Intrinsic value of Archrock, Inc. - AROC

Previous Close

$9.75

  Intrinsic Value

$6.77

stock screener

  Rating & Target

sell

-31%

Previous close

$9.75

 
Intrinsic value

$6.77

 
Up/down potential

-31%

 
Rating

sell

We calculate the intrinsic value of AROC 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 1.3

 

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, %
  11.60
  10.94
  10.35
  9.81
  9.33
  8.90
  8.51
  8.16
  7.84
  7.56
  7.30
  7.07
  6.86
  6.68
  6.51
  6.36
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.53
  5.47
  5.43
  5.38
  5.35
  5.31
Revenue, $m
  1,009
  1,119
  1,235
  1,356
  1,483
  1,615
  1,752
  1,895
  2,044
  2,198
  2,358
  2,525
  2,699
  2,879
  3,066
  3,261
  3,464
  3,675
  3,896
  4,125
  4,364
  4,614
  4,875
  5,147
  5,432
  5,729
  6,040
  6,365
  6,705
  7,061
Variable operating expenses, $m
  230
  255
  281
  308
  336
  366
  396
  428
  461
  496
  527
  564
  602
  643
  685
  728
  773
  821
  870
  921
  974
  1,030
  1,088
  1,149
  1,213
  1,279
  1,348
  1,421
  1,497
  1,576
Fixed operating expenses, $m
  598
  611
  624
  638
  652
  667
  681
  696
  712
  727
  743
  760
  776
  793
  811
  829
  847
  866
  885
  904
  924
  944
  965
  986
  1,008
  1,030
  1,053
  1,076
  1,100
  1,124
Total operating expenses, $m
  828
  866
  905
  946
  988
  1,033
  1,077
  1,124
  1,173
  1,223
  1,270
  1,324
  1,378
  1,436
  1,496
  1,557
  1,620
  1,687
  1,755
  1,825
  1,898
  1,974
  2,053
  2,135
  2,221
  2,309
  2,401
  2,497
  2,597
  2,700
Operating income, $m
  181
  253
  330
  410
  494
  582
  674
  770
  871
  975
  1,089
  1,202
  1,320
  1,443
  1,571
  1,704
  1,844
  1,989
  2,141
  2,300
  2,466
  2,640
  2,822
  3,012
  3,211
  3,420
  3,639
  3,868
  4,109
  4,361
EBITDA, $m
  378
  472
  570
  674
  782
  895
  1,014
  1,137
  1,265
  1,399
  1,538
  1,683
  1,834
  1,992
  2,155
  2,326
  2,504
  2,690
  2,884
  3,087
  3,298
  3,519
  3,751
  3,993
  4,247
  4,512
  4,790
  5,081
  5,387
  5,707
Interest expense (income), $m
  78
  96
  109
  122
  136
  150
  165
  181
  197
  215
  232
  251
  270
  290
  310
  332
  354
  377
  402
  427
  453
  480
  509
  539
  570
  602
  636
  672
  709
  748
  788
Earnings before tax, $m
  84
  144
  208
  274
  344
  417
  493
  573
  656
  743
  838
  932
  1,030
  1,132
  1,239
  1,350
  1,466
  1,588
  1,715
  1,847
  1,986
  2,131
  2,283
  2,442
  2,609
  2,784
  2,967
  3,159
  3,361
  3,573
Tax expense, $m
  23
  39
  56
  74
  93
  113
  133
  155
  177
  201
  226
  252
  278
  306
  335
  365
  396
  429
  463
  499
  536
  575
  616
  659
  704
  752
  801
  853
  908
  965
Net income, $m
  61
  105
  152
  200
  251
  304
  360
  418
  479
  542
  612
  680
  752
  827
  904
  986
  1,070
  1,159
  1,252
  1,348
  1,450
  1,556
  1,666
  1,783
  1,904
  2,032
  2,166
  2,306
  2,454
  2,608

