Intrinsic value of American States Water - AWR

Previous Close

$68.01

  Intrinsic Value

$11.84

stock screener

  Rating & Target

str. sell

-83%

Previous close

$68.01

 
Intrinsic value

$11.84

 
Up/down potential

-83%

 
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 2.5

 

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
  449
  460
  472
  485
  500
  516
  533
  552
  573
  595
  618
  643
  670
  698
  729
  760
  794
  830
  868
  908
  950
  994
  1,041
  1,090
  1,142
  1,197
  1,254
  1,315
  1,378
  1,445
Variable operating expenses, $m
  331
  339
  348
  357
  368
  380
  393
  407
  422
  438
  455
  474
  494
  515
  537
  560
  585
  611
  639
  669
  700
  732
  767
  803
  841
  882
  924
  969
  1,015
  1,065
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
  331
  339
  348
  357
  368
  380
  393
  407
  422
  438
  455
  474
  494
  515
  537
  560
  585
  611
  639
  669
  700
  732
  767
  803
  841
  882
  924
  969
  1,015
  1,065
Operating income, $m
  118
  121
  124
  128
  131
  136
  140
  145
  151
  156
  163
  169
  176
  184
  192
  200
  209
  218
  228
  239
  250
  262
  274
  287
  301
  315
  330
  346
  363
  380
EBITDA, $m
  158
  162
  166
  171
  176
  182
  188
  195
  202
  210
  218
  227
  236
  246
  257
  268
  280
  292
  306
  320
  335
  350
  367
  384
  402
  422
  442
  463
  486
  509
Interest expense (income), $m
  22
  22
  23
  24
  25
  27
  28
  30
  32
  34
  37
  39
  42
  45
  48
  51
  55
  58
  62
  66
  71
  75
  80
  85
  91
  96
  102
  108
  115
  122
  129
Earnings before tax, $m
  97
  98
  100
  102
  105
  107
  110
  113
  116
  120
  123
  127
  131
  136
  141
  145
  151
  156
  162
  168
  175
  182
  189
  196
  204
  213
  222
  231
  241
  251
Tax expense, $m
  26
  27
  27
  28
  28
  29
  30
  30
  31
  32
  33
  34
  35
  37
  38
  39
  41
  42
  44
  45
  47
  49
  51
  53
  55
  57
  60
  62
  65
  68
Net income, $m
  70
  72
  73
  75
  76
  78
  80
  82
  85
  87
  90
  93
  96
  99
  103
  106
  110
  114
  118
  123
  128
  133
  138
  143
  149
  155
  162
  169
  176
  183

