Intrinsic value of AZZ Inc. - AZZ

Previous Close

$43.53

  Intrinsic Value

$193.59

stock screener

  Rating & Target

str. buy

+345%

Previous close

$43.53

 
Intrinsic value

$193.59

 
Up/down potential

+345%

 
Rating

str. buy

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 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 1.1

 

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, %
  15.10
  14.09
  13.18
  12.36
  11.63
  10.96
  10.37
  9.83
  9.35
  8.91
  8.52
  8.17
  7.85
  7.57
  7.31
  7.08
  6.87
  6.68
  6.52
  6.36
  6.23
  6.11
  5.99
  5.90
  5.81
  5.73
  5.65
  5.59
  5.53
  5.48
Revenue, $m
  932
  1,064
  1,204
  1,353
  1,510
  1,676
  1,849
  2,031
  2,221
  2,419
  2,625
  2,839
  3,062
  3,294
  3,535
  3,785
  4,045
  4,316
  4,597
  4,889
  5,194
  5,511
  5,841
  6,186
  6,545
  6,920
  7,311
  7,719
  8,146
  8,592
Variable operating expenses, $m
  158
  173
  190
  207
  226
  245
  265
  287
  309
  332
  308
  334
  360
  387
  415
  445
  475
  507
  540
  574
  610
  648
  686
  727
  769
  813
  859
  907
  957
  1,010
Fixed operating expenses, $m
  639
  653
  667
  682
  697
  712
  728
  744
  760
  777
  794
  812
  829
  848
  866
  885
  905
  925
  945
  966
  987
  1,009
  1,031
  1,054
  1,077
  1,101
  1,125
  1,149
  1,175
  1,201
Total operating expenses, $m
  797
  826
  857
  889
  923
  957
  993
  1,031
  1,069
  1,109
  1,102
  1,146
  1,189
  1,235
  1,281
  1,330
  1,380
  1,432
  1,485
  1,540
  1,597
  1,657
  1,717
  1,781
  1,846
  1,914
  1,984
  2,056
  2,132
  2,211
Operating income, $m
  136
  238
  347
  464
  588
  718
  856
  1,000
  1,152
  1,310
  1,523
  1,694
  1,873
  2,059
  2,253
  2,455
  2,665
  2,884
  3,112
  3,349
  3,597
  3,855
  4,124
  4,405
  4,699
  5,006
  5,327
  5,663
  6,014
  6,382
EBITDA, $m
  222
  330
  445
  568
  698
  835
  980
  1,132
  1,291
  1,457
  1,631
  1,811
  1,999
  2,195
  2,399
  2,611
  2,832
  3,062
  3,301
  3,550
  3,810
  4,082
  4,365
  4,660
  4,969
  5,291
  5,628
  5,981
  6,350
  6,736
Interest expense (income), $m
  14
  16
  20
  24
  28
  33
  38
  43
  48
  54
  60
  66
  72
  79
  86
  93
  100
  108
  116
  124
  133
  142
  151
  161
  171
  182
  193
  205
  217
  229
  242
Earnings before tax, $m
  120
  218
  323
  435
  555
  680
  813
  952
  1,098
  1,250
  1,457
  1,622
  1,794
  1,974
  2,161
  2,355
  2,557
  2,768
  2,987
  3,216
  3,455
  3,703
  3,963
  4,234
  4,517
  4,813
  5,122
  5,446
  5,785
  6,140
Tax expense, $m
  32
  59
  87
  118
  150
  184
  220
  257
  296
  337
  393
  438
  484
  533
  583
  636
  690
  747
  807
  868
  933
  1,000
  1,070
  1,143
  1,220
  1,300
  1,383
  1,470
  1,562
  1,658
Net income, $m
  87
  159
  236
  318
  405
  497
  594
  695
  801
  912
  1,063
  1,184
  1,310
  1,441
  1,577
  1,719
  1,867
  2,021
  2,181
  2,348
  2,522
  2,703
  2,893
  3,091
  3,297
  3,514
  3,739
  3,976
  4,223
  4,482