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
  2,850
  3,162
  3,489
  3,831
  4,189
  4,561
  4,949
  5,353
  5,773
  6,209
  6,662
  7,133
  7,623
  8,132
  8,661
  9,212
  9,785
  10,382
  11,004
  11,653
  12,329
  13,034
  13,771
  14,540
  15,343
  16,183
  17,061
  17,980
  18,941
  19,947
Adjusted assets (=assets-cash), $m
  2,850
  3,162
  3,489
  3,831
  4,189
  4,561
  4,949
  5,353
  5,773
  6,209
  6,662
  7,133
  7,623
  8,132
  8,661
  9,212
  9,785
  10,382
  11,004
  11,653
  12,329
  13,034
  13,771
  14,540
  15,343
  16,183
  17,061
  17,980
  18,941
  19,947
Revenue / Adjusted assets
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
  0.354
Average production assets, $m
  2,404
  2,667
  2,943
  3,232
  3,533
  3,848
  4,175
  4,516
  4,870
  5,238
  5,620
  6,018
  6,431
  6,860
  7,307
  7,771
  8,255
  8,758
  9,283
  9,830
  10,400
  10,996
  11,617
  12,266
  12,943
  13,652
  14,393
  15,168
  15,978
  16,827
Working capital, $m
  111
  123
  136
  149
  163
  178
  193
  208
  225
  242
  259
  278
  297
  317
  337
  359
  381
  404
  429
  454
  480
  508
  536
  566
  597
  630
  664
  700
  738
  777
Total debt, $m
  1,728
  1,937
  2,156
  2,385
  2,625
  2,875
  3,135
  3,405
  3,686
  3,979
  4,282
  4,598
  4,926
  5,267
  5,622
  5,991
  6,375
  6,775
  7,191
  7,626
  8,079
  8,552
  9,045
  9,560
  10,099
  10,661
  11,250
  11,865
  12,509
  13,183
Total liabilities, $m
  1,909
  2,118
  2,337
  2,567
  2,806
  3,056
  3,316
  3,586
  3,868
  4,160
  4,464
  4,779
  5,107
  5,448
  5,803
  6,172
  6,556
  6,956
  7,373
  7,807
  8,260
  8,733
  9,226
  9,742
  10,280
  10,843
  11,431
  12,047
  12,691
  13,364
Total equity, $m
  940
  1,043
  1,151
  1,264
  1,382
  1,505
  1,633
  1,766
  1,905
  2,049
  2,199
  2,354
  2,516
  2,684
  2,858
  3,040
  3,229
  3,426
  3,631
  3,845
  4,069
  4,301
  4,544
  4,798
  5,063
  5,340
  5,630
  5,933
  6,251
  6,583
Total liabilities and equity, $m
  2,849
  3,161
  3,488
  3,831
  4,188
  4,561
  4,949
  5,352
  5,773
  6,209
  6,663
  7,133
  7,623
  8,132
  8,661
  9,212
  9,785
  10,382
  11,004
  11,652
  12,329
  13,034
  13,770
  14,540
  15,343
  16,183
  17,061
  17,980
  18,942
  19,947
Debt-to-equity ratio
  1.840
  1.860
  1.870
  1.890
  1.900
  1.910
  1.920
  1.930
  1.940
  1.940
  1.950
  1.950
  1.960
  1.960
  1.970
  1.970
  1.970
  1.980
  1.980
  1.980
  1.990
  1.990
  1.990
  1.990
  1.990
  2.000
  2.000
  2.000
  2.000
  2.000
Adjusted equity ratio
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  61
  105
  152
  200
  251
  304
  360
  418
  479
  542
  612
  680
  752
  827
  904
  986
  1,070
  1,159
  1,252
  1,348
  1,450
  1,556
  1,666
  1,783
  1,904
  2,032
  2,166
  2,306
  2,454
  2,608
Depreciation, amort., depletion, $m
  198
  219
  241
  264
  288
  313
  339
  366
  395
  424
  450
  481
  514
  549
  585
  622
  660
  701
  743
  786
  832
  880
  929
  981
  1,035
  1,092
  1,151
  1,213
  1,278
  1,346
Funds from operations, $m
  259
  324
  392
  464
  539
  617
  699
  785
  874
  966
  1,061
  1,162
  1,266
  1,375
  1,489
  1,607
  1,731
  1,860
  1,994
  2,135
