Intrinsic value of Sterling Construction Company Inc - STRL

Previous Close

$13.24

  Intrinsic Value

$20.20

stock screener

  Rating & Target

str. buy

+53%

Previous close

$13.24

 
Intrinsic value

$20.20

 
Up/down potential

+53%

 
Rating

str. buy

We calculate the intrinsic value of STRL 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 0.4

 

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
  1,059
  1,083
  1,111
  1,142
  1,177
  1,215
  1,256
  1,301
  1,349
  1,401
  1,456
  1,516
  1,578
  1,645
  1,716
  1,792
  1,871
  1,955
  2,044
  2,138
  2,237
  2,342
  2,452
  2,568
  2,690
  2,819
  2,955
  3,097
  3,247
  3,405
Variable operating expenses, $m
  837
  856
  878
  902
  929
  959
  991
  1,026
  1,063
  1,104
  1,134
  1,180
  1,229
  1,281
  1,336
  1,395
  1,457
  1,523
  1,592
  1,665
  1,742
  1,824
  1,909
  2,000
  2,095
  2,195
  2,301
  2,412
  2,528
  2,651
Fixed operating expenses, $m
  183
  187
  191
  195
  200
  204
  208
  213
  218
  223
  227
  232
  238
  243
  248
  254
  259
  265
  271
  277
  283
  289
  295
  302
  308
  315
  322
  329
  336
  344
Total operating expenses, $m
  1,020
  1,043
  1,069
  1,097
  1,129
  1,163
  1,199
  1,239
  1,281
  1,327
  1,361
  1,412
  1,467
  1,524
  1,584
  1,649
  1,716
  1,788
  1,863
  1,942
  2,025
  2,113
  2,204
  2,302
  2,403
  2,510
  2,623
  2,741
  2,864
  2,995
Operating income, $m
  39
  40
  42
  45
  48
  52
  57
  62
  68
  75
  95
  103
  112
  121
  132
  143
  155
  168
  182
  197
  212
  229
  247
  267
  287
  309
  332
  356
  382
  410
EBITDA, $m
  62
  64
  66
  69
  73
  78
  83
  88
  95
  102
  110
  119
  128
  138
  150
  162
  174
  188
  203
  219
  236
  254
  273
  293
  315
  338
  362
  388
  416
  445
Interest expense (income), $m
  3
  12
  13
  14
  15
  16
  18
  19
  21
  23
  25
  28
  30
  33
  35
  38
  41
  45
  48
  52
  56
  60
  64
  69
  74
  79
  84
  90
  96
  102
  108
Earnings before tax, $m
  27
  27
  28
  30
  32
  34
  37
  41
  45
  49
  67
  73
  79
  86
  93
  102
  110
  120
  130
  141
  153
  165
  179
  193
  208
  225
  242
  261
  280
  301
Tax expense, $m
  7
  7
  8
  8
  9
  9
  10
  11
  12
  13
  18
  20
  21
  23
  25
  27
  30
  32
  35
  38
  41
  45
  48
  52
  56
  61
  65
  70
  76
  81
Net income, $m
  20
  20
  21
  22
  23
  25
  27
  30
  33
  36
  49
  53
  58
  63
  68
  74
  81
  87
  95
  103
  111
  121
  130
  141
  152
  164
  177
  190
  205
  220

