Intrinsic value of Albemarle Corporation - ALB

Previous Close

$70.25

  Intrinsic Value

$94.44

stock screener

  Rating & Target

buy

+34%

Previous close

$70.25

 
Intrinsic value

$94.44

 
Up/down potential

+34%

 
Rating

buy

We calculate the intrinsic value of ALB 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 0001), $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 7.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  7.50
  7.25
  7.02
  6.82
  6.64
  6.48
  6.33
  6.20
  6.08
  5.97
  5.87
  5.78
  5.71
  5.64
  5.57
  5.51
  5.46
  5.42
  5.38
  5.34
  5.30
  5.27
  5.25
  5.22
  5.20
  5.18
  5.16
  5.15
  5.13
  5.12
Revenue, $m
  3,628
  3,891
  4,165
  4,449
  4,744
  5,051
  5,371
  5,704
  6,050
  6,411
  6,788
  7,181
  7,590
  8,018
  8,465
  8,932
  9,419
  9,930
  10,463
  11,022
  11,607
  12,219
  12,860
  13,531
  14,235
  14,972
  15,745
  16,555
  17,404
  18,295
Variable operating expenses, $m
  2,064
  2,200
  2,341
  2,487
  2,639
  2,797
  2,962
  3,133
  3,312
  3,498
  3,497
  3,699
  3,910
  4,130
  4,360
  4,601
  4,852
  5,115
  5,390
  5,678
  5,979
  6,294
  6,624
  6,970
  7,333
  7,713
  8,111
  8,528
  8,966
  9,424
Fixed operating expenses, $m
  774
  791
  808
  826
  844
  863
  882
  901
  921
  941
  962
  983
  1,005
  1,027
  1,049
  1,072
  1,096
  1,120
  1,145
  1,170
  1,196
  1,222
  1,249
  1,276
  1,304
  1,333
  1,362
  1,392
  1,423
  1,454
Total operating expenses, $m
  2,838
  2,991
  3,149
  3,313
  3,483
  3,660
  3,844
  4,034
  4,233
  4,439
  4,459
  4,682
  4,915
  5,157
  5,409
  5,673
  5,948
  6,235
  6,535
  6,848
  7,175
  7,516
  7,873
  8,246
  8,637
  9,046
  9,473
  9,920
  10,389
  10,878
Operating income, $m
  790
  901
  1,016
  1,136
  1,261
  1,391
  1,527
  1,669
  1,818
  1,972
  2,329
  2,499
  2,676
  2,861
  3,055
  3,258
  3,471
  3,695
  3,929
  4,174
  4,432
  4,703
  4,987
  5,285
  5,598
  5,926
  6,272
  6,635
  7,016
  7,416
EBITDA, $m
  1,156
  1,279
  1,407
  1,540
  1,679
  1,824
  1,975
  2,132
  2,297
  2,468
  2,648
  2,836
  3,032
  3,237
  3,452
  3,677
  3,913
  4,161
  4,420
  4,692
  4,977
  5,276
  5,590
  5,920
  6,266
  6,629
  7,011
  7,411
  7,832
  8,275
Interest expense (income), $m
  97
  92
  108
  125
  143
  161
  180
  199
  220
  241
  263
  286
  310
  335
  362
  389
  418
  447
  479
  511
  545
  581
  619
  658
  699
  742
  787
  834
  883
  935
  989
Earnings before tax, $m
  698
  792
  891
  993
  1,100
  1,212
  1,328
  1,450
  1,576
  1,709
  2,043
  2,188
  2,340
  2,499
  2,666
  2,841
  3,024
  3,216
  3,417
  3,629
  3,851
  4,084
  4,329
  4,586
  4,856
  5,140
  5,438
  5,751
  6,081
  6,427
Tax expense, $m
  188
  214
  241
  268
  297
  327
  359
  391
  426
  461
  552
  591
  632
  675
  720
  767
  816
  868
  923
  980
  1,040
  1,103
  1,169
  1,238
  1,311
  1,388
  1,468
  1,553
  1,642
  1,735
Net income, $m
  510
  578
  650
  725
  803
  885
  969
  1,058
  1,151
  1,248
  1,492
  1,597
  1,708
  1,825
  1,946
  2,074
  2,207
  2,348
  2,495
  2,649
  2,811
  2,981
  3,160
  3,348
  3,545
  3,752
  3,970
  4,199
  4,439
  4,692

