Intrinsic value of Otter Tail Corporation - OTTR

Previous Close

$50.15

  Intrinsic Value

$6.17

stock screener

  Rating & Target

str. sell

-88%

Previous close

$50.15

 
Intrinsic value

$6.17

 
Up/down potential

-88%

 
Rating

str. sell

We calculate the intrinsic value of OTTR 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, %
  7.00
  6.80
  6.62
  6.46
  6.31
  6.18
  6.06
  5.96
  5.86
  5.77
  5.70
  5.63
  5.56
  5.51
  5.46
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
  5.20
  5.18
  5.16
  5.14
  5.13
  5.12
  5.10
  5.09
Revenue, $m
  980
  1,047
  1,116
  1,188
  1,263
  1,341
  1,423
  1,507
  1,596
  1,688
  1,784
  1,884
  1,989
  2,099
  2,213
  2,333
  2,458
  2,589
  2,727
  2,870
  3,021
  3,179
  3,344
  3,517
  3,698
  3,889
  4,088
  4,297
  4,516
  4,747
Variable operating expenses, $m
  827
  883
  941
  1,001
  1,064
  1,130
  1,198
  1,269
  1,343
  1,420
  1,496
  1,580
  1,668
  1,760
  1,856
  1,956
  2,061
  2,171
  2,286
  2,407
  2,533
  2,665
  2,804
  2,949
  3,101
  3,261
  3,428
  3,603
  3,787
  3,980
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
  827
  883
  941
  1,001
  1,064
  1,130
  1,198
  1,269
  1,343
  1,420
  1,496
  1,580
  1,668
  1,760
  1,856
  1,956
  2,061
  2,171
  2,286
  2,407
  2,533
  2,665
  2,804
  2,949
  3,101
  3,261
  3,428
  3,603
  3,787
  3,980
Operating income, $m
  153
  164
  175
  187
  199
  212
  225
  238
  253
  268
  288
  304
  321
  339
  357
  377
  397
  418
  440
  463
  488
  513
  540
  568
  597
  628
  660
  694
  729
  766
EBITDA, $m
  237
  253
  270
  287
  305
  324
  344
  364
  385
  408
  431
  455
  481
  507
  535
  564
  594
  626
  659
  693
  730
  768
  808
  850
  894
  939
  988
  1,038
  1,091
  1,147
Interest expense (income), $m
  0
  33
  38
  43
  49
  54
  60
  66
  72
  79
  86
  93
  101
  109
  117
  125
  134
  144
  153
  164
  174
  186
  197
  210
  223
  236
  250
  265
  281
  297
  314
Earnings before tax, $m
  120
  126
  132
  138
  145
  152
  159
  166
  174
  181
  195
  204
  213
  222
  232
  242
  253
  265
  277
  289
  302
  316
  330
  345
  361
  378
  395
  413
  432
  452
Tax expense, $m
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  53
  55
  57
  60
  63
  65
  68
  71
  75
  78
  82
  85
  89
  93
  97
  102
  107
  112
  117
  122
Net income, $m
  88
  92
  96
  101
  106
  111
  116
  121
  127
  132
  142
  149
  155
  162
  169
  177
  185
  193
  202
  211
  221
  231
  241
  252
  264
  276
  288
  302
  316
  330

