Intrinsic value of California Water Service Group - CWT

Previous Close

$40.80

  Intrinsic Value

$8.16

stock screener

  Rating & Target

str. sell

-80%

Previous close

$40.80

 
Intrinsic value

$8.16

 
Up/down potential

-80%

 
Rating

str. sell

We calculate the intrinsic value of CWT 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 2.0

 

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
  680
  696
  714
  734
  756
  780
  807
  836
  867
  900
  936
  974
  1,014
  1,057
  1,103
  1,151
  1,202
  1,256
  1,313
  1,374
  1,437
  1,505
  1,575
  1,650
  1,729
  1,811
  1,898
  1,990
  2,086
  2,188
Variable operating expenses, $m
  413
  422
  433
  445
  459
  474
  490
  507
  526
  546
  568
  591
  615
  641
  669
  698
  729
  762
  797
  833
  872
  913
  956
  1,001
  1,049
  1,099
  1,151
  1,207
  1,266
  1,327
Fixed operating expenses, $m
  144
  147
  151
  154
  157
  161
  164
  168
  172
  175
  179
  183
  187
  191
  195
  200
  204
  209
  213
  218
  223
  228
  233
  238
  243
  248
  254
  259
  265
  271
Total operating expenses, $m
  557
  569
  584
  599
  616
  635
  654
  675
  698
  721
  747
  774
  802
  832
  864
  898
  933
  971
  1,010
  1,051
  1,095
  1,141
  1,189
  1,239
  1,292
  1,347
  1,405
  1,466
  1,531
  1,598
Operating income, $m
  123
  126
  130
  135
  140
  146
  153
  161
  169
  179
  189
  200
  212
  225
  238
  253
  269
  286
  303
  323
  343
  364
  387
  411
  437
  464
  493
  523
  556
  590
EBITDA, $m
  204
  208
  214
  221
  229
  238
  248
  259
  272
  285
  299
  315
  331
  349
  368
  389
  410
  433
  458
  484
  512
  541
  573
  606
  641
  677
  716
  758
  801
  847
Interest expense (income), $m
  28
  44
  46
  49
  52
  55
  59
  63
  67
  72
  77
  82
  88
  95
  101
  109
  116
  124
  133
  142
  151
  161
  172
  183
  195
  207
  220
  234
  248
  263
  279
Earnings before tax, $m
  80
  80
  81
  83
  85
  88
  90
  94
  97
  102
  107
  112
  117
  123
  130
  137
  145
  153
  162
  171
  182
  193
  204
  217
  230
  244
  259
  275
  292
  310
Tax expense, $m
  22
  22
  22
  22
  23
  24
  24
  25
  26
  27
  29
  30
  32
  33
  35
  37
  39
  41
  44
  46
  49
  52
  55
  59
  62
  66
  70
  74
  79
  84
Net income, $m
  58
  59
  59
  61
  62
  64
  66
  68
  71
  74
  78
  81
  86
  90
  95
  100
  106
  112
  118
  125
  133
  141
  149
  158
  168
  178
  189
  201
  213
  227