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
Total assets, $m
  8,153
  8,744
  9,358
  9,997
  10,661
  11,351
  12,070
  12,817
  13,596
  14,408
  15,254
  16,136
  17,057
  18,018
  19,022
  20,071
  21,167
  22,314
  23,513
  24,769
  26,082
  27,458
  28,898
  30,407
  31,988
  33,645
  35,382
  37,202
  39,111
  41,112
Adjusted assets (=assets-cash), $m
  8,153
  8,744
  9,358
  9,997
  10,661
  11,351
  12,070
  12,817
  13,596
  14,408
  15,254
  16,136
  17,057
  18,018
  19,022
  20,071
  21,167
  22,314
  23,513
  24,769
  26,082
  27,458
  28,898
  30,407
  31,988
  33,645
  35,382
  37,202
  39,111
  41,112
Revenue / Adjusted assets
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
Average production assets, $m
  4,034
  4,327
  4,631
  4,947
  5,275
  5,617
  5,973
  6,343
  6,728
  7,129
  7,548
  7,985
  8,440
  8,916
  9,413
  9,932
  10,474
  11,042
  11,635
  12,256
  12,907
  13,587
  14,300
  15,047
  15,829
  16,649
  17,508
  18,409
  19,354
  20,344
Working capital, $m
  610
  654
  700
  747
  797
  849
  902
  958
  1,016
  1,077
  1,140
  1,206
  1,275
  1,347
  1,422
  1,500
  1,582
  1,668
  1,758
  1,852
  1,950
  2,053
  2,160
  2,273
  2,391
  2,515
  2,645
  2,781
  2,924
  3,074
Total debt, $m
  2,006
  2,317
  2,641
  2,977
  3,327
  3,691
  4,070
  4,464
  4,874
  5,302
  5,748
  6,213
  6,698
  7,204
  7,733
  8,286
  8,864
  9,468
  10,100
  10,762
  11,454
  12,179
  12,938
  13,733
  14,567
  15,440
  16,355
  17,314
  18,320
  19,375
Total liabilities, $m
  4,297
  4,608
  4,932
  5,268
  5,618
  5,982
  6,361
  6,755
  7,165
  7,593
  8,039
  8,504
  8,989
  9,495
  10,025
  10,577
  11,155
  11,759
  12,392
  13,053
  13,745
  14,470
  15,229
  16,025
  16,858
  17,731
  18,646
  19,605
  20,611
  21,666
Total equity, $m
  3,856
  4,136
  4,427
  4,729
  5,043
  5,369
  5,709
  6,063
  6,431
  6,815
  7,215
  7,632
  8,068
  8,522
  8,997
  9,494
  10,012
  10,555
  11,122
  11,716
  12,337
  12,987
  13,669
  14,383
  15,130
  15,914
  16,735
  17,597
  18,499
  19,446
Total liabilities and equity, $m
  8,153
  8,744
  9,359
  9,997
  10,661
  11,351
  12,070
  12,818
  13,596
  14,408
  15,254
  16,136
  17,057
  18,017
  19,022
  20,071
  21,167
  22,314
  23,514
  24,769
  26,082
  27,457
  28,898
  30,408
  31,988
  33,645
  35,381
  37,202
  39,110
  41,112
Debt-to-equity ratio
  0.520
  0.560
  0.600
  0.630
  0.660
  0.690
  0.710
  0.740
  0.760
  0.780
  0.800
  0.810
  0.830
  0.850
  0.860
  0.870
  0.890
  0.900
  0.910
  0.920
  0.930
  0.940
  0.950
  0.950
  0.960
  0.970
  0.980
  0.980
  0.990
  1.000
Adjusted equity ratio
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  510
  578
  650
  725
  803
  885
  969
  1,058
  1,151
  1,248
  1,492
  1,597
  1,708
  1,825
  1,946
  2,074
  2,207
  2,348
  2,495
  2,649
  2,811
  2,981
  3,160
  3,348
  3,545
  3,752
  3,970
  4,199
  4,439
  4,692
Depreciation, amort., depletion, $m
  366
  378
  391
  404
  418
  432
  447
  463
  479
  496
  318
  337
  356
  376
  397
  419
  442
  466
  491
  517
  545
  573
  603
  635
  668
  702
  739
  777
  817
  858
Funds from operations, $m
  875
  956
  1,041
  1,129
  1,221
  1,317
  1,417
  1,521
  1,630
  1,744
  1,810
  1,934
  2,065
  2,201
  2,343
  2,493
  2,649
  2,814
  2,986
  3,166
