Intrinsic value of American States Water - AWR

Previous Close

$60.44

  Intrinsic Value

$13.57

stock screener

  Rating & Target

str. sell

-78%

Previous close

$60.44

 
Intrinsic value

$13.57

 
Up/down potential

-78%

 
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 2017), $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 2.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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
   2047

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
  450
  460
  472
  485
  500
  516
  534
  553
  573
  595
  619
  644
  671
  699
  729
  761
  795
  831
  869
  908
  951
  995
  1,042
  1,091
  1,143
  1,198
  1,255
  1,316
  1,380
  1,447
Variable operating expenses, $m
  332
  340
  348
  358
  369
  381
  394
  408
  423
  439
  457
  475
  495
  516
  538
  562
  587
  613
  641
  670
  701
  734
  769
  805
  843
  884
  926
  971
  1,018
  1,067
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
  340
  348
  358
  369
  381
  394
  408
  423
  439
  457
  475
  495
  516
  538
  562
  587
  613
  641
  670
  701
  734
  769
  805
  843
  884
  926
  971
  1,018
  1,067
Operating income, $m
  118
  121
  124
  127
  131
  135
  140
  145
  150
  156
  162
  169
  176
  183
  191
  200
  208
  218
  228
  238
  249
  261
  273
  286
  300
  314
  329
  345
  362
  379
EBITDA, $m
  238
  244
  250
  257
  265
  273
  283
  293
  304
  315
  328
  341
  355
  370
  386
  403
  421
  440
  460
  481
  504
  527
  552
  578
  606
  635
  665
  697
  731
  766
Interest expense (income), $m
  22
  22
  23
  24
  25
  27
  29
  30
  32
  35
  37
  39
  42
  45
  48
  51
  55
  58
  62
  66
  71
  75
  80
  85
  91
  96
  102
  109
  115
  122
  129
Earnings before tax, $m
  96
  98
  100
  102
  104
  107
  109
  112
  116
  119
  123
  127
  131
  135
  140
  145
  150
  155
  161
  167
  174
  181
  188
  195
  203
  212
  221
  230
  240
  250
Tax expense, $m
  26
  26
  27
  28
  28
  29
  30
  30
  31
  32
  33
  34
  35
  37
  38
  39
  40
  42
  44
  45
  47
  49
  51
  53
  55
  57
  60
  62
  65
  67
Net income, $m
  70
  71
  73
  74
  76
  78
  80
  82
  84
  87
  90
  92
  96
  99
  102
  106
  109
  114
  118
  122
  127
  132
  137
  143
  148
  155
  161
  168
  175
  182

