Intrinsic value of EMCOR Group, Inc. - EME

Previous Close

$80.70

  Intrinsic Value

$262.20

stock screener

  Rating & Target

str. buy

+225%

Previous close

$80.70

 
Intrinsic value

$262.20

 
Up/down potential

+225%

 
Rating

str. buy

We calculate the intrinsic value of EME 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 4.5

 

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, %
  10.80
  10.22
  9.70
  9.23
  8.81
  8.42
  8.08
  7.77
  7.50
  7.25
  7.02
  6.82
  6.64
  6.47
  6.33
  6.19
  6.07
  5.97
  5.87
  5.78
  5.71
  5.63
  5.57
  5.51
  5.46
  5.42
  5.37
  5.34
  5.30
  5.27
Revenue, $m
  9,009
  9,930
  10,893
  11,898
  12,946
  14,036
  15,171
  16,350
  17,576
  18,850
  20,173
  21,549
  22,980
  24,468
  26,016
  27,627
  29,305
  31,054
  32,877
  34,779
  36,763
  38,834
  40,998
  43,258
  45,621
  48,092
  50,677
  53,382
  56,213
  59,177
Variable operating expenses, $m
  7,480
  8,229
  9,013
  9,831
  10,683
  11,571
  12,494
  13,454
  14,451
  15,488
  16,417
  17,537
  18,701
  19,912
  21,172
  22,483
  23,849
  25,272
  26,756
  28,303
  29,918
  31,604
  33,364
  35,204
  37,127
  39,138
  41,242
  43,443
  45,747
  48,159
Fixed operating expenses, $m
  1,005
  1,027
  1,049
  1,072
  1,096
  1,120
  1,145
  1,170
  1,196
  1,222
  1,249
  1,276
  1,304
  1,333
  1,362
  1,392
  1,423
  1,454
  1,486
  1,519
  1,552
  1,587
  1,622
  1,657
  1,694
  1,731
  1,769
  1,808
  1,848
  1,888
Total operating expenses, $m
  8,485
  9,256
  10,062
  10,903
  11,779
  12,691
  13,639
  14,624
  15,647
  16,710
  17,666
  18,813
  20,005
  21,245
  22,534
  23,875
  25,272
  26,726
  28,242
  29,822
  31,470
  33,191
  34,986
  36,861
  38,821
  40,869
  43,011
  45,251
  47,595
  50,047
Operating income, $m
  525
  674
  831
  995
  1,166
  1,345
  1,532
  1,726
  1,929
  2,140
  2,507
  2,736
  2,974
  3,223
  3,481
  3,751
  4,033
  4,328
  4,635
  4,956
  5,292
  5,644
  6,012
  6,397
  6,801
  7,223
  7,667
  8,131
  8,619
  9,130
EBITDA, $m
  721
  875
  1,037
  1,207
  1,384
  1,568
  1,761
  1,962
  2,171
  2,389
  2,615
  2,851
  3,097
  3,353
  3,621
  3,899
  4,190
  4,494
  4,811
  5,143
  5,489
  5,852
  6,231
  6,629
  7,045
  7,481
  7,938
  8,417
  8,920
  9,447
Interest expense (income), $m
  11
  16
  30
  44
  59
  75
  91
  108
  126
  144
  163
  183
  204
  225
  247
  270
  295
  320
  346
  373
  402
  431
  462
  494
  528
  563
  600
  639
  679
  721
  765
Earnings before tax, $m
  509
  645
  787
  936
  1,092
  1,255
  1,424
  1,601
  1,785
  1,977
  2,324
  2,532
  2,749
  2,975
  3,211
  3,457
  3,714
  3,982
  4,262
  4,555
  4,861
  5,182
  5,517
  5,869
  6,237
  6,623
  7,028
  7,452
  7,898
  8,365
Tax expense, $m
  137
  174
  212
  253
  295
  339
  385
  432
  482
  534
  628
  684
  742
  803
  867
  933
  1,003
  1,075
  1,151
  1,230
  1,313
  1,399
  1,490
  1,585
  1,684
  1,788
  1,898
  2,012
  2,132
  2,258
Net income, $m
  372
  471
  575
  683
  797
  916
  1,040
  1,169
  1,303
  1,443
  1,697
  1,849
  2,007
  2,172
  2,344
  2,524
  2,711
  2,907
  3,111
  3,325
  3,549
  3,783
  4,028
  4,284
  4,553
  4,835
  5,130
  5,440
  5,765
  6,106