  3,356
  3,555
  3,763
  3,983
  4,213
  4,455
  4,709
  4,975
  5,256
  5,550
Change in working capital, $m
  43
  44
  46
  48
  50
  52
  54
  56
  58
  61
  63
  66
  69
  72
  75
  78
  82
  86
  90
  94
  98
  103
  108
  113
  118
  124
  130
  136
  143
  150
Cash from operations, $m
  833
  912
  995
  1,081
  1,171
  1,265
  1,363
  1,465
  1,572
  1,683
  1,747
  1,868
  1,996
  2,129
  2,268
  2,414
  2,567
  2,728
  2,896
  3,072
  3,258
  3,452
  3,656
  3,870
  4,095
  4,331
  4,579
  4,839
  5,113
  5,401
Maintenance CAPEX, $m
  -158
  -170
  -183
  -195
  -209
  -223
  -237
  -252
  -268
  -284
  -301
  -318
  -337
  -356
  -376
  -397
  -419
  -442
  -466
  -491
  -517
  -545
  -573
  -603
  -635
  -668
  -702
  -739
  -777
  -817
New CAPEX, $m
  -281
  -292
  -304
  -316
  -328
  -342
  -355
  -370
  -385
  -402
  -419
  -437
  -456
  -476
  -497
  -519
  -543
  -567
  -594
  -621
  -650
  -681
  -713
  -747
  -782
  -820
  -859
  -901
  -945
  -990
Cash from investing activities, $m
  -439
  -462
  -487
  -511
  -537
  -565
  -592
  -622
  -653
  -686
  -720
  -755
  -793
  -832
  -873
  -916
  -962
  -1,009
  -1,060
  -1,112
  -1,167
  -1,226
  -1,286
  -1,350
  -1,417
  -1,488
  -1,561
  -1,640
  -1,722
  -1,807
Free cash flow, $m
  393
  449
  508
  570
  634
  701
  771
  843
  919
  998
  1,027
  1,113
  1,203
  1,297
  1,395
  1,498
  1,606
  1,718
  1,837
  1,960
  2,090
  2,227
  2,370
  2,520
  2,677
  2,843
  3,017
  3,200
  3,392
  3,594
Issuance/(repayment) of debt, $m
  300
  312
  324
  336
  350
  364
  379
  394
  410
  428
  446
  465
  485
  507
  529
  553
  578
  604
  632
  661
  692
  725
  759
  795
  833
  873
  915
  959
  1,006
  1,055
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
Cash from financing (excl. dividends), $m  
  300
  312
  324
  336
  350
  364
  379
  394
  410
  428
  446
  465
  485
  507
  529
  553
  578
  604
  632
  661
  692
  725
  759
  795
  833
  873
  915
  959
  1,006
  1,055
Total cash flow (excl. dividends), $m
  694
  761
  832
  907
  984
  1,065
  1,149
  1,237
  1,329
  1,425
  1,473
  1,578
  1,688
  1,804
  1,924
  2,051
  2,184
  2,323
  2,469
  2,622
  2,783
  2,951
  3,129
  3,315
  3,511
  3,716
  3,932
  4,159
  4,398
  4,648
Retained Cash Flow (-), $m
  -271
  -280
  -291
  -302
  -314
  -327
  -340
  -354
  -368
  -384
  -400
  -417
  -436
  -455
  -475
  -496
  -519
  -542
  -567
  -594
  -621
  -651
  -681
  -714
  -748
  -784
  -821
  -861
  -903
  -947
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
  423
  481
  542
  605
  670
  738
  809
  884
  961
  1,042
  1,073
  1,161
  1,253
  1,349
  1,450
  1,555
  1,665
  1,780
  1,901
  2,028
  2,161
  2,301
  2,447
  2,601
  2,763
  2,932
  3,111
  3,298
  3,495
  3,702
Discount rate, %
  4.40
  4.62
  4.85
  5.09
  5.35
  5.62
  5.90
  6.19
  6.50
  6.83
  7.17
  7.53
  7.90
  8.30
  8.71
  9.15
  9.60
  10.08
  10.59
  11.12
  11.67
  12.26
  12.87
  13.51
  14.19
  14.90
  15.64
  16.43
  17.25
  18.11
PV of cash for distribution, $m
  405
  440
  470
  496
  516
  532
  542
  546
  545
  538
  501
  486
  466
  442
  414
  383
  350
  316
  281
  246
  213
  181
  151
  124
  100
  79
  61
  47
  35
  25
Current shareholders' claim on cash, %
  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

