Intrinsic value of US Ecology - ECOL

Previous Close

$53.35

  Intrinsic Value

$18.49

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  Rating & Target

str. sell

-65%

Previous close

$53.35

 
Intrinsic value

$18.49

 
Up/down potential

-65%

 
Rating

str. sell

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

We calculate the intrinsic value of ECOL 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 1.2

 

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, %
  -15.10
  3.30
  3.47
  3.62
  3.76
  3.88
  4.00
  4.10
  4.19
  4.27
  4.34
  4.41
  4.47
  4.52
  4.57
  4.61
  4.65
  4.68
  4.72
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
  4.92
Revenue, $m
  478
  494
  511
  529
  549
  571
  593
  618
  644
  671
  700
  731
  764
  798
  835
  873
  914
  957
  1,002
  1,049
  1,099
  1,152
  1,208
  1,266
  1,327
  1,392
  1,460
  1,531
  1,606
  1,685
  1,768
Variable operating expenses, $m
 
  431
  445
  461
  477
  495
  514
  534
  556
  579
  603
  609
  637
  665
  696
  728
  762
  797
  835
  875
  916
  960
  1,006
  1,055
  1,106
  1,160
  1,217
  1,276
  1,339
  1,404
  1,473
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
  406
  431
  445
  461
  477
  495
  514
  534
  556
  579
  603
  609
  637
  665
  696
  728
  762
  797
  835
  875
  916
  960
  1,006
  1,055
  1,106
  1,160
  1,217
  1,276
  1,339
  1,404
  1,473
Operating income, $m
  72
  63
  66
  69
  72
  76
  79
  84
  88
  92
  97
  122
  127
  133
  139
  145
  152
  159
  167
  175
  183
  192
  201
  211
  221
  232
  243
  255
  268
  281
  295
EBITDA, $m
  108
  108
  112
  116
  121
  125
  130
  136
  141
  147
  154
  160
  168
  175
  183
  192
  201
  210
  220
  230
  241
  253
  265
  278
  291
  305
  320
  336
  353
  370
  388
Interest expense (income), $m
  14
  13
  14
  15
  16
  17
  18
  19
  20
  22
  23
  25
  26
  28
  30
  31
  33
  35
  37
  40
  42
  45
  47
  50
  53
  56
  59
  63
  66
  70
  74
Earnings before tax, $m
  55
  49
  51
  54
  56
  59
  61
  64
  67
  71
  74
  97
  101
  105
  110
  114
  119
  124
  129
  135
  141
  147
  154
  161
  168
  176
  184
  192
  201
  211
  220
Tax expense, $m
  21
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
  26
  27
  28
  30
  31
  32
  33
  35
  36
  38
  40
  42
  43
  45
  47
  50
  52
  54
  57
  60
Net income, $m
  34
  36
  38
  39
  41
  43
  45
  47
  49
  52
  54
  71
  74
  77
  80
  83
  87
  91
  94
  99
  103
  107
  112
  117
  123
  128
  134
  140
  147
  154
  161

