Intrinsic value of CPFL Energia ADR - CPL

Previous Close

$17.11

  Intrinsic Value

$42.90

stock screener

  Rating & Target

str. buy

+151%

  Value-price divergence*

-9%

Previous close

$17.11

 
Intrinsic value

$42.90

 
Up/down potential

+151%

 
Rating

str. buy

 
Value-price divergence*

-9%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of CPL 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 2016), $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 8.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -7.22
  33.00
  30.20
  27.68
  25.41
  23.37
  21.53
  19.88
  18.39
  17.05
  15.85
  14.76
  13.79
  12.91
  12.12
  11.41
  10.76
  10.19
  9.67
  9.20
  8.78
  8.40
  8.06
  7.76
  7.48
  7.23
  7.01
  6.81
  6.63
  6.47
  6.32
Revenue, $m
  6,043
  8,037
  10,464
  13,361
  16,756
  20,672
  25,124
  30,119
  35,658
  41,739
  48,354
  55,492
  63,143
  71,293
  79,932
  89,048
  98,634
  108,684
  119,193
  130,162
  141,593
  153,493
  165,870
  178,737
  192,110
  206,006
  220,447
  235,457
  251,064
  267,296
  284,186
Variable operating expenses, $m
 
  6,920
  9,010
  11,504
  14,427
  17,798
  21,631
  25,931
  30,701
  35,936
  41,631
  47,777
  54,364
  61,381
  68,819
  76,668
  84,921
  93,573
  102,621
  112,065
  121,907
  132,152
  142,809
  153,887
  165,400
  177,364
  189,798
  202,721
  216,158
  230,133
  244,675
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
  5,147
  6,920
  9,010
  11,504
  14,427
  17,798
  21,631
  25,931
  30,701
  35,936
  41,631
  47,777
  54,364
  61,381
  68,819
  76,668
  84,921
  93,573
  102,621
  112,065
  121,907
  132,152
  142,809
  153,887
  165,400
  177,364
  189,798
  202,721
  216,158
  230,133
  244,675
Operating income, $m
  896
  1,117
  1,455
  1,857
  2,329
  2,874
  3,493
  4,187
  4,957
  5,803
  6,723
  7,715
  8,779
  9,912
  11,113
  12,381
  13,713
  15,111
  16,572
  18,097
  19,686
  21,341
  23,061
  24,850
  26,710
  28,642
  30,649
  32,736
  34,906
  37,163
  39,511
EBITDA, $m
  1,304
  1,659
  2,160
  2,757
  3,458
  4,266
  5,185
  6,216
  7,359
  8,614
  9,979
  11,453
  13,032
  14,714
  16,497
  18,378
  20,357
  22,431
  24,600
  26,863
  29,223
  31,678
  34,233
  36,889
  39,648
  42,516
  45,497
  48,595
  51,816
  55,166
  58,652
Interest expense (income), $m
  497
  425
  651
  926
  1,254
  1,638
  2,082
  2,586
  3,152
  3,779
  4,468
  5,217
  6,025
  6,892
  7,815
  8,793
  9,826
  10,911
  12,049
  13,240
  14,482
  15,777
  17,124
  18,526
  19,983
  21,498
  23,071
  24,707
  26,407
  28,174
  30,013
Earnings before tax, $m
  436
  692
  804
  932
  1,076
  1,235
  1,411
  1,601
  1,806
  2,024
  2,255
  2,498
  2,754
  3,020
  3,298
  3,587
  3,888
  4,199
  4,522
  4,857
  5,204
  5,564
  5,937
  6,324
  6,726
  7,144
  7,578
  8,029
  8,499
  8,989
  9,499
Tax expense, $m
  158
  187
  217
  252
  290
  334
  381
  432
  488
  546
  609
  675
  743
  815
  891
  969
  1,050
  1,134
  1,221
  1,311
  1,405
  1,502
  1,603
  1,708
  1,816
  1,929
  2,046
  2,168
  2,295
  2,427
  2,565
Net income, $m
  285
  505
  587
  680
  785
  902
  1,030
  1,169
  1,318
  1,477
  1,646
  1,824
  2,010
  2,205
  2,408
  2,619
  2,838
  3,065
  3,301
  3,546
  3,799
  4,062
  4,334
  4,617
  4,910
  5,215
  5,532
  5,862
  6,205
  6,562
  6,934

