Intrinsic value of Primo Water Corporation - PRMW

Previous Close

$15.38

  Intrinsic Value

$2.90

stock screener

  Rating & Target

str. sell

-81%

Previous close

$15.38

 
Intrinsic value

$2.90

 
Up/down potential

-81%

 
Rating

str. sell

We calculate the intrinsic value of PRMW 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 0.6

 

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, %
  3.80
  3.92
  4.03
  4.13
  4.21
  4.29
  4.36
  4.43
  4.48
  4.54
  4.58
  4.62
  4.66
  4.69
  4.73
  4.75
  4.78
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
Revenue, $m
  313
  326
  339
  353
  368
  384
  400
  418
  437
  456
  477
  499
  523
  547
  573
  600
  629
  659
  691
  725
  760
  797
  836
  876
  919
  965
  1,012
  1,062
  1,114
  1,170
Variable operating expenses, $m
  297
  308
  320
  332
  346
  360
  375
  391
  407
  425
  427
  446
  467
  489
  512
  537
  562
  589
  618
  648
  679
  712
  747
  783
  822
  862
  905
  949
  996
  1,045
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
  297
  308
  320
  332
  346
  360
  375
  391
  407
  425
  427
  446
  467
  489
  512
  537
  562
  589
  618
  648
  679
  712
  747
  783
  822
  862
  905
  949
  996
  1,045
Operating income, $m
  16
  18
  19
  21
  22
  24
  26
  27
  29
  32
  51
  53
  56
  58
  61
  64
  67
  70
  73
  77
  81
  85
  89
  93
  98
  103
  108
  113
  118
  124
EBITDA, $m
  50
  52
  54
  57
  59
  62
  64
  67
  70
  73
  77
  80
  84
  88
  92
  96
  101
  106
  111
  116
  122
  128
  134
  141
  148
  155
  162
  170
  179
  188
Interest expense (income), $m
  5
  18
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  30
  31
  33
  35
  36
  38
  40
  42
  44
  47
  49
  52
  54
  57
  60
  63
  66
  70
  74
Earnings before tax, $m
  -1
  -1
  0
  0
  1
  2
  2
  3
  4
  5
  22
  23
  24
  25
  26
  28
  29
  30
  31
  33
  34
  36
  37
  39
  41
  42
  44
  46
  49
  51
Tax expense, $m
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  13
  13
  14
Net income, $m
  -1
  -1
  0
  0
  1
  1
  2
  2
  3
  3
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37

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
  332
  345
  359
  374
  390
  407
  424
  443
  463
  484
  506
  530
  554
  580
  608
  637
  667
  699
  733
  768
  806
  845
  886
  929
  975
  1,023
  1,073
  1,126
  1,182
  1,240
Adjusted assets (=assets-cash), $m
  332
  345
  359
  374
  390
  407
  424
  443
  463
  484
  506
  530
  554
  580
  608
  637
  667
  699
  733
  768
  806
  845
  886
  929
  975
  1,023
  1,073
  1,126
  1,182
  1,240
Revenue / Adjusted assets
  0.943
  0.945
  0.944
  0.944
  0.944
  0.943
  0.943
  0.944
  0.944
  0.942
  0.943
  0.942
  0.944
  0.943
  0.942
  0.942
  0.943
  0.943
  0.943
  0.944
  0.943
  0.943
  0.944
  0.943
  0.943
  0.943
  0.943
  0.943
  0.942
  0.944
Average production assets, $m
  213
  221
  230
  239
  249
  260
  271
  283
  296
  310
  324
  339
  354
  371
  389
  407
  427
  447
  469
  491
  515
  540
  567
  594
  623
  654
  686
  720
  756
  793
Working capital, $m
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
Total debt, $m
  200
  209
  219
  230
  241
  253
  265
  278
  292
  307
  323
  339
  357
  375
  394
  415
  436
  459
  483
  508
  534
  562
  591
  621
  653
  687
  723
  760
  799
  840
Total liabilities, $m
  234
  244
  253
  264
  275
  287
  299
  312
  326
  341
  357
  373
  391
  409
  429
  449
  470
  493
  517
  542
  568
  596
  625
  655
  687
  721
  757
  794
  833
  874
Total equity, $m
  98
  102
  106
  110
  115
  120
  125
  131
  137
  143
  149
  156
  164
  171
  179
  188
  197
  206
  216
  227
  238
  249
  261
  274
  288
  302
  317
  332
  349
  366
Total liabilities and equity, $m
  332
  346
  359
  374
  390
  407
  424
  443
  463
  484
  506
  529
  555
  580
  608
  637
  667
  699
  733
  769
  806
  845
  886
  929
  975
  1,023
  1,074
  1,126
  1,182
  1,240
Debt-to-equity ratio
  2.040
  2.060
  2.070
  2.080
  2.090
  2.110
  2.120
  2.130
  2.140
  2.150
  2.160
  2.170
  2.180
  2.190
  2.200
  2.210
  2.220
  2.220
  2.230
  2.240
  2.250
  2.250
  2.260
  2.270
  2.270
  2.280
  2.280
  2.290
  2.290
  2.300
Adjusted equity ratio
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -1
  -1
  0
  0
  1
  1
  2
  2
  3
  3
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
Depreciation, amort., depletion, $m
  34
  35
  35
  36
  37
  38
  39
  40
  41
  42
  26
  27
  28
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  48
  50
  52
  55
  58
  60
  63
Funds from operations, $m
  33
  34
  35
  36
  38
  39
  40
  42
  43
  45
  42
  44
  46
  48
  50
  53
  55
  58
  60
  63
  66
  69
  72
  76
  79
  83
  87
  91
  96
  101
Change in working capital, $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 operations, $m
  33
  34
  35
  36
  38
  39
  40
  42
  43
  45
  42
  44
  46
  48
  50
  52
  55
  57
  60
  63
  66
  69
  72
  76
  79
  83
  87
  91
  95
  100
Maintenance CAPEX, $m
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -48
  -50
  -52
  -55
  -58
  -60
New CAPEX, $m
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -36
  -37
Cash from investing activities, $m
  -24
  -25
  -27
  -27
  -29
  -31
  -32
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -48
  -49
  -52
  -54
  -58
  -60
  -63
  -66
  -69
  -73
  -77
  -81
  -84
  -89
  -94
  -97
Free cash flow, $m
  9
  8
  8
  8
  8
  8
  8
  8
  8
  8
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  2
  2
  2
  2
  2
  2
  2
Issuance/(repayment) of debt, $m
  9
  9
  10
  10
  11
  12
  13
  13
  14
  15
  16
  17
  17
  18
  19
  20
  21
  23
  24
  25
  26
  28
  29
  31
  32
  34
  35
  37
  39
  41
Issuance/(repurchase) of shares, $m
  5
  5
  4
  4
  4
  4
  4
  3
  3
  3
  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  
  14
  14
  14
  14
  15
  16
  17
  16
  17
  18
  16
  17
  17
  18
  19
  20
  21
  23
  24
  25
  26
  28
  29
  31
  32
  34
  35
  37
  39
  41
Total cash flow (excl. dividends), $m
  22
  22
  23
  23
  23
  24
  24
  25
  25
  25
  19
  20
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  33
  35
  36
  38
  40
  41
  43
Retained Cash Flow (-), $m
  -5
  -5
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
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
  17
  18
  18
  19
  19
  19
  19
  19
  19
  19
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
Discount rate, %
  9.20
  9.66
  10.14
  10.65
  11.18
  11.74
  12.33
  12.95
  13.59
  14.27
  14.99
  15.74
  16.52
  17.35
  18.22
  19.13
  20.08
  21.09
  22.14
  23.25
  24.41
  25.63
  26.91
  28.26
  29.67
  31.15
  32.71
  34.35
  36.07
  37.87
PV of cash for distribution, $m
  16
  15
  14
  12
  11
  10
  8
  7
  6
  5
  3
  2
  2
  1
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  99.2
  98.5
  97.8
  97.2
  96.7
  96.2
  95.7
  95.3
  95.0
  94.6
  94.6
  94.6
  94.6
  94.6
  94.6
  94.6
  94.6
  94.6
  94.6
  94.6
  94.6
  94.6
  94.6
  94.6
  94.6
  94.6
  94.6
  94.6
  94.6
  94.6

