Intrinsic value of Universal Insurance Holdings - UVE

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$22.90

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$22.90

 
Intrinsic value

$110.58

 
Up/down potential

+383%

 
Rating

str. buy

 
Value-price divergence* premium content

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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
  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
  0
  757
  832
  911
  993
  1,078
  1,167
  1,260
  1,356
  1,456
  1,560
  1,668
  1,780
  1,897
  2,018
  2,144
  2,276
  2,413
  2,555
  2,704
  2,860
  3,022
  3,191
  3,368
  3,552
  3,746
  3,948
  4,159
  4,380
  4,612
  4,855
Variable operating expenses, $m
 
  515
  566
  619
  675
  733
  794
  857
  922
  990
  1,061
  1,134
  1,210
  1,290
  1,372
  1,458
  1,547
  1,641
  1,738
  1,839
  1,944
  2,055
  2,170
  2,290
  2,416
  2,547
  2,684
  2,828
  2,979
  3,136
  3,301
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
  515
  566
  619
  675
  733
  794
  857
  922
  990
  1,061
  1,134
  1,210
  1,290
  1,372
  1,458
  1,547
  1,641
  1,738
  1,839
  1,944
  2,055
  2,170
  2,290
  2,416
  2,547
  2,684
  2,828
  2,979
  3,136
  3,301
Operating income, $m
  163
  242
  266
  291
  318
  345
  374
  403
  434
  466
  499
  534
  570
  607
  646
  686
  728
  772
  818
  865
  915
  967
  1,021
  1,078
  1,137
  1,199
  1,263
  1,331
  1,402
  1,476
  1,553
EBITDA, $m
  166
  246
  270
  295
  322
  350
  379
  409
  440
  472
  506
  541
  577
  615
  655
  696
  738
  783
  829
  877
  928
  980
  1,035
  1,092
  1,152
  1,215
  1,281
  1,349
  1,421
  1,496
  1,575
Interest expense (income), $m
  0
  1
  3
  6
  8
  11
  14
  18
  21
  24
  28
  31
  35
  39
  43
  47
  52
  57
  61
  66
  72
  77
  83
  89
  95
  102
  108
  115
  123
  131
  139
Earnings before tax, $m
  163
  242
  263
  286
  309
  334
  359
  386
  413
  442
  471
  502
  534
  568
  603
  639
  676
  715
  756
  799
  843
  890
  938
  989
  1,042
  1,097
  1,155
  1,216
  1,279
  1,345
  1,415
Tax expense, $m
  64
  65
  71
  77
  84
  90
  97
  104
  112
  119
  127
  136
  144
  153
  163
  172
  183
  193
  204
  216
  228
  240
  253
  267
  281
  296
  312
  328
  345
  363
  382
Net income, $m
  99
  176
  192
  209
  226
  244
  262
  282
  302
  322
  344
  367
  390
  414
  440
  466
  494
  522
  552
  583
  616
  650
  685
  722
  761
  801
  843
  887
  934
  982
  1,033