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
  1,446
  1,480
  1,518
  1,560
  1,608
  1,660
  1,716
  1,777
  1,843
  1,914
  1,990
  2,070
  2,156
  2,248
  2,345
  2,447
  2,556
  2,671
  2,793
  2,921
  3,056
  3,199
  3,350
  3,508
  3,675
  3,851
  4,036
  4,231
  4,436
  4,651
Adjusted assets (=assets-cash), $m
  1,446
  1,480
  1,518
  1,560
  1,608
  1,660
  1,716
  1,777
  1,843
  1,914
  1,990
  2,070
  2,156
  2,248
  2,345
  2,447
  2,556
  2,671
  2,793
  2,921
  3,056
  3,199
  3,350
  3,508
  3,675
  3,851
  4,036
  4,231
  4,436
  4,651
Revenue / Adjusted assets
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
Average production assets, $m
  1,204
  1,231
  1,263
  1,299
  1,338
  1,381
  1,428
  1,479
  1,534
  1,593
  1,656
  1,723
  1,795
  1,871
  1,951
  2,037
  2,127
  2,223
  2,324
  2,431
  2,544
  2,662
  2,788
  2,920
  3,059
  3,205
  3,359
  3,521
  3,692
  3,871
Working capital, $m
  -47
  -48
  -50
  -51
  -52
  -54
  -56
  -58
  -60
  -62
  -65
  -68
  -70
  -73
  -77
  -80
  -83
  -87
  -91
  -95
  -100
  -104
  -109
  -115
  -120
  -126
  -132
  -138
  -145
  -152
Total debt, $m
  399
  420
  444
  470
  500
  533
  568
  606
  647
  692
  739
  790
  843
  901
  961
  1,026
  1,094
  1,166
  1,242
  1,322
  1,407
  1,496
  1,591
  1,690
  1,794
  1,904
  2,020
  2,142
  2,271
  2,405
Total liabilities, $m
  905
  926
  950
  977
  1,006
  1,039
  1,074
  1,113
  1,154
  1,198
  1,245
  1,296
  1,350
  1,407
  1,468
  1,532
  1,600
  1,672
  1,748
  1,829
  1,913
  2,003
  2,097
  2,196
  2,301
  2,411
  2,527
  2,649
  2,777
  2,912
Total equity, $m
  541
  553
  568
  584
  601
  621
  642
  665
  689
  716
  744
  774
  806
  841
  877
  915
  956
  999
  1,044
  1,092
  1,143
  1,197
  1,253
  1,312
  1,375
  1,440
  1,510
  1,582
  1,659
  1,740
Total liabilities and equity, $m
  1,446
  1,479
  1,518
  1,561
  1,607
  1,660
  1,716
  1,778
  1,843
  1,914
  1,989
  2,070
  2,156
  2,248
  2,345
  2,447
  2,556
  2,671
  2,792
  2,921
  3,056
  3,200
  3,350
  3,508
  3,676
  3,851
  4,037
  4,231
  4,436
  4,652
Debt-to-equity ratio
  0.740
  0.760
  0.780
  0.810
  0.830
  0.860
  0.880
  0.910
  0.940
  0.970
  0.990
  1.020
  1.050
  1.070
  1.100
  1.120
  1.140
  1.170
  1.190
  1.210
  1.230
  1.250
  1.270
  1.290
  1.310
  1.320
  1.340
  1.350
  1.370
  1.380
Adjusted equity ratio
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  70
  71
  73
  74
  76
  78
  80
  82
  84
  87
  90
  92
  96
  99
  102
  106
  109
  114
  118
  122
  127
  132
  137
  143
  148
  155
  161
  168
  175
  182
Depreciation, amort., depletion, $m
  120
  123
  126
  130
  134
  138
  143
  148
  153
  159
  166
  172
  179
  187
  195
  204
  213
  222
  232
  243
  254
  266
  279
  292
  306
  321
  336
  352
  369
  387
Funds from operations, $m
  191
  195
  199
  204
  210
  216
  223
  230
  238
  246
  255
  265
  275
  286
  297
  309
  322
  336
  350
  365
  381
  398
  416
  435
  454
  475
  497
  520
  544
  570
Change in working capital, $m
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
Cash from operations, $m
  192
  196
  200
  206
  212
  218
  225
  232
  240
  249
  258
  267
  278
  289
  300
  313
  326
  340
  354
  370
  386
  403
  421
  440
  460
  481
  503
  526
  551
  577
Maintenance CAPEX, $m
  -118
  -120
  -123
  -126
  -130
  -134
  -138
  -143
  -148
  -153
  -159
  -166
  -172
  -179
  -187
  -195
  -204
  -213
  -222
  -232
  -243
  -254
  -266
  -279
  -292
  -306
  -321
  -336
  -352
  -369
New CAPEX, $m
  -25
  -28
  -32
  -36
  -39
  -43
  -47
  -51
  -55
  -59
  -63
  -67
  -72
  -76
  -81
  -86
  -91
  -96
  -101
  -107
  -113
  -119
  -125
  -132
  -139
  -146
  -154
  -162
  -171
  -179
Cash from investing activities, $m
  -143
  -148
  -155
  -162
  -169
  -177
  -185
  -194
  -203
  -212
  -222
  -233
  -244
  -255
  -268
  -281
  -295
  -309
  -323
  -339
  -356
  -373
  -391
  -411
  -431
  -452
  -475
  -498
  -523
  -548
Free cash flow, $m
  49
  48
  46
  44
  42
  41
  40
  38
  37
  36
  35
  35
  34
  33
  33
  32
  32
  31
  31
  30
  30
  30
  29
  29
  29
  29
  28
  28
  28
  28
Issuance/(repayment) of debt, $m
  19
  21
  24
  27
  30
  32
  35
  38
  41
  44
  47
  51
  54
  57
  61
  64
  68
  72
  76
  80
  85
  89
  94
  99
  105
  110
  116
  122
  128
  135
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  
  19
  21
  24
  27
  30
  32
  35
  38
  41
  44
  47
  51
  54
  57
  61
  64
  68
  72
  76
  80
  85
  89
  94
  99
  105
  110
  116
  122
  128
  135
Total cash flow (excl. dividends), $m
  68
  69
  69
  71
  72
  73
  75
  77
  79
  81
  83
  85
  88
  90
  93
  96
  100
  103
  107
  111
  115
  119
  124
  128
  133
  139
  144
  150
  156
  163
Retained Cash Flow (-), $m
  -11
  -12
  -14
  -16
  -18
  -19
  -21
  -23
  -25
  -26
  -28
  -30
  -32
  -34
  -36
  -38
  -41
  -43
  -45
  -48
  -51
  -53
  -56
  -59
  -62
  -66
  -69
  -73
  -77
  -81
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
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
Cash available for distribution, $m
  57
  56
  55
  55
  54
  54
  54
  54
  54
  54
  55
  55
  56
  56
  57
  58
  59
  60
  61
  63
  64
  66
  67
  69
  71
  73
  75
  77
  80
  82
Discount rate, %
  5.70
  5.99
  6.28
  6.60
  6.93
  7.27
  7.64
  8.02
  8.42
  8.84
  9.28
  9.75
  10.24
  10.75
  11.29
  11.85
  12.44
  13.06
  13.72
  14.40
  15.12
  15.88
  16.67
  17.51
  18.38
  19.30
  20.27
  21.28
  22.34
  23.46
PV of cash for distribution, $m
  54
  50
  46
  42
  39
  35
  32
  29
  26
  23
  21
  18
  16
  13
  11
  10
  8
  7
  5
  4
  3
  3
  2
  1
  1
  1
  1
  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 (AWR)

