Intrinsic value of El Paso Electric - EE

Previous Close

$51.65

  Intrinsic Value

$17.95

stock screener

  Rating & Target

str. sell

-65%

Previous close

$51.65

 
Intrinsic value

$17.95

 
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 EE 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  4.35
  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
  887
  905
  926
  949
  976
  1,006
  1,038
  1,073
  1,112
  1,153
  1,197
  1,245
  1,295
  1,349
  1,406
  1,467
  1,531
  1,599
  1,671
  1,747
  1,827
  1,912
  2,001
  2,095
  2,195
  2,299
  2,409
  2,525
  2,647
  2,775
  2,910
Variable operating expenses, $m
 
  750
  767
  787
  809
  834
  861
  890
  922
  956
  992
  1,032
  1,074
  1,118
  1,166
  1,216
  1,269
  1,326
  1,385
  1,448
  1,515
  1,585
  1,659
  1,737
  1,819
  1,906
  1,997
  2,093
  2,194
  2,300
  2,412
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
  692
  750
  767
  787
  809
  834
  861
  890
  922
  956
  992
  1,032
  1,074
  1,118
  1,166
  1,216
  1,269
  1,326
  1,385
  1,448
  1,515
  1,585
  1,659
  1,737
  1,819
  1,906
  1,997
  2,093
  2,194
  2,300
  2,412
Operating income, $m
  195
  155
  158
  162
  167
  172
  178
  184
  190
  197
  205
  213
  221
  231
  240
  251
  262
  273
  286
  299
  312
  327
  342
  358
  375
  393
  412
  432
  453
  474
  498
EBITDA, $m
  340
  203
  208
  213
  219
  226
  233
  241
  250
  259
  269
  280
  291
  303
  316
  330
  344
  359
  376
  393
  411
  430
  450
  471
  493
  517
  542
  568
  595
  624
  654
Interest expense (income), $m
  70
  72
  74
  77
  80
  84
  88
  93
  97
  103
  108
  114
  121
  128
  135
  143
  151
  160
  170
  179
  190
  201
  212
  225
  238
  251
  266
  281
  297
  313
  331
Earnings before tax, $m
  151
  83
  84
  85
  87
  88
  89
  91
  93
  95
  96
  98
  101
  103
  105
  108
  110
  113
  116
  119
  123
  126
  130
  134
  138
  142
  146
  151
  156
  161
  167
Tax expense, $m
  54
  22
  23
  23
  23
  24
  24
  25
  25
  26
  26
  27
  27
  28
  28
  29
  30
  31
  31
  32
  33
  34
  35
  36
  37
  38
  40
  41
  42
  44
  45
Net income, $m
  97
  61
  61
  62
  63
  64
  65
  66
  68
  69
  70
  72
  73
  75
  77
  79
  81
  83
  85
  87
  90
  92
  95
  98
  100
  104
  107
  110
  114
  118
  122

