Intrinsic value of AMERISAFE - AMSF

Previous Close

$59.65

  Intrinsic Value

$66.15

stock screener

  Rating & Target

hold

+11%

  Value-price divergence*

+39%

Previous close

$59.65

 
Intrinsic value

$66.15

 
Up/down potential

+11%

 
Rating

hold

 
Value-price divergence*

+39%

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

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

We calculate the intrinsic value of AMSF 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 1.1

 

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, %
  -1.24
  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
  0
  405
  414
  425
  437
  450
  465
  480
  498
  516
  536
  557
  580
  604
  629
  656
  685
  716
  748
  782
  818
  856
  896
  938
  982
  1,029
  1,078
  1,130
  1,185
  1,242
  1,302
Variable operating expenses, $m
 
  302
  309
  317
  326
  336
  347
  358
  371
  385
  400
  416
  432
  450
  469
  490
  511
  534
  558
  583
  610
  638
  668
  700
  733
  768
  804
  843
  884
  926
  971
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
  284
  302
  309
  317
  326
  336
  347
  358
  371
  385
  400
  416
  432
  450
  469
  490
  511
  534
  558
  583
  610
  638
  668
  700
  733
  768
  804
  843
  884
  926
  971
Operating income, $m
  113
  103
  105
  108
  111
  114
  118
  122
  126
  131
  136
  141
  147
  153
  160
  167
  174
  182
  190
  199
  208
  217
  228
  238
  249
  261
  274
  287
  301
  315
  331
EBITDA, $m
  114
  104
  106
  109
  112
  115
  119
  123
  128
  132
  137
  143
  149
  155
  161
  168
  176
  184
  192
  201
  210
  220
  230
  241
  252
  264
  277
  290
  304
  319
  334
Interest expense (income), $m
  0
  0
  1
  2
  3
  4
  5
  6
  8
  10
  11
  13
  15
  17
  19
  22
  24
  27
  30
  33
  36
  40
  43
  47
  51
  55
  59
  64
  69
  74
  79
Earnings before tax, $m
  113
  103
  104
  106
  108
  111
  113
  116
  118
  122
  125
  128
  132
  136
  140
  145
  150
  155
  160
  166
  172
  178
  184
  191
  199
  206
  214
  223
  232
  241
  251
Tax expense, $m
  35
  28
  28
  29
  29
  30
  31
  31
  32
  33
  34
  35
  36
  37
  38
  39
  40
  42
  43
  45
  46
  48
  50
  52
  54
  56
  58
  60
  63
  65
  68
Net income, $m
  78
  75
  76
  78
  79
  81
  82
  84
  86
  89
  91
  94
  96
  99
  102
  106
  109
  113
  117
  121
  125
  130
  135
  140
  145
  151
  157
  163
  169
  176
  184