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  7
  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
  776
  794
  821
  851
  883
  917
  954
  993
  1,035
  1,079
  1,126
  1,175
  1,228
  1,283
  1,342
  1,404
  1,469
  1,538
  1,611
  1,687
  1,768
  1,852
  1,941
  2,035
  2,134
  2,238
  2,347
  2,462
  2,582
  2,709
  2,842
Adjusted assets (=assets-cash), $m
  769
  794
  821
  851
  883
  917
  954
  993
  1,035
  1,079
  1,126
  1,175
  1,228
  1,283
  1,342
  1,404
  1,469
  1,538
  1,611
  1,687
  1,768
  1,852
  1,941
  2,035
  2,134
  2,238
  2,347
  2,462
  2,582
  2,709
  2,842
Revenue / Adjusted assets
  0.622
  0.622
  0.622
  0.622
  0.622
  0.623
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
  0.622
Average production assets, $m
  455
  470
  486
  504
  523
  543
  565
  588
  613
  639
  667
  696
  727
  760
  795
  831
  870
  911
  954
  999
  1,047
  1,097
  1,150
  1,205
  1,264
  1,325
  1,390
  1,458
  1,529
  1,604
  1,683
Working capital, $m
  52
  52
  54
  56
  58
  60
  62
  65
  68
  70
  74
  77
  80
  84
  88
  92
  96
  100
  105
  110
  115
  121
  127
  133
  139
  146
  153
  161
  169
  177
  186
Total debt, $m
  280
  290
  308
  327
  347
  369
  393
  418
  444
  472
  502
  534
  567
  603
  640
  680
  721
  765
  812
  860
  912
  966
  1,023
  1,082
  1,145
  1,212
  1,281
  1,355
  1,431
  1,512
  1,597
Total liabilities, $m
  496
  506
  524
  543
  563
  585
  609
  634
  660
  688
  718
  750
  783
  819
  856
  896
  937
  981
  1,028
  1,076
  1,128
  1,182
  1,239
  1,298
  1,361
  1,428
  1,497
  1,571
  1,647
  1,728
  1,813
Total equity, $m
  280
  287
  297
  308
  320
  332
  345
  360
  375
  391
  408
  426
  445
  465
  486
  508
  532
  557
  583
  611
  640
  671
  703
  737
  772
  810
  850
  891
  935
  981
  1,029
Total liabilities and equity, $m
  776
  793
  821
  851
  883
  917
  954
  994
  1,035
  1,079
  1,126
  1,176
  1,228
  1,284
  1,342
  1,404
  1,469
  1,538
  1,611
  1,687
  1,768
  1,853
  1,942
  2,035
  2,133
  2,238
  2,347
  2,462
  2,582
  2,709
  2,842
Debt-to-equity ratio
  1.000
  1.010
  1.040
  1.060
  1.090
  1.110
  1.140
  1.160
  1.190
  1.210
  1.230
  1.250
  1.280
  1.300
  1.320
  1.340
  1.360
  1.370
  1.390
  1.410
  1.420
  1.440
  1.460
  1.470
  1.480
  1.500
  1.510
  1.520
  1.530
  1.540
  1.550
Adjusted equity ratio
  0.358
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  34
  36
  38
  39
  41
  43
  45
  47
  49
  52
  54
  71
  74
  77
  80
  83
  87
  91
  94
  99
  103
  107
  112
  117
  123
  128
  134
  140
  147
  154
  161
Depreciation, amort., depletion, $m
  36
  46
  46
  47
  48
  50
  51
  52
  53
  55
  56
  39
  40
  42
  44
  46
  48
  51
  53
  55
  58
  61
  64
  67
  70
  74
  77
  81
  85
  89
  94
Funds from operations, $m
  76
  82
  84
  87
  89
  92
  96
  99
  103
  106
  111
  110
  114
  119
  124
  129
  135
  141
  147
  154
  161
  168
  176
  184
  193
  202
  211
  221
  232
  243
  254
Change in working capital, $m
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  9
Cash from operations, $m
  75
  80
  82
  85
  87
  90
  93
  96
  100
  104
  107
  106
  111
  115
  120
  125
  131
  137
  143
  149
  156
  163
  170
  178
  186
  195
  204
  214
  224
  235
  246
Maintenance CAPEX, $m
  0
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -35
  -37
  -39
  -40
  -42
  -44
  -46
  -48
  -51
  -53
  -55
  -58
  -61
  -64
  -67
  -70
  -74
  -77
  -81
  -85
  -89
New CAPEX, $m
  -36
  -15
  -16
  -18
  -19
  -20
  -22
  -23
  -25
  -26
  -28
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -48
  -50
  -53
  -56
  -58
  -61
  -65
  -68
  -71
  -75
  -79
Cash from investing activities, $m
  -42
  -40
  -42
  -45
  -47
  -49
  -52
  -54
  -58
  -60
  -63
  -66
  -70
  -73
  -77
  -81
  -85
  -89
  -94
  -98
  -103
  -108
  -114
  -120
  -125
  -131
  -139
  -145
  -152
  -160
  -168
Free cash flow, $m
  33
  40
  40
  40
  40
  41
  41
  42
  43
  43
  44
  40
  41
  42
  43
  45
  46
  48
  49
  51
  53
  55
  57
  59
  61
  63
  66
  69
  72
  75
  78
Issuance/(repayment) of debt, $m
  -16
  15
  18
  19
  20
  22
  23
  25
  27
  28
  30
  32
  33
  35
  37
  39
  42
  44
  46
  49
  51
  54
  57
  60
  63
  66
  70
  73
  77
  81
  85
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
  0
Cash from financing (excl. dividends), $m  
  -16
  15
  18
  19
  20
  22
  23
  25
  27
  28
  30
  32
  33
  35
  37
  39
  42
  44
  46
  49
  51
  54
  57
  60
  63
  66
  70
  73
  77
  81
  85
Total cash flow (excl. dividends), $m
  17
  55
  57
  59
  61
  63
  65
  67
  69
  72
  74
  72
  74
  78
  81
  84
  88
  91
  95
  100
  104
  109
  114
  119
  124
  130
  136
  142
  148
  155
  163
Retained Cash Flow (-), $m
  -24
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -48
Prev. year cash balance distribution, $m
 
  2
  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
 
  48
  47
  48
  49
  50
  51
  53
  54
  56
  57
  54
  55
  57
  60
  62
  64
  67
  69
  72
  75
  78
  81
  85
  88
  92
  96
  100
  105
  110
  114
Discount rate, %
 
