Intrinsic value of Mueller Water Products - MWA

Previous Close

$10.74

  Intrinsic Value

$16.93

stock screener

  Rating & Target

str. buy

+58%

Previous close

$10.74

 
Intrinsic value

$16.93

 
Up/down potential

+58%

 
Rating

str. buy

We calculate the intrinsic value of MWA 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 1.7

 

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, %
  7.80
  7.52
  7.27
  7.04
  6.84
  6.65
  6.49
  6.34
  6.21
  6.08
  5.98
  5.88
  5.79
  5.71
  5.64
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
  5.28
  5.25
  5.22
  5.20
  5.18
  5.16
  5.15
  5.13
Revenue, $m
  890
  957
  1,027
  1,099
  1,174
  1,253
  1,334
  1,418
  1,506
  1,598
  1,694
  1,793
  1,897
  2,005
  2,118
  2,237
  2,360
  2,489
  2,624
  2,765
  2,913
  3,067
  3,229
  3,399
  3,576
  3,762
  3,957
  4,161
  4,375
  4,600
Variable operating expenses, $m
  613
  656
  700
  746
  794
  844
  896
  950
  1,006
  1,065
  1,082
  1,145
  1,212
  1,281
  1,353
  1,429
  1,508
  1,590
  1,676
  1,766
  1,861
  1,959
  2,063
  2,171
  2,284
  2,403
  2,528
  2,658
  2,795
  2,939
Fixed operating expenses, $m
  159
  163
  167
  170
  174
  178
  182
  186
  190
  194
  198
  203
  207
  212
  216
  221
  226
  231
  236
  241
  246
  252
  257
  263
  269
  275
  281
  287
  293
  300
Total operating expenses, $m
  772
  819
  867
  916
  968
  1,022
  1,078
  1,136
  1,196
  1,259
  1,280
  1,348
  1,419
  1,493
  1,569
  1,650
  1,734
  1,821
  1,912
  2,007
  2,107
  2,211
  2,320
  2,434
  2,553
  2,678
  2,809
  2,945
  3,088
  3,239
Operating income, $m
  118
  139
  160
  183
  206
  231
  256
  283
  310
  339
  414
  445
  478
  513
  549
  587
  627
  668
  712
  758
  806
  856
  909
  965
  1,023
  1,084
  1,148
  1,216
  1,287
  1,362
EBITDA, $m
  189
  212
  236
  261
  286
  313
  341
  370
  400
  432
  465
  500
  536
  574
  614
  655
  699
  744
  792
  842
  895
  950
  1,008
  1,069
  1,132
  1,199
  1,270
  1,343
  1,421
  1,503
Interest expense (income), $m
  20
  26
  29
  33
  36
  40
  43
  47
  51
  56
  60
  65
  69
  74
  79
  85
  90
  96
  103
  109
  116
  123
  130
  138
  146
  154
  163
  173
  182
  193
  203
Earnings before tax, $m
  92
  110
  128
  147
  167
  187
  209
  231
  255
  279
  349
  376
  404
  433
  464
  496
  530
  566
  603
  642
  683
  726
  771
  819
  868
  921
  976
  1,034
  1,095
  1,159
Tax expense, $m
  25
  30
  35
  40
  45
  51
  56
  62
  69
  75
  94
  101
  109
  117
  125
  134
  143
  153
  163
  173
  184
  196
  208
  221
  234
  249
  263
  279
  296
  313
Net income, $m
  67
  80
  93
  107
  122
  137
  153
  169
  186
  204
  255
  274
  295
  316
  339
  362
  387
  413
  440
  469
  498
  530
  563
  598
  634
  672
  712
  755
  799
  846