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  8
  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
  3,376
  3,440
  3,519
  3,610
  3,711
  3,824
  3,947
  4,082
  4,227
  4,384
  4,552
  4,732
  4,924
  5,129
  5,346
  5,577
  5,821
  6,080
  6,353
  6,642
  6,947
  7,269
  7,609
  7,967
  8,344
  8,741
  9,160
  9,600
  10,063
  10,551
  11,063
Adjusted assets (=assets-cash), $m
  3,368
  3,440
  3,519
  3,610
  3,711
  3,824
  3,947
  4,082
  4,227
  4,384
  4,552
  4,732
  4,924
  5,129
  5,346
  5,577
  5,821
  6,080
  6,353
  6,642
  6,947
  7,269
  7,609
  7,967
  8,344
  8,741
  9,160
  9,600
  10,063
  10,551
  11,063
Revenue / Adjusted assets
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
  0.263
Average production assets, $m
  239
  243
  249
  255
  263
  271
  279
  289
  299
  310
  322
  335
  348
  363
  378
  395
  412
  430
  449
  470
  492
  514
  538
  564
  590
  618
  648
  679
  712
  746
  783
Working capital, $m
  -139
  18
  19
  19
  20
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
  37
  38
  40
  42
  44
  46
  48
  50
  53
  55
  58
Total debt, $m
  1,360
  1,401
  1,455
  1,516
  1,585
  1,662
  1,746
  1,838
  1,937
  2,043
  2,158
  2,281
  2,411
  2,551
  2,699
  2,856
  3,022
  3,198
  3,385
  3,581
  3,789
  4,008
  4,240
  4,484
  4,740
  5,011
  5,296
  5,596
  5,911
  6,243
  6,592
Total liabilities, $m
  2,302
  2,343
  2,397
  2,458
  2,527
  2,604
  2,688
  2,780
  2,879
  2,985
  3,100
  3,223
  3,353
  3,493
  3,641
  3,798
  3,964
  4,140
  4,327
  4,523
  4,731
  4,950
  5,182
  5,426
  5,682
  5,953
  6,238
  6,538
  6,853
  7,185
  7,534
Total equity, $m
  1,074
  1,097
  1,123
  1,151
  1,184
  1,220
  1,259
  1,302
  1,348
  1,398
  1,452
  1,510
  1,571
  1,636
  1,705
  1,779
  1,857
  1,939
  2,027
  2,119
  2,216
  2,319
  2,427
  2,541
  2,662
  2,789
  2,922
  3,062
  3,210
  3,366
  3,529
Total liabilities and equity, $m
  3,376
  3,440
  3,520
  3,609
  3,711
  3,824
  3,947
  4,082
  4,227
  4,383
  4,552
  4,733
  4,924
  5,129
  5,346
  5,577
  5,821
  6,079
  6,354
  6,642
  6,947
  7,269
  7,609
  7,967
  8,344
  8,742
  9,160
  9,600
  10,063
  10,551
  11,063
Debt-to-equity ratio
  1.266
  1.280
  1.300
  1.320
  1.340
  1.360
  1.390
  1.410
  1.440
  1.460
  1.490
  1.510
  1.540
  1.560
  1.580
  1.610
  1.630
  1.650
  1.670
  1.690
  1.710
  1.730
  1.750
  1.760
  1.780
  1.800
  1.810
  1.830
  1.840
  1.850
  1.870
Adjusted equity ratio
  0.317
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  97
  61
  61
  62
  63
  64
  65
  66
  68
  69
  70
  72
  73
  75
  77
  79
  81
  83
  85
  87
  90
  92
  95
  98
  100
  104
  107
  110
  114
  118
  122
Depreciation, amort., depletion, $m
  145
  49
  50
  51
  53
  54
  56
  58
  60
  62
  64
  67
  70
  73
  76
  79
  82
  86
  90
  94
  98
  103
  108
  113
  118
  124
  130
  136
  142
  149
  157
Funds from operations, $m
  183
  109
  111
  113
  116
  118
  121
  124
  127
  131
  135
  139
  143
  148
  152
  158
  163
  169
  175
  181
  188
  195
  202
  210
  219
  227
  236
  246
  256
  267
  278
Change in working capital, $m
  -48
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
Cash from operations, $m
  231
  109
  111
  113
  115
  118
  120
  123
  127
  130
  134
  138
  142
  147
  151
  156
  162
  167
  173
  180
  186
  193
  201
  208
  217
  225
  234
  244
  254
  264
  276
Maintenance CAPEX, $m
  0
  -48
  -49
  -50
  -51
  -53
  -54
  -56
  -58
  -60
  -62
  -64
  -67
  -70
  -73
  -76
  -79
  -82
  -86
  -90
  -94
  -98
  -103
  -108
  -113
  -118
  -124
  -130
  -136
  -142
  -149
New CAPEX, $m
  -268
  -4
  -6
  -6
  -7
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -34
  -36
Cash from investing activities, $m
  -276
  -52
  -55
  -56
  -58
  -61
  -63
  -66
  -68
  -71
  -74
  -77
  -81
  -84
  -88
  -92
  -96
  -100
  -105
  -110
  -116
  -121
  -127
  -133
  -140
  -146
  -154
  -161
  -169
  -176
  -185
Free cash flow, $m
  -45
  57
  56
  57
  57
  57
  58
  58
  59
  59
  60
  61
  62
  62
  63
  64
  66
  67
  68
  69
  71
  72
  74
  75
  77
  79
  81
  83
  85
  88
  90
Issuance/(repayment) of debt, $m
  97
  49
  54
  62
  69
  77
  84
  92
  99
  107
  115
  123
  131
  139
  148
  157
  166
  176
  186
  197
  208
  219
  231
  244
  257
  271
  285
  300
  315
  332
  349
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  2
  5
  8
  11
  14
  17
  20
  23
  27
  30
  34
  38
  42
Cash from financing (excl. dividends), $m  
  95
  49
  54
  62
  69
  77
  84
  92
  99
  107
  115
  123
  131
  139
  148
  157
  166
  176
  188
  202
  216
  230
  245
  261
  277
  294
  312
  330
  349
  370
  391
Total cash flow (excl. dividends), $m
  50
  105
  110
  118
  126
  134
  142
  150
  158
  166
  175
  183
  192
  202
  211
  221
  232
  243
  257
  271
  286
  302
  319
  336
  354
  373
  392
  413
  435
  457
  481
Retained Cash Flow (-), $m
  -57
  -23
  -25
  -29
  -32
  -36
  -39
  -43
  -46
  -50
  -54
  -57
  -61
  -65
  -69
  -74
  -78
  -83
  -87
  -92
  -97
  -103
  -108
  -114
  -120
  -127
  -133
  -140
  -148
  -155
  -164
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
 
  82
  85
  89
  94
  98
  102
  107
  111
  116
  121
  126
  131
  136
  142
  148
  154
  160
  169
  179
  189
  199
  210
  222
  234
  246
  259
  273
  287
  302
  317
Discount rate, %
 
