Intrinsic value of Genesee & Wyoming, Inc. - GWR

Previous Close

$109.60

  Intrinsic Value

$50.50

stock screener

  Rating & Target

str. sell

-54%

Previous close

$109.60

 
Intrinsic value

$50.50

 
Up/down potential

-54%

 
Rating

str. sell

We calculate the intrinsic value of GWR 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 6.2

 

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
  2,396
  2,451
  2,514
  2,585
  2,663
  2,749
  2,843
  2,944
  3,053
  3,170
  3,296
  3,430
  3,572
  3,723
  3,884
  4,054
  4,234
  4,425
  4,626
  4,839
  5,063
  5,300
  5,549
  5,812
  6,088
  6,380
  6,686
  7,009
  7,348
  7,705
Variable operating expenses, $m
  1,847
  1,884
  1,925
  1,972
  2,025
  2,082
  2,144
  2,211
  2,284
  2,362
  2,190
  2,279
  2,374
  2,475
  2,581
  2,694
  2,814
  2,941
  3,075
  3,216
  3,365
  3,522
  3,688
  3,863
  4,046
  4,240
  4,444
  4,658
  4,884
  5,121
Fixed operating expenses, $m
  113
  116
  118
  121
  124
  126
  129
  132
  135
  138
  141
  144
  147
  151
  154
  157
  161
  164
  168
  172
  175
  179
  183
  187
  191
  195
  200
  204
  209
  213
Total operating expenses, $m
  1,960
  2,000
  2,043
  2,093
  2,149
  2,208
  2,273
  2,343
  2,419
  2,500
  2,331
  2,423
  2,521
  2,626
  2,735
  2,851
  2,975
  3,105
  3,243
  3,388
  3,540
  3,701
  3,871
  4,050
  4,237
  4,435
  4,644
  4,862
  5,093
  5,334
Operating income, $m
  436
  452
  470
  491
  515
  541
  570
  601
  634
  671
  964
  1,006
  1,051
  1,098
  1,149
  1,202
  1,259
  1,320
  1,384
  1,451
  1,523
  1,598
  1,678
  1,762
  1,851
  1,944
  2,043
  2,147
  2,256
  2,371
EBITDA, $m
  910
  931
  956
  983
  1,014
  1,048
  1,085
  1,126
  1,169
  1,217
  1,267
  1,321
  1,379
  1,440
  1,506
  1,575
  1,648
  1,726
  1,809
  1,896
  1,988
  2,085
  2,188
  2,296
  2,410
  2,530
  2,657
  2,790
  2,931
  3,079
Interest expense (income), $m
  66
  132
  137
  142
  149
  156
  164
  173
  182
  193
  204
  216
  229
  242
  257
  272
  289
  306
  324
  344
  364
  386
  409
  433
  459
  485
  514
  543
  575
  608
  642
Earnings before tax, $m
  303
  315
  328
  342
  359
  377
  397
  418
  442
  467
  748
  777
  808
  841
  876
  914
  953
  995
  1,040
  1,087
  1,137
  1,189
  1,245
  1,303
  1,365
  1,431
  1,499
  1,572
  1,648
  1,729
Tax expense, $m
  82
  85
  88
  92
  97
  102
  107
  113
  119
  126
  202
  210
  218
  227
  237
  247
  257
  269
  281
  293
  307
  321
  336
  352
  369
  386
  405
  424
  445
  467
Net income, $m
  221
  230
  239
  250
  262
  275
  290
  305
  322
  341
  546
  568
  590
  614
  640
  667
  696
  727
  759
  793
  830
  868
  909
  952
  997
  1,044
  1,095
  1,147
  1,203
  1,262

