Intrinsic value of United Continental Holdings - UAL

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$81.25

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$81.25

 
Intrinsic value

$225.12

 
Up/down potential

+177%

 
Rating

str. buy

 
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 UAL 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 25.1

 

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, %
  -3.45
  2.70
  2.93
  3.14
  3.32
  3.49
  3.64
  3.78
  3.90
  4.01
  4.11
  4.20
  4.28
  4.35
  4.42
  4.47
  4.53
  4.57
  4.62
  4.65
  4.69
  4.72
  4.75
  4.77
  4.80
  4.82
  4.83
  4.85
  4.87
  4.88
  4.89
Revenue, $m
  36,556
  37,543
  38,643
  39,855
  41,180
  42,617
  44,169
  45,838
  47,626
  49,535
  51,571
  53,736
  56,035
  58,472
  61,054
  63,786
  66,673
  69,722
  72,941
  76,336
  79,916
  83,688
  87,662
  91,847
  96,252
  100,888
  105,765
  110,897
  116,293
  121,968
  127,934
Variable operating expenses, $m
 
  13,766
  14,156
  14,586
  15,056
  15,566
  16,116
  16,708
  17,342
  18,019
  18,741
  19,056
  19,871
  20,736
  21,651
  22,620
  23,644
  24,725
  25,867
  27,071
  28,340
  29,678
  31,087
  32,571
  34,133
  35,778
  37,507
  39,327
  41,241
  43,253
  45,369
Fixed operating expenses, $m
 
  19,755
  20,249
  20,755
  21,274
  21,806
  22,351
  22,910
  23,482
  24,069
  24,671
  25,288
  25,920
  26,568
  27,232
  27,913
  28,611
  29,326
  30,059
  30,811
  31,581
  32,371
  33,180
  34,009
  34,860
  35,731
  36,624
  37,540
  38,478
  39,440
  40,426
Total operating expenses, $m
  32,218
  33,521
  34,405
  35,341
  36,330
  37,372
  38,467
  39,618
  40,824
  42,088
  43,412
  44,344
  45,791
  47,304
  48,883
  50,533
  52,255
  54,051
  55,926
  57,882
  59,921
  62,049
  64,267
  66,580
  68,993
  71,509
  74,131
  76,867
  79,719
  82,693
  85,795
Operating income, $m
  4,338
  4,022
  4,238
  4,514
  4,850
  5,246
  5,703
  6,221
  6,802
  7,447
  8,159
  9,392
  10,243
  11,168
  12,170
  13,252
  14,418
  15,671
  17,015
  18,455
  19,995
  21,640
  23,395
  25,266
  27,259
  29,379
  31,634
  34,030
  36,574
  39,274
  42,139
EBITDA, $m
  6,315
  6,207
  6,474
  6,806
  7,203
  7,665
  8,194
  8,789
  9,452
  10,186
  10,991
  11,872
  12,829
  13,867
  14,988
  16,196
  17,495
  18,889
  20,381
  21,978
  23,683
  25,502
  27,441
  29,505
  31,701
  34,035
  36,515
  39,148
  41,941
  44,904
  48,043
Interest expense (income), $m
  584
  537
  579
  624
  675
  730
  790
  855
  925
  999
  1,079
  1,164
  1,255
  1,351
  1,452
  1,560
  1,674
  1,795
  1,922
  2,056
  2,198
  2,348
  2,505
  2,671
  2,846
  3,030
  3,223
  3,427
  3,641
  3,866
  4,103
Earnings before tax, $m
  3,819
  3,485
  3,660
  3,890
  4,175
  4,516
  4,912
  5,366
  5,877
  6,448
  7,080
  8,228
  8,989
  9,818
  10,718
  11,692
  12,744
  13,876
  15,093
  16,398
  17,796
  19,292
  20,890
  22,595
  24,413
  26,350
  28,411
  30,603
  32,933
  35,408
  38,036
Tax expense, $m
  1,376
  941
  988
  1,050
  1,127
  1,219
  1,326
  1,449
  1,587
  1,741
  1,912
  2,221
  2,427
  2,651
  2,894
  3,157
  3,441
  3,747
  4,075
  4,428
  4,805
  5,209
  5,640
  6,101
  6,592
  7,114
  7,671
  8,263
  8,892
  9,560
  10,270
Net income, $m
  2,263
  2,544
  2,672
  2,840
  3,048
  3,297
  3,586
  3,917
  4,290
  4,707
  5,168
  6,006
  6,562
  7,167
  7,824
  8,535
  9,303
  10,130
  11,018
  11,971
  12,991
  14,083
  15,250
  16,494
  17,822
  19,235
  20,740
  22,340
  24,041
  25,848
  27,766