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
  1,519
  1,551
  1,587
  1,628
  1,674
  1,725
  1,780
  1,841
  1,906
  1,977
  2,053
  2,134
  2,221
  2,313
  2,411
  2,515
  2,625
  2,742
  2,865
  2,996
  3,133
  3,279
  3,432
  3,593
  3,763
  3,942
  4,131
  4,330
  4,539
  4,758
  4,990
Adjusted assets (=assets-cash), $m
  1,519
  1,551
  1,587
  1,628
  1,674
  1,725
  1,780
  1,841
  1,906
  1,977
  2,053
  2,134
  2,221
  2,313
  2,411
  2,515
  2,625
  2,742
  2,865
  2,996
  3,133
  3,279
  3,432
  3,593
  3,763
  3,942
  4,131
  4,330
  4,539
  4,758
  4,990
Revenue / Adjusted assets
  0.000
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
Average production assets, $m
  7
  7
  7
  8
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  19
  20
  21
  22
  23
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
  0
  23
  48
  77
  109
  144
  183
  226
  272
  321
  374
  431
  492
  556
  625
  698
  775
  856
  943
  1,034
  1,130
  1,232
  1,339
  1,452
  1,571
  1,697
  1,829
  1,968
  2,114
  2,268
  2,430
Total liabilities, $m
  1,063
  1,086
  1,111
  1,140
  1,172
  1,207
  1,246
  1,289
  1,335
  1,384
  1,437
  1,494
  1,555
  1,619
  1,688
  1,761
  1,838
  1,919
  2,006
  2,097
  2,193
  2,295
  2,402
  2,515
  2,634
  2,760
  2,892
  3,031
  3,177
  3,331
  3,493
Total equity, $m
  456
  465
  476
  488
  502
  517
  534
  552
  572
  593
  616
  640
  666
  694
  723
  755
  788
  823
  860
  899
  940
  984
  1,030
  1,078
  1,129
  1,183
  1,239
  1,299
  1,362
  1,428
  1,497
Total liabilities and equity, $m
  1,519
  1,551
  1,587
  1,628
  1,674
  1,724
  1,780
  1,841
  1,907
  1,977
  2,053
  2,134
  2,221
  2,313
  2,411
  2,516
  2,626
  2,742
  2,866
  2,996
  3,133
  3,279
  3,432
  3,593
  3,763
  3,943
  4,131
  4,330
  4,539
  4,759
  4,990
Debt-to-equity ratio
  0.000
  0.050
  0.100
  0.160
  0.220
  0.280
  0.340
  0.410
  0.470
  0.540
  0.610
  0.670
  0.740
  0.800
  0.860
  0.920
  0.980
  1.040
  1.100
  1.150
  1.200
  1.250
  1.300
  1.350
  1.390
  1.430
  1.480
  1.510
  1.550
  1.590
  1.620
Adjusted equity ratio
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  78
  75
  76
  78
  79
  81
  82
  84
  86
  89
  91
  94
  96
  99
  102
  106
  109
  113
  117
  121
  125
  130
  135
  140
  145
  151
  157
  163
  169
  176
  184
Depreciation, amort., depletion, $m
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
Funds from operations, $m
  133
  76
  77
  79
  80
  82
  84
  86
  88
  90
  93
  95
  98
  101
  104
  107
  111
  115
  119
  123
  127
  132
  137
  142
  148
  153
  159
  166
  172
  179
  187
Change in working capital, $m
  19
  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
  114
  76
  77
  79
  80
  82
  84
  86
  88
  90
  93
  95
  98
  101
  104
  107
  111
  115
  119
  123
  127
  132
  137
  142
  148
  153
  159
  166
  172
  179
  187
Maintenance CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
New CAPEX, $m
  -2
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Cash from investing activities, $m
  -50
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
Free cash flow, $m
  64
  75
  76
  77
  79
  80
  82
  84
  86
  88
  91
  93
  96
  99
  102
  105
  109
  112
  116
  120
  125
  129
  134
  139
  144
  150
  156
  162
  169
  175
  183
Issuance/(repayment) of debt, $m
  0
  23
  25
  29
  32
  36
  39
  42
  46
  49
  53
  57
  61
  65
  69
  73
  77
  82
  86
  91
  96
  102
  107
  113
  119
  125
  132
  139
  146
  154
  162
Issuance/(repurchase) of shares, $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 financing (excl. dividends), $m  
  2
  23
  25
  29
  32
  36
  39
  42
  46
  49
  53
  57
  61
  65
  69
  73
  77
  82
  86
  91
  96
  102
  107
  113
  119
  125
  132
  139
  146
  154
  162
Total cash flow (excl. dividends), $m
  65
  98
  101
  106
  111
  116
  121
  127
  132
  138
  144
  150
  157
  164
  171
  178
  186
  194
  203
  212
  221
  231
  241
  252
  263
  275
  288
  301
  315
  329
  344
Retained Cash Flow (-), $m
  -2
  -9
  -11
  -12
  -14
  -15
  -17
  -18
  -20
  -21
  -23
  -24
  -26
  -28
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -44
  -46
  -48
  -51
  -54
  -57
  -60
  -63
  -66
  -69
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
 
  88
  90
  94
  97
  101
  105
  108
  112
  117
  121
  126
  131
  136
  141
  147
  153
  159
  166
  173
  180
  187
  195
  204
  212
  222
  231
  241
  252
  263
  275
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
 