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
  1,183
  1,350
  1,528
  1,717
  1,916
  2,126
  2,347
  2,577
  2,818
  3,070
  3,331
  3,603
  3,886
  4,180
  4,486
  4,804
  5,134
  5,477
  5,834
  6,205
  6,591
  6,994
  7,413
  7,850
  8,306
  8,781
  9,278
  9,796
  10,338
  10,904
Adjusted assets (=assets-cash), $m
  1,183
  1,350
  1,528
  1,717
  1,916
  2,126
  2,347
  2,577
  2,818
  3,070
  3,331
  3,603
  3,886
  4,180
  4,486
  4,804
  5,134
  5,477
  5,834
  6,205
  6,591
  6,994
  7,413
  7,850
  8,306
  8,781
  9,278
  9,796
  10,338
  10,904
Revenue / Adjusted assets
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
  0.788
Average production assets, $m
  526
  600
  679
  763
  852
  945
  1,043
  1,146
  1,253
  1,364
  1,480
  1,601
  1,727
  1,858
  1,994
  2,135
  2,282
  2,434
  2,593
  2,758
  2,929
  3,108
  3,295
  3,489
  3,691
  3,903
  4,123
  4,354
  4,594
  4,846
Working capital, $m
  220
  251
  284
  319
  356
  395
  436
  479
  524
  571
  619
  670
  723
  777
  834
  893
  955
  1,019
  1,085
  1,154
  1,226
  1,301
  1,379
  1,460
  1,545
  1,633
  1,725
  1,822
  1,922
  2,028
Total debt, $m
  370
  445
  525
  610
  700
  795
  894
  998
  1,106
  1,219
  1,337
  1,459
  1,587
  1,719
  1,857
  1,999
  2,148
  2,302
  2,463
  2,630
  2,804
  2,985
  3,174
  3,370
  3,575
  3,789
  4,013
  4,246
  4,490
  4,745
Total liabilities, $m
  532
  607
  687
  772
  862
  957
  1,056
  1,160
  1,268
  1,381
  1,499
  1,621
  1,749
  1,881
  2,019
  2,162
  2,310
  2,465
  2,625
  2,792
  2,966
  3,147
  3,336
  3,533
  3,738
  3,952
  4,175
  4,408
  4,652
  4,907
Total equity, $m
  651
  742
  840
  944
  1,054
  1,169
  1,291
  1,418
  1,550
  1,688
  1,832
  1,982
  2,137
  2,299
  2,467
  2,642
  2,824
  3,012
  3,209
  3,413
  3,625
  3,847
  4,077
  4,318
  4,568
  4,830
  5,103
  5,388
  5,686
  5,997
Total liabilities and equity, $m
  1,183
  1,349
  1,527
  1,716
  1,916
  2,126
  2,347
  2,578
  2,818
  3,069
  3,331
  3,603
  3,886
  4,180
  4,486
  4,804
  5,134
  5,477
  5,834
  6,205
  6,591
  6,994
  7,413
  7,851
  8,306
  8,782
  9,278
  9,796
  10,338
  10,904
Debt-to-equity ratio
  0.570
  0.600
  0.630
  0.650
  0.660
  0.680
  0.690
  0.700
  0.710
  0.720
  0.730
  0.740
  0.740
  0.750
  0.750
  0.760
  0.760
  0.760
  0.770
  0.770
  0.770
  0.780
  0.780
  0.780
  0.780
  0.780
  0.790
  0.790
  0.790
  0.790
Adjusted equity ratio
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  87
  159
  236
  318
  405
  497
  594
  695
  801
  912
  1,063
  1,184
  1,310
  1,441
  1,577
  1,719
  1,867
  2,021
  2,181
  2,348
  2,522
  2,703
  2,893
  3,091
  3,297
  3,514
  3,739
  3,976
  4,223
  4,482
Depreciation, amort., depletion, $m
  87
  92
  98
  104
  110
  117
  124
  132
  140
  148
  108
  117
  126
  136
  146
  156
  167
  178
  189
  201
  214
  227
  240
  255
  269
  285
  301
  318
  335
  354
Funds from operations, $m
  174
  251
  334
  422
  515
  614
  718
  827
  941
  1,060
  1,171
  1,301
  1,436
  1,576
  1,723
  1,875
  2,033
  2,198
  2,370
  2,549
  2,736
  2,930
  3,133
  3,345
  3,567
  3,798
  4,040
  4,293
  4,558
  4,836
Change in working capital, $m
  29
  31
  33
  35
  37
  39
  41
  43
  45
  47
  49
  51
  53
  55
  57
  59
  61
  64
  66
  69
  72
  75
  78
  81
  85
  88
  92
  96
  101
  105
Cash from operations, $m
  145
  220
  300
  387
  478
  575
  677
  784
  896
  1,013
  1,123
  1,250
  1,383
  1,522
  1,666
  1,816
  1,972
  2,134
  2,304
  2,480
  2,664
  2,856
  3,055
  3,264
  3,482
  3,710
  3,948
  4,197
  4,458
  4,730
Maintenance CAPEX, $m
  -33
  -38
  -44
  -50
  -56
  -62
  -69
  -76
  -84
  -91
  -100
  -108
  -117
  -126
  -136
  -146
  -156
  -167