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
  2,198
  2,347
  2,502
  2,664
  2,832
  3,007
  3,190
  3,380
  3,578
  3,784
  4,000
  4,225
  4,460
  4,706
  4,962
  5,231
  5,512
  5,806
  6,114
  6,436
  6,773
  7,127
  7,497
  7,885
  8,292
  8,719
  9,166
  9,635
  10,127
  10,643
Adjusted assets (=assets-cash), $m
  2,198
  2,347
  2,502
  2,664
  2,832
  3,007
  3,190
  3,380
  3,578
  3,784
  4,000
  4,225
  4,460
  4,706
  4,962
  5,231
  5,512
  5,806
  6,114
  6,436
  6,773
  7,127
  7,497
  7,885
  8,292
  8,719
  9,166
  9,635
  10,127
  10,643
Revenue / Adjusted assets
  0.446
  0.446
  0.446
  0.446
  0.446
  0.446
  0.446
  0.446
  0.446
  0.446
  0.446
  0.446
  0.446
  0.446
  0.446
  0.446
  0.446
  0.446
  0.446
  0.446
  0.446
  0.446
  0.446
  0.446
  0.446
  0.446
  0.446
  0.446
  0.446
  0.446
Average production assets, $m
  1,697
  1,812
  1,932
  2,057
  2,186
  2,322
  2,462
  2,609
  2,762
  2,921
  3,088
  3,262
  3,443
  3,633
  3,831
  4,038
  4,255
  4,482
  4,720
  4,969
  5,229
  5,502
  5,788
  6,088
  6,402
  6,731
  7,076
  7,438
  7,818
  8,216
Working capital, $m
  95
  102
  108
  115
  123
  130
  138
  146
  155
  164
  173
  183
  193
  204
  215
  226
  238
  251
  264
  278
  293
  308
  324
  341
  359
  377
  397
  417
  438
  460
Total debt, $m
  703
  799
  899
  1,003
  1,112
  1,225
  1,342
  1,465
  1,593
  1,726
  1,865
  2,010
  2,162
  2,320
  2,486
  2,659
  2,840
  3,030
  3,228
  3,436
  3,654
  3,882
  4,121
  4,371
  4,634
  4,909
  5,197
  5,500
  5,817
  6,150
Total liabilities, $m
  1,417
  1,514
  1,614
  1,718
  1,827
  1,940
  2,057
  2,180
  2,308
  2,441
  2,580
  2,725
  2,877
  3,035
  3,201
  3,374
  3,555
  3,745
  3,943
  4,151
  4,369
  4,597
  4,836
  5,086
  5,348
  5,624
  5,912
  6,214
  6,532
  6,864
Total equity, $m
  780
  833
  888
  946
  1,005
  1,068
  1,132
  1,200
  1,270
  1,343
  1,420
  1,500
  1,583
  1,671
  1,762
  1,857
  1,957
  2,061
  2,170
  2,285
  2,405
  2,530
  2,661
  2,799
  2,944
  3,095
  3,254
  3,420
  3,595
  3,778
Total liabilities and equity, $m
  2,197
  2,347
  2,502
  2,664
  2,832
  3,008
  3,189
  3,380
  3,578
  3,784
  4,000
  4,225
  4,460
  4,706
  4,963
  5,231
  5,512
  5,806
  6,113
  6,436
  6,774
  7,127
  7,497
  7,885
  8,292
  8,719
  9,166
  9,634
  10,127
  10,642
Debt-to-equity ratio
  0.900
  0.960
  1.010
  1.060
  1.110
  1.150
  1.190
  1.220
  1.250
  1.280
  1.310
  1.340
  1.370
  1.390
  1.410
  1.430
  1.450
  1.470
  1.490
  1.500
  1.520
  1.530
  1.550
  1.560
  1.570
  1.590
  1.600
  1.610
  1.620
  1.630
Adjusted equity ratio
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  88
  92
  96
  101
  106
  111
  116
  121
  127
  132
  142
  149
  155
  162
  169
  177
  185
  193
  202
  211
  221
  231
  241
  252
  264
  276
  288
  302
  316
  330
Depreciation, amort., depletion, $m
  84
  89
  94
  100
  106
  112
  119
  126
  133
  140
  143
  151
  159
  168
  177
  187
  197
  208
  219
  230
  242
  255
  268
  282
  296
  312
  328
  344
  362
  380
Funds from operations, $m
  171
  181
  191
  201
  212
  223
  235
  247
  260
  273
  285
  300
  315
  330
  347
  364
  382
  401
  420
  441
  463
  485
  509
  534
  560
  587
  616
  646
  677
  711
Change in working capital, $m
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
  22
Cash from operations, $m
  165
  174
  184
  194
  205
  216
  227
  239
  251
  264
  276
  290
  304
  320
  336
  352
  370
  388
  407
  427
  448
  470
  493
  517
  542
  569
  597
  626
  656
  688
Maintenance CAPEX, $m
  -73
  -79
  -84
  -89
  -95
  -101
  -107
  -114
  -121
  -128
  -135
  -143
  -151
  -159
  -168
  -177
  -187
  -197
  -208
  -219
  -230
  -242
  -255
  -268
  -282
  -296
  -312
  -328
  -344
  -362
New CAPEX, $m
  -111
  -115
  -120
  -125
  -130
  -135
  -141
  -147
  -153
  -160
  -166
  -174
  -182
  -190
  -198
  -207
  -217
  -227
  -238
  -249
  -261
  -273
  -286
  -300
  -314
  -329
  -345
  -362
  -380
  -398
Cash from investing activities, $m
  -184
  -194
  -204
  -214
  -225
  -236
  -248
  -261
  -274
  -288
  -301
  -317
  -333
  -349
  -366
  -384
  -404
  -424
  -446
  -468
  -491
  -515
  -541
  -568
  -596
  -625
  -657
  -690
  -724
  -760
Free cash flow, $m
  -19
  -19
  -20
  -20
  -20
  -21
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
  -45
  -48
  -51
  -54
  -57
  -60
  -64
  -68
  -72
Issuance/(repayment) of debt, $m
  94
  96
  100
  104
  108
  113
  118
  123
  128
  133
  139
  145
  152
  158
  166
  173
  181
  190
  198
  208
  218
  228
  239
  250
  262
  275
  288
  302
  317
  333
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  
  94
  96
  100
  104
  108
  113
  118
  123
  128
  133
  139
  145
  152
  158
  166
  173
  181
  190
  198
  208
  218
  228
  239
  250
  262
  275
  288
  302
  317
  333
Total cash flow (excl. dividends), $m
  75
  77
  80
  84
  88
  92
  96
  101
  105
  110
  113
  118
  124
  129
  135
  141
  147
  154
  161
  168
  175
  183
  191
  200
  209
  218
  228
  239
  249
  261
Retained Cash Flow (-), $m
  -51
  -53
  -55
  -57
  -60
  -62
  -65
  -67
  -70
  -73
  -77
  -80
  -83
  -87
  -91
  -95
  -100
  -104
  -109
  -114
  -120
  -125
  -131
  -138
  -144
  -151
  -159
  -166
  -175
  -183
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
  23
  24
  25
  27
  28
  30
  31
  33
  35
  36
  37
  38
  40
  42
  44
  46
  47
  49
  51
  53
  55
  58
  60
  62
  64
  67
  69
  72
  75
  78
Discount rate, %
  7.00
  7.35
  7.72
  8.10
  8.51
  8.93
  9.38
  9.85
  10.34
  10.86
  11.40
  11.97
  12.57
  13.20
  13.86
  14.55
  15.28
  16.04
  16.85
  17.69
  18.57
  19.50
  20.48
  21.50
  22.58
  23.70
  24.89
  26.13
  27.44
  28.81
PV of cash for distribution, $m
  22
  21
  20
  20
  19
  18
  17
  16
  14
  13
  11
  10
  9
  7
  6
  5
  4
  3
  3
  2
  2
  1
  1
  1
  0
  0
  0
  0
  0
  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