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,953
  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
  13,333
  15,136
  19,707
  25,162
  31,556
  38,931
  47,314
  56,720
  67,153
  78,604
  91,061
  104,505
  118,912
  134,262
  150,530
  167,699
  185,752
  204,677
  224,469
  245,126
  266,654
  289,064
  312,373
  336,605
  361,788
  387,958
  415,154
  443,423
  472,814
  503,383
  535,191
Adjusted assets (=assets-cash), $m
  11,380
  15,136
  19,707
  25,162
  31,556
  38,931
  47,314
  56,720
  67,153
  78,604
  91,061
  104,505
  118,912
  134,262
  150,530
  167,699
  185,752
  204,677
  224,469
  245,126
  266,654
  289,064
  312,373
  336,605
  361,788
  387,958
  415,154
  443,423
  472,814
  503,383
  535,191
Revenue / Adjusted assets
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
Average production assets, $m
  6,144
  8,174
  10,642
  13,588
  17,041
  21,024
  25,551
  30,631
  36,264
  42,448
  49,176
  56,435
  64,216
  72,505
  81,291
  90,562
  100,311
  110,531
  121,219
  132,375
  144,000
  156,102
  168,690
  181,776
  195,375
  209,508
  224,195
  239,460
  255,332
  271,840
  289,017
Working capital, $m
  747
  -40
  -52
  -67
  -84
  -103
  -126
  -151
  -178
  -209
  -242
  -277
  -316
  -356
  -400
  -445
  -493
  -543
  -596
  -651
  -708
  -767
  -829
  -894
  -961
  -1,030
  -1,102
  -1,177
  -1,255
  -1,336
  -1,421
Total debt, $m
  7,162
  9,169
  13,041
  17,661
  23,077
  29,324
  36,424
  44,391
  53,227
  62,927
  73,478
  84,864
  97,068
  110,069
  123,848
  138,390
  153,681
  169,711
  186,474
  203,971
  222,205
  241,186
  260,929
  281,453
  302,784
  324,950
  347,985
  371,928
  396,822
  422,714
  449,656
Total liabilities, $m
  10,813
  12,820
  16,692
  21,312
  26,728
  32,975
  40,075
  48,042
  56,878
  66,578
  77,129
  88,515
  100,719
  113,720
  127,499
  142,041
  157,332
  173,362
  190,125
  207,622
  225,856
  244,837
  264,580
  285,104
  306,435
  328,601
  351,636
  375,579
  400,473
  426,365
  453,307
Total equity, $m
  2,520
  2,316
  3,015
  3,850
  4,828
  5,956
  7,239
  8,678
  10,274
  12,026
  13,932
  15,989
  18,194
  20,542
  23,031
  25,658
  28,420
  31,316
  34,344
  37,504
  40,798
  44,227
  47,793
  51,501
  55,354
  59,358
  63,519
  67,844
  72,340
  77,018
  81,884
Total liabilities and equity, $m
  13,333
  15,136
  19,707
  25,162
  31,556
  38,931
  47,314
  56,720
  67,152
  78,604
  91,061
  104,504
  118,913
  134,262
  150,530
  167,699
  185,752
  204,678
  224,469
  245,126
  266,654
  289,064
  312,373
  336,605
  361,789
  387,959
  415,155
  443,423
  472,813
  503,383
  535,191
Debt-to-equity ratio
  2.842
  3.960
  4.330
  4.590
  4.780
  4.920
  5.030
  5.120
  5.180
  5.230
  5.270
  5.310
  5.340
  5.360
  5.380
  5.390
  5.410
  5.420
  5.430
  5.440
  5.450
  5.450
  5.460
  5.470
  5.470
  5.470
  5.480
  5.480
  5.490
  5.490
  5.490
Adjusted equity ratio
  0.050
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  285
  505
  587
  680
  785
  902
  1,030
  1,169
  1,318
  1,477
  1,646
  1,824
  2,010
  2,205
  2,408
  2,619
  2,838
  3,065
  3,301
  3,546
  3,799
  4,062
  4,334
  4,617
  4,910
  5,215
  5,532
  5,862
  6,205
  6,562
  6,934
Depreciation, amort., depletion, $m
  408
  542
  705
  900
  1,129
  1,393
  1,692
  2,029
  2,402
  2,811
  3,257
  3,737
  4,253
  4,802
  5,383
  5,997
  6,643
  7,320
  8,028
  8,767
  9,536
  10,338
  11,172
  12,038
  12,939
