrinsic Value

premium content

  Rating & Target

premium content

  Value-price divergence*

premium content

Previous close

$9.51

 
Intrinsic value

$18.71

 
Up/down potential

+97%

 
Rating

str. buy

 
Value-price divergence* premium content

Premium access subscription - $499/yr

please register and log in before paying

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

We calculate the intrinsic value of STRL 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 0.2

 

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, %
  10.58
  10.50
  9.95
  9.45
  9.01
  8.61
  8.25
  7.92
  7.63
  7.37
  7.13
  6.92
  6.73
  6.55
  6.40
  6.26
  6.13
  6.02
  5.92
  5.83
  5.74
  5.67
  5.60
  5.54
  5.49
  5.44
  5.39
  5.36
  5.32
  5.29
  5.26
Revenue, $m
  690
  762
  838
  918
  1,000
  1,086
  1,176
  1,269
  1,366
  1,467
  1,571
  1,680
  1,793
  1,910
  2,033
  2,160
  2,292
  2,430
  2,574
  2,724
  2,880
  3,044
  3,214
  3,392
  3,578
  3,773
  3,977
  4,190
  4,412
  4,646
  4,890
Variable operating expenses, $m
 
  658
  723
  791
  862
  935
  1,012
  1,092
  1,175
  1,261
  1,350
  1,438
  1,535
  1,635
  1,740
  1,849
  1,962
  2,080
  2,203
  2,332
  2,466
  2,605
  2,751
  2,904
  3,063
  3,230
  3,404
  3,586
  3,777
  3,977
  4,186
Fixed operating expenses, $m
 
  104
  106
  109
  111
  114
  117
  120
  123
  126
  129
  133
  136
  139
  143
  146
  150
  154
  158
  161
  166
  170
  174
  178
  183
  187
  192
  197
  202
  207
  212
Total operating expenses, $m
  695
  762
  829
  900
  973
  1,049
  1,129
  1,212
  1,298
  1,387
  1,479
  1,571
  1,671
  1,774
  1,883
  1,995
  2,112
  2,234
  2,361
  2,493
  2,632
  2,775
  2,925
  3,082
  3,246
  3,417
  3,596
  3,783
  3,979
  4,184
  4,398
Operating income, $m
  -5
  1
  9
  18
  27
  37
  47
  57
  68
  80
  91
  109
  122
  136
  150
  165
  180
  196
  213
  231
  249
  269
  289
  310
  333
  356
  381
  406
  434
  462
  492
EBITDA, $m
  11
  16
  26
  35
  46
  56
  68
  79
  91
  104
  117
  131
  146
  161
  176
  193
  210
  228
  247
  266
  287
  308
  331
  354
  379
  405
  432
  461
  491
  523
  556
Interest expense (income), $m
  3
  0
  5
  10
  15
  21
  27
  32
  39
  45
  52
  59
  66
  73
  81
  89
  98
  107
  116
  125
  135
  146
  156
  168
  180
  192
  205
  218
  233
  247
  263
Earnings before tax, $m
  -7
  1
  4
  8
  12
  16
  20
  25
  29
  34
  40
  51
  56
  62
  69
  75
  82
  90
  97
  105
  114
  123
  132
  142
  153
  164
  176
  188
  201
  215
  229
Tax expense, $m
  0
  0
  1
  2
  3
  4
  5
  7
  8
  9
  11
  14
  15
  17
  19
  20
  22
  24
  26
  28
  31
  33
  36
  38
  41
  44
  47
  51
  54
  58
  62
Net income, $m
  -9
  0
  3
  6
  9
  12
  15
  18
  21
  25
  29
  37
  41
  46
  50
  55
  60
  65
  71
  77
  83
  90
  97
  104
  112
  120
  128
  137
  147
  157
  167

