Intrinsic value of American States Water Company - AWR

Previous Close

$74.76

  Intrinsic Value

$7.95

stock screener

  Rating & Target

str. sell

-89%

Previous close

$74.76

 
Intrinsic value

$7.95

 
Up/down potential

-89%

 
Rating

str. sell

We calculate the intrinsic value of AWR 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 2.8

 

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, %
  6.60
  6.44
  6.30
  6.17
  6.05
  5.94
  5.85
  5.77
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
  5.19
  5.18
  5.16
  5.14
  5.13
  5.11
  5.10
  5.09
  5.08
  5.08
Revenue, $m
  466
  496
  527
  560
  593
  629
  665
  704
  744
  786
  829
  875
  923
  973
  1,025
  1,079
  1,137
  1,196
  1,259
  1,325
  1,394
  1,466
  1,541
  1,621
  1,704
  1,791
  1,882
  1,978
  2,079
  2,184
Variable operating expenses, $m
  332
  353
  375
  398
  422
  448
  474
  501
  530
  559
  590
  623
  657
  692
  729
  768
  809
  852
  896
  943
  992
  1,043
  1,097
  1,153
  1,213
  1,275
  1,340
  1,408
  1,479
  1,555
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
  332
  353
  375
  398
  422
  448
  474
  501
  530
  559
  590
  623
  657
  692
  729
  768
  809
  852
  896
  943
  992
  1,043
  1,097
  1,153
  1,213
  1,275
  1,340
  1,408
  1,479
  1,555
Operating income, $m
  134
  143
  152
  161
  171
  181
  192
  203
  214
  226
  239
  252
  266
  280
  295
  311
  328
  345
  363
  382
  402
  422
  444
  467
  491
  516
  542
  570
  599
  630
EBITDA, $m
  179
  190
  202
  215
  228
  241
  255
  270
  285
  301
  318
  336
  354
  373
  393
  414
  436
  459
  483
  508
  535
  562
  591
  622
  654
  687
  722
  759
  797
  838
Interest expense (income), $m
  22
  25
  28
  32
  36
  40
  45
  49
  54
  59
  64
  69
  75
  80
  86
  93
  99
  106
  114
  121
  129
  138
  146
  156
  165
  175
  186
  197
  209
  221
  234
Earnings before tax, $m
  110
  115
  120
  125
  131
  137
  143
  149
  156
  163
  170
  178
  186
  194
  203
  212
  221
  231
  242
  253
  264
  276
  289
  302
  316
  330
  346
  362
  378
  396
Tax expense, $m
  30
  31
  32
  34
  35
  37
  39
  40
  42
  44
  46
  48
  50
  52
  55
  57
  60
  62
  65
  68
  71
  75
  78
  82
  85
  89
  93
  98
  102
  107
Net income, $m
  80
  84
  87
  91
  95
  100
  104
  109
  114
  119
  124
  130
  135
  142
  148
  155
  161
  169
  176
  184
  193
  202
  211
  220
  230
  241
  252
  264
  276
  289