  85
  83
  82
  80
  78
  76
  73
  70
  67
  64
  60
  56
  52
  47
  43
  39
  35
  31
  27
  23
  19
  16
  13
  11
  9
  7
  5
  4
  3
  2
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

Amerisafe, Inc. is an insurance holding company. The Company is engaged in providing workers' compensation insurance focused on small to mid-sized employers engaged in hazardous industries, principally construction, trucking, logging and lumber, manufacturing, and agriculture. It is engaged in underwriting the workers' compensation exposures inherent in these industries. It provides coverage to employers under state and federal workers' compensation laws. The Company's workers' compensation insurance policies provide benefits to injured employees for, temporary or permanent disability, death and medical and hospital expenses. The Company provides safety services at employers' workplaces as a component of its underwriting process. It utilizes claims management practices. In addition to its voluntary workers' compensation business, it underwrites workers' compensation policies for employers assigned to the Company and assumes reinsurance premiums from mandatory pooling arrangements.

FINANCIAL RATIOS  of  AMERISAFE (AMSF)

Valuation Ratios
P/E Ratio 14.7
Price to Sales 2.9
Price to Book 2.5
Price to Tangible Book
Price to Cash Flow 10.1
Price to Free Cash Flow 10.2
Growth Rates
Sales Growth Rate -1.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 100%
Cap. Spend. - 3 Yr. Gr. Rate 14.9%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 5.2%
Ret/ On Assets - 3 Yr. Avg. 4.6%
Return On Total Capital 17.1%
Ret/ On T. Cap. - 3 Yr. Avg. 15.1%
Return On Equity 17.1%
Return On Equity - 3 Yr. Avg. 15.1%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 28.7%
EBITDA Margin - 3 Yr. Avg. 24.2%
Operating Margin 28.5%
Oper. Margin - 3 Yr. Avg. 24.1%
Pre-Tax Margin 28.5%
Pre-Tax Margin - 3 Yr. Avg. 24%
Net Profit Margin 19.6%
Net Profit Margin - 3 Yr. Avg. 16.8%
Effective Tax Rate 31%
Eff/ Tax Rate - 3 Yr. Avg. 29.6%
Payout Ratio 97.4%

AMSF stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AMSF stock intrinsic value calculation we used $397 million for the last fiscal year's total revenue generated by AMERISAFE. The default revenue input number comes from 2016 income statement of AMERISAFE. 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 AMSF 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 4.3%, whose default value for AMSF is calculated based on our internal credit rating of AMERISAFE, 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 AMERISAFE.
    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 AMSF stock the variable cost ratio is equal to 74.6%.

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 AMSF 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 AMERISAFE.

Corporate tax rate of 27% is the nominal tax rate for AMERISAFE. 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 AMSF 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 AMSF are equal to 1.8%.

Life of production assets of 7 years is the average useful life of capital assets used in AMERISAFE 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 AMSF 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 - $456 million for AMERISAFE - 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 19.074 million for AMERISAFE 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 AMERISAFE at the current share price and the inputted number of shares is $1.1 billion.

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COMPANY NEWS

▶ AMERISAFE to Present at KBW 2017 Insurance Conference   [Aug-30-17 08:00AM  GlobeNewswire]
▶ Amerisafe posts 2Q profit   [Jul-28-17 08:04PM  Associated Press]
▶ AMERISAFE Announces 2017 Second Quarter Results   [Jul-27-17 04:30PM  GlobeNewswire]
▶ New Strong Sell Stocks for June 1st   [Jun-01-17 10:47AM  Zacks]
▶ What Makes Amerisafe (AMSF) a Strong Sell?   [May-09-17 08:43AM  Zacks]
▶ Amerisafe posts 1Q profit   [Apr-26-17 06:02PM  Associated Press]
▶ Director Austin Young to Retire   [08:00AM  GlobeNewswire]
▶ Amerisafe, Inc. (AMSF): Are Hedge Funds Right About This Stock?   [Dec-13-16 04:49AM  at Insider Monkey]
▶ AMERISAFE to Present at KBW 2016 Insurance Conference   [Aug-31-16 04:15PM  GlobeNewswire]
Financial statements of AMSF
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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