Intrinsic value of Universal Insurance Holdings - UVE

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  Intrinsic Value

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  Value-price divergence*

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

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

We calculate the intrinsic value of UVE 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 0.8

 

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, %
  25.23
  6.70
  6.53
  6.38
  6.24
  6.12
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.32
  5.28
  5.26
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
  5.11
  5.10
  5.09
  5.08
Revenue, $m
  0
  731
  779
  828
  880
  934
  990
  1,048
  1,109
  1,173
  1,239
  1,308
  1,381
  1,457
  1,536
  1,618
  1,705
  1,796
  1,890
  1,990
  2,094
  2,203
  2,317
  2,437
  2,562
  2,694
  2,832
  2,977
  3,128
  3,288
  3,455
Variable operating expenses, $m
 
  497
  529
  563
  598
  635
  673
  713
  754
  797
  843
  890
  939
  990
  1,044
  1,101
  1,159
  1,221
  1,286
  1,353
  1,424
  1,498
  1,576
  1,657
  1,742
  1,832
  1,926
  2,024
  2,127
  2,236
  2,349
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
  522
  497
  529
  563
  598
  635
  673
  713
  754
  797
  843
  890
  939
  990
  1,044
  1,101
  1,159
  1,221
  1,286
  1,353
  1,424
  1,498
  1,576
  1,657
  1,742
  1,832
  1,926
  2,024
  2,127
  2,236
  2,349
Operating income, $m
  163
  234
  249
  265
  282
  299
  317
  335
  355
  375
  397
  419
  442
  466
  491
  518
  546
  575
  605
  637
  670
  705
  741
  780
  820
  862
  906
  953
  1,001
  1,052
  1,105
EBITDA, $m
  166
  237
  253
  269
  285
  303
  321
  340
  360
  380
  402
  424
  448
  472
  498
  525
  553
  582
  613
  645
  679
  714
  751
  790
  831
  874
  918
  965
  1,015
  1,066
  1,120
Interest expense (income), $m
  0
  1
  2
  4
  6
  7
  9
  11
  13
  15
  18
  20
  22
  25
  28
  30
  33
  36
  40
  43
  46
  50
  54
  58
  62
  67
  71
  76
  81
  87
  92
Earnings before tax, $m
  163
  233
  247
  261
  276
  291
  307
  324
  342
  360
  379
  399
  419
  441
  464
  487
  512
  538
  565
  594
  624
  655
  687
  722
  758
  795
  835
  876
  920
  965
  1,013
Tax expense, $m
  64
  63
  67
  71
  75
  79
  83
  88
  92
  97
  102
  108
  113
  119
  125
  132
  138
  145
  153
  160
  168
  177
  186
  195
  205
  215
  225
  237
  248
  261
  274
Net income, $m
  99
  170
  180
  191
  201
  213
  224
  237
  249
  263
  277
  291
  306
  322
  339
  356
  374
  393
  413
  433
  455
  478
  502
  527
  553
  581
  610
  640
  672
  705
  740