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
  2,799
  2,864
  2,937
  3,020
  3,111
  3,212
  3,321
  3,440
  3,567
  3,704
  3,851
  4,007
  4,173
  4,350
  4,538
  4,737
  4,947
  5,170
  5,405
  5,653
  5,915
  6,192
  6,483
  6,790
  7,113
  7,454
  7,812
  8,189
  8,585
  9,002
Adjusted assets (=assets-cash), $m
  2,799
  2,864
  2,937
  3,020
  3,111
  3,212
  3,321
  3,440
  3,567
  3,704
  3,851
  4,007
  4,173
  4,350
  4,538
  4,737
  4,947
  5,170
  5,405
  5,653
  5,915
  6,192
  6,483
  6,790
  7,113
  7,454
  7,812
  8,189
  8,585
  9,002
Revenue / Adjusted assets
  0.243
  0.243
  0.243
  0.243
  0.243
  0.243
  0.243
  0.243
  0.243
  0.243
  0.243
  0.243
  0.243
  0.243
  0.243
  0.243
  0.243
  0.243
  0.243
  0.243
  0.243
  0.243
  0.243
  0.243
  0.243
  0.243
  0.243
  0.243
  0.243
  0.243
Average production assets, $m
  1,994
  2,040
  2,092
  2,151
  2,216
  2,288
  2,366
  2,450
  2,541
  2,638
  2,743
  2,854
  2,972
  3,098
  3,232
  3,374
  3,524
  3,682
  3,850
  4,026
  4,213
  4,410
  4,617
  4,836
  5,066
  5,309
  5,564
  5,832
  6,115
  6,412
Working capital, $m
  -68
  -70
  -71
  -73
  -76
  -78
  -81
  -84
  -87
  -90
  -94
  -97
  -101
  -106
  -110
  -115
  -120
  -126
  -131
  -137
  -144
  -150
  -158
  -165
  -173
  -181
  -190
  -199
  -209
  -219
Total debt, $m
  851
  899
  954
  1,016
  1,084
  1,159
  1,241
  1,329
  1,425
  1,527
  1,636
  1,753
  1,877
  2,009
  2,150
  2,298
  2,455
  2,622
  2,797
  2,983
  3,179
  3,385
  3,603
  3,832
  4,073
  4,328
  4,595
  4,877
  5,173
  5,485
Total liabilities, $m
  2,091
  2,139
  2,194
  2,256
  2,324
  2,399
  2,481
  2,569
  2,665
  2,767
  2,876
  2,993
  3,117
  3,250
  3,390
  3,538
  3,696
  3,862
  4,038
  4,223
  4,419
  4,625
  4,843
  5,072
  5,314
  5,568
  5,835
  6,117
  6,413
  6,725
Total equity, $m
  708
  725
  743
  764
  787
  813
  840
  870
  903
  937
  974
  1,014
  1,056
  1,101
  1,148
  1,198
  1,252
  1,308
  1,367
  1,430
  1,497
  1,567
  1,640
  1,718
  1,800
  1,886
  1,976
  2,072
  2,172
  2,278
Total liabilities and equity, $m
  2,799
  2,864
  2,937
  3,020
  3,111
  3,212
  3,321
  3,439
  3,568
  3,704
  3,850
  4,007
  4,173
  4,351
  4,538
  4,736
  4,948
  5,170
  5,405
  5,653
  5,916
  6,192
  6,483
  6,790
  7,114
  7,454
  7,811
  8,189
  8,585
  9,003
Debt-to-equity ratio
  1.200
  1.240
  1.280
  1.330
  1.380
  1.430
  1.480
  1.530
  1.580
  1.630
  1.680
  1.730
  1.780
  1.830
  1.870
  1.920
  1.960
  2.000
  2.050
  2.090
  2.120
  2.160
  2.200
  2.230
  2.260
  2.290
  2.330
  2.350
  2.380
  2.410
Adjusted equity ratio
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  58
  59
  59
  61
  62
  64
  66
  68
  71
  74
  78
  81
  86
  90
  95
  100
  106
  112
  118
  125
  133
  141
  149
  158
  168
  178
  189
  201
  213
  227
Depreciation, amort., depletion, $m
  80
  82
  84
  87
  89
  92
  95
  99
  102
  106
  110
  115
  119
  124
  130
  135
  142
  148
  155
  162
  169
  177
  185
  194
  203
  213
  223
  234
  246
  258
Funds from operations, $m
  138
  141
  144
  147
  151
  156
  161
  167
  173
  180
  188
  196
  205
  214
  225
  235
  247
  260
  273
  287
  302
  318
  335
  352
  371
  392
  413
  435
  459
  484
Change in working capital, $m
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
Cash from operations, $m
  140
  142
  146
  149
  154
  158
  164
  170
  177
  184
  191
  200
  209
  219
  229
  240
  252
  265
  279
  293
  308
  324
  342
  360
  379
  400
  421
  444
  469
  494
Maintenance CAPEX, $m
  -79
  -80
  -82
  -84
  -86
  -89
  -92
  -95
  -98
  -102
  -106
  -110
  -115
  -119
  -124
  -130
  -135
  -142
  -148
  -155
  -162
  -169
  -177
  -185
  -194
  -203
  -213
  -223
  -234
  -246
New CAPEX, $m
  -39
  -46
  -52
  -59
  -65
  -72
  -78
  -84
  -91
  -98
  -104
  -111
  -119
  -126
  -134
  -142
  -150
  -159
  -168
  -177
  -187
  -197
  -207
  -219
  -230
  -242
  -255
  -268
  -282
  -297
Cash from investing activities, $m
  -118
  -126
  -134
  -143
  -151
  -161
  -170
  -179
  -189
  -200
  -210
  -221
  -234
  -245
  -258
  -272
  -285
  -301
  -316
  -332
  -349
  -366
  -384
  -404
  -424
  -445
  -468
  -491
  -516
  -543
Free cash flow, $m
  22
  16
  11
  6
  2
  -2
  -6
  -9
  -13
  -16
  -19
  -22
  -24
  -27
  -29
  -31
  -33
  -35
  -37
  -39
  -40
  -42
  -43
  -44
  -45
  -46
  -47
  -48
  -48
  -48
Issuance/(repayment) of debt, $m
  44
  48
  55
  62
  68
  75
  82
  88
  95
  102
  109
  117
  124
  132
  140
  149
  157
  166
  176
  186
  196
  206
  218
  229
  241
  254
  268
  282
  296
  312
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  
  44
  48
  55
  62
  68
  75
  82
  88
  95
  102
  109
  117
  124
  132
  140
  149
  157
  166
  176
  186
  196
  206
  218
  229
  241
  254
  268
  282
  296
  312
Total cash flow (excl. dividends), $m
  67
  64
  66
  68
  70
  73
  76
  79
  83
  86
  91
  95
  100
  105
  111
  117
  124
  131
  139
  147
  156
  165
  175
  185
  196
  208
  221
  234
  248
  263
Retained Cash Flow (-), $m
  -15
  -16
  -19
  -21
  -23
  -25
  -28
  -30
  -32
  -35
  -37
  -40
  -42
  -45
  -47
  -50
  -53
  -56
  -60
  -63
  -66
  -70
  -74
  -78
  -82
  -86
  -91
  -95
  -100
  -106
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
  52
  48
  48
  47
  47
  48
  48
  49
  50
  52
  54
  56
  58
  61
  64
  67
  71
  75
  79
  84
  89
  95
  101
  108
  115
  122
  130
  139
  148
  158
Discount rate, %
  7.40
  7.77
  8.16
  8.57
  8.99
  9.44
  9.92
  10.41
  10.93
  11.48
  12.05
  12.66
  13.29
  13.95
  14.65
  15.38
  16.15
  16.96
  17.81
  18.70
  19.63
  20.62
  21.65
  22.73
  23.87
  25.06
  26.31
  27.63
  29.01
  30.46
PV of cash for distribution, $m
  48
  42
  38
  34
  31
  28
  25
  22
  20
  17
  15
  13
  11
  10
  8
  7
  6
  4
  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
  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

