Intrinsic value of Avista Corporation - AVA

Previous Close

$46.48

  Intrinsic Value

$6.71

stock screener

  Rating & Target

str. sell

-86%

Previous close

$46.48

 
Intrinsic value

$6.71

 
Up/down potential

-86%

 
Rating

str. sell

We calculate the intrinsic value of AVA 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 3.1

 

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, %
  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
  1,425
  1,458
  1,495
  1,537
  1,584
  1,635
  1,691
  1,751
  1,816
  1,886
  1,960
  2,040
  2,124
  2,214
  2,310
  2,411
  2,518
  2,632
  2,751
  2,878
  3,011
  3,152
  3,300
  3,456
  3,621
  3,794
  3,976
  4,168
  4,370
  4,583
Variable operating expenses, $m
  523
  535
  548
  564
  580
  599
  619
  641
  665
  690
  711
  740
  771
  803
  838
  875
  914
  955
  998
  1,044
  1,093
  1,144
  1,197
  1,254
  1,314
  1,377
  1,443
  1,512
  1,586
  1,663
Fixed operating expenses, $m
  651
  665
  680
  695
  710
  726
  742
  758
  775
  792
  809
  827
  845
  864
  883
  902
  922
  942
  963
  984
  1,006
  1,028
  1,051
  1,074
  1,098
  1,122
  1,146
  1,172
  1,197
  1,224
Total operating expenses, $m
  1,174
  1,200
  1,228
  1,259
  1,290
  1,325
  1,361
  1,399
  1,440
  1,482
  1,520
  1,567
  1,616
  1,667
  1,721
  1,777
  1,836
  1,897
  1,961
  2,028
  2,099
  2,172
  2,248
  2,328
  2,412
  2,499
  2,589
  2,684
  2,783
  2,887
Operating income, $m
  251
  258
  267
  279
  293
  310
  330
  352
  376
  404
  440
  472
  508
  547
  589
  634
  682
  734
  790
  849
  913
  980
  1,052
  1,128
  1,210
  1,296
  1,387
  1,484
  1,587
  1,696
EBITDA, $m
  446
  457
  472
  489
  510
  533
  560
  590
  624
  660
  700
  744
  791
  842
  896
  955
  1,017
  1,084
  1,156
  1,232
  1,313
  1,399
  1,491
  1,588
  1,691
  1,800
  1,916
  2,039
  2,168
  2,306
Interest expense (income), $m
  86
  114
  117
  123
  128
  135
  142
  150
  159
  168
  178
  189
  200
  213
  226
  240
  254
  270
  287
  304
  323
  342
  363
  385
  407
  432
  457
  484
  512
  542
  573
Earnings before tax, $m
  137
  140
  144
  150
  158
  168
  180
  193
  208
  226
  251
  272
  296
  321
  349
  380
  412
  448
  486
  527
  570
  617
  667
  721
  778
  839
  903
  972
  1,045
  1,123
Tax expense, $m
  37
  38
  39
  41
  43
  45
  48
  52
  56
  61
  68
  74
  80
  87
  94
  102
  111
  121
  131
  142
  154
  167
  180
  195
  210
  226
  244
  263
  282
  303
Net income, $m
  100
  102
  105
  110
  116
  123
  131
  141
  152
  165
  183
  199
  216
  235
  255
  277
  301
  327
  355
  384
  416
  451
  487
  526
  568
  612
  659
  710
  763
  820

