Intrinsic value of Primoris Services - PRIM

Previous Close

$22.97

  Intrinsic Value

$24.13

stock screener

  Rating & Target

hold

+5%

Previous close

$22.97

 
Intrinsic value

$24.13

 
Up/down potential

+5%

 
Rating

hold

We calculate the intrinsic value of PRIM 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 1.2

 

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, %
  2.80
  3.02
  3.22
  3.40
  3.56
  3.70
  3.83
  3.95
  4.05
  4.15
  4.23
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.82
  4.84
  4.86
  4.87
  4.88
  4.90
Revenue, $m
  2,447
  2,521
  2,602
  2,690
  2,786
  2,889
  2,999
  3,118
  3,244
  3,379
  3,522
  3,674
  3,834
  4,005
  4,185
  4,375
  4,576
  4,788
  5,012
  5,247
  5,496
  5,757
  6,032
  6,322
  6,627
  6,948
  7,286
  7,641
  8,014
  8,406
Variable operating expenses, $m
  2,135
  2,199
  2,269
  2,346
  2,429
  2,518
  2,613
  2,716
  2,825
  2,941
  3,045
  3,176
  3,316
  3,463
  3,618
  3,783
  3,957
  4,140
  4,333
  4,537
  4,752
  4,978
  5,216
  5,467
  5,731
  6,008
  6,300
  6,607
  6,930
  7,269
Fixed operating expenses, $m
  203
  208
  212
  217
  222
  227
  232
  237
  242
  247
  253
  258
  264
  270
  276
  282
  288
  294
  301
  308
  314
  321
  328
  335
  343
  350
  358
  366
  374
  382
Total operating expenses, $m
  2,338
  2,407
  2,481
  2,563
  2,651
  2,745
  2,845
  2,953
  3,067
  3,188
  3,298
  3,434
  3,580
  3,733
  3,894
  4,065
  4,245
  4,434
  4,634
  4,845
  5,066
  5,299
  5,544
  5,802
  6,074
  6,358
  6,658
  6,973
  7,304
  7,651
Operating income, $m
  108
  113
  120
  127
  135
  144
  154
  165
  177
  190
  224
  239
  255
  272
  290
  310
  331
  354
  377
  403
  429
  458
  488
  520
  554
  590
  628
  668
  710
  755
EBITDA, $m
  183
  190
  199
  208
  218
  230
  242
  256
  271
  286
  304
  322
  342
  363
  385
  409
  435
  462
  491
  522
  554
  588
  625
  663
  704
  747
  793
  841
  892
  946
Interest expense (income), $m
  9
  14
  15
  16
  18
  19
  20
  22
  24
  26
  28
  30
  32
  35
  37
  40
  43
  46
  49
  52
  56
  60
  63
  68
  72
  77
  81
  87
  92
  97
  103
Earnings before tax, $m
  94
  98
  104
  110
  116
  124
  132
  141
  151
  162
  194
  207
  220
  235
  251
  268
  286
  305
  325
  347
  370
  394
  420
  448
  477
  508
  541
  576
  613
  652
Tax expense, $m
  25
  27
  28
  30
  31
  33
  36
  38
  41
  44
  52
  56
  59
  63
  68
  72
  77
  82
  88
  94
  100
  107
  114
  121
  129
  137
  146
  156
  166
  176
Net income, $m
  69
  72
  76
  80
  85
  90
  97
  103
  111
  119
  142
  151
  161
  172
  183
  195
  208
  222
  237
  253
  270
  288
  307
  327
  349
  371
  395
  421
  447
  476

