Intrinsic value of Granite Construction Incorporated - GVA

Previous Close

$43.48

  Intrinsic Value

$17.38

stock screener

  Rating & Target

str. sell

-60%

Previous close

$43.48

 
Intrinsic value

$17.38

 
Up/down potential

-60%

 
Rating

str. sell

We calculate the intrinsic value of GVA 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, %
  11.40
  10.76
  10.18
  9.67
  9.20
  8.78
  8.40
  8.06
  7.75
  7.48
  7.23
  7.01
  6.81
  6.63
  6.46
  6.32
  6.19
  6.07
  5.96
  5.86
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
  5.37
  5.33
  5.30
Revenue, $m
  3,696
  4,094
  4,511
  4,947
  5,402
  5,876
  6,370
  6,883
  7,417
  7,972
  8,548
  9,148
  9,770
  10,418
  11,091
  11,792
  12,521
  13,281
  14,073
  14,898
  15,759
  16,657
  17,595
  18,574
  19,598
  20,668
  21,787
  22,957
  24,182
  25,464
Variable operating expenses, $m
  3,571
  3,953
  4,353
  4,771
  5,207
  5,662
  6,136
  6,628
  7,140
  7,673
  8,200
  8,774
  9,372
  9,993
  10,639
  11,311
  12,010
  12,739
  13,498
  14,290
  15,116
  15,977
  16,877
  17,816
  18,798
  19,825
  20,898
  22,020
  23,195
  24,425
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
  3,571
  3,953
  4,353
  4,771
  5,207
  5,662
  6,136
  6,628
  7,140
  7,673
  8,200
  8,774
  9,372
  9,993
  10,639
  11,311
  12,010
  12,739
  13,498
  14,290
  15,116
  15,977
  16,877
  17,816
  18,798
  19,825
  20,898
  22,020
  23,195
  24,425
Operating income, $m
  125
  141
  158
  176
  195
  214
  234
  255
  277
  299
  349
  373
  399
  425
  453
  481
  511
  542
  574
  608
  643
  680
  718
  758
  800
  843
  889
  937
  987
  1,039
EBITDA, $m
  260
  288
  317
  348
  380
  413
  448
  484
  521
  560
  601
  643
  687
  732
  779
  829
  880
  933
  989
  1,047
  1,108
  1,171
  1,237
  1,305
  1,377
  1,453
  1,531
  1,613
  1,699
  1,790
Interest expense (income), $m
  13
  21
  28
  35
  42
  50
  59
  67
  76
  86
  96
  106
  116
  127
  139
  150
  163
  176
  189
  203
  217
  232
  248
  265
  282
  300
  318
  338
  359
  380
  402
Earnings before tax, $m
  104
  114
  123
  134
  144
  155
  167
  179
  191
  204
  243
  257
  271
  286
  302
  318
  335
  353
  371
  391
  411
  431
  453
  476
  500
  525
  551
  578
  607
  637
Tax expense, $m
  28
  31
  33
  36
  39
  42
  45
  48
  52
  55
  66
  69
  73
  77
  82
  86
  91
  95
  100
  105
  111
  117
  122
  129
  135
  142
  149
  156
  164
  172
Net income, $m
  76
  83
  90
  97
  105
  113
  122
  130
  139
  149
  177
  188
  198
  209
  221
  232
  245
  258
  271
  285
  300
  315
  331
  348
  365
  383
  402
  422
  443
  465