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
  5,888
  6,024
  6,178
  6,352
  6,545
  6,756
  6,986
  7,235
  7,504
  7,792
  8,100
  8,428
  8,778
  9,150
  9,545
  9,963
  10,406
  10,874
  11,369
  11,892
  12,443
  13,024
  13,637
  14,282
  14,962
  15,678
  16,432
  17,225
  18,059
  18,936
Adjusted assets (=assets-cash), $m
  5,888
  6,024
  6,178
  6,352
  6,545
  6,756
  6,986
  7,235
  7,504
  7,792
  8,100
  8,428
  8,778
  9,150
  9,545
  9,963
  10,406
  10,874
  11,369
  11,892
  12,443
  13,024
  13,637
  14,282
  14,962
  15,678
  16,432
  17,225
  18,059
  18,936
Revenue / Adjusted assets
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
Average production assets, $m
  4,644
  4,751
  4,873
  5,010
  5,162
  5,328
  5,510
  5,706
  5,918
  6,145
  6,388
  6,647
  6,923
  7,217
  7,528
  7,858
  8,207
  8,576
  8,967
  9,379
  9,813
  10,272
  10,755
  11,264
  11,800
  12,365
  12,959
  13,585
  14,243
  14,935
Working capital, $m
  -10
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -32
Total debt, $m
  2,176
  2,270
  2,377
  2,497
  2,631
  2,777
  2,937
  3,109
  3,295
  3,495
  3,708
  3,936
  4,179
  4,437
  4,710
  5,000
  5,307
  5,631
  5,974
  6,336
  6,718
  7,121
  7,546
  7,993
  8,464
  8,960
  9,482
  10,032
  10,610
  11,218
Total liabilities, $m
  4,081
  4,174
  4,282
  4,402
  4,536
  4,682
  4,841
  5,014
  5,200
  5,400
  5,613
  5,841
  6,083
  6,341
  6,615
  6,905
  7,211
  7,536
  7,879
  8,241
  8,623
  9,026
  9,450
  9,898
  10,369
  10,865
  11,387
  11,937
  12,515
  13,123
Total equity, $m
  1,808
  1,849
  1,897
  1,950
  2,009
  2,074
  2,145
  2,221
  2,304
  2,392
  2,487
  2,588
  2,695
  2,809
  2,930
  3,059
  3,195
  3,338
  3,490
  3,651
  3,820
  3,998
  4,186
  4,385
  4,593
  4,813
  5,045
  5,288
  5,544
  5,813
Total liabilities and equity, $m
  5,889
  6,023
  6,179
  6,352
  6,545
  6,756
  6,986
  7,235
  7,504
  7,792
  8,100
  8,429
  8,778
  9,150
  9,545
  9,964
  10,406
  10,874
  11,369
  11,892
  12,443
  13,024
  13,636
  14,283
  14,962
  15,678
  16,432
  17,225
  18,059
  18,936
Debt-to-equity ratio
  1.200
  1.230
  1.250
  1.280
  1.310
  1.340
  1.370
  1.400
  1.430
  1.460
  1.490
  1.520
  1.550
  1.580
  1.610
  1.630
  1.660
  1.690
  1.710
  1.740
  1.760
  1.780
  1.800
  1.820
  1.840
  1.860
  1.880
  1.900
  1.910
  1.930
Adjusted equity ratio
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  100
  102
  105
  110
  116
  123
  131
  141
  152
  165
  183
  199
  216
  235
  255
  277
  301
  327
  355
  384
  416
  451
  487
  526
  568
  612
  659
  710
  763
  820
Depreciation, amort., depletion, $m
  195
  200
  205
  210
  216
  223
  231
  239
  247
  257
  261
  271
  283
  295
  307
  321
  335
  350
  366
  383
  401
  419
  439
  460
  482
  505
  529
  554
  581
  610
Funds from operations, $m
  296
  302
  310
  320
  332
  346
  362
  380
  400
  421
  444
  470
  498
  529
  562
  598
  636
  677
  721
  767
  817
  870
  926
  986
  1,050
  1,117
  1,188
  1,264
  1,344
  1,429
Change in working capital, $m
  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
  -1
  -1
  -1
  -1
  -1
Cash from operations, $m
  296
  302
  310
  320
  332
  346
  362
  380
  400
  422
  444
  471
  499
  530
  563
  599
  637
  678
  721
  768
  818
  871
  927
  987
  1,051
  1,118
  1,190
  1,266
  1,346
  1,431
Maintenance CAPEX, $m
  -186
  -190
  -194
  -199
  -204
  -211
  -217
  -225
  -233
  -242
  -251
  -261
  -271
  -283
  -295
  -307
  -321
  -335
  -350
  -366
  -383
  -401
  -419
  -439
  -460
  -482
  -505
  -529
  -554
  -581
New CAPEX, $m
  -91
  -107
  -122
  -137
  -152
  -167
  -181
  -196
  -212
  -227
  -243
  -259
  -276
  -293
  -311
  -330
  -349
  -369
  -390
  -412
  -435
  -458
  -483
  -509
  -536
  -565
  -594
  -625
  -658
  -692
Cash from investing activities, $m
  -277
  -297
  -316
  -336
  -356
  -378
  -398
  -421
  -445
  -469
  -494
  -520
  -547
  -576
  -606
  -637
  -670
  -704
  -740
  -778
  -818
  -859
  -902
  -948
  -996
  -1,047
  -1,099
  -1,154
  -1,212
  -1,273
Free cash flow, $m
  19
  6
  -6
  -16
  -24
  -31
  -37
  -41
  -45
  -47
  -49
  -49
  -48
  -46
  -43
  -39
  -33
  -27
  -19
  -10
  0
  12
  25
  39
  55
  72
  91
  111
  134
  158
Issuance/(repayment) of debt, $m
  71
  94
  107
  120
  133
  146
  159
  173
  186
  200
  213
  228
  243
  258
  274
  290
  307
  324
  343
  362
  382
  403
  425
  447
  471
  496
  522
  549
  578
  608
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  
  71
  94
  107
  120
  133
  146
  159
  173
  186
  200
  213
  228
  243
  258
  274
  290
  307
  324
  343
  362
  382
  403
  425
  447
  471
  496
  522
  549
  578
  608
Total cash flow (excl. dividends), $m
  90
  100
  102
  105
  109
  115
  123
  131
  141
  153
  164
  178
  194
  212
  231
  251
  274
  298
  324
  352
  382
  415
  449
  486
  526
  568
  613
  661
  712
  766
Retained Cash Flow (-), $m
  -34
  -42
  -48
  -53
  -59
  -65
  -71
  -76
  -82
  -88
  -95
  -101
  -107
  -114
  -121
  -128
  -136
  -144
  -152
  -160
  -169
  -178
  -188
  -198
  -209
  -220
  -231
  -243
  -256
  -269
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
  56
  58
  54
  51
  50
  51
  52
  55
  59
  64
  70
  77
  87
  97
  109
  123
  138
  154
  172
  192
  213
  236
  261
  288
  317
  348
  382
  417
  456
  496
Discount rate, %
  8.30
  8.72
  9.15
  9.61
  10.09
  10.59
  11.12
  11.68
  12.26
  12.88
  13.52
  14.20
  14.91
  15.65
  16.43
  17.26
  18.12
  19.02
  19.97
  20.97
  22.02
  23.12
  24.28
  25.49
  26.77
  28.11
  29.51
  30.99
  32.54
  34.16
PV of cash for distribution, $m
  51
  49
  42
  36
  31
  28
  25
  23
  21
  19
  17
  16
  14
  13
  11
  10
  8
  7
  5
  4
  3
  2
  2
  1
  1
  1
  0
  0
  0
  0
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

