Intrinsic value of WGL Holdings - WGL

Previous Close

$84.57

  Intrinsic Value

$39.41

stock screener

  Rating & Target

str. sell

-53%

Previous close

$84.57

 
Intrinsic value

$39.41

 
Up/down potential

-53%

 
Rating

str. sell

We calculate the intrinsic value of WGL 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  0.21
  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
  1,143
  2,402
  2,457
  2,521
  2,591
  2,670
  2,756
  2,850
  2,952
  3,061
  3,179
  3,304
  3,438
  3,581
  3,733
  3,894
  4,065
  4,245
  4,436
  4,638
  4,851
  5,076
  5,313
  5,563
  5,827
  6,104
  6,396
  6,703
  7,027
  7,367
  7,725
Variable operating expenses, $m
 
  2,095
  2,143
  2,198
  2,260
  2,328
  2,403
  2,485
  2,574
  2,669
  2,772
  2,881
  2,998
  3,123
  3,255
  3,396
  3,544
  3,702
  3,868
  4,044
  4,230
  4,426
  4,633
  4,851
  5,081
  5,323
  5,577
  5,845
  6,127
  6,424
  6,736
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
  2,014
  2,095
  2,143
  2,198
  2,260
  2,328
  2,403
  2,485
  2,574
  2,669
  2,772
  2,881
  2,998
  3,123
  3,255
  3,396
  3,544
  3,702
  3,868
  4,044
  4,230
  4,426
  4,633
  4,851
  5,081
  5,323
  5,577
  5,845
  6,127
  6,424
  6,736
Operating income, $m
  341
  307
  315
  323
  332
  342
  353
  365
  378
  392
  407
  423
  440
  458
  478
  498
  520
  543
  568
  594
  621
  650
  680
  712
  746
  781
  819
  858
  899
  943
  989
EBITDA, $m
  495
  307
  315
  323
  332
  342
  353
  365
  378
  392
  407
  423
  440
  458
  478
  498
  520
  543
  568
  594
  621
  650
  680
  712
  746
  781
  819
  858
  899
  943
  989
Interest expense (income), $m
  66
  78
  82
  86
  91
  96
  102
  108
  116
  123
  132
  140
  150
  160
  171
  182
  195
  207
  221
  236
  251
  267
  284
  302
  321
  341
  362
  384
  407
  431
  457
Earnings before tax, $m
  289
  229
  233
  237
  241
  246
  251
  256
  262
  269
  275
  283
  290
  298
  307
  316
  326
  336
  347
  358
  370
  383
  396
  410
  425
  441
  457
  474
  493
  512
  532
Tax expense, $m
  111
  62
  63
  64
  65
  66
  68
  69
  71
  73
  74
  76
  78
  81
  83
  85
  88
  91
  94
  97
  100
  103
  107
  111
  115
  119
  123
  128
  133
  138
  144
Net income, $m
  194
  167
  170
  173
  176
  179
  183
  187
  191
  196
  201
  206
  212
  218
  224
  231
  238
  245
  253
  261
  270
  279
  289
  300
  310
  322
  334
  346
  360
  373
  388

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  9
  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
  6,626
  6,747
  6,903
  7,080
  7,279
  7,500
  7,742
  8,006
  8,291
  8,599
  8,929
  9,282
  9,658
  10,059
  10,486
  10,938
  11,417
  11,925
  12,461
  13,028
  13,627
  14,259
  14,925
  15,627
  16,367
  17,146
  17,966
  18,830
  19,738
  20,694
  21,700
Adjusted assets (=assets-cash), $m
  6,617
  6,747
  6,903
  7,080
  7,279
  7,500
  7,742
  8,006
  8,291
  8,599
  8,929
  9,282
  9,658
  10,059
  10,486
  10,938
  11,417
  11,925
  12,461
  13,028
  13,627
  14,259
  14,925
  15,627
  16,367
  17,146
  17,966
  18,830
  19,738
  20,694
  21,700
Revenue / Adjusted assets
  0.173
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
  0.356
Average production assets, $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
Working capital, $m
  -503
  305
  312
  320
  329
  339
  350
  362
  375
  389
  404
  420
  437
  455
  474
  495
  516
  539
  563
  589
  616
  645
  675
  707
  740
  775
  812
  851
  892
  936
  981
Total debt, $m
  2,241
  2,335
  2,454
  2,591
  2,744
  2,913
  3,100
  3,302
  3,522
  3,758
  4,012
  4,284
  4,573
  4,882
  5,209
  5,557
  5,926
  6,316
  6,729
  7,165
  7,625
  8,111
  8,623
  9,163
  9,732
  10,331
  10,962
  11,626
  12,325
  13,060
  13,833
Total liabilities, $m
  5,095
  5,189
  5,308
  5,445
  5,598
  5,767
  5,954
  6,156
  6,376
  6,612
  6,866
  7,138
  7,427
  7,736
  8,063
  8,411
  8,780
  9,170
  9,583
  10,019
  10,479
  10,965
  11,477
  12,017
  12,586
  13,185
  13,816
  14,480
  15,179
  15,914
  16,687
Total equity, $m
  1,531
  1,559
  1,595
  1,635
  1,682
  1,732
  1,788
  1,849
  1,915
  1,986
  2,063
  2,144
  2,231
  2,324
  2,422
  2,527
  2,637
  2,755
  2,879
  3,010
  3,148
  3,294
  3,448
  3,610
  3,781
  3,961
  4,150
  4,350
  4,560
  4,780
  5,013
Total liabilities and equity, $m
  6,626
  6,748
  6,903
  7,080
  7,280
  7,499
  7,742
  8,005
  8,291
  8,598
  8,929
  9,282
  9,658
  10,060
  10,485
  10,938
  11,417
  11,925
  12,462
  13,029
  13,627
  14,259
  14,925
  15,627
  16,367
  17,146
  17,966
  18,830
  19,739
  20,694
  21,700
Debt-to-equity ratio
  1.464
  1.500
  1.540
  1.580
  1.630
  1.680
  1.730
  1.790
  1.840
  1.890
  1.950
  2.000
  2.050
  2.100
  2.150
  2.200
  2.250
  2.290
  2.340
  2.380
  2.420
  2.460
  2.500
  2.540
  2.570
  2.610
  2.640
  2.670
  2.700
  2.730
  2.760
Adjusted equity ratio
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231
  0.231