California Water Service Group is a holding company. The Company operates through the supply and distribution of water and providing water-related utility services segment. The Company, through its subsidiaries, provides non-regulated services and non-regulated services to private companies and municipalities. The bulk of the business consists of the production, purchase, storage, treatment, testing, distribution and sale of water for domestic, industrial, public and irrigation uses, and for fire protection. It also provides non-regulated water-related services. The non-regulated services include water system operation, billing and meter reading services. Non-regulated operations also include the lease of communication antenna sites, lab services and promotion of other non-regulated services. The Company under its non-regulated contract arrangements, operates municipally owned water systems, privately owned water and recycled water distribution systems.

FINANCIAL RATIOS  of  California Water Service Group (CWT)

Valuation Ratios
P/E Ratio 39.9
Price to Sales 3.2
Price to Book 3
Price to Tangible Book
Price to Cash Flow 12.2
Price to Free Cash Flow -28.4
Growth Rates
Sales Growth Rate 3.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 29.4%
Cap. Spend. - 3 Yr. Gr. Rate 13.2%
Financial Strength
Quick Ratio 0
Current Ratio 0.3
LT Debt to Equity 80.7%
Total Debt to Equity 99.4%
Interest Coverage 4
Management Effectiveness
Return On Assets 2.9%
Ret/ On Assets - 3 Yr. Avg. 3%
Return On Total Capital 3.9%
Ret/ On T. Cap. - 3 Yr. Avg. 4.3%
Return On Equity 7.5%
Return On Equity - 3 Yr. Avg. 8%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 27.6%
EBITDA Margin - 3 Yr. Avg. 27.6%
Operating Margin 16.6%
Oper. Margin - 3 Yr. Avg. 17%
Pre-Tax Margin 12.3%
Pre-Tax Margin - 3 Yr. Avg. 12.8%
Net Profit Margin 8%
Net Profit Margin - 3 Yr. Avg. 8.4%
Effective Tax Rate 34.7%
Eff/ Tax Rate - 3 Yr. Avg. 34.4%
Payout Ratio 67.3%

CWT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CWT stock intrinsic value calculation we used $666.89 million for the last fiscal year's total revenue generated by California Water Service Group. The default revenue input number comes from 0001 income statement of California Water Service Group. 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 CWT 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 7.4%, whose default value for CWT is calculated based on our internal credit rating of California Water Service Group, 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 California Water Service Group.
    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 CWT stock the variable cost ratio is equal to 60.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $141 million in the base year in the intrinsic value calculation for CWT 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 California Water Service Group.

Corporate tax rate of 27% is the nominal tax rate for California Water Service Group. 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 CWT 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 CWT are equal to 293.1%.

Life of production assets of 24.9 years is the average useful life of capital assets used in California Water Service Group 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 CWT is equal to -10%. 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 - $693.462 million for California Water Service Group - 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 48.07 million for California Water Service Group 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 California Water Service Group at the current share price and the inputted number of shares is $2.0 billion.

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COMPANY NEWS

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▶ California Water Service Group posts 4Q profit   [09:49AM  Associated Press]
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