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
  1,113
  1,197
  1,284
  1,374
  1,468
  1,566
  1,667
  1,773
  1,883
  1,998
  2,117
  2,241
  2,371
  2,507
  2,648
  2,796
  2,950
  3,111
  3,280
  3,456
  3,641
  3,834
  4,036
  4,248
  4,470
  4,703
  4,946
  5,202
  5,469
  5,750
Adjusted assets (=assets-cash), $m
  1,113
  1,197
  1,284
  1,374
  1,468
  1,566
  1,667
  1,773
  1,883
  1,998
  2,117
  2,241
  2,371
  2,507
  2,648
  2,796
  2,950
  3,111
  3,280
  3,456
  3,641
  3,834
  4,036
  4,248
  4,470
  4,703
  4,946
  5,202
  5,469
  5,750
Revenue / Adjusted assets
  0.800
  0.799
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
Average production assets, $m
  360
  387
  415
  444
  474
  506
  539
  573
  609
  646
  684
  724
  766
  810
  856
  904
  953
  1,006
  1,060
  1,117
  1,177
  1,239
  1,305
  1,373
  1,445
  1,520
  1,599
  1,681
  1,768
  1,858
Working capital, $m
  186
  200
  215
  230
  245
  262
  279
  296
  315
  334
  354
  375
  396
  419
  443
  467
  493
  520
  548
  578
  609
  641
  675
  710
  747
  786
  827
  870
  914
  961
Total debt, $m
  540
  602
  666
  733
  803
  875
  950
  1,028
  1,110
  1,195
  1,283
  1,375
  1,471
  1,571
  1,676
  1,785
  1,899
  2,019
  2,143
  2,274
  2,411
  2,554
  2,703
  2,860
  3,024
  3,196
  3,377
  3,566
  3,764
  3,971
Total liabilities, $m
  824
  886
  950
  1,017
  1,086
  1,159
  1,234
  1,312
  1,393
  1,478
  1,567
  1,659
  1,755
  1,855
  1,960
  2,069
  2,183
  2,302
  2,427
  2,558
  2,694
  2,837
  2,987
  3,144
  3,308
  3,480
  3,660
  3,849
  4,047
  4,255
Total equity, $m
  289
  311
  334
  357
  382
  407
  434
  461
  490
  519
  550
  583
  617
  652
  688
  727
  767
  809
  853
  899
  947
  997
  1,049
  1,105
  1,162
  1,223
  1,286
  1,352
  1,422
  1,495
Total liabilities and equity, $m
  1,113
  1,197
  1,284
  1,374
  1,468
  1,566
  1,668
  1,773
  1,883
  1,997
  2,117
  2,242
  2,372
  2,507
  2,648
  2,796
  2,950
  3,111
  3,280
  3,457
  3,641
  3,834
  4,036
  4,249
  4,470
  4,703
  4,946
  5,201
  5,469
  5,750
Debt-to-equity ratio
  1.870
  1.930
  2.000
  2.050
  2.100
  2.150
  2.190
  2.230
  2.270
  2.300
  2.330
  2.360
  2.390
  2.410
  2.430
  2.460
  2.480
  2.500
  2.510
  2.530
  2.550
  2.560
  2.580
  2.590
  2.600
  2.610
  2.630
  2.640
  2.650
  2.660
Adjusted equity ratio
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  67
  80
  93
  107
  122
  137
  153
  169
  186
  204
  255
  274
  295
  316
  339
  362
  387
  413
  440
  469
  498
  530
  563
  598
  634
  672
  712
  755
  799
  846
Depreciation, amort., depletion, $m
  71
  73
  75
  78
  80
  82
  85
  87
  90
  93
  52
  55
  58
  61
  65
  68
  72
  76
  80
  85
  89
  94
  99
  104
  109
  115
  121
  127
  134
  141
Funds from operations, $m
  139
  153
  169
  185
  202
  219
  237
  256
  276
  297
  307
  329
  353
  378
  404
  431
  459
  489
  520
  553
  588
  624
  662
  702
  743
  787
  834
  882
  933
  987
Change in working capital, $m
  13
  14
  15
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  34
  35
  37
  39
  41
  43
  45
  47
Cash from operations, $m
  125
  139
  154
  170
  186
  203
  220
  239
  258
  278
  287
  308
  331
  355
  380
  406
  433
  462
  492
  524
  557
  591
  628
  666
  706
  748
  793
  839
  888
  940
Maintenance CAPEX, $m
  -25
  -27
  -29
  -31
  -34
  -36
  -38
  -41
  -43
  -46
  -49
  -52
  -55
  -58
  -61
  -65
  -68
  -72
  -76
  -80
  -85
  -89
  -94
  -99
  -104
  -109
  -115
  -121
  -127
  -134
New CAPEX, $m
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -37
  -39
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -55
  -57
  -60
  -62
  -65
  -68
  -72
  -75
  -79
  -83
  -87
  -91
Cash from investing activities, $m
  -51
  -54
  -57
  -60
  -64
  -68
  -71
  -75
  -79
  -83
  -88
  -92
  -97
  -102
  -107
  -113
  -118
  -124
  -131
  -137
  -145
  -151
  -159
  -167
  -176
  -184
  -194
  -204
  -214
  -225
Free cash flow, $m
  74
  85
  97
  109
  122
  135
  149
  164
  179
  195
  199
  216
  234
  253
  273
  294
  315
  338
  362
  386
  412
  440
  469
  499
  531
  564
  599
  636
  674
  715
Issuance/(repayment) of debt, $m
  59
  62
  64
  67
  70
  72
  75
  78
  81
  85
  88
  92
  96
  100
  105
  109
  114
  119
  125
  131
  137
  143
  150
  157
  164
  172
  180
  189
  198
  208
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  
  59
  62
  64
  67
  70
  72
  75
  78
  81
  85
  88
  92
  96
  100
  105
  109
  114
  119
  125
  131
  137
  143
  150
  157
  164
  172
  180
  189
  198
  208
Total cash flow (excl. dividends), $m
  133
  147
  161
  176
  191
  207
  224
  242
  260
  279
  287
  308
  330
  353
  378
  403
  429
  457
  486
  517
  549
  583
  618
  656
  695
  736
  779
  825
  872
  923
Retained Cash Flow (-), $m
  -21
  -22
  -23
  -24
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -32
  -34
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -53
  -55
  -58
  -60
  -63
  -66
  -70
  -73
Prev. year cash balance distribution, $m
  220
  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
  332
  125
  139
  152
  167
  182
  198
  214
  232
  250
  256
  276
  297
  318
  341
  364
  389
  415
  442
  471
  501
  533
  566
  601
  637
  675
  716
  758
  803
  850
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
  319
  115
  121
  126
  129
  132
  134
  134
  133
  131
  122
  118
  113
  107
  100
  93
  85
  76
  68
  60
  52
  44
  37
  31
  25
  20
  15
  12
  9
  6
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