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  194
  167
  170
  173
  176
  179
  183
  187
  191
  196
  201
  206
  212
  218
  224
  231
  238
  245
  253
  261
  270
  279
  289
  300
  310
  322
  334
  346
  360
  373
  388
Depreciation, amort., depletion, $m
  154
  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
  65
  167
  170
  173
  176
  179
  183
  187
  191
  196
  201
  206
  212
  218
  224
  231
  238
  245
  253
  261
  270
  279
  289
  300
  310
  322
  334
  346
  360
  373
  388
Change in working capital, $m
  -166
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  22
  23
  24
  26
  27
  29
  30
  32
  33
  35
  37
  39
  41
  43
  45
Cash from operations, $m
  231
  161
  163
  165
  167
  169
  172
  175
  179
  182
  186
  190
  195
  200
  205
  210
  216
  222
  229
  236
  243
  251
  259
  268
  277
  286
  297
  307
  318
  330
  343
Maintenance CAPEX, $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
New CAPEX, $m
  -517
  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 investing activities, $m
  -651
  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
Free cash flow, $m
  -420
  161
  163
  165
  167
  169
  172
  175
  179
  182
  186
  190
  195
  200
  205
  210
  216
  222
  229
  236
  243
  251
  259
  268
  277
  286
  297
  307
  318
  330
  343
Issuance/(repayment) of debt, $m
  482
  103
  119
  136
  153
  170
  186
  203
  219
  236
  254
  271
  290
  308
  328
  348
  369
  390
  413
  436
  460
  486
  512
  540
  569
  599
  631
  664
  699
  735
  773
Issuance/(repurchase) of shares, $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
Cash from financing (excl. dividends), $m  
  525
  103
  119
  136
  153
  170
  186
  203
  219
  236
  254
  271
  290
  308
  328
  348
  369
  390
  413
  436
  460
  486
  512
  540
  569
  599
  631
  664
  699
  735
  773
Total cash flow (excl. dividends), $m
  105
  264
  282
  301
  320
  339
  358
  378
  398
  419
  440
  462
  484
  508
  533
  558
  585
  613
  642
  672
  704
  737
  771
  808
  846
  886
  927
  971
  1,017
  1,065
  1,116
Retained Cash Flow (-), $m
  -127
  -28
  -36
  -41
  -46
  -51
  -56
  -61
  -66
  -71
  -76
  -82
  -87
  -93
  -98
  -104
  -111
  -117
  -124
  -131
  -138
  -146
  -154
  -162
  -171
  -180
  -190
  -199
  -210
  -221
  -232
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
 
  237
  246
  260
  274
  288
  302
  317
  332
  348
  364
  380
  397
  415
  434
  454
  474
  495
  518
  541
  565
  591
  617
  646
  675
  706
  738
  772
  807
  845
  884
Discount rate, %
 
  9.00
  9.45
  9.92
  10.42
  10.94
  11.49
  12.06
  12.66
  13.30
  13.96
  14.66
  15.39
  16.16
  16.97
  17.82
  18.71
  19.65
  20.63
  21.66
  22.74
  23.88
  25.07
  26.33
  27.64
  29.03
  30.48
  32.00
  33.60
  35.28
  37.05
PV of cash for distribution, $m
 