  -178
  -189
  -201
  -214
  -227
  -240
  -255
  -269
  -285
  -301
  -318
  -335
New CAPEX, $m
  -69
  -74
  -79
  -84
  -89
  -93
  -98
  -103
  -107
  -112
  -116
  -121
  -126
  -131
  -136
  -141
  -147
  -153
  -159
  -165
  -172
  -179
  -186
  -194
  -203
  -211
  -221
  -230
  -241
  -252
Cash from investing activities, $m
  -102
  -112
  -123
  -134
  -145
  -155
  -167
  -179
  -191
  -203
  -216
  -229
  -243
  -257
  -272
  -287
  -303
  -320
  -337
  -354
  -373
  -393
  -413
  -434
  -458
  -480
  -506
  -531
  -559
  -587
Free cash flow, $m
  42
  107
  178
  253
  334
  419
  510
  605
  705
  810
  907
  1,021
  1,141
  1,265
  1,394
  1,529
  1,669
  1,815
  1,967
  2,126
  2,291
  2,463
  2,642
  2,829
  3,025
  3,229
  3,443
  3,666
  3,899
  4,143
Issuance/(repayment) of debt, $m
  69
  75
  80
  85
  90
  95
  99
  104
  108
  113
  118
  122
  127
  132
  138
  143
  149
  154
  161
  167
  174
  181
  189
  197
  205
  214
  223
  233
  244
  255
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  
  69
  75
  80
  85
  90
  95
  99
  104
  108
  113
  118
  122
  127
  132
  138
  143
  149
  154
  161
  167
  174
  181
  189
  197
  205
  214
  223
  233
  244
  255
Total cash flow (excl. dividends), $m
  112
  182
  258
  338
  424
  514
  609
  709
  814
  923
  1,025
  1,144
  1,268
  1,397
  1,532
  1,672
  1,818
  1,970
  2,128
  2,293
  2,465
  2,644
  2,831
  3,026
  3,230
  3,443
  3,666
  3,899
  4,143
  4,398
Retained Cash Flow (-), $m
  -86
  -92
  -98
  -104
  -110
  -116
  -121
  -127
  -133
  -138
  -144
  -150
  -156
  -162
  -168
  -175
  -182
  -189
  -196
  -204
  -213
  -221
  -231
  -240
  -251
  -262
  -273
  -285
  -298
  -311
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
  26
  91
  160
  234
  314
  398
  488
  582
  681
  785
  881
  994
  1,112
  1,236
  1,364
  1,497
  1,636
  1,781
  1,932
  2,089
  2,252
  2,423
  2,600
  2,786
  2,979
  3,182
  3,393
  3,614
  3,845
  4,087
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
  25
  81
  133
  181
  223
  260
  289
  311
  325
  332
  326
  320
  307
  289
  267
  242
  216
  188
  161
  135
  111
  90
  71
  54
  41
  30
  21
  15
  10
  7
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 Inc. (AZZ)

Valuation Ratios
P/E Ratio 18.5
Price to Sales 1.3
Price to Book 2.1
Price to Tangible Book
Price to Cash Flow 10.2
Price to Free Cash Flow 16.1
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 $810 million for the last fiscal year's total revenue generated by AZZ Inc.. The default revenue input number comes from 0001 income statement of AZZ Inc.. 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 15.1% 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 AZZ is calculated based on our internal credit rating of AZZ Inc., 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 Inc..
    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 17.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $625 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 Inc..

Corporate tax rate of 27% is the nominal tax rate for AZZ Inc.. 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%.

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 56.4%.

Life of production assets of 13.7 years is the average useful life of capital assets used in AZZ Inc. 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 23.6%. 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 - $565.203 million for AZZ Inc. - 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 26.192 million for AZZ Inc. 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 Inc. at the current share price and the inputted number of shares is $1.1 billion.

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