  2,282
  2,435
  2,596
  2,764
  2,940
  3,124
  3,317
  3,520
  3,732
  3,954
Change in working capital, $m
  12
  12
  13
  13
  14
  15
  15
  16
  16
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
  37
  39
Cash from operations, $m
  247
  312
  379
  451
  525
  603
  684
  769
  857
  949
  1,044
  1,143
  1,247
  1,356
  1,468
  1,586
  1,709
  1,836
  1,970
  2,110
  2,255
  2,408
  2,567
  2,734
  2,909
  3,091
  3,283
  3,484
  3,694
  3,915
Maintenance CAPEX, $m
  -172
  -192
  -213
  -235
  -259
  -283
  -308
  -334
  -361
  -390
  -419
  -450
  -481
  -514
  -549
  -585
  -622
  -660
  -701
  -743
  -786
  -832
  -880
  -929
  -981
  -1,035
  -1,092
  -1,151
  -1,213
  -1,278
New CAPEX, $m
  -250
  -263
  -276
  -289
  -302
  -314
  -327
  -341
  -354
  -368
  -382
  -397
  -413
  -429
  -447
  -465
  -484
  -504
  -525
  -547
  -570
  -595
  -621
  -649
  -678
  -708
  -741
  -775
  -811
  -849
Cash from investing activities, $m
  -422
  -455
  -489
  -524
  -561
  -597
  -635
  -675
  -715
  -758
  -801
  -847
  -894
  -943
  -996
  -1,050
  -1,106
  -1,164
  -1,226
  -1,290
  -1,356
  -1,427
  -1,501
  -1,578
  -1,659
  -1,743
  -1,833
  -1,926
  -2,024
  -2,127
Free cash flow, $m
  -175
  -144
  -110
  -74
  -35
  6
  49
  94
  142
  192
  242
  296
  353
  412
  473
  537
  603
  672
  745
  820
  899
  981
  1,066
  1,156
  1,249
  1,348
  1,450
  1,558
  1,670
  1,788
Issuance/(repayment) of debt, $m
  198
  209
  219
  229
  239
  250
  260
  270
  281
  292
  304
  316
  328
  341
  355
  369
  384
  400
  417
  434
  453
  473
  493
  515
  538
  563
  588
  615
  644
  674
Issuance/(repurchase) of shares, $m
  37
  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  
  235
  209
  219
  229
  239
  250
  260
  270
  281
  292
  304
  316
  328
  341
  355
  369
  384
  400
  417
  434
  453
  473
  493
  515
  538
  563
  588
  615
  644
  674
Total cash flow (excl. dividends), $m
  61
  65
  109
  156
  204
  256
  309
  365
  423
  484
  546
  612
  681
  753
  828
  906
  987
  1,072
  1,161
  1,254
  1,352
  1,453
  1,560
  1,671
  1,788
  1,910
  2,039
  2,173
  2,314
  2,462
Retained Cash Flow (-), $m
  -99
  -103
  -108
  -113
  -118
  -123
  -128
  -133
  -139
  -144
  -150
  -155
  -162
  -168
  -175
  -182
  -189
  -197
  -205
  -214
  -223
  -233
  -243
  -254
  -265
  -277
  -290
  -303
  -317
  -332
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
  -38
  -38
  1
  43
  87
  133
  181
  232
  285
  340
  396
  457
  519
  585
  653
  724
  798
  875
  956
  1,040
  1,128
  1,220
  1,317
  1,417
  1,523
  1,633
  1,749
  1,870
  1,997
  2,130
Discount rate, %
  9.50
  9.98
  10.47
  11.00
  11.55
  12.12
  12.73
  13.37
  14.04
  14.74
  15.47
  16.25
  17.06
  17.91
  18.81
  19.75
  20.74
  21.77
  22.86
  24.01
  25.21
  26.47
  27.79
  29.18
  30.64
  32.17
  33.78
  35.47
  37.24
  39.10
PV of cash for distribution, $m
  -34
  -31
  1
  28
  50
  67
  78
  85
  87
  86
  81
  75
  67
  58
  49
  40
  32
  25
  19
  14
  10
  7
  5
  3
  2
  1
  1
  0
  0
  0
Current shareholders' claim on cash, %
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1