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
  4,529
  4,992
  5,477
  5,982
  6,509
  7,057
  7,627
  8,220
  8,837
  9,477
  10,143
  10,834
  11,553
  12,301
  13,080
  13,890
  14,734
  15,613
  16,529
  17,485
  18,483
  19,524
  20,612
  21,749
  22,937
  24,179
  25,479
  26,839
  28,262
  29,752
Adjusted assets (=assets-cash), $m
  4,529
  4,992
  5,477
  5,982
  6,509
  7,057
  7,627
  8,220
  8,837
  9,477
  10,143
  10,834
  11,553
  12,301
  13,080
  13,890
  14,734
  15,613
  16,529
  17,485
  18,483
  19,524
  20,612
  21,749
  22,937
  24,179
  25,479
  26,839
  28,262
  29,752
Revenue / Adjusted assets
  1.989
  1.989
  1.989
  1.989
  1.989
  1.989
  1.989
  1.989
  1.989
  1.989
  1.989
  1.989
  1.989
  1.989
  1.989
  1.989
  1.989
  1.989
  1.989
  1.989
  1.989
  1.989
  1.989
  1.989
  1.989
  1.989
  1.989
  1.989
  1.989
  1.989
Average production assets, $m
  955
  1,053
  1,155
  1,261
  1,372
  1,488
  1,608
  1,733
  1,863
  1,998
  2,138
  2,284
  2,436
  2,594
  2,758
  2,928
  3,106
  3,292
  3,485
  3,687
  3,897
  4,116
  4,346
  4,585
  4,836
  5,098
  5,372
  5,658
  5,959
  6,273
Working capital, $m
  333
  367
  403
  440
  479
  519
  561
  605
  650
  697
  746
  797
  850
  905
  963
  1,022
  1,084
  1,149
  1,216
  1,287
  1,360
  1,437
  1,517
  1,601
  1,688
  1,779
  1,875
  1,975
  2,080
  2,190
Total debt, $m
  547
  813
  1,091
  1,381
  1,683
  1,998
  2,326
  2,666
  3,020
  3,387
  3,769
  4,166
  4,579
  5,009
  5,455
  5,920
  6,405
  6,909
  7,435
  7,984
  8,557
  9,155
  9,779
  10,431
  11,113
  11,826
  12,572
  13,353
  14,170
  15,025
Total liabilities, $m
  2,600
  2,866
  3,144
  3,434
  3,736
  4,051
  4,378
  4,718
  5,072
  5,440
  5,822
  6,219
  6,632
  7,061
  7,508
  7,973
  8,457
  8,962
  9,488
  10,037
  10,609
  11,207
  11,831
  12,484
  13,166
  13,879
  14,625
  15,405
  16,222
  17,078
Total equity, $m
  1,930
  2,127
  2,333
  2,548
  2,773
  3,006
  3,249
  3,502
  3,764
  4,037
  4,321
  4,615
  4,922
  5,240
  5,572
  5,917
  6,277
  6,651
  7,042
  7,449
  7,874
  8,317
  8,781
  9,265
  9,771
  10,300
  10,854
  11,433
  12,040
  12,674
Total liabilities and equity, $m
  4,530
  4,993
  5,477
  5,982
  6,509
  7,057
  7,627
  8,220
  8,836
  9,477
  10,143
  10,834
  11,554
  12,301
  13,080
  13,890
  14,734
  15,613
  16,530
  17,486
  18,483
  19,524
  20,612
  21,749
  22,937
  24,179
  25,479
  26,838
  28,262
  29,752
Debt-to-equity ratio
  0.280
  0.380
  0.470
  0.540
  0.610
  0.660
  0.720
  0.760
  0.800
  0.840
  0.870
  0.900
  0.930
  0.960
  0.980
  1.000
  1.020
  1.040
  1.060
  1.070
  1.090
  1.100
  1.110
  1.130
  1.140
  1.150
  1.160
  1.170
  1.180
  1.190
Adjusted equity ratio
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  372
  471
  575
  683
  797
  916
  1,040
  1,169
  1,303
  1,443
  1,697
  1,849
  2,007
  2,172
  2,344
  2,524
  2,711
  2,907
  3,111
  3,325
  3,549
  3,783
  4,028
  4,284
  4,553
  4,835
  5,130
  5,440
  5,765
  6,106
Depreciation, amort., depletion, $m
  196
  201
  206
  212
  217
  223
  229
  235
  242
  249
  108
  115
  123
  131
  139
  148
  157
  166
  176
  186
  197
  208
  219