Mueller Water Products, Inc. is a manufacturer and marketer of products and services used in the transmission, distribution and measurement of water in North America. The Company operates through three segments: Mueller Co., Anvil and Mueller Technologies. The Mueller Co. segment manufactures valves for water and gas systems, and dry-barrel and wet-barrel fire hydrants. The Anvil segment manufactures and sources a range of products, including a range of fittings, couplings, hangers and related products. The Mueller Technologies segment offers metering systems, leak detection, pipe condition assessment and other products and services for the water infrastructure industry. The Mueller Technologies segment includes Mueller Systems and Echologics businesses. The Company offers a range of water infrastructure, flow control and piping component system products and services in the United States and Canada.

FINANCIAL RATIOS  of  Mueller Water Products (MWA)

Valuation Ratios
P/E Ratio 13.8
Price to Sales 2.1
Price to Book 3.5
Price to Tangible Book
Price to Cash Flow 106.5
Price to Free Cash Flow -68.1
Growth Rates
Sales Growth Rate 3.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 28.1%
Cap. Spend. - 3 Yr. Gr. Rate 2.1%
Financial Strength
Quick Ratio 60
Current Ratio 0.1
LT Debt to Equity 97.3%
Total Debt to Equity 98.6%
Interest Coverage 5
Management Effectiveness
Return On Assets 10.8%
Ret/ On Assets - 3 Yr. Avg. 7.1%
Return On Total Capital 13.1%
Ret/ On T. Cap. - 3 Yr. Avg. 8%
Return On Equity 27.2%
Return On Equity - 3 Yr. Avg. 17.4%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 32.4%
Gross Margin - 3 Yr. Avg. 32.3%
EBITDA Margin 17.1%
EBITDA Margin - 3 Yr. Avg. 15.3%
Operating Margin 12.2%
Oper. Margin - 3 Yr. Avg. 10%
Pre-Tax Margin 9.6%
Pre-Tax Margin - 3 Yr. Avg. 6.9%
Net Profit Margin 14.9%
Net Profit Margin - 3 Yr. Avg. 8.9%
Effective Tax Rate 31.6%
Eff/ Tax Rate - 3 Yr. Avg. 34.8%
Payout Ratio 19.5%

MWA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MWA stock intrinsic value calculation we used $826 million for the last fiscal year's total revenue generated by Mueller Water Products. The default revenue input number comes from 0001 income statement of Mueller Water Products. 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 MWA stock valuation model: a) initial revenue growth rate of 7.8% 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 MWA is calculated based on our internal credit rating of Mueller Water Products, 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 Mueller Water Products.
    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 MWA stock the variable cost ratio is equal to 69.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $156 million in the base year in the intrinsic value calculation for MWA 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 Mueller Water Products.

Corporate tax rate of 27% is the nominal tax rate for Mueller Water Products. 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 MWA 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 MWA are equal to 40.4%.

Life of production assets of 13.2 years is the average useful life of capital assets used in Mueller Water Products 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 MWA is equal to 20.9%. 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 - $488.4 million for Mueller Water Products - 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 158.169 million for Mueller Water Products 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 Mueller Water Products at the current share price and the inputted number of shares is $1.7 billion.

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COMPANY NEWS

▶ Mueller Water Products plans new Atlanta technology center   [02:56PM  American City Business Journals]
▶ Mueller Water Products Announces Quarterly Dividend   [Oct-29-18 05:17PM  GlobeNewswire]
▶ Mueller Water Products Announces Quarterly Dividend   [Jul-26-18 06:31PM  GlobeNewswire]
▶ Mueller Water Products: Fiscal 2Q Earnings Snapshot   [May-07-18 05:41PM  Associated Press]
▶ Best Industrial Dividend Stock Picks   [Apr-28-18 12:02PM  Simply Wall St.]
▶ Mueller Water Products Announces Quarterly Dividend   [Apr-17-18 05:15PM  GlobeNewswire]
▶ Mueller Water Products meets 1Q profit forecasts   [Feb-01-18 05:01PM  Associated Press]
▶ Mueller Water Products meets 4Q profit forecasts   [05:49AM  Associated Press]
▶ Mueller Water Products Announces Quarterly Dividend   [Oct-25-17 06:06PM  GlobeNewswire]
▶ What is Behind Mueller Water Products Incs (MWA) Superior ROE?   [Sep-29-17 04:57PM  Simply Wall St.]

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