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
  1,291
  1,330
  1,373
  1,420
  1,470
  1,524
  1,583
  1,645
  1,712
  1,783
  1,858
  1,939
  2,023
  2,113
  2,208
  2,309
  2,415
  2,527
  2,645
  2,769
  2,900
  3,038
  3,183
  3,336
  3,497
  3,667
  3,845
  4,032
  4,229
  4,436
Adjusted assets (=assets-cash), $m
  1,291
  1,330
  1,373
  1,420
  1,470
  1,524
  1,583
  1,645
  1,712
  1,783
  1,858
  1,939
  2,023
  2,113
  2,208
  2,309
  2,415
  2,527
  2,645
  2,769
  2,900
  3,038
  3,183
  3,336
  3,497
  3,667
  3,845
  4,032
  4,229
  4,436
Revenue / Adjusted assets
  1.895
  1.895
  1.895
  1.894
  1.895
  1.896
  1.895
  1.895
  1.895
  1.895
  1.896
  1.895
  1.895
  1.895
  1.895
  1.895
  1.895
  1.895
  1.895
  1.895
  1.895
  1.895
  1.895
  1.895
  1.895
  1.895
  1.895
  1.895
  1.895
  1.895
Average production assets, $m
  394
  406
  419
  433
  448
  465
  483
  502
  522
  544
  567
  591
  617
  645
  674
  704
  737
  771
  807
  845
  885
  927
  971
  1,018
  1,067
  1,119
  1,173
  1,230
  1,290
  1,353
Working capital, $m
  188
  194
  200
  207
  214
  222
  231
  240
  250
  260
  271
  283
  295
  308
  322
  337
  352
  369
  386
  404
  423
  443
  465
  487
  510
  535
  561
  588
  617
  647
Total debt, $m
  279
  300
  324
  350
  378
  409
  441
  476
  513
  553
  595
  639
  687
  737
  790
  846
  905
  967
  1,033
  1,102
  1,175
  1,252
  1,333
  1,418
  1,508
  1,602
  1,701
  1,805
  1,915
  2,030
Total liabilities, $m
  719
  741
  765
  791
  819
  849
  882
  916
  954
  993
  1,035
  1,080
  1,127
  1,177
  1,230
  1,286
  1,345
  1,407
  1,473
  1,542
  1,615
  1,692
  1,773
  1,858
  1,948
  2,042
  2,142
  2,246
  2,356
  2,471
Total equity, $m
  572
  589
  608
  629
  651
  675
  701
  729
  758
  790
  823
  859
  896
  936
  978
  1,023
  1,070
  1,119
  1,172
  1,227
  1,285
  1,346
  1,410
  1,478
  1,549
  1,624
  1,703
  1,786
  1,873
  1,965
Total liabilities and equity, $m
  1,291
  1,330
  1,373
  1,420
  1,470
  1,524
  1,583
  1,645
  1,712
  1,783
  1,858
  1,939
  2,023
  2,113
  2,208
  2,309
  2,415
  2,526
  2,645
  2,769
  2,900
  3,038
  3,183
  3,336
  3,497
  3,666
  3,845
  4,032
  4,229
  4,436
Debt-to-equity ratio
  0.490
  0.510
  0.530
  0.560
  0.580
  0.610
  0.630
  0.650
  0.680
  0.700
  0.720
  0.740
  0.770
  0.790
  0.810
  0.830
  0.850
  0.860
  0.880
  0.900
  0.910
  0.930
  0.950
  0.960
  0.970
  0.990
  1.000
  1.010
  1.020
  1.030
Adjusted equity ratio
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  69
  72
  76
  80
  85
  90
  97
  103
  111
  119
  142
  151
  161
  172
  183
  195
  208
  222
  237
  253
  270
  288
  307
  327
  349
  371
  395
  421
  447
  476
Depreciation, amort., depletion, $m
  75
  77
  79
  81
  83
  85
  88
  91
  93
  96
  80
  83
  87
  91
  95
  99
  104
  109
  114
  119
  125
  131
  137
  143
  150
  158
  165
  173
  182
  191
Funds from operations, $m
  144
  149
  154
  161
  168
  176
  184
  194
  204
  215
  221
  234
  248
  262
  278
  295
  312
  331
  351
  372
  395
  418
  444
  471
  499
  529
  560
  594
  629
  667
Change in working capital, $m
  5
  6
  6
  7
  7
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  30
Cash from operations, $m
  139
  143
  148
  154
  161
  168
  176
  185
  194
  205
  210
  222
  235
  249
  264
  280
  297
  315
  334
  354
  376
  398
  423
  448
  475
  504
  534
  567
  600
  636
Maintenance CAPEX, $m
  -54
  -55
  -57
  -59
  -61
  -63
  -66
  -68
  -71
  -74
  -77
  -80
  -83
  -87
  -91
  -95
  -99
  -104
  -109
  -114
  -119
  -125
  -131
  -137
  -143
  -150
  -158
  -165
  -173
  -182
New CAPEX, $m
  -10
  -12
  -13
  -14
  -15
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -26
  -27
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -47
  -49
  -52
  -54
  -57
  -60
  -63
Cash from investing activities, $m
  -64
  -67
  -70
  -73
  -76
  -80
  -84
  -87
  -91
  -96
  -100
  -104
  -109
  -114
  -120
  -126
  -131
  -138
  -145
  -152
  -159
  -167
  -175
  -184
  -192
  -202
  -212
  -222
  -233
  -245
Free cash flow, $m
  75
  76
  78
  81
  84
  88
  93
  98
  103
  109
  111
  118
  126
  135
  144
  154
  165
  177
  189
  202
  217
  232
  248
  265
  283
  302
  323
  344
  367
  391
Issuance/(repayment) of debt, $m
  20
  22
  24
  26
  28
  30
  33
  35
  37
  40
  42
  45
  47
  50
  53
  56
  59
  62
  66
  69
  73
  77
  81
  85
  90
  94
  99
  104
  110
  115
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  
  20
  22
  24
  26
  28
  30
  33
  35
  37
  40
  42
  45
  47
  50
  53
  56
  59
  62
  66
  69
  73
  77
  81
  85
  90
  94
  99
  104
  110
  115
Total cash flow (excl. dividends), $m
  95
  97
  102
  107
  112
  118
  125
  132
  140
  149
  153
  163
  173
  185
  197
  210
  224
  239
  255
  272
  290
  309
  329
  350
  373
  396
  422
  448
  477
  507
Retained Cash Flow (-), $m
  -15
  -17
  -19
  -21
  -22
  -24
  -26
  -28
  -30
  -31
  -33
  -35
  -38
  -40
  -42
  -44
  -47
  -50
  -52
  -55
  -58
  -61
  -64
  -68
  -71
  -75
  -79
  -83
  -87
  -92
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
  79
  80
  83
  86
  90
  94
  99
  105
  111
  117
  119
  127
  136
  145
  155
  166
  177
  190
  203
  217
  232
  247
  264
  282
  301
  321
  343
  366
  390
  415
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
  76
  73
  72
  71
  70
  68
  67
  65
  64
  62
  57
  54
  52
  49
  46
  42
  39
  35
  31
  28
  24
  21
  17
  14
  12
  9
  7
  6
  4
  3
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

