Intrinsic value of AZZ - AZZ

Previous Close

$55.50

  Intrinsic Value

$40.13

stock screener

  Rating & Target

sell

-28%

Previous close

$55.50

 
Intrinsic value

$40.13

 
Up/down potential

-28%

 
Rating

sell

We calculate the intrinsic value of AZZ 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 1.4

 

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
  876
  896
  919
  945
  974
  1,005
  1,040
  1,077
  1,117
  1,159
  1,205
  1,254
  1,306
  1,362
  1,420
  1,483
  1,548
  1,618
  1,692
  1,769
  1,852
  1,938
  2,029
  2,125
  2,226
  2,333
  2,445
  2,563
  2,687
  2,818
Variable operating expenses, $m
  487
  497
  509
  522
  536
  552
  570
  588
  608
  630
  608
  632
  659
  687
  716
  748
  781
  816
  853
  892
  934
  977
  1,023
  1,072
  1,123
  1,176
  1,233
  1,292
  1,355
  1,421
Fixed operating expenses, $m
  293
  300
  306
  313
  320
  327
  334
  342
  349
  357
  365
  373
  381
  389
  398
  407
  415
  425
  434
  444
  453
  463
  473
  484
  494
  505
  516
  528
  539
  551
Total operating expenses, $m
  780
  797
  815
  835
  856
  879
  904
  930
  957
  987
  973
  1,005
  1,040
  1,076
  1,114
  1,155
  1,196
  1,241
  1,287
  1,336
  1,387
  1,440
  1,496
  1,556
  1,617
  1,681
  1,749
  1,820
  1,894
  1,972
Operating income, $m
  96
  99
  104
  110
  118
  126
  136
  147
  159
  173
  233
  249
  267
  286
  306
  328
  352
  378
  405
  434
  465
  498
  533
  570
  609
  651
  696
  743
  793
  846
EBITDA, $m
  210
  215
  222
  230
  240
  251
  263
  277
  292
  309
  328
  348
  370
  393
  418
  445
  474
  505
  538
  573
  610
  650
  692
  737
  785
  835
  888
  945
  1,004
  1,068
Interest expense (income), $m
  14
  15
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  29
  30
  32
  34
  36
  38
  40
  43
  45
  48
  50
  53
  56
  59
  63
  66
Earnings before tax, $m
  81
  84
  88
  94
  100
  108
  117
  127
  138
  151
  210
  225
  241
  259
  277
  298
  320
  343
  369
  396
  424
  455
  487
  522
  559
  598
  639
  683
  730
  779
Tax expense, $m
  22
  23
  24
  25
  27
  29
  32
  34
  37
  41
  57
  61
  65
  70
  75
  80
  86
  93
  100
  107
  115
  123
  132
  141
  151
  161
  173
  185
  197
  210
Net income, $m
  59
  61
  65
  68
  73
  79
  85
  93
  101
  110
  153
  164
  176
  189
  203
  218
  234
  251
  269
  289
  310
  332
  356
  381
  408
  437
  467
  499
  533
  569