Avista Corporation is an electric and natural gas utility company. The Company operates through two segments: Avista Utilities, and Alaska Electric Light and Power Company (AEL&P). The Company's regional services include government and higher education, medical services, retail trade and finance. The Company's businesses also include sheet metal fabrication, venture fund investments, real estate investments, a company that explores markets that could be served with liquefied natural gas (LNG), as well as certain other investments of Avista Capital, which is a subsidiary of the Company. Avista Utilities is an operating division of the Company, which consists of its regulated utility operations in the Pacific Northwest. Avista Utilities division generates, transmits and distributes electricity, and distributes natural gas. As of December 31, 2016, AEL&P operated five hydroelectric generation facilities with 102.7 megawatts (MW) of hydroelectric generation capacity.

FINANCIAL RATIOS  of  Avista Corporation (AVA)

Valuation Ratios
P/E Ratio 21.8
Price to Sales 2.1
Price to Book 1.8
Price to Tangible Book
Price to Cash Flow 8.3
Price to Free Cash Flow -60.9
Growth Rates
Sales Growth Rate -2.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 3.3%
Cap. Spend. - 3 Yr. Gr. Rate 6.1%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 105%
Total Debt to Equity 112.4%
Interest Coverage 4
Management Effectiveness
Return On Assets 3.8%
Ret/ On Assets - 3 Yr. Avg. 4.2%
Return On Total Capital 4.1%
Ret/ On T. Cap. - 3 Yr. Avg. 4.8%
Return On Equity 8.6%
Return On Equity - 3 Yr. Avg. 10.2%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 32.3%
EBITDA Margin - 3 Yr. Avg. 29.2%
Operating Margin 20%
Oper. Margin - 3 Yr. Avg. 18.1%
Pre-Tax Margin 14.9%
Pre-Tax Margin - 3 Yr. Avg. 13.5%
Net Profit Margin 9.5%
Net Profit Margin - 3 Yr. Avg. 10.3%
Effective Tax Rate 36.3%
Eff/ Tax Rate - 3 Yr. Avg. 36.8%
Payout Ratio 63.5%

AVA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AVA stock intrinsic value calculation we used $1397 million for the last fiscal year's total revenue generated by Avista Corporation. The default revenue input number comes from 0001 income statement of Avista 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 AVA 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 8.3%, whose default value for AVA is calculated based on our internal credit rating of Avista 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 Avista 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 AVA stock the variable cost ratio is equal to 36.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $637 million in the base year in the intrinsic value calculation for AVA 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 Avista Corporation.

Corporate tax rate of 27% is the nominal tax rate for Avista 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 AVA 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 AVA are equal to 325.9%.

Life of production assets of 24.5 years is the average useful life of capital assets used in Avista 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 AVA is equal to -0.7%. 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 - $1773.22 million for Avista 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 65.621 million for Avista 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 Avista Corporation at the current share price and the inputted number of shares is $3.1 billion.

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