Valuation Ratios
P/E Ratio 36.8
Price to Sales 5.1
Price to Book 4.5
Price to Tangible Book
Price to Cash Flow 22.8
Price to Free Cash Flow -67
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 $441 million for the last fiscal year's total revenue generated by American States Water. The default revenue input number comes from 2017 income statement of American States Water. 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 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 5.7%, whose default value for AWR is calculated based on our internal credit rating of American States Water, 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.
    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 73.8%.

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 5.7% for American States Water.

Corporate tax rate of 27% is the nominal tax rate for American States Water. 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 0.7%.

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 267.6%.

Life of production assets of 10 years is the average useful life of capital assets used in American States Water 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 -10.5%. 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 - $530 million for American States Water - 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 37 million for American States Water 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 at the current share price and the inputted number of shares is $2.2 billion.

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COMPANY NEWS

▶ American States Water: 2Q Earnings Snapshot   [06:59PM  Associated Press]
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▶ American States Water Gets Technical Rating Upgrade   [May-25-18 03:00AM  Investor's Business Daily]
▶ American States Water: 1Q Earnings Snapshot   [May-07-18 06:47PM  Associated Press]
▶ American States Water Company to Host Earnings Call   [Feb-27-18 10:05AM  ACCESSWIRE]
▶ American States Water posts 4Q profit   [Feb-26-18 06:59PM  Associated Press]
▶ American States Water misses 3Q profit forecasts   [Nov-06-17 06:45PM  Associated Press]
▶ Why Shares of American States Water Jumped 9% in October   [Nov-03-17 02:10PM  Motley Fool]
▶ American States Water beats 2Q profit forecasts   [Aug-04-17 01:12AM  Associated Press]
▶ Better Buy: Aqua America, Inc. vs. American States Water   [Jul-11-17 08:16AM  Motley Fool]
▶ 3 History-Making Stocks   [Jun-16-17 02:01PM  Motley Fool]
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