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
  8,013
  8,198
  8,408
  8,645
  8,907
  9,194
  9,508
  9,847
  10,212
  10,604
  11,023
  11,470
  11,947
  12,453
  12,990
  13,559
  14,162
  14,799
  15,472
  16,183
  16,933
  17,725
  18,558
  19,437
  20,362
  21,337
  22,362
  23,441
  24,576
  25,770
Adjusted assets (=assets-cash), $m
  8,013
  8,198
  8,408
  8,645
  8,907
  9,194
  9,508
  9,847
  10,212
  10,604
  11,023
  11,470
  11,947
  12,453
  12,990
  13,559
  14,162
  14,799
  15,472
  16,183
  16,933
  17,725
  18,558
  19,437
  20,362
  21,337
  22,362
  23,441
  24,576
  25,770
Revenue / Adjusted assets
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
Average production assets, $m
  6,074
  6,214
  6,373
  6,552
  6,751
  6,969
  7,206
  7,463
  7,740
  8,037
  8,355
  8,694
  9,055
  9,439
  9,846
  10,277
  10,734
  11,217
  11,728
  12,266
  12,835
  13,435
  14,067
  14,733
  15,434
  16,172
  16,950
  17,768
  18,628
  19,533
Working capital, $m
  86
  88
  91
  93
  96
  99
  102
  106
  110
  114
  119
  123
  129
  134
  140
  146
  152
  159
  167
  174
  182
  191
  200
  209
  219
  230
  241
  252
  265
  277
Total debt, $m
  2,534
  2,638
  2,757
  2,891
  3,039
  3,202
  3,379
  3,570
  3,776
  3,998
  4,235
  4,487
  4,757
  5,043
  5,346
  5,668
  6,008
  6,368
  6,749
  7,150
  7,574
  8,021
  8,492
  8,989
  9,511
  10,062
  10,641
  11,251
  11,892
  12,567
Total liabilities, $m
  4,528
  4,632
  4,751
  4,884
  5,032
  5,195
  5,372
  5,563
  5,770
  5,991
  6,228
  6,481
  6,750
  7,036
  7,339
  7,661
  8,001
  8,361
  8,742
  9,144
  9,567
  10,014
  10,486
  10,982
  11,505
  12,055
  12,635
  13,244
  13,886
  14,560
Total equity, $m
  3,486
  3,566
  3,658
  3,760
  3,875
  4,000
  4,136
  4,283
  4,442
  4,613
  4,795
  4,990
  5,197
  5,417
  5,651
  5,898
  6,160
  6,438
  6,730
  7,040
  7,366
  7,710
  8,073
  8,455
  8,858
  9,281
  9,727
  10,197
  10,691
  11,210
Total liabilities and equity, $m
  8,014
  8,198
  8,409
  8,644
  8,907
  9,195
  9,508
  9,846
  10,212
  10,604
  11,023
  11,471
  11,947
  12,453
  12,990
  13,559
  14,161
  14,799
  15,472
  16,184
  16,933
  17,724
  18,559
  19,437
  20,363
  21,336
  22,362
  23,441
  24,577
  25,770
Debt-to-equity ratio
  0.730
  0.740
  0.750
  0.770
  0.780
  0.800
  0.820
  0.830
  0.850
  0.870
  0.880
  0.900
  0.920
  0.930
  0.950
  0.960
  0.980
  0.990
  1.000
  1.020
  1.030
  1.040
  1.050
  1.060
  1.070
  1.080
  1.090
  1.100
  1.110
  1.120
Adjusted equity ratio
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  221
  230
  239
  250
  262
  275
  290
  305
  322
  341
  546
  568
  590
  614
  640
  667
  696
  727
  759
  793
  830
  868
  909
  952
  997
  1,044
  1,095
  1,147
  1,203
  1,262
Depreciation, amort., depletion, $m
  475
  480
  486
  492
  499
  507
  516
  525
  535
  546
  303
  315
  328
  342
  357
  372
  389
  406
  425
  444
  465
  487
  510
  534
  559
  586
  614
  644
  675
  708
Funds from operations, $m
  696
  709
  725
  742
  761
  782
  805
  830
  857
  887
  849
  883
  918
  956
  997
  1,039
  1,085
  1,133
  1,184
  1,238
  1,295
  1,355
  1,418
  1,485
  1,556
  1,630
  1,709
  1,791
  1,878
  1,970
Change in working capital, $m
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  12
  12
  13
Cash from operations, $m
  694
  707
  722
  739
  758
  779
  802
  827
  854
  882
  845
  878
  913
  951
  991
  1,033
  1,078
  1,126
  1,177
  1,230
  1,287
  1,346
  1,409
  1,476
  1,546
  1,620
  1,698
  1,780
  1,866
  1,957
Maintenance CAPEX, $m
  -216
  -220
  -225
  -231
  -237
  -245
  -253
  -261
  -270
  -280
  -291
  -303
  -315
  -328
  -342
  -357
  -372
  -389
  -406
  -425
  -444
  -465
  -487
  -510
  -534
  -559
  -586
  -614
  -644
  -675
New CAPEX, $m
  -119
  -140
  -160
  -179
  -199
  -218
  -237
  -257
  -277
  -297
  -318
  -339
  -361
  -384
  -407
  -431
  -457
  -483
  -510
  -539
  -569
  -600
  -632
  -666
  -701
  -738
  -777
  -818
  -860
  -905
Cash from investing activities, $m
  -335
  -360
  -385
  -410
  -436
  -463
  -490
  -518
  -547
  -577
  -609
  -642
  -676
  -712
  -749
  -788
  -829
  -872
  -916
  -964
  -1,013
  -1,065
  -1,119
  -1,176
  -1,235
  -1,297
  -1,363
  -1,432
  -1,504
  -1,580
Free cash flow, $m
  359
  348
  338
  329
  322
  317
  312
  309
  306
  305
  236
  236
  237
  239
  242
  245
  249
  254
  260
  266
  274
  282
  291
  300
  311
  322
  334
  348
  362
  377
Issuance/(repayment) of debt, $m
  81
  104
  119
  134
  148
  162
  177
  192
  206
  221
  237
  253
  269
  286
  304
  322
  340
  360
  380
  402
  424
  447
  471
  496
  523
  550
  579
  610
  641
  675
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  
  81
  104
  119
  134
  148
  162
  177
  192
  206
  221
  237
  253
  269
  286
  304
  322
  340
  360
  380
  402
  424
  447
  471
  496
  523
  550
  579
  610
  641
  675
Total cash flow (excl. dividends), $m
  440
  452
  457
  463
  470
  479
  489
  500
  513
  526
  472
  489
  506
  525
  545
  567
  590
  614
  640
  668
  698
  729
  762
  797
  834
  873
  914
  957
  1,003
  1,052
Retained Cash Flow (-), $m
  -64
  -80
  -92
  -103
  -114
  -125
  -136
  -147
  -159
  -170
  -182
  -195
  -207
  -220
  -234
  -248
  -262
  -277
  -293
  -309
  -326
  -344
  -363
  -382
  -403
  -424
  -446
  -469
  -494
  -519
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
  376
  372
  365
  360
  356
  354
  353
  353
  354
  356
  290
  294
  299
  305
  311
  319
  328
  337
  348
  359
  371
  385
  399
  414
  431
  449
  468
  488
  509
  532
Discount rate, %
  6.70
  7.04
  7.39
  7.76
  8.14
  8.55
  8.98
  9.43
  9.90
  10.39
  10.91
  11.46
  12.03
  12.63
  13.27
  13.93
  14.63
  15.36
  16.12
  16.93
  17.78
  18.67
  19.60
  20.58
  21.61
  22.69
  23.82
  25.01
  26.26
  27.58
PV of cash for distribution, $m
  352
  324
  295
  267
  241
  216
  193
  172
  151
  132
  93
  80
  68
  58
  48
  40
  32
  26
  20
  16
  12
  9
  7
  5
  3
  2
  1
  1
  1
  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