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
  1,172
  1,288
  1,410
  1,537
  1,669
  1,807
  1,950
  2,099
  2,254
  2,415
  2,582
  2,755
  2,936
  3,124
  3,319
  3,523
  3,735
  3,956
  4,186
  4,426
  4,677
  4,939
  5,213
  5,499
  5,798
  6,111
  6,438
  6,781
  7,139
  7,515
Adjusted assets (=assets-cash), $m
  1,060
  1,172
  1,288
  1,410
  1,537
  1,669
  1,807
  1,950
  2,099
  2,254
  2,415
  2,582
  2,755
  2,936
  3,124
  3,319
  3,523
  3,735
  3,956
  4,186
  4,426
  4,677
  4,939
  5,213
  5,499
  5,798
  6,111
  6,438
  6,781
  7,139
  7,515
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
  33
  36
  39
  43
  46
  50
  54
  58
  63
  67
  72
  77
  82
  87
  92
  98
  104
  110
  116
  123
  130
  137
  145
  153
  161
  170
  179
  188
  198
  209
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
  88
  163
  243
  325
  411
  501
  594
  690
  791
  895
  1,004
  1,117
  1,234
  1,356
  1,483
  1,616
  1,754
  1,897
  2,047
  2,203
  2,366
  2,537
  2,715
  2,900
  3,095
  3,298
  3,511
  3,734
  3,967
  4,211
Total liabilities, $m
  689
  762
  837
  917
  999
  1,085
  1,175
  1,268
  1,364
  1,465
  1,569
  1,678
  1,791
  1,908
  2,030
  2,157
  2,290
  2,428
  2,571
  2,721
  2,877
  3,040
  3,211
  3,389
  3,574
  3,769
  3,972
  4,185
  4,408
  4,641
  4,885
Total equity, $m
  371
  410
  451
  494
  538
  584
  633
  683
  735
  789
  845
  904
  964
  1,028
  1,093
  1,162
  1,233
  1,307
  1,384
  1,465
  1,549
  1,637
  1,729
  1,825
  1,925
  2,029
  2,139
  2,253
  2,373
  2,499
  2,630
Total liabilities and equity, $m
  1,060
  1,172
  1,288
  1,411
  1,537
  1,669
  1,808
  1,951
  2,099
  2,254
  2,414
  2,582
  2,755
  2,936
  3,123
  3,319
  3,523
  3,735
  3,955
  4,186
  4,426
  4,677
  4,940
  5,214
  5,499
  5,798
  6,111
  6,438
  6,781
  7,140
  7,515
Debt-to-equity ratio
  0.040
  0.210
  0.360
  0.490
  0.600
  0.700
  0.790
  0.870
  0.940
  1.000
  1.060
  1.110
  1.160
  1.200
  1.240
  1.280
  1.310
  1.340
  1.370
  1.400
  1.420
  1.450
  1.470
  1.490
  1.510
  1.530
  1.540
  1.560
  1.570
  1.590
  1.600
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
  176
  192
  209
  226
  244
  262
  282
  302
  322
  344
  367
  390
  414
  440
  466
  494
  522
  552
  583
  616
  650
  685
  722
  761
  801
  843
  887
  934
  982
  1,033
Depreciation, amort., depletion, $m
  3
  3
  4
  4
  4
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
Funds from operations, $m
  120
  180
  196
  213
  230
  248
  267
  287
  308
  329
  351
  374
  398
  423
  449
  476
  504
  533
  563
  595
  628
  663
  699
  737
  776
  817
  860
  906
  953
  1,002
  1,054
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
  182
  196
  213
  230
  248
  267
  287
  308
  329
  351
  374
  398
  423
  449
  476
  504
  533
  563
  595
  628
  663
  699
  737
  776
  817
  860
  906
  953
  1,002
  1,054
Maintenance CAPEX, $m
  0
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
New CAPEX, $m
  -8
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -10
Cash from investing activities, $m
  -174
  -6
  -6
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -12
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -17
  -19
  -20
  -20
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
Free cash flow, $m
  -53
  176
  189
  206
  223
  240
  259
  278
  298
  319
  340
  363
  386
  410
  435
  461
  489
  517
  547
  577
  610
  643
  678
  715
  753
  793
  835
  879
  925
  973
  1,023
Issuance/(repayment) of debt, $m
  -2
  73
  76
  79
  83
  86
  90
  93
  97
  101
  104
  109
  113
  117
  122
  127
  132
  138
  144
  150
  156
  163
  170
  178
  186
  194
  203
  213
  223
  233
  244
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
  73
  76
  79
  83
  86
  90
  93
  97
  101
  104
  109
  113
  117
  122
  127
  132
  138
  144
  150
  156
  163
  170
  178
  186
  194
  203
  213
  223
  233
  244
Total cash flow (excl. dividends), $m
  -67
  249
  265
  285
  305
  326
  348
  371
  395
  419
  445
  471
  499
  527
  557
  588
  621
  655
  690
  727
  766
  806
  849
  893
  939
  988
  1,039
  1,092
  1,148
  1,206
  1,267
Retained Cash Flow (-), $m
  -78
  -39
  -41
  -43
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -58
  -61
  -63
  -66
  -68
  -71
  -74
  -77
  -81
  -84
  -88
  -92
  -96
  -100
  -105
  -109
  -115
  -120
  -125
  -131
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
 
  210
  224
  242
  261
  280
  300
  321
  343
  365
  388
  413
  438
  464
  491
  520
  550
  581
  613
  647
  682
  719
  757
  797
  839
  883
  929
  977
  1,028
  1,081
  1,136
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
 
  201
  205
  211
  215
  217
  218
  217
  214
  210
  204
  196
  187
  176
  165
  153
  140
  126
  113
  100
  87
  74
  63
  52
  43
  34
  27
  21
  16
  12
  9
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 8.1
Price to Sales 1.2
Price to Book 2.2
Price to Tangible Book
Price to Cash Flow 6.6
Price to Free Cash Flow 7.1
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 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 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 9.8 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 35.462 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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