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  43
  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
  302
  286
  315
  344
  375
  408
  441
  476
  513
  551
  590
  631
  673
  717
  763
  811
  860
  912
  966
  1,023
  1,081
  1,143
  1,207
  1,273
  1,343
  1,416
  1,493
  1,573
  1,656
  1,744
  1,836
Adjusted assets (=assets-cash), $m
  259
  286
  315
  344
  375
  408
  441
  476
  513
  551
  590
  631
  673
  717
  763
  811
  860
  912
  966
  1,023
  1,081
  1,143
  1,207
  1,273
  1,343
  1,416
  1,493
  1,573
  1,656
  1,744
  1,836
Revenue / Adjusted assets
  2.664
  2.664
  2.660
  2.669
  2.667
  2.662
  2.667
  2.666
  2.663
  2.662
  2.663
  2.662
  2.664
  2.664
  2.664
  2.663
  2.665
  2.664
  2.665
  2.663
  2.664
  2.663
  2.663
  2.665
  2.664
  2.665
  2.664
  2.664
  2.664
  2.664
  2.663
Average production assets, $m
  71
  79
  86
  95
  103
  112
  121
  131
  141
  151
  162
  173
  185
  197
  209
  222
  236
  250
  265
  281
  297
  313
  331
  349
  369
  389
  410
  432
  454
  479
  504
Working capital, $m
  29
  -11
  -12
  -13
  -14
  -15
  -16
  -18
  -19
  -21
  -22
  -24
  -25
  -27
  -28
  -30
  -32
  -34
  -36
  -38
  -40
  -43
  -45
  -47
  -50
  -53
  -56
  -59
  -62
  -65
  -68
Total debt, $m
  5
  21
  42
  64
  87
  111
  135
  161
  188
  216
  245
  275
  306
  339
  372
  408
  444
  482
  522
  564
  607
  652
  699
  748
  800
  854
  910
  969
  1,031
  1,095
  1,163
Total liabilities, $m
  194
  211
  232
  254
  277
  301
  325
  351
  378
  406
  435
  465
  496
  529
  562
  598
  634
  672
  712
  754
  797
  842
  889
  938
  990
  1,044
  1,100
  1,159
  1,221
  1,285
  1,353
Total equity, $m
  107
  75
  83
  91
  99
  107
  116
  125
  135
  145
  155
  166
  177
  189
  201
  213
  226
  240
  254
  269
  284
  300
  317
  335
  353
  372
  393
  414
  436
  459
  483
Total liabilities and equity, $m
  301
  286
  315
  345
  376
  408
  441
  476
  513
  551
  590
  631
  673
  718
  763
  811
  860
  912
  966
  1,023
  1,081
  1,142
  1,206
  1,273
  1,343
  1,416
  1,493
  1,573
  1,657
  1,744
  1,836
Debt-to-equity ratio
  0.047
  0.280
  0.510
  0.700
  0.880
  1.030
  1.170
  1.290
  1.390
  1.490
  1.580
  1.660
  1.730
  1.790
  1.860
  1.910
  1.960
  2.010
  2.050
  2.100
  2.130
  2.170
  2.200
  2.230
  2.260
  2.290
  2.320
  2.340
  2.370
  2.390
  2.410
Adjusted equity ratio
  0.247
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -9
  0
  3
  6
  9
  12
  15
  18
  21
  25
  29
  37
  41
  46
  50
  55
  60
  65
  71
  77
  83
  90
  97
  104
  112
  120
  128
  137
  147
  157
  167
Depreciation, amort., depletion, $m
  16
  15
  16
  17
  19
  20
  21
  22
  23
  25
  26
  22
  23
  25
  27
  28
  30
  32
  34
  36
  38
  40
  42
  44
  47
  49
  52
  55
  58
  61
  64
Funds from operations, $m
  79
  16
  19
  23
  27
  31
  36
  40
  45
  50
  55
  59
  65
  70
  77
  83
  90
  97
  105
  112
  121
  129
  139
  148
  158
  169
  180
  192
  204
  217
  231
Change in working capital, $m
  34
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
Cash from operations, $m
  45
  14
  20
  24
  28
  32
  37
  41
  46
  51
  56
  60
  66
  72
  78
  85
  92
  99
  107
  115
  123
  132
  141
  151
  161
  172
  183
  195
  207
  221
  235
Maintenance CAPEX, $m
  0
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -17
  -18
  -19
  -20
  -22
  -23
  -25
  -27
  -28
  -30
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -47
  -49
  -52
  -55
  -58
  -61
New CAPEX, $m
  -11
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
Cash from investing activities, $m
  -8
  -17
  -18
  -19
  -21
  -22
  -23
  -25
  -27
  -28
  -30
  -31
  -34
  -35
  -38
  -40
  -42
  -44
  -47
  -49
  -52
  -55
  -58
  -60
  -63
  -67
  -70
  -74
  -78
  -82
  -86
Free cash flow, $m
  37
  -3
  3
  5
  8
  11
  13
  16
  20
  23
  26
  29
  33
  37
  41
  45
  50
  55
  60
  66
  71
  77
  84
  90
  97
  105
  113
  121
  130
  139
  149
Issuance/(repayment) of debt, $m
  -16
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
Issuance/(repurchase) of shares, $m
  19
  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  
  2
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
Total cash flow (excl. dividends), $m
  38
  17
  24
  27
  31
  34
  38
  42
  46
  51
  55
  59
  64
  69
  75
  81
  87
  93
  100
  107
  115
  122
  131
  140
  149
  159
  169
  180
  191
  204
  216
Retained Cash Flow (-), $m
  -11
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
Prev. year cash balance distribution, $m
 