  232
  244
  257
  271
  286
  301
  317
Funds from operations, $m
  568
  672
  781
  895
  1,014
  1,139
  1,269
  1,404
  1,545
  1,692
  1,805
  1,964
  2,130
  2,303
  2,483
  2,671
  2,868
  3,073
  3,287
  3,511
  3,746
  3,991
  4,247
  4,516
  4,797
  5,092
  5,402
  5,726
  6,066
  6,423
Change in working capital, $m
  32
  34
  36
  37
  39
  40
  42
  44
  45
  47
  49
  51
  53
  55
  57
  60
  62
  65
  67
  70
  73
  77
  80
  84
  87
  91
  96
  100
  105
  110
Cash from operations, $m
  535
  638
  745
  858
  976
  1,098
  1,227
  1,360
  1,500
  1,645
  1,756
  1,913
  2,077
  2,248
  2,426
  2,612
  2,806
  3,008
  3,220
  3,441
  3,672
  3,914
  4,167
  4,432
  4,710
  5,001
  5,306
  5,626
  5,961
  6,313
Maintenance CAPEX, $m
  -44
  -48
  -53
  -58
  -64
  -69
  -75
  -81
  -88
  -94
  -101
  -108
  -115
  -123
  -131
  -139
  -148
  -157
  -166
  -176
  -186
  -197
  -208
  -219
  -232
  -244
  -257
  -271
  -286
  -301
New CAPEX, $m
  -89
  -98
  -102
  -107
  -111
  -116
  -120
  -125
  -130
  -135
  -140
  -146
  -152
  -158
  -164
  -171
  -178
  -185
  -193
  -202
  -210
  -220
  -229
  -240
  -250
  -262
  -274
  -287
  -300
  -314
Cash from investing activities, $m
  -133
  -146
  -155
  -165
  -175
  -185
  -195
  -206
  -218
  -229
  -241
  -254
  -267
  -281
  -295
  -310
  -326
  -342
  -359
  -378
  -396
  -417
  -437
  -459
  -482
  -506
  -531
  -558
  -586
  -615
Free cash flow, $m
  402
  492
  590
  693
  801
  914
  1,031
  1,154
  1,282
  1,416
  1,515
  1,659
  1,810
  1,967
  2,131
  2,302
  2,480
  2,666
  2,860
  3,063
  3,276
  3,498
  3,730
  3,973
  4,228
  4,495
  4,775
  5,068
  5,376
  5,698
Issuance/(repayment) of debt, $m
  252
  266
  278
  290
  302
  315
  327
  340
  354
  368
  382
  397
  413
  429
  447
  465
  484
  505
  526
  549
  573
  598
  624
  652
  682
  713
  746
  781
  817
  855
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  
  252
  266
  278
  290
  302
  315
  327
  340
  354
  368
  382
  397
  413
  429
  447
  465
  484
  505
  526
  549
  573
  598
  624
  652
  682
  713
  746
  781
  817
  855
Total cash flow (excl. dividends), $m
  654
  757
  868
  983
  1,103
  1,228
  1,359
  1,495
  1,636
  1,783
  1,897
  2,056
  2,223
  2,396
  2,578
  2,767
  2,964
  3,171
  3,386
  3,612
  3,848
  4,095
  4,354
  4,626
  4,910
  5,208
  5,521
  5,848
  6,193
  6,554
Retained Cash Flow (-), $m
  -189
  -197
  -206
  -215
  -224
  -234
  -243
  -253
  -263
  -273
  -284
  -295
  -306
  -319
  -332
  -345
  -359
  -375
  -390
  -407
  -425
  -444
  -463
  -484
  -506
  -529
  -554
  -579
  -606
  -635
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
  465
  560
  662
  768
  879
  995
  1,116
  1,242
  1,373
  1,510
  1,613
  1,762
  1,916
  2,078
  2,246
  2,422
  2,605
  2,796
  2,996
  3,205
  3,423
  3,652
  3,891
  4,141
  4,404
  4,679
  4,967
  5,269
  5,586
  5,919
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  445
  513
  576
  632
  681
  722
  754
  776
  789
  792
  766
  752
  729
  698
  659
  615
  567
  515
  461
  407
  354
  303
  255
  211
  171
  137
  107
  82
  61
  45
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