Primoris Services Corporation is a holding company. The Company holds various subsidiaries, through which it operates as a specialty contractor and infrastructure company. The Company provides a range of construction, fabrication, maintenance, replacement, water and wastewater, and engineering services to public utilities, petrochemical companies, energy companies, municipalities, state departments of transportation and other customers. It operates in three segments: the West Construction Services segment (West segment), the East Construction Services segment (East segment) and the Energy segment. The Company installs, replaces, repairs and rehabilitates natural gas, refined product, water and wastewater pipeline systems; large diameter gas and liquid pipeline facilities, and heavy civil projects, earthwork and site development.

FINANCIAL RATIOS  of  Primoris Services (PRIM)

Valuation Ratios
P/E Ratio 43.9
Price to Sales 0.6
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 18.8
Price to Free Cash Flow 237
Growth Rates
Sales Growth Rate 3.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -13.4%
Cap. Spend. - 3 Yr. Gr. Rate -7.8%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 41%
Total Debt to Equity 52.7%
Interest Coverage 6
Management Effectiveness
Return On Assets 2.8%
Ret/ On Assets - 3 Yr. Avg. 4.3%
Return On Total Capital 3.6%
Ret/ On T. Cap. - 3 Yr. Avg. 6.1%
Return On Equity 5.5%
Return On Equity - 3 Yr. Avg. 9.4%
Asset Turnover 1.7
Profitability Ratios
Gross Margin 10.1%
Gross Margin - 3 Yr. Avg. 10.9%
EBITDA Margin 6.3%
EBITDA Margin - 3 Yr. Avg. 7.1%
Operating Margin 2.9%
Oper. Margin - 3 Yr. Avg. 3.8%
Pre-Tax Margin 2.5%
Pre-Tax Margin - 3 Yr. Avg. 3.5%
Net Profit Margin 1.4%
Net Profit Margin - 3 Yr. Avg. 2.1%
Effective Tax Rate 42.9%
Eff/ Tax Rate - 3 Yr. Avg. 39.8%
Payout Ratio 40.7%

PRIM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PRIM stock intrinsic value calculation we used $2379.995 million for the last fiscal year's total revenue generated by Primoris Services. The default revenue input number comes from 0001 income statement of Primoris Services. 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 PRIM stock valuation model: a) initial revenue growth rate of 2.8% 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 PRIM is calculated based on our internal credit rating of Primoris Services, 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 Primoris Services.
    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 PRIM stock the variable cost ratio is equal to 87.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $199 million in the base year in the intrinsic value calculation for PRIM 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 Primoris Services.

Corporate tax rate of 27% is the nominal tax rate for Primoris Services. 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 PRIM 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 PRIM are equal to 16.1%.

Life of production assets of 7.1 years is the average useful life of capital assets used in Primoris Services 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 PRIM is equal to 7.7%. 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 - $556.468 million for Primoris Services - 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 51.541 million for Primoris Services 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 Primoris Services at the current share price and the inputted number of shares is $1.2 billion.

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COMPANY NEWS

▶ Primoris Services: 3Q Earnings Snapshot   [06:47AM  Associated Press]
▶ Primoris Services Corporation Announces Canadian EPC Award   [Oct-18-18 07:30AM  GlobeNewswire]
▶ Primoris Services: 2Q Earnings Snapshot   [07:59AM  Associated Press]
▶ Why Primoris Services Corporation (NASDAQ:PRIM) Could Be A Buy   [Jun-21-18 12:07PM  Simply Wall St.]
▶ Dallas co. completes acquisition of Houston energy contractor   [Jun-04-18 09:19AM  American City Business Journals]
▶ Primoris Services: 1Q Earnings Snapshot   [May-08-18 10:06AM  Associated Press]
▶ Willbros Reports Fourth Quarter and Full Year 2017 Results   [Mar-29-18 06:35PM  GlobeNewswire]
▶ Houston energy contractor finds buyer after warning about debt issues   [Mar-28-18 08:32AM  American City Business Journals]
▶ Primoris Services posts 4Q profit   [05:01AM  Associated Press]
▶ New Strong Sell Stocks for January 8th   [Jan-08-18 08:30AM  Zacks]
▶ Primoris Services tops Street 3Q forecasts   [Nov-06-17 06:07PM  Associated Press]

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