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
  2,758
  3,055
  3,366
  3,692
  4,031
  4,385
  4,754
  5,137
  5,535
  5,949
  6,379
  6,827
  7,291
  7,774
  8,277
  8,800
  9,344
  9,911
  10,502
  11,118
  11,760
  12,431
  13,130
  13,861
  14,625
  15,424
  16,259
  17,132
  18,046
  19,003
Adjusted assets (=assets-cash), $m
  2,758
  3,055
  3,366
  3,692
  4,031
  4,385
  4,754
  5,137
  5,535
  5,949
  6,379
  6,827
  7,291
  7,774
  8,277
  8,800
  9,344
  9,911
  10,502
  11,118
  11,760
  12,431
  13,130
  13,861
  14,625
  15,424
  16,259
  17,132
  18,046
  19,003
Revenue / Adjusted assets
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
Average production assets, $m
  621
  688
  758
  831
  908
  987
  1,070
  1,156
  1,246
  1,339
  1,436
  1,537
  1,641
  1,750
  1,863
  1,981
  2,104
  2,231
  2,364
  2,503
  2,647
  2,798
  2,956
  3,120
  3,292
  3,472
  3,660
  3,857
  4,063
  4,278
Working capital, $m
  222
  246
  271
  297
  324
  353
  382
  413
  445
  478
  513
  549
  586
  625
  665
  708
  751
  797
  844
  894
  946
  999
  1,056
  1,114
  1,176
  1,240
  1,307
  1,377
  1,451
  1,528
Total debt, $m
  510
  644
  786
  933
  1,088
  1,248
  1,416
  1,590
  1,770
  1,958
  2,154
  2,357
  2,568
  2,787
  3,015
  3,253
  3,500
  3,757
  4,025
  4,305
  4,597
  4,901
  5,219
  5,551
  5,897
  6,260
  6,639
  7,035
  7,450
  7,885
Total liabilities, $m
  1,252
  1,387
  1,528
  1,676
  1,830
  1,991
  2,158
  2,332
  2,513
  2,701
  2,896
  3,099
  3,310
  3,530
  3,758
  3,995
  4,242
  4,500
  4,768
  5,048
  5,339
  5,643
  5,961
  6,293
  6,640
  7,002
  7,381
  7,778
  8,193
  8,627
Total equity, $m
  1,506
  1,668
  1,838
  2,016
  2,201
  2,394
  2,595
  2,805
  3,022
  3,248
  3,483
  3,727
  3,981
  4,245
  4,519
  4,805
  5,102
  5,412
  5,734
  6,070
  6,421
  6,787
  7,169
  7,568
  7,985
  8,421
  8,877
  9,354
  9,853
  10,376
Total liabilities and equity, $m
  2,758
  3,055
  3,366
  3,692
  4,031
  4,385
  4,753
  5,137
  5,535
  5,949
  6,379
  6,826
  7,291
  7,775
  8,277
  8,800
  9,344
  9,912
  10,502
  11,118
  11,760
  12,430
  13,130
  13,861
  14,625
  15,423
  16,258
  17,132
  18,046
  19,003
Debt-to-equity ratio
  0.340
  0.390
  0.430
  0.460
  0.490
  0.520
  0.550
  0.570
  0.590
  0.600
  0.620
  0.630
  0.640
  0.660
  0.670
  0.680
  0.690
  0.690
  0.700
  0.710
  0.720
  0.720
  0.730
  0.730
  0.740
  0.740
  0.750
  0.750
  0.760
  0.760
Adjusted equity ratio
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  76
  83
  90
  97
  105
  113
  122
  130
  139
  149
  177
  188
  198
  209
  221
  232
  245
  258
  271
  285
  300
  315
  331
  348
  365
  383
  402
  422
  443
  465
Depreciation, amort., depletion, $m
  135
  147
  159
  172
  185
  199
  214
  229
  245
  261
  252
  270
  288
  307
  327
  348
  369
  391
  415
  439
  464
  491
  519
  547
  578
  609
  642
  677
  713
  751
Funds from operations, $m
  211
  230
  249
  269
  290
  312
  335
  359
  384
  410
  429
  457
  486
  516
  547
  580
  614
  649
  686
  724
  764
  806
  850
  895
  943
  992
  1,044
  1,099
  1,156
  1,215
Change in working capital, $m
  23
  24
  25
  26
  27
  28
  30
  31
  32
  33
  35
  36
  37
  39
  40
  42
  44
  46
  47
  50
  52
  54
  56
  59
  61
  64
  67
  70
  73
  77
Cash from operations, $m
  188
  206
  224
  243
  263
  284
  306
  328
  352
  376
  395
  421
  449
  477
  507
  538
  570
  604
  638
  675
  713
  752
  793
  836
  881
  928
  977
  1,029
  1,082
  1,138
Maintenance CAPEX, $m
  -98
  -109
  -121
  -133
  -146
  -159
  -173
  -188
  -203
  -219
  -235
  -252
  -270
  -288
  -307
  -327
  -348
  -369
  -391
  -415
  -439
  -464
  -491
  -519
  -547
  -578
  -609
  -642
  -677
  -713
New CAPEX, $m
  -64
  -67
  -70
  -73
  -76
  -80
  -83
  -86
  -90
  -93
  -97
  -101
  -105
  -109
  -113
  -118
  -123
  -128
  -133
  -139
  -145
  -151
  -158
  -165
  -172
  -180
  -188
  -197
  -206
  -215
Cash from investing activities, $m
  -162
  -176
  -191
  -206
  -222
  -239
  -256
  -274
  -293
  -312
  -332
  -353
  -375
  -397
  -420
  -445
  -471
  -497
  -524
  -554
  -584
  -615
  -649
  -684
  -719
  -758
  -797
  -839
  -883
  -928
Free cash flow, $m
  26
  30
  33
  37
  41
  45
  50
  54
  59
  65
  63
  69
  75
  81
  87
  93
  100
  107
  114
  121
  129
  137
  145
  153
  162
  171
  180
  190
  200
  210
Issuance/(repayment) of debt, $m
  127
  135
  141
  148
  154
  161
  167
  174
  181
  188
  195
  203
  211
  219
  228
  237
  247
  257
  268
  280
  292
  304
  318
  332
  347
  363
  379
  397
  415
  434
Issuance/(repurchase) of shares, $m
  78
  79
  80
  80
  80
  80
  80
  79
  78
  77
  57
  57
  56
  55
  54
  53
  52
  52
  51
  51
  51
  51
  51
  52
  52
  53
  54
  55
  56
  58
Cash from financing (excl. dividends), $m  
  205
  214
  221
  228
  234
  241
  247
  253
  259
  265
  252
  260
  267
  274
  282
  290
  299
  309
  319
  331
  343
  355
  369
  384
  399
  416
  433
  452
  471
  492
Total cash flow (excl. dividends), $m
  232
  244
  254
  265
  275
  286
  296
  307
  318
  330
  316
  328
  341
  355
  369
  384
  400
  416
  434
  452
  472
  492
  514
  537
  561
  586
  613
  641
  671
  702
Retained Cash Flow (-), $m
  -154
  -162
  -170
  -178
  -185
  -193
  -201
  -209
  -218
  -226
  -235
  -244
  -254
  -264
  -274
  -286
  -297
  -310
  -323
  -336
  -351
  -366
  -382
  -399
  -417
  -436
  -456
  -477
  -499
  -522
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
  78
  82
  84
  87
  90
  92
  95
  98
  101
  104
  81
  84
  87
  91
  94
  98
  102
  107
  111
  116
  121
  126
  132
  137
  144
  150
  157
  164
  172
  180
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
  74
  75
  73
  72
  70
  67
  64
  61
  58
  54
  38
  36
  33
  30
  28
  25
  22
  20
  17
  15
  12
  10
  9
  7
  6
  4
  3
  3
  2
  1
Current shareholders' claim on cash, %
  96.3
  93.0
  90.2
  87.6
  85.3
  83.3
  81.5
  79.9
  78.5
  77.1
  76.2
  75.4
  74.7
  74.0
  73.4
  72.8
  72.3
  71.8
  71.4
  70.9
  70.5
  70.2
  69.8
  69.5
  69.2
  68.9
  68.6
  68.3
  68.0
  67.8