EMCOR Group, Inc. is an electrical and mechanical construction, and facilities services firm in the United States. The Company provides building services and industrial services. Its segments are United States electrical construction and facilities services; United States mechanical construction and facilities services; United States building services; United States industrial services, and United Kingdom building services. As of December 31, 2016, its services were provided to a range of commercial, industrial, utility and institutional customers through approximately 75 operating subsidiaries and joint venture entities. It is providing construction services relating to electrical and mechanical systems in various types of non-residential and certain residential facilities, and in providing services relating to the operation, maintenance and management of facilities, including refineries and petrochemical plants. It operates various electrical and mechanical systems.

FINANCIAL RATIOS  of  EMCOR Group, Inc. (EME)

Valuation Ratios
P/E Ratio 26.6
Price to Sales 0.6
Price to Book 3.1
Price to Tangible Book
Price to Cash Flow 18.3
Price to Free Cash Flow 21.5
Growth Rates
Sales Growth Rate 12.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 14.3%
Cap. Spend. - 3 Yr. Gr. Rate 2.1%
Financial Strength
Quick Ratio 31
Current Ratio 0
LT Debt to Equity 26.5%
Total Debt to Equity 27.5%
Interest Coverage 28
Management Effectiveness
Return On Assets 5.1%
Ret/ On Assets - 3 Yr. Avg. 5.1%
Return On Total Capital 9.7%
Ret/ On T. Cap. - 3 Yr. Avg. 9.6%
Return On Equity 12.1%
Return On Equity - 3 Yr. Avg. 11.9%
Asset Turnover 2
Profitability Ratios
Gross Margin 13.7%
Gross Margin - 3 Yr. Avg. 14%
EBITDA Margin 5.1%
EBITDA Margin - 3 Yr. Avg. 5.4%
Operating Margin 4.1%
Oper. Margin - 3 Yr. Avg. 4.3%
Pre-Tax Margin 3.9%
Pre-Tax Margin - 3 Yr. Avg. 4.2%
Net Profit Margin 2.4%
Net Profit Margin - 3 Yr. Avg. 2.5%
Effective Tax Rate 37.5%
Eff/ Tax Rate - 3 Yr. Avg. 37.5%
Payout Ratio 10.4%

EME stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the EME stock intrinsic value calculation we used $8131 million for the last fiscal year's total revenue generated by EMCOR Group, Inc.. The default revenue input number comes from 0001 income statement of EMCOR Group, 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 EME stock valuation model: a) initial revenue growth rate of 10.8% 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 4.3%, whose default value for EME is calculated based on our internal credit rating of EMCOR Group, 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 EMCOR Group, 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 EME stock the variable cost ratio is equal to 83.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $983 million in the base year in the intrinsic value calculation for EME 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 EMCOR Group, Inc..

Corporate tax rate of 27% is the nominal tax rate for EMCOR Group, 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 EME 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 EME are equal to 10.6%.

Life of production assets of 19.8 years is the average useful life of capital assets used in EMCOR Group, 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 EME is equal to 3.7%. 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 - $1740.545 million for EMCOR Group, 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 55.941 million for EMCOR Group, 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 EMCOR Group, Inc. at the current share price and the inputted number of shares is $4.5 billion.

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