Albemarle Corporation is a global developer, manufacturer and marketer of highly-engineered specialty chemicals. The Company operates through three segments: Lithium and Advanced Materials, Bromine Specialties and Refining Solutions. Lithium and Advanced Materials segment consist of two product categories: Lithium and Performance Catalyst Solutions. The bromine and bromine-based business includes products used in fire safety solutions and other specialty chemicals applications. The Company serves various end markets, including petroleum refining, consumer electronics, energy storage, construction, automotive, lubricants, pharmaceuticals, crop protection, food safety and custom chemistry services. As of December 31, 2016, the Company and its joint ventures operated 31 production and research and development (R&D) facilities, as well as a number of administrative and sales offices, around the world.

FINANCIAL RATIOS  of  Albemarle Corporation (ALB)

Valuation Ratios
P/E Ratio 12.3
Price to Sales 3
Price to Book 2.1
Price to Tangible Book
Price to Cash Flow 10.8
Price to Free Cash Flow 14.7
Growth Rates
Sales Growth Rate -5.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -13.6%
Cap. Spend. - 3 Yr. Gr. Rate 4.9%
Financial Strength
Quick Ratio 9
Current Ratio 0
LT Debt to Equity 55.9%
Total Debt to Equity 62.4%
Interest Coverage 6
Management Effectiveness
Return On Assets 8.1%
Ret/ On Assets - 3 Yr. Avg. 6.1%
Return On Total Capital 9.7%
Ret/ On T. Cap. - 3 Yr. Avg. 6.5%
Return On Equity 18.3%
Return On Equity - 3 Yr. Avg. 13.9%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 36.3%
Gross Margin - 3 Yr. Avg. 32.7%
EBITDA Margin 31.3%
EBITDA Margin - 3 Yr. Avg. 23.8%
Operating Margin 21.4%
Oper. Margin - 3 Yr. Avg. 14.9%
Pre-Tax Margin 19.2%
Pre-Tax Margin - 3 Yr. Avg. 13%
Net Profit Margin 24.1%
Net Profit Margin - 3 Yr. Avg. 13.8%
Effective Tax Rate 18.6%
Eff/ Tax Rate - 3 Yr. Avg. 10.2%
Payout Ratio 21%

ALB stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ALB stock intrinsic value calculation we used $3375 million for the last fiscal year's total revenue generated by Albemarle Corporation. The default revenue input number comes from 0001 income statement of Albemarle Corporation. 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 ALB stock valuation model: a) initial revenue growth rate of 7.5% 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 4.4%, whose default value for ALB is calculated based on our internal credit rating of Albemarle Corporation, 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 Albemarle Corporation.
    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 ALB stock the variable cost ratio is equal to 57.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $757 million in the base year in the intrinsic value calculation for ALB 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 5.4% for Albemarle Corporation.

Corporate tax rate of 27% is the nominal tax rate for Albemarle Corporation. 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 ALB 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 ALB are equal to 111.2%.

Life of production assets of 23.7 years is the average useful life of capital assets used in Albemarle Corporation 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 ALB is equal to 16.8%. 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 - $3585.321 million for Albemarle Corporation - 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 105.713 million for Albemarle Corporation 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 Albemarle Corporation at the current share price and the inputted number of shares is $7.4 billion.

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