  13,875
  14,847
  15,858
  16,909
  18,003
  19,140
Funds from operations, $m
  1,344
  1,047
  1,292
  1,580
  1,914
  2,294
  2,722
  3,198
  3,720
  4,289
  4,903
  5,561
  6,263
  7,006
  7,791
  8,616
  9,481
  10,385
  11,329
  12,312
  13,336
  14,400
  15,506
  16,655
  17,849
  19,090
  20,379
  21,720
  23,114
  24,564
  26,074
Change in working capital, $m
  -121
  -10
  -12
  -14
  -17
  -20
  -22
  -25
  -28
  -30
  -33
  -36
  -38
  -41
  -43
  -46
  -48
  -50
  -53
  -55
  -57
  -59
  -62
  -64
  -67
  -69
  -72
  -75
  -78
  -81
  -84
Cash from operations, $m
  1,465
  1,057
  1,304
  1,595
  1,931
  2,314
  2,745
  3,223
  3,748
  4,319
  4,936
  5,597
  6,301
  7,047
  7,834
  8,662
  9,529
  10,436
  11,382
  12,367
  13,393
  14,459
  15,568
  16,719
  17,916
  19,159
  20,451
  21,795
  23,192
  24,646
  26,159
Maintenance CAPEX, $m
  0
  -407
  -541
  -705
  -900
  -1,129
  -1,392
  -1,692
  -2,029
  -2,402
  -2,811
  -3,257
  -3,737
  -4,253
  -4,802
  -5,383
  -5,997
  -6,643
  -7,320
  -8,028
  -8,767
  -9,536
  -10,338
  -11,172
  -12,038
  -12,939
  -13,875
  -14,847
  -15,858
  -16,909
  -18,003
New CAPEX, $m
  -708
  -2,030
  -2,468
  -2,946
  -3,453
  -3,983
  -4,527
  -5,080
  -5,634
  -6,184
  -6,727
  -7,260
  -7,781
  -8,289
  -8,786
  -9,272
  -9,749
  -10,220
  -10,688
  -11,155
  -11,626
  -12,102
  -12,588
  -13,086
  -13,600
  -14,132
  -14,687
  -15,266
  -15,872
  -16,508
  -17,177
Cash from investing activities, $m
  -1,206
  -2,437
  -3,009
  -3,651
  -4,353
  -5,112
  -5,919
  -6,772
  -7,663
  -8,586
  -9,538
  -10,517
  -11,518
  -12,542
  -13,588
  -14,655
  -15,746
  -16,863
  -18,008
  -19,183
  -20,393
  -21,638
  -22,926
  -24,258
  -25,638
  -27,071
  -28,562
  -30,113
  -31,730
  -33,417
  -35,180
Free cash flow, $m
  259
  -1,380
  -1,706
  -2,056
  -2,422
  -2,797
  -3,175
  -3,549
  -3,915
  -4,267
  -4,602
  -4,920
  -5,217
  -5,495
  -5,753
  -5,993
  -6,217
  -6,428
  -6,626
  -6,816
  -6,999
  -7,179
  -7,358
  -7,538
  -7,722
  -7,912
  -8,110
  -8,318
  -8,538
  -8,772
  -9,021
Issuance/(repayment) of debt, $m
  -77
  3,182
  3,872
  4,620
  5,416
  6,247
  7,101
  7,967
  8,836
  9,700
  10,551
  11,387
  12,203
  13,001
  13,780
  14,542
  15,291
  16,030
  16,763
  17,497
  18,234
  18,981
  19,743
  20,524
  21,330
  22,166
  23,035
  23,943
  24,894
  25,892
  26,941
Issuance/(repurchase) of shares, $m
  0
  69
  113
  155
  193
  226
  253
  270
  278
  275
  260
  233
  194
  144
  81
  8
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -33
  3,251
  3,985
  4,775
  5,609
  6,473
  7,354
  8,237
  9,114
  9,975
  10,811
  11,620
  12,397
  13,145
  13,861
  14,550
  15,291
  16,030
  16,763
  17,497
  18,234
  18,981
  19,743
  20,524
  21,330
  22,166
  23,035
  23,943
  24,894
  25,892
  26,941
Total cash flow (excl. dividends), $m
  225
  1,870
  2,278
  2,719
  3,187
  3,676
  4,178
  4,688
  5,200
  5,708
  6,209
  6,700
  7,181
  7,650
  8,108
  8,557
  9,073
  9,602
  10,137
  10,680
  11,235
  11,802
  12,385
  12,986
  13,608
  14,254
  14,925
  15,625
  16,356
  17,120
  17,920
Retained Cash Flow (-), $m
  -94
  -574
  -699
  -835
  -978
  -1,128
  -1,283
  -1,439
  -1,596
  -1,752
  -1,906
  -2,057
  -2,204
  -2,348
  -2,489
  -2,627
  -2,762
  -2,896
  -3,028
  -3,161
  -3,294
  -3,429
  -3,566
  -3,707
  -3,853
  -4,004
  -4,161
  -4,325
  -4,497
  -4,677
  -4,867
Prev. year cash balance distribution, $m
 