  217
  206
  196
  184
  171
  157
  143
  128
  113
  98
  84
  71
  59
  48
  39
  30
  23
  18
  13
  9
  7
  4
  3
  2
  1
  1
  0
  0
  0
  0
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

WGL Holdings, Inc. (WGL) is a holding company. The Company operates through four segments. The Regulated Utility segment consists of Washington Gas Light Company, which provides regulated gas distribution services to end use customers and natural gas transportation services to an unaffiliated natural gas distribution company and Hampshire Gas Company, which provides regulated interstate natural gas storage services. The Retail Energy-Marketing segment consists of the operations of WGL Energy Services, Inc., which sells natural gas and electricity directly to retail customers. The Commercial Energy Systems segment consists of the operations of WGL Energy Systems, Inc., WGSW, Inc. and the results of operations of affiliate-owned commercial distributed energy projects. The Midstream Energy Services segment consists of the operations of WGL Midstream, Inc., which engages in acquiring, investing in, managing and optimizing natural gas storage and transportation assets.

FINANCIAL RATIOS  of  WGL Holdings (WGL)

Valuation Ratios
P/E Ratio 22.3
Price to Sales 1.8
Price to Book 2.8
Price to Tangible Book
Price to Cash Flow 18.8
Price to Free Cash Flow -15.1
Growth Rates
Sales Growth Rate 0.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -2.5%
Cap. Spend. - 3 Yr. Gr. Rate 5.5%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 93.5%
Total Debt to Equity 146.4%
Interest Coverage 5
Management Effectiveness
Return On Assets 3.7%
Ret/ On Assets - 3 Yr. Avg. 3.5%
Return On Total Capital 5.6%
Ret/ On T. Cap. - 3 Yr. Avg. 5.6%
Return On Equity 13.2%
Return On Equity - 3 Yr. Avg. 12.1%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 21.6%
EBITDA Margin - 3 Yr. Avg. 18.4%
Operating Margin 14.5%
Oper. Margin - 3 Yr. Avg. 12.4%
Pre-Tax Margin 12.3%
Pre-Tax Margin - 3 Yr. Avg. 10.6%
Net Profit Margin 8.2%
Net Profit Margin - 3 Yr. Avg. 6.8%
Effective Tax Rate 38.4%
Eff/ Tax Rate - 3 Yr. Avg. 37.9%
Payout Ratio 52.6%

WGL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the WGL stock intrinsic value calculation we used $2355 million for the last fiscal year's total revenue generated by WGL Holdings. The default revenue input number comes from 2017 income statement of WGL 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 WGL 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 9%, whose default value for WGL is calculated based on our internal credit rating of WGL 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 WGL 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 WGL stock the variable cost ratio is equal to 87.2%.

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 WGL 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 WGL Holdings.

Corporate tax rate of 27% is the nominal tax rate for WGL 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 WGL 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 WGL are equal to 0%.

Life of production assets of 0 years is the average useful life of capital assets used in WGL 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 WGL is equal to 12.7%. 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 - $1531 million for WGL 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 51.491 million for WGL 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 WGL Holdings at the current share price and the inputted number of shares is $4.4 billion.

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COMPANY NEWS

▶ WGL beats 4Q profit forecasts   [Nov-17-17 06:23PM  Associated Press]
▶ WGL Energy Earns Third Green Power Leadership Award   [Nov-01-17 04:30PM  Business Wire]
▶ Better Buy: Ferrellgas Partners, L.P. vs. WGL Holdings   [Oct-25-17 09:34PM  Motley Fool]
▶ Is WGL Holdings Inc (WGL) A Buy At Its Current Price?   [Oct-03-17 02:16PM  Simply Wall St.]
▶ WGL beats 3Q profit forecasts   [Aug-03-17 05:06AM  Associated Press]
▶ ETFs with exposure to WGL Holdings, Inc. : July 5, 2017   [Jul-05-17 01:13PM  Capital Cube]
▶ ETFs with exposure to WGL Holdings, Inc. : June 22, 2017   [Jun-22-17 04:39PM  Capital Cube]
▶ WGL misses 2Q profit forecasts   [May-05-17 05:03AM  Associated Press]
▶ WGL Releases Corporate Sustainability Targets for 2025   [May-03-17 08:30AM  Business Wire]
▶ The Wharf just landed a major utility as an anchor tenant   [Apr-20-17 11:45AM  American City Business Journals]
▶ WGL misses 1Q profit forecasts   [05:01AM  Associated Press]
▶ [$$] Canada's AltaGas to Buy D.C. Utility WGL   [Jan-25-17 09:35PM  at The Wall Street Journal]
▶ Washington Gas parent to be acquired in $6.4B deal   [06:21PM  at bizjournals.com]
Financial statements of WGL
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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