  8.40
  8.82
  9.26
  9.72
  10.21
  10.72
  11.26
  11.82
  12.41
  13.03
  13.68
  14.37
  15.09
  15.84
  16.63
  17.46
  18.34
  19.25
  20.22
  21.23
  22.29
  23.40
  24.57
  25.80
  27.09
  28.45
  29.87
  31.36
  32.93
  34.58
PV of cash for distribution, $m
 
  76
  72
  69
  65
  60
  56
  51
  46
  40
  36
  31
  26
  22
  18
  15
  12
  9
  7
  5
  4
  3
  2
  1
  1
  1
  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
  99.9
  99.8
  99.6
  99.4
  99.1
  98.7
  98.3
  97.9
  97.4
  96.9
  96.4
  95.8
  95.2

El Paso Electric Company is a public utility company. As of December 31, 2016, the Company was engaged in the generation, transmission and distribution of electricity in an area of approximately 10,000 square miles in west Texas and southern New Mexico. As of December 31, 2016, the Company owned or had ownership interests in several electrical generating facilities providing it with a generating capability of approximately 2,080 megawatts (MW). The Company's energy sources consists of nuclear fuel, natural gas, coal, purchased power and generated by Company-owned solar photovoltaic panels. As of December 31, 2016, the Company had power purchase agreements for 107 MW from solar photovoltaic generation facilities. As of December 31, 2016, the Company served approximately 411,100 residential, commercial, industrial, public authority and wholesale customers. The Company distributes electricity to retail customers principally in El Paso, Texas and Las Cruces, New Mexico.

FINANCIAL RATIOS  of  El Paso Electric (EE)

Valuation Ratios
P/E Ratio 21.5
Price to Sales 2.4
Price to Book 1.9
Price to Tangible Book
Price to Cash Flow 9
Price to Free Cash Flow -56.4
Growth Rates
Sales Growth Rate 4.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -17%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 111.3%
Total Debt to Equity 126.6%
Interest Coverage 3
Management Effectiveness
Return On Assets 4.3%
Ret/ On Assets - 3 Yr. Avg. 4.2%
Return On Total Capital 4.1%
Ret/ On T. Cap. - 3 Yr. Avg. 4.1%
Return On Equity 9.3%
Return On Equity - 3 Yr. Avg. 9%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 41.3%
EBITDA Margin - 3 Yr. Avg. 38.8%
Operating Margin 22%
Oper. Margin - 3 Yr. Avg. 18.6%
Pre-Tax Margin 17%
Pre-Tax Margin - 3 Yr. Avg. 15.1%
Net Profit Margin 10.9%
Net Profit Margin - 3 Yr. Avg. 10.2%
Effective Tax Rate 35.8%
Eff/ Tax Rate - 3 Yr. Avg. 32.4%
Payout Ratio 51.5%

EE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the EE stock intrinsic value calculation we used $887 million for the last fiscal year's total revenue generated by El Paso Electric. The default revenue input number comes from 2016 income statement of El Paso Electric. 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 EE 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 8.4%, whose default value for EE is calculated based on our internal credit rating of El Paso Electric, 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 El Paso Electric.
    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 EE stock the variable cost ratio is equal to 82.9%.

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 EE 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 5.3% for El Paso Electric.

Corporate tax rate of 27% is the nominal tax rate for El Paso Electric. 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 EE 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 EE are equal to 26.9%.

Life of production assets of 1.6 years is the average useful life of capital assets used in El Paso Electric 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 EE is equal to 2%. 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 - $1074 million for El Paso Electric - 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 40.47 million for El Paso Electric 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 El Paso Electric at the current share price and the inputted number of shares is $2.1 billion.

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COMPANY NEWS

▶ El Paso Electric posts 3Q profit   [07:32AM  Associated Press]
▶ El Paso Electric Announces Quarterly Dividend   [Oct-26-17 02:39PM  Business Wire]
▶ El Paso Electric posts 2Q profit   [Aug-02-17 09:23PM  Associated Press]
▶ El Paso Electric Announces Quarterly Dividend   [Jul-27-17 05:06PM  Business Wire]
▶ El Paso Electric reports 1Q loss   [06:20AM  Associated Press]
▶ El Paso Electric posts 4Q profit   [07:14AM  Associated Press]
▶ El Paso Electric Files 2017 Texas Rate Case   [Feb-13-17 12:57PM  Business Wire]
▶ El Paso Electric Announces Quarterly Dividend   [Jan-26-17 07:17PM  Business Wire]
▶ Is El Paso Electric Company (EE) Worthy of Your Portfolio?   [Dec-12-16 06:34PM  at Insider Monkey]
▶ Hedge Funds Are Crazy About Tri Pointe Homes Inc (TPH)   [Nov-28-16 05:44AM  at Insider Monkey]
▶ El Paso Electric Announces Quarterly Dividend   [Nov-17-16 07:44PM  Business Wire]
Financial statements of EE
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