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
  998
  1,021
  1,047
  1,077
  1,109
  1,145
  1,184
  1,226
  1,272
  1,321
  1,373
  1,428
  1,488
  1,551
  1,618
  1,689
  1,764
  1,843
  1,927
  2,015
  2,109
  2,207
  2,311
  2,421
  2,536
  2,657
  2,785
  2,919
  3,061
  3,209
Adjusted assets (=assets-cash), $m
  998
  1,021
  1,047
  1,077
  1,109
  1,145
  1,184
  1,226
  1,272
  1,321
  1,373
  1,428
  1,488
  1,551
  1,618
  1,689
  1,764
  1,843
  1,927
  2,015
  2,109
  2,207
  2,311
  2,421
  2,536
  2,657
  2,785
  2,919
  3,061
  3,209
Revenue / Adjusted assets
  0.878
  0.878
  0.878
  0.877
  0.878
  0.878
  0.878
  0.878
  0.878
  0.877
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
Average production assets, $m
  690
  706
  724
  745
  767
  792
  819
  848
  880
  914
  950
  988
  1,029
  1,073
  1,119
  1,168
  1,220
  1,275
  1,333
  1,394
  1,459
  1,527
  1,599
  1,675
  1,754
  1,838
  1,927
  2,020
  2,118
  2,220
Working capital, $m
  74
  76
  78
  80
  83
  85
  88
  92
  95
  99
  102
  107
  111
  116
  121
  126
  132
  138
  144
  150
  157
  165
  172
  181
  189
  198
  208
  218
  228
  240
Total debt, $m
  281
  291
  303
  317
  332
  348
  366
  385
  406
  428
  452
  478
  505
  534
  564
  597
  631
  668
  706
  747
  789
  835
  882
  932
  985
  1,041
  1,099
  1,161
  1,225
  1,293
Total liabilities, $m
  457
  468
  480
  493
  508
  524
  542
  562
  582
  605
  629
  654
  681
  710
  741
  773
  808
  844
  882
  923
  966
  1,011
  1,059
  1,109
  1,161
  1,217
  1,275
  1,337
  1,402
  1,470
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
  1,196
  1,253
  1,312
  1,374
  1,440
  1,509
  1,582
  1,659
  1,739
Total liabilities and equity, $m
  998
  1,021
  1,048
  1,077
  1,109
  1,145
  1,184
  1,227
  1,271
  1,321
  1,373
  1,428
  1,487
  1,551
  1,618
  1,688
  1,764
  1,843
  1,926
  2,015
  2,109
  2,207
  2,312
  2,421
  2,535
  2,657
  2,784
  2,919
  3,061
  3,209
Debt-to-equity ratio
  0.520
  0.530
  0.530
  0.540
  0.550
  0.560
  0.570
  0.580
  0.590
  0.600
  0.610
  0.620
  0.630
  0.640
  0.640
  0.650
  0.660
  0.670
  0.680
  0.680
  0.690
  0.700
  0.700
  0.710
  0.720
  0.720
  0.730
  0.730
  0.740
  0.740
Adjusted equity ratio
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  59
  61
  65
  68
  73
  79
  85
  93
  101
  110
  153
  164
  176
  189
  203
  218
  234
  251
  269
  289
  310
  332
  356
  381
  408
  437
  467
  499
  533
  569
Depreciation, amort., depletion, $m
  114
  116
  118
  120
  122
  125
  127
  130
  133
  137
  95
  99
  103
  107
  112
  117
  122
  128
  133
  139
  146
  153
  160
  167
  175
  184
  193
  202
  212
  222
Funds from operations, $m
  174
  177
  182
  188
  195
  203
  213
  223
  234
  247
  248
  263
  279
  296
  314
  334
  356
  378
  402
  428
  456
  485
  516
  549
  583
  620
  659
  701
  745
  791
Change in working capital, $m
  1
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
Cash from operations, $m
  172
  176
  180
  186
  193
  201
  210
  220
  231
  243
  244
  259
  274
  291
  310
  329
  350
  372
  396
  422
  449
  477
  508
  540
  575
  611
  650
  691
  734
  780
Maintenance CAPEX, $m
  -68
  -69
  -71
  -72
  -74
  -77
  -79
  -82
  -85
  -88
  -91
  -95
  -99
  -103
  -107
  -112
  -117
  -122
  -128
  -133
  -139
  -146
  -153
  -160
  -167
  -175
  -184
  -193
  -202
  -212
New CAPEX, $m
  -13
  -16
  -18
  -20
  -23
  -25
  -27
  -29
  -31
  -34
  -36
  -39
  -41
  -44
  -46
  -49
  -52
  -55
  -58
  -61
  -65
  -68
  -72
  -76
  -80
  -84
  -88
  -93
  -98
  -103
Cash from investing activities, $m
  -81
  -85
  -89
  -92
  -97
  -102
  -106
  -111
  -116
  -122
  -127
  -134
  -140
  -147
  -153
  -161
  -169
  -177
  -186
  -194
  -204
  -214
  -225
  -236
  -247
  -259
  -272
  -286
  -300
  -315
Free cash flow, $m
  91
  91
  92
  93
  96
  99
  104
  109
  115
  121
  117
  125
  135
  145
  156
  168
  181
  195
  211
  227
  245
  263
  283
  305
  328
  352
  378
  405
  434
  465
Issuance/(repayment) of debt, $m
  9
  11
  12
  13
  15
  16
  18
  19
  21
  22
  24
  26
  27
  29
  31
  32
  34
  36
  38
  41
  43
  45
  48
  50
  53
  56
  58
  62
  65
  68
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  
  9
  11
  12
  13
  15
  16
  18
  19
  21
  22
  24
  26
  27
  29
  31
  32
  34
  36
  38
  41
  43
  45
  48
  50
  53
  56
  58
  62
  65
  68
Total cash flow (excl. dividends), $m
  100
  101
  104
  107
  111
  116
  121
  128
  135
  144
  141
  151
  162
  174
  187
  201
  216
  232
  249
  268
  287
  308
  331
  355
  380
  407
  436
  467
  499
  533
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
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
  18
  19
Cash available for distribution, $m
  89
  89
  89
  91
  93
  96
  100
  105
  111
  117
  112
  120
  130
  139
  150
  162
  175
  189
  204
  220
  237
  255
  275
  296
  318
  342
  367
  394
  422
  453
Discount rate, %
  5.40
  5.67
  5.95
  6.25
  6.56
  6.89
  7.24
  7.60
  7.98
  8.38
  8.80
  9.24
  9.70
  10.18
  10.69
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.04
  15.80
  16.59
  17.42
  18.29
  19.20
  20.16
  21.17
  22.23
PV of cash for distribution, $m
  85
  80
  75
  71
  68
  65
  61
  58
  56
  52
  44
  42
  39
  36
  33
  30
  26
  23
  20
  17
  14
  12
  9
  7
  6
  4
  3
  2
  2
  1
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