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
  1,445
  1,478
  1,516
  1,559
  1,606
  1,658
  1,715
  1,776
  1,842
  1,912
  1,988
  2,068
  2,154
  2,246
  2,343
  2,445
  2,554
  2,669
  2,790
  2,918
  3,054
  3,196
  3,347
  3,505
  3,672
  3,848
  4,033
  4,227
  4,432
  4,647
Adjusted assets (=assets-cash), $m
  1,445
  1,478
  1,516
  1,559
  1,606
  1,658
  1,715
  1,776
  1,842
  1,912
  1,988
  2,068
  2,154
  2,246
  2,343
  2,445
  2,554
  2,669
  2,790
  2,918
  3,054
  3,196
  3,347
  3,505
  3,672
  3,848
  4,033
  4,227
  4,432
  4,647
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
  1,201
  1,228
  1,260
  1,295
  1,335
  1,378
  1,425
  1,476
  1,530
  1,589
  1,652
  1,719
  1,790
  1,866
  1,947
  2,032
  2,122
  2,218
  2,319
  2,425
  2,538
  2,656
  2,781
  2,913
  3,051
  3,197
  3,351
  3,513
  3,683
  3,862
Working capital, $m
  59
  60
  62
  64
  65
  68
  70
  72
  75
  78
  81
  84
  88
  91
  95
  100
  104
  109
  114
  119
  124
  130
  136
  143
  150
  157
  164
  172
  181
  189
Total debt, $m
  398
  419
  443
  469
  499
  532
  567
  605
  646
  691
  738
  788
  842
  899
  960
  1,024
  1,092
  1,164
  1,240
  1,320
  1,405
  1,494
  1,589
  1,688
  1,792
  1,902
  2,018
  2,140
  2,268
  2,403
Total liabilities, $m
  905
  925
  949
  976
  1,005
  1,038
  1,073
  1,112
  1,153
  1,197
  1,244
  1,295
  1,349
  1,406
  1,466
  1,531
  1,599
  1,671
  1,747
  1,827
  1,912
  2,001
  2,095
  2,194
  2,299
  2,409
  2,524
  2,646
  2,774
  2,909
Total equity, $m
  540
  553
  567
  583
  601
  620
  641
  664
  689
  715
  743
  774
  806
  840
  876
  914
  955
  998
  1,044
  1,091
  1,142
  1,195
  1,252
  1,311
  1,373
  1,439
  1,508
  1,581
  1,658
  1,738
Total liabilities and equity, $m
  1,445
  1,478
  1,516
  1,559
  1,606
  1,658
  1,714
  1,776
  1,842
  1,912
  1,987
  2,069
  2,155
  2,246
  2,342
  2,445
  2,554
  2,669
  2,791
  2,918
  3,054
  3,196
  3,347
  3,505
  3,672
  3,848
  4,032
  4,227
  4,432
  4,647
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
  72
  73
  75
  76
  78
  80
  82
  85
  87
  90
  93
  96
  99
  103
  106
  110
  114
  118
  123
  128
  133
  138
  143
  149
  155
  162
  169
  176
  183
Depreciation, amort., depletion, $m
  40
  41
  42
  43
  45
  46
  48
  49
  51
  53
  55
  57
  60
  62
  65
  68
  71
  74
  77
  81
  85
  89
  93
  97
  102
  107
  112
  117
  123
  129
Funds from operations, $m
  111
  113
  115
  118
  121
  124
  128
  132
  136
  140
  145
  150
  156
  161
  167
  174
  181
  188
  196
  204
  212
  221
  231
  240
  251
  262
  274
  286
  299
  312
Change in working capital, $m
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  6
  7
  7
  8
  8
  8
  9
Cash from operations, $m
  109
  111
  114
  116
  119
  122
  126
  129
  133
  138
  142
  147
  152
  158
  164
  170
  176
  183
  191
  198
  207
  215
  224
  234
  244
  255
  266
  278
  290
  303
Maintenance CAPEX, $m
  -39
  -40
  -41
  -42
  -43
  -44
  -46
  -47
  -49
  -51
  -53
  -55
  -57
  -60
  -62
  -65
  -68
  -71
  -74
  -77
  -81
  -85
  -89
  -93
  -97
  -102
  -107
  -112
  -117
  -123
New CAPEX, $m
  -22
  -28
  -32
  -35
  -39
  -43
  -47
  -51
  -55
  -59
  -63
  -67
  -71
  -76
  -80
  -85
  -90
  -95
  -101
  -107
  -112
  -119
  -125
  -132
  -139
  -146
  -154
  -162
  -170
  -179
Cash from investing activities, $m
  -61
  -68
  -73
  -77
  -82
  -87
  -93
  -98
  -104
  -110
  -116
  -122
  -128
  -136
  -142
  -150
  -158
  -166
  -175
  -184
  -193
  -204
  -214
  -225
  -236
  -248
  -261
  -274
  -287
  -302
Free cash flow, $m
  48
  44
  41
  39
  37
  35
  33
  31
  29
  28
  26
  25
  23
  22
  21
  20
  18
  17
  16
  15
  13
  12
  11
  10
  8
  7
  6
  4
  3
  2
Issuance/(repayment) of debt, $m
  18
  21
  24
  27
  30
  32
  35
  38
  41
  44
  47
  51
  54
  57
  61
  64
  68
  72
  76
  80
  85
  89
  94
  99
  104
  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  
  18
  21
  24
  27
  30
  32
  35
  38
  41
  44
  47
  51
  54
  57
  61
  64
  68
  72
  76
  80
  85
  89
  94
  99
  104
  110
  116
  122
  128
  135
Total cash flow (excl. dividends), $m
  66
  65
  65
  65
  66
  67
  68
  69
  71
  72
  74
  75
  77
  79
  81
  84
  86
  89
  92
  95
  98
  101
  105
  109
  113
  117
  122
  126
  131
  136
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
  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
  55
  52
  51
  50
  49
  48
  47
  46
  46
  46
  45
  45
  45
  45
  45
  45
  46
  46
  46
  47
  47
  48
  49
  50
  50
  51
  52
  53
  55
  56
Discount rate, %
  5.80
  6.09
  6.39
  6.71
  7.05
  7.40
  7.77
  8.16
  8.57
  9.00
  9.45
  9.92
  10.42
  10.94
  11.48
  12.06
  12.66
  13.29
  13.96
  14.66
  15.39
  16.16
  16.97
  17.81
  18.71
  19.64
  20.62
  21.65
  22.74
  23.87
PV of cash for distribution, $m
  52
  46
  42
  38
  35
  31
  28
  25
  22
  19
  17
  15
  12
  11
  9
  7
  6
  5
  4
  3
  2
  2
  1
  1
  1
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
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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 41.5
Price to Sales 5.7
Price to Book 5
Price to Tangible Book
Price to Cash Flow 25.6
Price to Free Cash Flow -75.4
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 $440.603 million for the last fiscal year's total revenue generated by American States Water. The default revenue input number comes from 0001 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 5.8%, 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 73.7%.

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%.

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 267.2%.

Life of production assets of 30 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 13.1%. 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 - $529.945 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 36.734 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 $2.5 billion.

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COMPANY NEWS

▶ 12 Stocks You Should Never Sell   [Dec-14-18 02:11PM  Kiplinger]
▶ American States Water: 3Q Earnings Snapshot   [07:05PM  Associated Press]
▶ American States Water: 2Q Earnings Snapshot   [06:59PM  Associated Press]
▶ 8 Stocks to Sell Immediately   [Aug-01-18 03:23PM  InvestorPlace]
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▶ 5 Top Dividend Kings to Buy and Hold Forever   [Jun-22-18 02:03PM  Motley Fool]
▶ 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]

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