Archrock, Inc. is a natural gas contract operations services company. The Company also provides natural gas compression services to customers in the oil and natural gas industry throughout the United States and supplies aftermarket services to customers that own compression equipment in the United States. The Company operates through two segments: contract operations and aftermarket services. The contract operations segment primarily provides natural gas compression services to meet specific customer requirements. The Company provides contract operations services, including the personnel, equipment, tools, materials and supplies to meet its customers' natural gas compression needs. The aftermarket services segment provides a range of services to support the compression needs of customers, from parts sales and normal maintenance services to full operation of a customer's owned assets.

FINANCIAL RATIOS  of  Archrock, Inc. (AROC)

Valuation Ratios
P/E Ratio -12.5
Price to Sales 0.9
Price to Book 1
Price to Tangible Book
Price to Cash Flow 2.5
Price to Free Cash Flow 4.4
Growth Rates
Sales Growth Rate -19.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -53.9%
Cap. Spend. - 3 Yr. Gr. Rate -16.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 200.6%
Total Debt to Equity 200.6%
Interest Coverage 0
Management Effectiveness
Return On Assets 0.1%
Ret/ On Assets - 3 Yr. Avg. 1.2%
Return On Total Capital -2.5%
Ret/ On T. Cap. - 3 Yr. Avg. -1.3%
Return On Equity -7.6%
Return On Equity - 3 Yr. Avg. -4.1%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 52.9%
Gross Margin - 3 Yr. Avg. 50.3%
EBITDA Margin 24.5%
EBITDA Margin - 3 Yr. Avg. 24.5%
Operating Margin -0.7%
Oper. Margin - 3 Yr. Avg. 2.1%
Pre-Tax Margin -11%
Pre-Tax Margin - 3 Yr. Avg. -8.8%
Net Profit Margin -6.8%
Net Profit Margin - 3 Yr. Avg. -3.3%
Effective Tax Rate 27%
Eff/ Tax Rate - 3 Yr. Avg. 13.1%
Payout Ratio -63.6%

AROC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AROC stock intrinsic value calculation we used $904 million for the last fiscal year's total revenue generated by Archrock, Inc.. The default revenue input number comes from 0001 income statement of Archrock, Inc.. 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 AROC stock valuation model: a) initial revenue growth rate of 11.6% 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 9.5%, whose default value for AROC is calculated based on our internal credit rating of Archrock, Inc., 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 Archrock, Inc..
    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 AROC stock the variable cost ratio is equal to 22.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $585 million in the base year in the intrinsic value calculation for AROC 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 6.3% for Archrock, Inc..

Corporate tax rate of 27% is the nominal tax rate for Archrock, Inc.. 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 AROC 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 AROC are equal to 238.3%.

Life of production assets of 12.5 years is the average useful life of capital assets used in Archrock, Inc. 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 AROC is equal to 11%. 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 - $841.574 million for Archrock, Inc. - 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 130.303 million for Archrock, Inc. 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 Archrock, Inc. at the current share price and the inputted number of shares is $1.3 billion.

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