Granite Construction Incorporated is a heavy civil contractor and construction materials producer in the United States. The Company operates through three segments: Construction, Large Project Construction and Construction Materials. The Company operates across the nation, serving both public and private sector clients. Within the public sector, it concentrates on heavy-civil infrastructure projects, including the construction of streets, roads, highways, mass transit facilities, airport infrastructure, bridges, trenchless and underground utilities, power-related facilities, water and wastewater facilities, utilities, tunnels, dams and other infrastructure-related projects. Within the private sector, the Company offers site preparation and infrastructure services for residential development, energy development, commercial and industrial sites, and other facilities, as well as provides construction management professional services.

FINANCIAL RATIOS  of  Granite Construction Incorporated (GVA)

Valuation Ratios
P/E Ratio 30.2
Price to Sales 0.7
Price to Book 1.9
Price to Tangible Book
Price to Cash Flow 23.6
Price to Free Cash Flow -95.7
Growth Rates
Sales Growth Rate 6.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 106.8%
Cap. Spend. - 3 Yr. Gr. Rate 15.6%
Financial Strength
Quick Ratio 33
Current Ratio 0.2
LT Debt to Equity 25.8%
Total Debt to Equity 27.5%
Interest Coverage 8
Management Effectiveness
Return On Assets 3.9%
Ret/ On Assets - 3 Yr. Avg. 3.5%
Return On Total Capital 5.1%
Ret/ On T. Cap. - 3 Yr. Avg. 4.3%
Return On Equity 6.6%
Return On Equity - 3 Yr. Avg. 5.7%
Asset Turnover 1.5
Profitability Ratios
Gross Margin 12%
Gross Margin - 3 Yr. Avg. 11.8%
EBITDA Margin 6.9%
EBITDA Margin - 3 Yr. Avg. 6.9%
Operating Margin 3.7%
Oper. Margin - 3 Yr. Avg. 3.7%
Pre-Tax Margin 3.8%
Pre-Tax Margin - 3 Yr. Avg. 3.5%
Net Profit Margin 2.3%
Net Profit Margin - 3 Yr. Avg. 2%
Effective Tax Rate 31.3%
Eff/ Tax Rate - 3 Yr. Avg. 33.6%
Payout Ratio 36.8%

GVA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GVA stock intrinsic value calculation we used $3318 million for the last fiscal year's total revenue generated by Granite Construction Incorporated. The default revenue input number comes from 0001 income statement of Granite Construction Incorporated. 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 GVA stock valuation model: a) initial revenue growth rate of 11.4% 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 GVA is calculated based on our internal credit rating of Granite Construction Incorporated, 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 Granite Construction Incorporated.
    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 GVA stock the variable cost ratio is equal to 96.7%.

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 GVA 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 Granite Construction Incorporated.

Corporate tax rate of 27% is the nominal tax rate for Granite Construction Incorporated. 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 GVA 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 GVA are equal to 16.8%.

Life of production assets of 5.7 years is the average useful life of capital assets used in Granite Construction Incorporated 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 GVA is equal to 6%. 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 - $1351.633 million for Granite Construction Incorporated - 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 46.678 million for Granite Construction Incorporated 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 Granite Construction Incorporated at the current share price and the inputted number of shares is $2.0 billion.

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