Genesee & Wyoming Inc. owns and operates freight railroads across the world. As of December 31, 2016, the Company owned or leased 122 freight railroads worldwide that are organized in 10 operating regions. The Company operates through three segments, which include North American Operations, Australian Operations and U.K./European Operations. In North America, the Company has operations in eight regions, such as Central, Coastal (which includes industrial switching and port operations), Midwest, Mountain West (which includes industrial switching operations), Northeast, Pacific, Southern and Canada. Outside the United States, the Company has operations in two regions: Australia and the United Kingdom/Europe (which consists of operations in the United Kingdom, Belgium, Germany, the Netherlands and Poland, as well as the provision of management and technical support through Freightliner to Saudi Arabia Railway Company).

FINANCIAL RATIOS  of  Genesee & Wyoming, Inc. (GWR)

Valuation Ratios
P/E Ratio 48.3
Price to Sales 3.4
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 16.7
Price to Free Cash Flow 36.4
Growth Rates
Sales Growth Rate 0.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -40.9%
Cap. Spend. - 3 Yr. Gr. Rate -2.4%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 79.7%
Total Debt to Equity 81.5%
Interest Coverage 4
Management Effectiveness
Return On Assets 2.6%
Ret/ On Assets - 3 Yr. Avg. 3.9%
Return On Total Capital 2.8%
Ret/ On T. Cap. - 3 Yr. Avg. 4.9%
Return On Equity 5.2%
Return On Equity - 3 Yr. Avg. 8.7%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 72.1%
Gross Margin - 3 Yr. Avg. 73%
EBITDA Margin 24.3%
EBITDA Margin - 3 Yr. Avg. 27.9%
Operating Margin 14.5%
Oper. Margin - 3 Yr. Avg. 19.5%
Pre-Tax Margin 10.7%
Pre-Tax Margin - 3 Yr. Avg. 16.1%
Net Profit Margin 7%
Net Profit Margin - 3 Yr. Avg. 11.4%
Effective Tax Rate 34.4%
Eff/ Tax Rate - 3 Yr. Avg. 29.6%
Payout Ratio 0%

GWR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GWR stock intrinsic value calculation we used $2349 million for the last fiscal year's total revenue generated by Genesee & Wyoming, Inc.. The default revenue input number comes from 0001 income statement of Genesee & Wyoming, 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 GWR 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 6.7%, whose default value for GWR is calculated based on our internal credit rating of Genesee & Wyoming, 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 Genesee & Wyoming, 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 GWR stock the variable cost ratio is equal to 77.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $111 million in the base year in the intrinsic value calculation for GWR 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 Genesee & Wyoming, Inc..

Corporate tax rate of 27% is the nominal tax rate for Genesee & Wyoming, 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 GWR 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 GWR are equal to 253.5%.

Life of production assets of 27.6 years is the average useful life of capital assets used in Genesee & Wyoming, 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 GWR is equal to 3.6%. 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 - $3421.706 million for Genesee & Wyoming, 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 56.752 million for Genesee & Wyoming, 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 Genesee & Wyoming, Inc. at the current share price and the inputted number of shares is $6.2 billion.

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