Otter Tail Corporation is a holding company. The Company operates through three segments: Electric, Manufacturing and Plastics. The Electric segment includes the production, transmission, distribution and sale of electric energy in Minnesota, North Dakota and South Dakota by Otter Tail Power Company (OTP). The Manufacturing segment consists of businesses in manufacturing activities, such as contract machining, metal parts stamping, fabrication and painting, and production of material and handling trays and horticultural containers. These businesses have manufacturing facilities in Georgia, Illinois and Minnesota and sell products primarily in the United States. The Plastics segment consists of businesses producing polyvinyl chloride (PVC) pipe at plants in North Dakota and Arizona. The PVC pipe is sold primarily in the upper Midwest and Southwest regions of the United States. The Company's manufacturing and plastic pipe businesses are owned by its subsidiary, Varistar Corporation.

FINANCIAL RATIOS  of  Otter Tail Corporation (OTTR)

Valuation Ratios
P/E Ratio 31.8
Price to Sales 2.5
Price to Book 2.9
Price to Tangible Book
Price to Cash Flow 12.1
Price to Free Cash Flow 986.7
Growth Rates
Sales Growth Rate 3.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0.6%
Cap. Spend. - 3 Yr. Gr. Rate 0.1%
Financial Strength
Quick Ratio 0
Current Ratio 0.2
LT Debt to Equity 75.4%
Total Debt to Equity 86.7%
Interest Coverage 0
Management Effectiveness
Return On Assets 3.3%
Ret/ On Assets - 3 Yr. Avg. 3.4%
Return On Total Capital 5.1%
Ret/ On T. Cap. - 3 Yr. Avg. 5.3%
Return On Equity 9.7%
Return On Equity - 3 Yr. Avg. 10.1%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 19.3%
EBITDA Margin - 3 Yr. Avg. 17.9%
Operating Margin 13.9%
Oper. Margin - 3 Yr. Avg. 13.4%
Pre-Tax Margin 10.2%
Pre-Tax Margin - 3 Yr. Avg. 9.9%
Net Profit Margin 7.7%
Net Profit Margin - 3 Yr. Avg. 7.5%
Effective Tax Rate 24.4%
Eff/ Tax Rate - 3 Yr. Avg. 24.2%
Payout Ratio 77.4%

OTTR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the OTTR stock intrinsic value calculation we used $916 million for the last fiscal year's total revenue generated by Otter Tail Corporation. The default revenue input number comes from 0001 income statement of Otter Tail Corporation. 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 OTTR stock valuation model: a) initial revenue growth rate of 7% 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 7%, whose default value for OTTR is calculated based on our internal credit rating of Otter Tail Corporation, 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 Otter Tail Corporation.
    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 OTTR stock the variable cost ratio is equal to 84.4%.

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 OTTR 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 Otter Tail Corporation.

Corporate tax rate of 27% is the nominal tax rate for Otter Tail Corporation. 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 OTTR 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 OTTR are equal to 173.1%.

Life of production assets of 21.6 years is the average useful life of capital assets used in Otter Tail Corporation 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 OTTR is equal to 9.7%. 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 - $728.863 million for Otter Tail Corporation - 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 39.697 million for Otter Tail Corporation 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 Otter Tail Corporation at the current share price and the inputted number of shares is $2.0 billion.

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