  39
  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
 
  49
  16
  19
  22
  26
  29
  33
  37
  41
  45
  48
  53
  58
  63
  68
  74
  79
  86
  92
  99
  106
  114
  122
  131
  140
  149
  159
  169
  181
  192
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
 
  47
  15
  17
  19
  20
  21
  22
  23
  23
  24
  23
  22
  22
  21
  20
  19
  17
  16
  14
  13
  11
  9
  8
  7
  5
  4
  3
  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

Sterling Construction Company, Inc., together with its subsidiaries, operates as a heavy civil construction company in Texas, Utah, Nevada, Colorado, Arizona, California, Hawaii, and other states in the United States. The company builds, repairs, and reconstructs transportation infrastructure projects, including highways, roads, bridges, airfields, ports, and light rail; and water infrastructure projects comprising water, wastewater, and storm drainage systems. It primarily serves the departments of transportation in various states, regional transit authorities, airport authorities, port authorities, water authorities, and railroads. The company was formerly known as Oakhurst Company, Inc. and changed its name to Sterling Construction Company, Inc. in November 2001. Sterling Construction Company, Inc. was founded in 1955 and is headquartered in The Woodlands, Texas.

FINANCIAL RATIOS  of  Sterling Construction (STRL)

Valuation Ratios
P/E Ratio -26.4
Price to Sales 0.3
Price to Book 2.2
Price to Tangible Book
Price to Cash Flow 5.3
Price to Free Cash Flow 7
Growth Rates
Sales Growth Rate 10.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 37.5%
Cap. Spend. - 3 Yr. Gr. Rate -6%
Financial Strength
Quick Ratio 11
Current Ratio 0.3
LT Debt to Equity 0.9%
Total Debt to Equity 4.7%
Interest Coverage -1
Management Effectiveness
Return On Assets -2.1%
Ret/ On Assets - 3 Yr. Avg. -3.7%
Return On Total Capital -7.9%
Ret/ On T. Cap. - 3 Yr. Avg. -9.4%
Return On Equity -8.9%
Return On Equity - 3 Yr. Avg. -11.3%
Asset Turnover 2.4
Profitability Ratios
Gross Margin 6.4%
Gross Margin - 3 Yr. Avg. 5.3%
EBITDA Margin 1.7%
EBITDA Margin - 3 Yr. Avg. 1.4%
Operating Margin -0.7%
Oper. Margin - 3 Yr. Avg. -1.2%
Pre-Tax Margin -1%
Pre-Tax Margin - 3 Yr. Avg. -1.5%
Net Profit Margin -1.3%
Net Profit Margin - 3 Yr. Avg. -2%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 0%

STRL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the STRL stock intrinsic value calculation we used $690 million for the last fiscal year's total revenue generated by Sterling Construction. The default revenue input number comes from 2016 income statement of Sterling Construction. 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 STRL stock valuation model: a) initial revenue growth rate of 10.5% 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 STRL is calculated based on our internal credit rating of Sterling Construction, 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 Sterling Construction.
    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 STRL stock the variable cost ratio is equal to 86.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $101 million in the base year in the intrinsic value calculation for STRL 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 24% for Sterling Construction.

Corporate tax rate of 27% is the nominal tax rate for Sterling Construction. 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 STRL 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 STRL are equal to 10.3%.

Life of production assets of 7.9 years is the average useful life of capital assets used in Sterling Construction 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 STRL is equal to -1.4%. 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 - $107 million for Sterling Construction - 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 25.381 million for Sterling Construction 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 Sterling Construction at the current share price and the inputted number of shares is $0.2 billion.


Premium access subscription - $499/yr

please register and log in before paying
RELATED COMPANIES Price Int.Val. Rating
GVA Granite Constr 52.71 45.79  hold
PRIM Primoris Servi 22.97 19.27  hold
ALEX Alexander&Bald 46.01 31.63  sell
IESC IES Holdings 20.00 33.06  str.buy
ORN Orion Group Ho 7.55 1.44  str.sell
GLDD Great Lakes Dr 4.55 0.74  str.sell

COMPANY NEWS

▶ Sterling Construction reports 4Q loss   [06:34AM  Associated Press]
▶ Hedge Funds Are Buying Sterling Construction Company, Inc. (STRL)   [Dec-14-16 02:01AM  at Insider Monkey]
Stock chart of STRL Financial statements of STRL
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.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.