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
Total assets, $m
  1,060
  1,131
  1,205
  1,282
  1,362
  1,445
  1,532
  1,623
  1,717
  1,815
  1,918
  2,025
  2,138
  2,255
  2,377
  2,505
  2,639
  2,780
  2,926
  3,080
  3,241
  3,410
  3,587
  3,772
  3,967
  4,170
  4,384
  4,608
  4,843
  5,089
  5,348
Adjusted assets (=assets-cash), $m
  1,060
  1,131
  1,205
  1,282
  1,362
  1,445
  1,532
  1,623
  1,717
  1,815
  1,918
  2,025
  2,138
  2,255
  2,377
  2,505
  2,639
  2,780
  2,926
  3,080
  3,241
  3,410
  3,587
  3,772
  3,967
  4,170
  4,384
  4,608
  4,843
  5,089
  5,348
Revenue / Adjusted assets
  0.000
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
Average production assets, $m
  30
  31
  33
  36
  38
  40
  43
  45
  48
  50
  53
  56
  59
  63
  66
  70
  73
  77
  81
  86
  90
  95
  100
  105
  110
  116
  122
  128
  135
  141
  149
Working capital, $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
Total debt, $m
  15
  61
  109
  159
  211
  266
  322
  381
  442
  506
  573
  643
  715
  792
  871
  954
  1,042
  1,133
  1,228
  1,328
  1,433
  1,543
  1,657
  1,778
  1,904
  2,037
  2,175
  2,321
  2,474
  2,634
  2,802
Total liabilities, $m
  689
  735
  783
  833
  885
  940
  996
  1,055
  1,116
  1,180
  1,247
  1,317
  1,389
  1,466
  1,545
  1,628
  1,716
  1,807
  1,902
  2,002
  2,107
  2,217
  2,331
  2,452
  2,578
  2,711
  2,849
  2,995
  3,148
  3,308
  3,476
Total equity, $m
  371
  396
  422
  449
  477
  506
  536
  568
  601
  635
  671
  709
  748
  789
  832
  877
  924
  973
  1,024
  1,078
  1,134
  1,194
  1,255
  1,320
  1,388
  1,460
  1,534
  1,613
  1,695
  1,781
  1,872
Total liabilities and equity, $m
  1,060
  1,131
  1,205
  1,282
  1,362
  1,446
  1,532
  1,623
  1,717
  1,815
  1,918
  2,026
  2,137
  2,255
  2,377
  2,505
  2,640
  2,780
  2,926
  3,080
  3,241
  3,411
  3,586
  3,772
  3,966
  4,171
  4,383
  4,608
  4,843
  5,089
  5,348
Debt-to-equity ratio
  0.040
  0.160
  0.260
  0.360
  0.440
  0.520
  0.600
  0.670
  0.740
  0.800
  0.850
  0.910
  0.960
  1.000
  1.050
  1.090
  1.130
  1.160
  1.200
  1.230
  1.260
  1.290
  1.320
  1.350
  1.370
  1.400
  1.420
  1.440
  1.460
  1.480
  1.500
Adjusted equity ratio
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  99
  170
  180
  191
  201
  213
  224
  237
  249
  263
  277
  291
  306
  322
  339
  356
  374
  393
  413
  433
  455
  478
  502
  527
  553
  581
  610
  640
  672
  705
  740
Depreciation, amort., depletion, $m
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  12
  12
  13
  13
  14
  15
Funds from operations, $m
  120
  173
  184
  194
  205
  217
  229
  241
  254
  268
  282
  297
  312
  328
  345
  363
  381
  401
  421
  442
  464
  487
  512
  537
  564
  592
  622
  653
  685
  719
  755
Change in working capital, $m
  -1
  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 operations, $m
  121
  173
  184
  194
  205
  217
  229
  241
  254
  268
  282
  297
  312
  328
  345
  363
  381
  401
  421
  442
  464
  487
  512
  537
  564
  592
  622
  653
  685
  719
  755
Maintenance CAPEX, $m
  0
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -13
  -14
New CAPEX, $m
  -8
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
Cash from investing activities, $m
  -174
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -8
  -8
  -8
  -8
  -9
  -9
  -9
  -11
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -15
  -17
  -18
  -18
  -20
  -20
  -21
Free cash flow, $m
  -53
  169
  178
  189
  199
  211
  222
  234
  247
  260
  274
  288
  303
  319
  335
  353
  371
  389
  409
  430
  451
  474
  497
  522
  548
  576
  604
  634
  666
  699
  733
Issuance/(repayment) of debt, $m
  -2
  46
  48
  50
  52
  54
  56
  59
  61
  64
  67
  70
  73
  76
  80
  83
  87
  91
  95
  100
  105
  110
  115
  120
  126
  132
  139
  146
  153
  160
  168
Issuance/(repurchase) of shares, $m
  -5
  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  
  -14
  46
  48
  50
  52
  54
  56
  59
  61
  64
  67
  70
  73
  76
  80
  83
  87
  91
  95
  100
  105
  110
  115
  120
  126
  132
  139
  146
  153
  160
  168
Total cash flow (excl. dividends), $m
  -67
  215
  226
  239
  251
  265
  279
  293
  308
  324
  341
  358
  376
  395
  415
  436
  458
  481
  504
  530
  556
  583
  612
  643
  675
  708
  743
  780
  818
  859
  901
Retained Cash Flow (-), $m
  -78
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -38
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -54
  -56
  -59
  -62
  -65
  -68
  -71
  -75
  -78
  -82
  -86
  -90
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
 