  7.30
  7.67
  8.05
  8.45
  8.87
  9.32
  9.78
  10.27
  10.79
  11.32
  11.89
  12.49
  13.11
  13.77
  14.45
  15.18
  15.93
  16.73
  17.57
  18.45
  19.37
  20.34
  21.35
  22.42
  23.54
  24.72
  25.96
  27.25
  28.62
  30.05
PV of cash for distribution, $m
 
  44
  41
  38
  36
  33
  30
  27
  25
  22
  20
  16
  14
  12
  10
  8
  7
  5
  4
  3
  3
  2
  1
  1
  1
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  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

US Ecology, Inc. is a provider of environmental services to commercial and government entities. The Company offers treatment, disposal and recycling of hazardous, non-hazardous and radioactive waste, as well as a range of field and industrial services. The Company operates in two business segments: Environmental Services, and Field & Industrial Services. Its Environmental Services segment provides a range of hazardous material management services, including transportation, recycling, treatment and disposal of hazardous and non-hazardous waste at Company-owned landfill, wastewater and other treatment facilities. The Company's Field & Industrial Services segment provides packaging and collection of hazardous waste and total waste management solutions at customer sites and through its transfer facilities. Its services include on-site management, waste characterization, transportation and disposal of non-hazardous and hazardous waste.

FINANCIAL RATIOS  of  US Ecology (ECOL)

Valuation Ratios
P/E Ratio 34.2
Price to Sales 2.4
Price to Book 4.1
Price to Tangible Book
Price to Cash Flow 15.5
Price to Free Cash Flow 29.8
Growth Rates
Sales Growth Rate -15.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -7.7%
Cap. Spend. - 3 Yr. Gr. Rate 11.4%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 98.2%
Total Debt to Equity 100%
Interest Coverage 5
Management Effectiveness
Return On Assets 5.5%
Ret/ On Assets - 3 Yr. Avg. 5.7%
Return On Total Capital 6.1%
Ret/ On T. Cap. - 3 Yr. Avg. 6.4%
Return On Equity 12.7%
Return On Equity - 3 Yr. Avg. 12.9%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 31%
Gross Margin - 3 Yr. Avg. 31.3%
EBITDA Margin 22%
EBITDA Margin - 3 Yr. Avg. 21.2%
Operating Margin 15.1%
Oper. Margin - 3 Yr. Avg. 14.6%
Pre-Tax Margin 11.5%
Pre-Tax Margin - 3 Yr. Avg. 11.2%
Net Profit Margin 7.1%
Net Profit Margin - 3 Yr. Avg. 6.7%
Effective Tax Rate 38.2%
Eff/ Tax Rate - 3 Yr. Avg. 40.2%
Payout Ratio 47.1%

ECOL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ECOL stock intrinsic value calculation we used $478 million for the last fiscal year's total revenue generated by US Ecology. The default revenue input number comes from 2016 income statement of US Ecology. 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 ECOL stock valuation model: a) initial revenue growth rate of 3.3% 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 7.3%, whose default value for ECOL is calculated based on our internal credit rating of US Ecology, 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 US Ecology.
    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 ECOL stock the variable cost ratio is equal to 87.4%.

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 ECOL 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 4.9% for US Ecology.

Corporate tax rate of 27% is the nominal tax rate for US Ecology. 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 ECOL 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 ECOL are equal to 95.2%.

Life of production assets of 18 years is the average useful life of capital assets used in US Ecology 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 ECOL is equal to 10.5%. 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 - $280 million for US Ecology - 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 21.788 million for US Ecology 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 US Ecology at the current share price and the inputted number of shares is $1.2 billion.

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COMPANY NEWS

▶ US Ecology meets 2Q profit forecasts   [Jul-27-17 11:53PM  Associated Press]
▶ US Ecology meets 2Q profit forecasts   [06:53PM  Associated Press]
▶ The Best Stock in Idaho: US Ecology   [Jul-18-17 02:50PM  Kiplinger]
▶ ETFs with exposure to US Ecology, Inc. : May 23, 2017   [May-23-17 12:39PM  Capital Cube]
▶ US Ecology misses 1Q profit forecasts   [Apr-27-17 07:18PM  Associated Press]
▶ 9 Small-Cap Stocks With Wide Moats   [Apr-12-17 06:00AM  Morningstar]
▶ US Ecology misses Street 4Q forecasts   [04:58PM  Associated Press]
▶ Is Forward Pharma A/S (FWP) A Good Stock to Buy?   [Dec-13-16 05:43AM  at Insider Monkey]
▶ Is US Ecology Inc. (ECOL) A Good Stock To Buy?   [Dec-10-16 01:27PM  at Insider Monkey]
Financial statements of ECOL
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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