Primo Water Corporation (Primo) provides multi-gallon purified bottled water, self-service refill water and water dispensers. The Company's products are sold through various retailers in the United States and Canada. It operates through two segments: Primo Water (Water) and Primo Dispensers (Dispensers). The Water segment consists of the sale of multi-gallon purified bottled water (Exchange) and its self-service filtered drinking water (Refill). The Dispensers segment sells water dispensers that are designed to dispense Primo and other dispenser-compatible bottled water. As of December 31, 2016, its products were offered in the United States and in Canada at over 46,000 combined retail locations. Exchange and Refill provide consumers the ability of either exchanging empty bottles and purchasing full bottles or refilling the empty bottles at any participating retailer. The Company sources three- and five-gallon water bottles from various independent vendors for use in Exchange.

FINANCIAL RATIOS  of  Primo Water Corporation (PRMW)

Valuation Ratios
P/E Ratio -75.1
Price to Sales 3.2
Price to Book 7
Price to Tangible Book
Price to Cash Flow 28.2
Price to Free Cash Flow 150.2
Growth Rates
Sales Growth Rate 12.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 62.5%
Cap. Spend. - 3 Yr. Gr. Rate 13.2%
Financial Strength
Quick Ratio 8
Current Ratio 0
LT Debt to Equity 421.9%
Total Debt to Equity 425%
Interest Coverage 0
Management Effectiveness
Return On Assets -0.4%
Ret/ On Assets - 3 Yr. Avg. -3.5%
Return On Total Capital -3.1%
Ret/ On T. Cap. - 3 Yr. Avg. -8.2%
Return On Equity -13.3%
Return On Equity - 3 Yr. Avg. -17.7%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 29.4%
Gross Margin - 3 Yr. Avg. 27.5%
EBITDA Margin 7%
EBITDA Margin - 3 Yr. Avg. 6.1%
Operating Margin 0%
Oper. Margin - 3 Yr. Avg. -1.2%
Pre-Tax Margin -4.2%
Pre-Tax Margin - 3 Yr. Avg. -5%
Net Profit Margin -4.2%
Net Profit Margin - 3 Yr. Avg. -5%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 0%

PRMW stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PRMW stock intrinsic value calculation we used $302 million for the last fiscal year's total revenue generated by Primo Water Corporation. The default revenue input number comes from 0001 income statement of Primo Water 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 PRMW stock valuation model: a) initial revenue growth rate of 3.8% 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 9.2%, whose default value for PRMW is calculated based on our internal credit rating of Primo Water 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 Primo Water 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 PRMW stock the variable cost ratio is equal to 95%.

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 PRMW 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 9.2% for Primo Water Corporation.

Corporate tax rate of 27% is the nominal tax rate for Primo Water 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 PRMW 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 PRMW are equal to 67.8%.

Life of production assets of 12.5 years is the average useful life of capital assets used in Primo Water 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 PRMW is equal to 0.9%. 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 - $94.493 million for Primo Water 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 38.925 million for Primo Water 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 Primo Water Corporation at the current share price and the inputted number of shares is $0.6 billion.

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