  190
  201
  212
  223
  236
  248
  262
  275
  290
  305
  321
  337
  354
  372
  391
  411
  431
  453
  476
  499
  524
  551
  578
  607
  637
  668
  701
  736
  773
  811
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
 
  182
  184
  184
  184
  183
  180
  177
  172
  166
  160
  152
  144
  135
  125
  115
  104
  94
  83
  73
  63
  54
  46
  38
  31
  25
  19
  15
  11
  8
  6
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

Universal Insurance Holdings, Inc., through its subsidiaries, provides various property and casualty insurance products. The company primarily underwrites homeownersÂ’ insurance products; and offers reinsurance intermediary services. It offers its products through a network of independent agents in Florida, Delaware, Georgia, Hawaii, Indiana, Maryland, Massachusetts, Minnesota, North Carolina, Pennsylvania, and South Carolina, the United States. The company was formerly known as Universal Heights, Inc. and changed its name to Universal Insurance Holdings, Inc. in January 2001. Universal Insurance Holdings, Inc. was founded in 1990 and is based in Fort Lauderdale, Florida.

FINANCIAL RATIOS  of  Universal Insurance Holdings (UVE)

Valuation Ratios
P/E Ratio 8.5
Price to Sales 1.2
Price to Book 2.3
Price to Tangible Book
Price to Cash Flow 6.9
Price to Free Cash Flow 7.4
Growth Rates
Sales Growth Rate 25.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -33.3%
Cap. Spend. - 3 Yr. Gr. Rate 51.6%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 4%
Total Debt to Equity 4%
Interest Coverage 0
Management Effectiveness
Return On Assets 9.6%
Ret/ On Assets - 3 Yr. Avg. 9.6%
Return On Total Capital 28.2%
Ret/ On T. Cap. - 3 Yr. Avg. 31.8%
Return On Equity 29.8%
Return On Equity - 3 Yr. Avg. 36.1%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 24.2%
EBITDA Margin - 3 Yr. Avg. 30.7%
Operating Margin 23.8%
Oper. Margin - 3 Yr. Avg. 30.1%
Pre-Tax Margin 23.8%
Pre-Tax Margin - 3 Yr. Avg. 30.2%
Net Profit Margin 14.5%
Net Profit Margin - 3 Yr. Avg. 17.9%
Effective Tax Rate 39.3%
Eff/ Tax Rate - 3 Yr. Avg. 40.6%
Payout Ratio 24.2%

UVE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the UVE stock intrinsic value calculation we used $685 million for the last fiscal year's total revenue generated by Universal Insurance Holdings. The default revenue input number comes from 2016 income statement of Universal Insurance 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 UVE stock valuation model: a) initial revenue growth rate of 6.7% 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 UVE is calculated based on our internal credit rating of Universal Insurance 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 Universal Insurance 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 UVE stock the variable cost ratio is equal to 68%.

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 UVE 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 Universal Insurance Holdings.

Corporate tax rate of 27% is the nominal tax rate for Universal Insurance 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 UVE 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 UVE are equal to 4.3%.

Life of production assets of 10 years is the average useful life of capital assets used in Universal Insurance 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 UVE is equal to 0%. 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 - $371 million for Universal Insurance 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 35.104 million for Universal Insurance 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 Universal Insurance Holdings at the current share price and the inputted number of shares is $0.8 billion.


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COMPANY NEWS

▶ Universal Insurance posts 1Q profit   [Apr-25-17 04:52PM  Associated Press]
▶ Universal Insurance posts 4Q profit   [Feb-21-17 06:14PM  Associated Press]
▶ Is Eros International plc (EROS) Worthy of Your Portfolio?   [Dec-20-16 03:10PM  at Insider Monkey]
Stock chart of UVE Financial statements of UVE Annual reports of UVE
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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