AZZ Inc. is a provider of galvanizing services, welding solutions, specialty electrical equipment and engineered services to the power generation, transmission, distribution, refining and industrial markets. The Company operates through two segments: Energy segment and Galvanizing segment. Its Energy segment provides products and services designed to support industrial, nuclear and electrical applications. Its product offerings include custom switchgear, electrical enclosures, medium and high voltage bus ducts, explosion proof and hazardous duty lighting, nuclear safety-related equipment and tubular products. Its Galvanizing segment provides hot dip galvanizing to the steel fabrication industry through facilities located throughout the United States and Canada. It serves fabricators or manufacturers that provide services to the electrical and telecommunications, bridge and highway, petrochemical and general industrial markets and various original equipment manufacturers.

FINANCIAL RATIOS  of  AZZ (AZZ)

Valuation Ratios
P/E Ratio 23.6
Price to Sales 1.7
Price to Book 2.7
Price to Tangible Book
Price to Cash Flow 13
Price to Free Cash Flow 20.6
Growth Rates
Sales Growth Rate -4.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 2.5%
Cap. Spend. - 3 Yr. Gr. Rate -0.9%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 47.9%
Total Debt to Equity 51.1%
Interest Coverage 7
Management Effectiveness
Return On Assets 7.2%
Ret/ On Assets - 3 Yr. Avg. 8.2%
Return On Total Capital 7.6%
Ret/ On T. Cap. - 3 Yr. Avg. 8.6%
Return On Equity 12.1%
Return On Equity - 3 Yr. Avg. 15.2%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 23.9%
Gross Margin - 3 Yr. Avg. 24.8%
EBITDA Margin 17.3%
EBITDA Margin - 3 Yr. Avg. 18.1%
Operating Margin 11.4%
Oper. Margin - 3 Yr. Avg. 12.7%
Pre-Tax Margin 9.9%
Pre-Tax Margin - 3 Yr. Avg. 10.8%
Net Profit Margin 7.1%
Net Profit Margin - 3 Yr. Avg. 7.9%
Effective Tax Rate 28.2%
Eff/ Tax Rate - 3 Yr. Avg. 27.3%
Payout Ratio 27.9%

AZZ stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AZZ stock intrinsic value calculation we used $859 million for the last fiscal year's total revenue generated by AZZ. The default revenue input number comes from 2017 income statement of AZZ. 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 AZZ 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 5.4%, whose default value for AZZ is calculated based on our internal credit rating of AZZ, 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 AZZ.
    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 AZZ stock the variable cost ratio is equal to 55.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $287 million in the base year in the intrinsic value calculation for AZZ 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 AZZ.

Corporate tax rate of 27% is the nominal tax rate for AZZ. 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 AZZ 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 AZZ are equal to 78.8%.

Life of production assets of 10 years is the average useful life of capital assets used in AZZ 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 AZZ is equal to 8.5%. 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 AZZ - 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 26 million for AZZ 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 AZZ at the current share price and the inputted number of shares is $1.4 billion.

RELATED COMPANIES Price Int.Val. Rating
AMSC American Super 5.12 1.07  str.sell
BGC General Cable 30.00 0.48  str.sell
POWL Powell Industr 35.09 7.25  str.sell
NOV National Oilwe 43.10 3.03  str.sell
VMI Valmont Indust 139.65 140.81  hold

COMPANY NEWS

▶ Moving Average Crossover Alert: AZZ (AZZ)   [Jul-19-18 07:26AM  Zacks]
▶ AZZ (AZZ) Shares March Higher, Can It Continue?   [Jul-17-18 09:35AM  Zacks]
▶ Why Campbell Soup, Veon, and AZZ Jumped Today   [Jul-03-18 01:15PM  Motley Fool]
▶ AZZ: Fiscal 1Q Earnings Snapshot   [06:51AM  Associated Press]
▶ Is It Time To Buy AZZ Inc (NYSE:AZZ)?   [Jun-22-18 07:17AM  Simply Wall St.]
▶ What Happened in the Stock Market Today   [May-15-18 04:56PM  Motley Fool]
▶ AZZ: Fiscal 3Q Earnings Snapshot   [06:45AM  Associated Press]
▶ AZZ: Fiscal 4Q Earnings Snapshot   [06:41AM  Associated Press]
▶ At $42.7, Is It Time To Buy AZZ Inc (NYSE:AZZ)?   [12:16PM  Simply Wall St.]
Follow us on:   twitter   twitter   twitter   twitter

ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2018. All rigths reserved.