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  4,428
  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
  40,140
  36,663
  37,737
  38,921
  40,215
  41,618
  43,134
  44,764
  46,509
  48,374
  50,362
  52,476
  54,721
  57,102
  59,623
  62,291
  65,110
  68,088
  71,231
  74,547
  78,043
  81,727
  85,607
  89,694
  93,996
  98,523
  103,287
  108,297
  113,567
  119,109
  124,936
Adjusted assets (=assets-cash), $m
  35,712
  36,663
  37,737
  38,921
  40,215
  41,618
  43,134
  44,764
  46,509
  48,374
  50,362
  52,476
  54,721
  57,102
  59,623
  62,291
  65,110
  68,088
  71,231
  74,547
  78,043
  81,727
  85,607
  89,694
  93,996
  98,523
  103,287
  108,297
  113,567
  119,109
  124,936
Revenue / Adjusted assets
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
Average production assets, $m
  26,333
  27,031
  27,823
  28,696
  29,649
  30,684
  31,802
  33,003
  34,290
  35,665
  37,131
  38,690
  40,345
  42,100
  43,959
  45,926
  48,004
  50,200
  52,518
  54,962
  57,539
  60,256
  63,117
  66,130
  69,301
  72,639
  76,151
  79,846
  83,731
  87,817
  92,113
Working capital, $m
  -4,977
  -8,672
  -8,927
  -9,207
  -9,513
  -9,845
  -10,203
  -10,589
  -11,002
  -11,443
  -11,913
  -12,413
  -12,944
  -13,507
  -14,104
  -14,734
  -15,401
  -16,106
  -16,849
  -17,634
  -18,461
  -19,332
  -20,250
  -21,217
  -22,234
  -23,305
  -24,432
  -25,617
  -26,864
  -28,175
  -29,553
Total debt, $m
  11,705
  11,571
  12,489
  13,502
  14,607
  15,808
  17,104
  18,497
  19,990
  21,584
  23,284
  25,091
  27,011
  29,046
  31,202
  33,483
  35,893
  38,439
  41,127
  43,962
  46,951
  50,100
  53,418
  56,912
  60,590
  64,461
  68,534
  72,818
  77,324
  82,062
  87,044
Total liabilities, $m
  31,481
  31,347
  32,265
  33,278
  34,383
  35,584
  36,880
  38,273
  39,766
  41,360
  43,060
  44,867
  46,787
  48,822
  50,978
  53,259
  55,669
  58,215
  60,903
  63,738
  66,727
  69,876
  73,194
  76,688
  80,366
  84,237
  88,310
  92,594
  97,100
  101,838
  106,820
Total equity, $m
  8,659
  5,316
  5,472
  5,644
  5,831
  6,035
  6,254
  6,491
  6,744
  7,014
  7,303
  7,609
  7,935
  8,280
  8,645
  9,032
  9,441
  9,873
  10,329
  10,809
  11,316
  11,850
  12,413
  13,006
  13,629
  14,286
  14,977
  15,703
  16,467
  17,271
  18,116
Total liabilities and equity, $m
  40,140
  36,663
  37,737
  38,922
  40,214
  41,619
  43,134
  44,764
  46,510
  48,374
  50,363
  52,476
  54,722
  57,102
  59,623
  62,291
  65,110
  68,088
  71,232
  74,547
  78,043
  81,726
  85,607
  89,694
  93,995
  98,523
  103,287
  108,297
  113,567
  119,109
  124,936
Debt-to-equity ratio
  1.352
  2.180
  2.280
  2.390
  2.510
  2.620
  2.730
  2.850
  2.960
  3.080
  3.190
  3.300
  3.400
  3.510
  3.610
  3.710
  3.800
  3.890
  3.980
  4.070
  4.150
  4.230
  4.300
  4.380
  4.450
  4.510
  4.580
  4.640
  4.700
  4.750
  4.800
Adjusted equity ratio
  0.118
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,263
  2,544
  2,672
  2,840
  3,048
  3,297
  3,586
  3,917
  4,290
  4,707
  5,168
  6,006
  6,562
  7,167
  7,824
  8,535
  9,303
  10,130
  11,018
  11,971
  12,991
  14,083
  15,250
  16,494
  17,822
  19,235
  20,740
  22,340
  24,041
  25,848
  27,766
Depreciation, amort., depletion, $m
  1,977
  2,185
  2,236
  2,292
  2,353
  2,419
  2,491
  2,568
  2,650
  2,739
  2,832
  2,480
  2,586