  778
  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
 
  2,074
  1,579
  1,884
  2,209
  2,547
  2,896
  3,249
  3,603
  3,955
  4,303
  4,643
  4,976
  5,301
  5,619
  5,930
  6,311
  6,707
  7,109
  7,520
  7,941
  8,373
  8,819
  9,279
  9,755
  10,250
  10,764
  11,300
  11,859
  12,443
  13,054
Discount rate, %
 
  7.50
  7.88
  8.27
  8.68
  9.12
  9.57
  10.05
  10.55
  11.08
  11.63
  12.22
  12.83
  13.47
  14.14
  14.85
  15.59
  16.37
  17.19
  18.05
  18.95
  19.90
  20.89
  21.94
  23.04
  24.19
  25.40
  26.67
  28.00
  29.40
  30.87
PV of cash for distribution, $m
 
  1,930
  1,357
  1,485
  1,583
  1,647
  1,673
  1,662
  1,615
  1,536
  1,431
  1,307
  1,169
  1,026
  882
  743
  621
  509
  409
  321
  247
  185
  136
  97
  67
  46
  30
  19
  12
  7
  4
Current shareholders' claim on cash, %
  100
  98.9
  97.5
  96.1
  94.7
  93.4
  92.3
  91.3
  90.5
  89.8
  89.2
  88.8
  88.5
  88.3
  88.2
  88.2
  88.2
  88.2
  88.2
  88.2
  88.2
  88.2
  88.2
  88.2
  88.2
  88.2
  88.2
  88.2
  88.2
  88.2
  88.2

CPFL Energia S.A. is a holding company. The Company, through its subsidiaries, distributes, generates, transmits and commercializes electricity in Brazil, as well as provides energy-related services. Its segments include Distribution, Conventional Generation Sources, Renewable Energy Generation, Commercialization and Services. The Company operates its distribution segment through its eight distributors. Its installed capacity in conventional generation is approximately 2,200 megawatt (MW). The Company, through its subsidiary CPFL Geracao, holds equity interests in eight Hydroelectric Power Plants. It operates in the segment of generation of energy of renewable sources, such as wind, biomass thermal plants, SHPPs and solar, through its subsidiary, CPFL Renovaveis. The Company operates in the segment of commercialization (power competitive supply) through its subsidiary, CPFL Brasil. The Company operates in the segment of value-added services providing electricity-related services.

FINANCIAL RATIOS  of  CPFL Energia ADR (CPL)

Valuation Ratios
P/E Ratio 61.1
Price to Sales 2.9
Price to Book 6.9
Price to Tangible Book
Price to Cash Flow 11.9
Price to Free Cash Flow 23
Growth Rates
Sales Growth Rate -7.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 57%
Cap. Spend. - 3 Yr. Gr. Rate 5.2%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 237.6%
Total Debt to Equity 284.2%
Interest Coverage 2
Management Effectiveness
Return On Assets 4.6%
Ret/ On Assets - 3 Yr. Avg. 4.9%
Return On Total Capital 3%
Ret/ On T. Cap. - 3 Yr. Avg. 3.3%
Return On Equity 11.5%
Return On Equity - 3 Yr. Avg. 12.3%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 22.2%
EBITDA Margin - 3 Yr. Avg. 22.1%
Operating Margin 14.8%
Oper. Margin - 3 Yr. Avg. 14.7%
Pre-Tax Margin 7.2%
Pre-Tax Margin - 3 Yr. Avg. 7.7%
Net Profit Margin 4.7%
Net Profit Margin - 3 Yr. Avg. 4.8%
Effective Tax Rate 36.2%
Eff/ Tax Rate - 3 Yr. Avg. 39.1%
Payout Ratio 25.6%

CPL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CPL stock intrinsic value calculation we used $6043 million for the last fiscal year's total revenue generated by CPFL Energia ADR. The default revenue input number comes from 2016 income statement of CPFL Energia ADR. 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 CPL stock valuation model: a) initial revenue growth rate of 33% 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 7.5%, whose default value for CPL is calculated based on our internal credit rating of CPFL Energia ADR, 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 CPFL Energia ADR.
    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 CPL stock the variable cost ratio is equal to 86.1%.