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
  1,601
  1,704
  1,811
  1,923
  2,039
  2,160
  2,287
  2,419
  2,556
  2,700
  2,850
  3,007
  3,171
  3,342
  3,522
  3,709
  3,906
  4,111
  4,327
  4,552
  4,789
  5,037
  5,297
  5,569
  5,854
  6,154
  6,468
  6,797
  7,143
  7,505
Adjusted assets (=assets-cash), $m
  1,601
  1,704
  1,811
  1,923
  2,039
  2,160
  2,287
  2,419
  2,556
  2,700
  2,850
  3,007
  3,171
  3,342
  3,522
  3,709
  3,906
  4,111
  4,327
  4,552
  4,789
  5,037
  5,297
  5,569
  5,854
  6,154
  6,468
  6,797
  7,143
  7,505
Revenue / Adjusted assets
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
Average production assets, $m
  1,334
  1,420
  1,509
  1,602
  1,699
  1,800
  1,905
  2,015
  2,130
  2,249
  2,374
  2,505
  2,642
  2,784
  2,934
  3,090
  3,254
  3,425
  3,605
  3,793
  3,990
  4,196
  4,413
  4,640
  4,878
  5,127
  5,389
  5,663
  5,951
  6,253
Working capital, $m
  19
  20
  22
  23
  24
  26
  27
  29
  30
  32
  34
  36
  38
  40
  42
  44
  47
  49
  52
  54
  57
  60
  63
  66
  70
  73
  77
  81
  85
  90
Total debt, $m
  479
  544
  611
  681
  754
  830
  910
  993
  1,079
  1,169
  1,263
  1,362
  1,465
  1,573
  1,685
  1,803
  1,926
  2,056
  2,191
  2,333
  2,481
  2,637
  2,800
  2,971
  3,150
  3,338
  3,536
  3,742
  3,959
  4,187
Total liabilities, $m
  1,005
  1,070
  1,137
  1,208
  1,281
  1,357
  1,436
  1,519
  1,605
  1,696
  1,790
  1,888
  1,991
  2,099
  2,212
  2,329
  2,453
  2,582
  2,717
  2,859
  3,007
  3,163
  3,326
  3,497
  3,677
  3,865
  4,062
  4,269
  4,486
  4,713
Total equity, $m
  596
  634
  674
  715
  759
  804
  851
  900
  951
  1,004
  1,060
  1,119
  1,180
  1,243
  1,310
  1,380
  1,453
  1,529
  1,610
  1,694
  1,781
  1,874
  1,970
  2,072
  2,178
  2,289
  2,406
  2,529
  2,657
  2,792
Total liabilities and equity, $m
  1,601
  1,704
  1,811
  1,923
  2,040
  2,161
  2,287
  2,419
  2,556
  2,700
  2,850
  3,007
  3,171
  3,342
  3,522
  3,709
  3,906
  4,111
  4,327
  4,553
  4,788
  5,037
  5,296
  5,569
  5,855
  6,154
  6,468
  6,798
  7,143
  7,505
Debt-to-equity ratio
  0.800
  0.860
  0.910
  0.950
  0.990
  1.030
  1.070
  1.100
  1.130
  1.160
  1.190
  1.220
  1.240
  1.260
  1.290
  1.310
  1.330
  1.340
  1.360
  1.380
  1.390
  1.410
  1.420
  1.430
  1.450
  1.460
  1.470
  1.480
  1.490
  1.500
Adjusted equity ratio
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  80
  84
  87
  91
  95
  100
  104
  109
  114
  119
  124
  130
  135
  142
  148
  155
  161
  169
  176
  184
  193
  202
  211
  220
  230
  241
  252
  264
  276
  289
Depreciation, amort., depletion, $m
  45
  47
  50
  54
  57
  60
  64
  67
  71
  75
  79
  84
  88
  93
  98
  103
  108
  114
  120
  126
  133
  140
  147
  155
  163
  171
  180
  189
  198
  208
Funds from operations, $m
  125
  131
  138
  145
  152
  160
  168
  176
  185
  194
  203
  213
  224
  234
  246
  258
  270
  283
  297
  311
  326
  341
  358
  375
  393
  412
  432
  453
  475
  497
Change in working capital, $m
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
Cash from operations, $m
  123
  130
  137
  144
  151
  158
  166
  175
  183
  192
  201
  211
  222
  232
  244
  255
  268
  280
  294
  308
  323
  338
  355
  372
  390
  408
  428
  449
  470
  493
Maintenance CAPEX, $m
  -42
  -44
  -47
  -50
  -53
  -57
  -60
  -64
  -67
  -71
  -75
  -79
  -84
  -88
  -93
  -98
  -103
  -108
  -114
  -120
  -126
  -133
  -140
  -147
  -155
  -163
  -171
  -180
  -189
  -198
New CAPEX, $m
  -82
  -86
  -89
  -93
  -97
  -101
  -105
  -110
  -115
  -120
  -125
  -131
  -137
  -143
  -149
  -156
  -164
  -171
  -179
  -188
  -197
  -206
  -216
  -227
  -238
  -249
  -262
  -274
  -288
  -302
Cash from investing activities, $m
  -124
  -130
  -136
  -143
  -150
  -158
  -165
  -174
  -182
  -191
  -200
  -210
  -221
  -231
  -242
  -254
  -267
  -279
  -293
  -308
  -323
  -339
  -356
  -374
  -393
  -412
  -433
  -454
  -477
  -500
Free cash flow, $m
  -1
  -1
  0
  0
  0
  1
  1
  1
  1
  1
  1
  2
  2
  1
  1
  1
  1
  1
  0
  0
  -1
  -1
  -2
  -2
  -3
  -4
  -4
  -5
  -6
  -7
Issuance/(repayment) of debt, $m
  62
  65
  67
  70
  73
  76
  79
  83
  86
  90
  94
  98
  103
  108
  113
  118
  123
  129
  135
  142
  149
  156
  163
  171
  179
  188
  197
  207
  217
  228
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  
  62
  65
  67
  70
  73
  76
  79
  83
  86
  90
  94
  98
  103
  108
  113
  118
  123
  129
  135
  142
  149
  156
  163
  171
  179
  188
  197
  207
  217
  228
Total cash flow (excl. dividends), $m
  61
  64
  67
  70
  74
  77
  80
  84
  88
  92
  96
  100
  104
  109
  114
  119
  124
  130
  136
  142
  148
  155
  162
  169
  176
  184
  193
  202
  211
  220
Retained Cash Flow (-), $m
  -37
  -38
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -53
  -56
  -58
  -61
  -64
  -67
  -70
  -73
  -77
  -80
  -84
  -88
  -92
  -97
  -101
  -106
  -111
  -117
  -123
  -129
  -135
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
  24
  26
  27
  29
  30
  32
  33
  35
  37
  38
  40
  42
  43
  45
  47
  49
  51
  53
  55
  58
  60
  62
  65
  68
  70
  73
  76
  79
  82
  86
Discount rate, %
  6.10
  6.41
  6.73
  7.06
  7.41
  7.79
  8.17
  8.58
  9.01
  9.46
  9.94
  10.43
  10.95
  11.50
  12.08
  12.68
  13.32
  13.98
  14.68
  15.41
  16.19
  16.99
  17.84
  18.74
  19.67
  20.66
  21.69
  22.77
  23.91
  25.11
PV of cash for distribution, $m
  23
  23
  22
  22
  21
  20
  19
  18
  17
  15
  14
  13
  11
  10
  9
  7
  6
  5
  4
  3
  3
  2
  1
  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