  2,699
  2,818
  2,944
  3,077
  3,218
  3,367
  3,523
  3,688
  3,863
  4,046
  4,239
  4,442
  4,656
  4,881
  5,118
  5,367
  5,629
  5,905
Funds from operations, $m
  4,696
  4,729
  4,907
  5,131
  5,401
  5,716
  6,077
  6,485
  6,941
  7,445
  8,001
  8,486
  9,148
  9,866
  10,642
  11,479
  12,380
  13,348
  14,384
  15,494
  16,680
  17,946
  19,296
  20,733
  22,264
  23,892
  25,621
  27,458
  29,408
  31,477
  33,671
Change in working capital, $m
  -846
  -228
  -254
  -280
  -306
  -332
  -359
  -385
  -413
  -441
  -470
  -500
  -531
  -563
  -596
  -631
  -667
  -704
  -744
  -784
  -827
  -871
  -918
  -967
  -1,018
  -1,071
  -1,127
  -1,185
  -1,247
  -1,311
  -1,378
Cash from operations, $m
  5,542
  5,574
  5,161
  5,411
  5,707
  6,048
  6,435
  6,870
  7,353
  7,887
  8,471
  8,986
  9,679
  10,429
  11,239
  12,110
  13,047
  14,052
  15,128
  16,278
  17,507
  18,817
  20,213
  21,700
  23,281
  24,962
  26,748
  28,644
  30,655
  32,788
  35,049
Maintenance CAPEX, $m
  0
  -1,688
  -1,733
  -1,784
  -1,839
  -1,901
  -1,967
  -2,039
  -2,116
  -2,198
  -2,286
  -2,380
  -2,480
  -2,586
  -2,699
  -2,818
  -2,944
  -3,077
  -3,218
  -3,367
  -3,523
  -3,688
  -3,863
  -4,046
  -4,239
  -4,442
  -4,656
  -4,881
  -5,118
  -5,367
  -5,629
New CAPEX, $m
  -3,223
  -698
  -792
  -873
  -954
  -1,035
  -1,117
  -1,201
  -1,287
  -1,375
  -1,465
  -1,559
  -1,655
  -1,755
  -1,859
  -1,967
  -2,079
  -2,196
  -2,317
  -2,445
  -2,577
  -2,716
  -2,861
  -3,013
  -3,172
  -3,338
  -3,512
  -3,694
  -3,885
  -4,086
  -4,296
Cash from investing activities, $m
  -3,238
  -2,386
  -2,525
  -2,657
  -2,793
  -2,936
  -3,084
  -3,240
  -3,403
  -3,573
  -3,751
  -3,939
  -4,135
  -4,341
  -4,558
  -4,785
  -5,023
  -5,273
  -5,535
  -5,812
  -6,100
  -6,404
  -6,724
  -7,059
  -7,411
  -7,780
  -8,168
  -8,575
  -9,003
  -9,453
  -9,925
Free cash flow, $m
  2,304
  3,188
  2,637
  2,755
  2,914
  3,112
  3,351
  3,630
  3,951
  4,313
  4,719
  5,047
  5,544
  6,088
  6,681
  7,326
  8,024
  8,779
  9,592
  10,467
  11,406
  12,413
  13,490
  14,641
  15,871
  17,182
  18,580
  20,068
  21,651
  23,335
  25,124
Issuance/(repayment) of debt, $m
  -543
  831
  918
  1,012
  1,106
  1,200
  1,296
  1,393
  1,493
  1,595
  1,699
  1,808
  1,920
  2,035
  2,156
  2,281
  2,411
  2,546
  2,687
  2,835
  2,989
  3,150
  3,318
  3,494
  3,678
  3,871
  4,073
  4,284
  4,506
  4,738
  4,982
Issuance/(repurchase) of shares, $m
  -2,608
  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  
  -3,213
  831
  918
  1,012
  1,106
  1,200
  1,296
  1,393
  1,493
  1,595
  1,699
  1,808
  1,920
  2,035
  2,156
  2,281
  2,411
  2,546
  2,687
  2,835
  2,989
  3,150
  3,318
  3,494
  3,678
  3,871
  4,073
  4,284
  4,506
  4,738
  4,982
Total cash flow (excl. dividends), $m
  -909
  4,019
  3,555
  3,767
  4,020
  4,313
  4,647
  5,023
  5,443
  5,908
  6,419
  6,855
  7,463
  8,123
  8,837
  9,606
  10,435
  11,325
  12,280
  13,302
  14,395
  15,562
  16,808
  18,135
  19,549
  21,053
  22,653
  24,352
  26,157
  28,073
  30,105
Retained Cash Flow (-), $m
  307
  -120
  -156
  -172
  -188
  -204
  -220
  -236
  -253
  -270
  -288
  -307
  -326
  -345
  -366
  -387
  -409
  -432
  -456
  -481
  -507
  -534
  -563
  -593
  -624
  -656
  -691
  -727
  -764
  -804
  -845
Prev. year cash balance distribution, $m
 