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 CPL 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 7.1% for CPFL Energia ADR.

Corporate tax rate of 27% is the nominal tax rate for CPFL Energia ADR. 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 CPL 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 CPL are equal to 101.7%.

Life of production assets of 15.1 years is the average useful life of capital assets used in CPFL Energia ADR 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 CPL is equal to -0.5%. 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 - $2520 million for CPFL Energia ADR - 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 508.168 million for CPFL Energia ADR 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 CPFL Energia ADR at the current share price and the inputted number of shares is $8.7 billion.

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COMPANY NEWS

▶ ETFs with exposure to CPFL Energia SA : October 10, 2017   [Oct-10-17 11:14AM  Capital Cube]
▶ ETFs with exposure to CPFL Energia SA : August 4, 2017   [Aug-03-17 08:02PM  Capital Cube]
▶ ETFs with exposure to CPFL Energia SA : July 13, 2017   [Jul-13-17 03:47PM  Capital Cube]
▶ ETFs with exposure to CPFL Energia SA : May 19, 2017   [May-19-17 01:46PM  Capital Cube]
▶ ETFs with exposure to CPFL Energia SA : April 12, 2017   [Apr-12-17 01:10PM  Capital Cube]
▶ 4 Stocks With Great 12-Month Performances   [Feb-16-17 02:19PM  GuruFocus.com]
▶ ETFs with exposure to CPFL Energia SA : January 12, 2017   [Jan-12-17 01:56PM  Capital Cube]
▶ ETFs with exposure to CPFL Energia SA : December 14, 2016   [Dec-14-16 12:53PM  Capital Cube]
▶ Is Diamondback Energy Inc (FANG) A Good Stock to Buy?   [Dec-06-16 04:45PM  Insider Monkey]
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▶ Smart Money is Pouring Into NetApp Inc. (NTAP)   [01:45PM  at Insider Monkey]
▶ [$$] China's State Grid to Acquire Additional Stake in Brazil's CPFL   [Sep-26-16 06:51AM  at The Wall Street Journal]
▶ [$$] Chinas State Grid Pursues Energy Deal in Brazil   [Aug-10-16 12:08AM  at The Wall Street Journal]
▶ Chinas State Grid eyes $13 billion utility deal in Brazil   [Aug-09-16 09:12PM  at MarketWatch]
▶ [$$] China Inc. Pursues Power, Glory With Big Brazil Deal   [08:33PM  at The Wall Street Journal]
▶ China Aims for Gold in Brazil Power Deal   [06:55AM  at MarketWatch]
▶ Welcome China, Latin America Is Waiting   [03:07AM  at Bloomberg]
▶ Chinas State Grid Said in Talks to Buy CPFL Energia Stake   [Jun-22-16 01:35PM  at Bloomberg]
▶ 7 Brazil Stocks To Watch As Impeachment Unfolds   [May-12-16 01:22PM  at Barrons.com]
▶ CPFL ENERGY INC Financials   [01:04PM  EDGAR Online Financials]
▶ 5 Utility Stocks to Trade for Breakout Gains in 2016   [Feb-02-16 07:49AM  at TheStreet]
▶ Embraer Leads Brazilian Stocks Set For 2016 Bounce   [Dec-07  06:08PM  at Investor's Business Daily]
▶ What Do Hedge Funds Think of Colfax Corp (CFX)?   [Nov-30  09:14AM  at Insider Monkey]
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▶ EBR, CPL And ELP, Pushing Utilities Sector Downward   [Oct-20  01:17PM  at TheStreet]
▶ Zacks Rank #5 Additions for Friday   [Oct-17  07:38AM  Zacks]
▶ Zacks Rank #5 Additions for Friday   [Oct-03  08:31AM  Zacks]
▶ 3 Stocks Pushing The Utilities Sector Downward   [Sep-29  01:03PM  at TheStreet]
▶ Zacks Rank #5 Additions for Friday   [Sep-05  08:26AM  Zacks]
Financial statements of CPL
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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