American States Water Company (AWR) is a holding company. The Company is the parent company of Golden State Water Company (GSWC) and American States Utility Services, Inc. (ASUS), as well as ASUS' subsidiaries, such as Fort Bliss Water Services Company (FBWS), Terrapin Utility Services, Inc. (TUS), Old Dominion Utility Services, Inc. (ODUS), Palmetto State Utility Services, Inc. (PSUS) and Old North Utility Services, Inc. (ONUS). The Company's segments include water, electric and contracted services. Within the segments, AWR has two principal business units, water and electric service utility operations, conducted through GSWC, and contracted services conducted through ASUS and its subsidiaries. GSWC is a public utility engaged principally in the purchase, production, distribution and sale of water. As of December 31, 2016, GSWC was engaged in purchase, production, distribution and sale of water in 10 counties in the State of California.

FINANCIAL RATIOS  of  American States Water Company (AWR)

Valuation Ratios
P/E Ratio 45.6
Price to Sales 6.3
Price to Book 5.5
Price to Tangible Book
Price to Cash Flow 28.2
Price to Free Cash Flow -82.8
Growth Rates
Sales Growth Rate -5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 49.4%
Cap. Spend. - 3 Yr. Gr. Rate 6%
Financial Strength
Quick Ratio 0
Current Ratio 0.4
LT Debt to Equity 65%
Total Debt to Equity 83.2%
Interest Coverage 5
Management Effectiveness
Return On Assets 5.3%
Ret/ On Assets - 3 Yr. Avg. 4.7%
Return On Total Capital 7%
Ret/ On T. Cap. - 3 Yr. Avg. 7.2%
Return On Equity 12.5%
Return On Equity - 3 Yr. Avg. 12.3%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 35.6%
EBITDA Margin - 3 Yr. Avg. 32.2%
Operating Margin 26.4%
Oper. Margin - 3 Yr. Avg. 25.9%
Pre-Tax Margin 21.6%
Pre-Tax Margin - 3 Yr. Avg. 21.4%
Net Profit Margin 13.8%
Net Profit Margin - 3 Yr. Avg. 13.3%
Effective Tax Rate 36.2%
Eff/ Tax Rate - 3 Yr. Avg. 37.8%
Payout Ratio 55%

AWR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AWR stock intrinsic value calculation we used $437 million for the last fiscal year's total revenue generated by American States Water Company. The default revenue input number comes from 0001 income statement of American States Water Company. 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 AWR stock valuation model: a) initial revenue growth rate of 6.6% 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 6.1%, whose default value for AWR is calculated based on our internal credit rating of American States Water Company, 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 American States Water Company.
    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 AWR stock the variable cost ratio is equal to 71.2%.

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 AWR 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 5.9% for American States Water Company.

Corporate tax rate of 27% is the nominal tax rate for American States Water Company. 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 AWR 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 AWR are equal to 286.3%.

Life of production assets of 30.8 years is the average useful life of capital assets used in American States Water Company 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 AWR is equal to 4.1%. 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 - $558.223 million for American States Water Company - 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 36.802 million for American States Water Company 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 American States Water Company at the current share price and the inputted number of shares is $2.8 billion.

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