  3,463
  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
 
  7,362
  3,399
  3,596
  3,832
  4,109
  4,427
  4,787
  5,190
  5,638
  6,130
  6,548
  7,138
  7,778
  8,471
  9,220
  10,026
  10,893
  11,824
  12,821
  13,888
  15,028
  16,245
  17,543
  18,925
  20,397
  21,962
  23,626
  25,393
  27,269
  29,261
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
 
  7,058
  3,112
  3,129
  3,155
  3,185
  3,213
  3,234
  3,244
  3,238
  3,214
  3,110
  3,046
  2,957
  2,844
  2,707
  2,548
  2,370
  2,178
  1,974
  1,765
  1,554
  1,348
  1,150
  964
  793
  641
  507
  393
  298
  220
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

United Continental Holdings, Inc., together with its subsidiaries, provides air transportation services in North America, the Asia-Pacific, Europe, the Middle East, Africa, and Latin America. The company transports people and cargo through its mainline and regional operations. As of December 31, 2016, it operated a fleet of 1,231 aircraft. United Continental Holdings, Inc. also sells fuel; and offers maintenance, catering, and ground handling services for third parties. The company was formerly known as UAL Corporation and changed its name to United Continental Holdings, Inc. in October 2010. United Continental Holdings, Inc. was founded in 1934 and is based in Chicago, Illinois.

FINANCIAL RATIOS  of  United Continental Holdings (UAL)

Valuation Ratios
P/E Ratio 11.3
Price to Sales 0.7
Price to Book 3
Price to Tangible Book
Price to Cash Flow 4.6
Price to Free Cash Flow 11
Growth Rates
Sales Growth Rate -3.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 17.3%
Cap. Spend. - 3 Yr. Gr. Rate 8.3%
Financial Strength
Quick Ratio 5
Current Ratio 0
LT Debt to Equity 124%
Total Debt to Equity 135.2%
Interest Coverage 8
Management Effectiveness
Return On Assets 6.5%
Ret/ On Assets - 3 Yr. Avg. 10.8%
Return On Total Capital 11%
Ret/ On T. Cap. - 3 Yr. Avg. 20.2%
Return On Equity 25.7%
Return On Equity - 3 Yr. Avg. 65.7%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 33.8%
Gross Margin - 3 Yr. Avg. 30.4%
EBITDA Margin 17.5%
EBITDA Margin - 3 Yr. Avg. 14.8%
Operating Margin 11.9%
Oper. Margin - 3 Yr. Avg. 10.5%
Pre-Tax Margin 10.4%
Pre-Tax Margin - 3 Yr. Avg. 8.2%
Net Profit Margin 6.2%
Net Profit Margin - 3 Yr. Avg. 9.5%
Effective Tax Rate 36%
Eff/ Tax Rate - 3 Yr. Avg. 12%
Payout Ratio 0%

UAL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the UAL stock intrinsic value calculation we used $36556 million for the last fiscal year's total revenue generated by United Continental Holdings. The default revenue input number comes from 2016 income statement of United Continental Holdings. 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 UAL stock valuation model: a) initial revenue growth rate of 2.7% 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 UAL is calculated based on our internal credit rating of United Continental Holdings, 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 United Continental Holdings.
    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 UAL stock the variable cost ratio is equal to 36.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $19273 million in the base year in the intrinsic value calculation for UAL 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 5% for United Continental Holdings.

Corporate tax rate of 27% is the nominal tax rate for United Continental Holdings. 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 UAL 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 UAL are equal to 72%.

Life of production assets of 15.6 years is the average useful life of capital assets used in United Continental Holdings 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 UAL is equal to -23.1%. 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 - $8659 million for United Continental Holdings - 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 309.299 million for United Continental Holdings 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 United Continental Holdings at the current share price and the inputted number of shares is $25.1 billion.


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Stock chart of UAL Financial statements of UAL Annual reports of UAL
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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