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
  492
  504
  516
  531
  547
  565
  584
  605
  627
  651
  677
  705
  734
  765
  798
  833
  870
  909
  950
  994
  1,040
  1,089
  1,140
  1,194
  1,251
  1,311
  1,374
  1,440
  1,510
  1,583
Adjusted assets (=assets-cash), $m
  492
  504
  516
  531
  547
  565
  584
  605
  627
  651
  677
  705
  734
  765
  798
  833
  870
  909
  950
  994
  1,040
  1,089
  1,140
  1,194
  1,251
  1,311
  1,374
  1,440
  1,510
  1,583
Revenue / Adjusted assets
  2.152
  2.149
  2.153
  2.151
  2.152
  2.150
  2.151
  2.150
  2.152
  2.152
  2.151
  2.150
  2.150
  2.150
  2.150
  2.151
  2.151
  2.151
  2.152
  2.151
  2.151
  2.151
  2.151
  2.151
  2.150
  2.150
  2.151
  2.151
  2.150
  2.151
Average production assets, $m
  120
  122
  126
  129
  133
  137
  142
  147
  152
  158
  165
  171
  178
  186
  194
  202
  211
  221
  231
  242
  253
  265
  277
  290
  304
  319
  334
  350
  367
  385
Working capital, $m
  33
  34
  34
  35
  36
  38
  39
  40
  42
  43
  45
  47
  49
  51
  53
  56
  58
  61
  63
  66
  69
  73
  76
  80
  83
  87
  92
  96
  101
  106
Total debt, $m
  88
  96
  104
  114
  124
  136
  149
  162
  177
  193
  210
  228
  247
  268
  290
  313
  337
  363
  390
  419
  449
  481
  515
  551
  588
  628
  669
  713
  759
  807
Total liabilities, $m
  324
  332
  340
  350
  361
  372
  385
  399
  413
  429
  446
  464
  484
  504
  526
  549
  573
  599
  626
  655
  685
  717
  751
  787
  824
  864
  905
  949
  995
  1,043
Total equity, $m
  168
  172
  176
  181
  187
  193
  199
  206
  214
  222
  231
  240
  250
  261
  272
  284
  297
  310
  324
  339
  355
  371
  389
  407
  427
  447
  468
  491
  515
  540
Total liabilities and equity, $m
  492
  504
  516
  531
  548
  565
  584
  605
  627
  651
  677
  704
  734
  765
  798
  833
  870
  909
  950
  994
  1,040
  1,088
  1,140
  1,194
  1,251
  1,311
  1,373
  1,440
  1,510
  1,583
Debt-to-equity ratio
  0.530
  0.560
  0.590
  0.630
  0.670
  0.710
  0.750
  0.790
  0.830
  0.870
  0.910
  0.950
  0.990
  1.030
  1.060
  1.100
  1.140
  1.170
  1.200
  1.240
  1.270
  1.300
  1.330
  1.350
  1.380
  1.400
  1.430
  1.450
  1.470
  1.500
Adjusted equity ratio
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  20
  20
  21
  22
  23
  25
  27
  30
  33
  36
  49
  53
  58
  63
  68
  74
  81
  87
  95
  103
  111
  121
  130
  141
  152
  164
  177
  190
  205
  220
Depreciation, amort., depletion, $m
  24
  24
  24
  25
  25
  25
  26
  26
  27
  27
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
  34
  35
Funds from operations, $m
  43
  44
  45
  46
  48
  50
  53
  56
  60
  63
  64
  69
  74
  80
  86
  93
  100
  108
  116
  125
  135
  145
  156
  167
  180
  193
  207
  222
  238
  255
Change in working capital, $m
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
Cash from operations, $m
  43
  43
  44
  45
  47
  49
  52
  55
  58
  62
  63
  67
  72
  78
  84
  90
  97
  105
  113
  122
  132
  142
  152
  164
  176
  189
  203
  218
  234
  250
Maintenance CAPEX, $m
  -11
  -11
  -11
  -12
  -12
  -12
  -13
  -13
  -13
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -32
  -34
New CAPEX, $m
  -2
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
Cash from investing activities, $m
  -13
  -14
  -14
  -16
  -16
  -16
  -18
  -18
  -18
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -41
  -43
  -44
  -47
  -49
  -52
Free cash flow, $m
  30
  30
  30
  30
  31
  33
  35
  37
  39
  42
  42
  45
  49
  54
  59
  64
  70
  76
  83
  90
  98
  107
  116
  125
  136
  147
  159
  171
  185
  199
Issuance/(repayment) of debt, $m
  6
  7
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  22
  23
  24
  26
  27
  29
  30
  32
  34
  36
  37
  39
  42
  44
  46
  48
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  
  6
  7
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  22
  23
  24
  26
  27
  29
  30
  32
  34
  36
  37
  39
  42
  44
  46
  48
Total cash flow (excl. dividends), $m
  36
  37
  38
  40
  42
  44
  47
  50
  54
  58
  59
  63
  69
  74
  80
  87
  94
  102
  110
  119
  129
  139
  149
  161
  173
  186
  200
  215
  231
  247
Retained Cash Flow (-), $m
  -3
  -4
  -4
  -5
  -5
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -25
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
  33
  33
  34
  35
  37
  38
  41
  43
  46
  50
  50
  54
  59
  64
  69
  75
  82
  89
  96
  104
  113
  122
  132
  143
  154
  166
  179
  192
  207
  222
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
  31
  30
  29
  29
  28
  28
  27
  27
  27
  26
  24
  23
  22
  21
  20
  19
  18
  16
  15
  13
  12
  10
  9
  7
  6
  5
  4
  3
  2
  2
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
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Sterling Construction Company, Inc. is a heavy civil construction company engaged in the building and reconstruction of transportation and water infrastructure projects in Texas, Utah, Nevada, Arizona, California, Hawaii and other states. The Company's transportation infrastructure projects include highways, roads, bridges, airfields, ports and light rail. Its water infrastructure projects include water, wastewater and storm drainage systems. The Company operates through heavy civil construction segment. The Company provides its services by using traditional general contracting arrangements, such as lump sum contracts and cost-plus contracts. The Company serves various markets in the United States, including Texas, Utah, Nevada, Arizona, California and Hawaii. The Company's customers include departments of transportation in various states (DOTs), regional transit authorities, airport authorities, port authorities, water authorities and railroads.

FINANCIAL RATIOS  of  Sterling Construction Company Inc (STRL)

Valuation Ratios
P/E Ratio -36.8
Price to Sales 0.5
Price to Book 3.1
Price to Tangible Book
Price to Cash Flow 7.4
Price to Free Cash Flow 9.7
Growth Rates
Sales Growth Rate 10.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 37.5%
Cap. Spend. - 3 Yr. Gr. Rate -6%
Financial Strength
Quick Ratio 11
Current Ratio 0
LT Debt to Equity 0.9%
Total Debt to Equity 4.7%
Interest Coverage -1
Management Effectiveness
Return On Assets -2.1%
Ret/ On Assets - 3 Yr. Avg. -3.7%
Return On Total Capital -7.9%
Ret/ On T. Cap. - 3 Yr. Avg. -9.4%
Return On Equity -8.9%
Return On Equity - 3 Yr. Avg. -11.3%
Asset Turnover 2.4
Profitability Ratios
Gross Margin 6.4%
Gross Margin - 3 Yr. Avg. 5.3%
EBITDA Margin 1.7%
EBITDA Margin - 3 Yr. Avg. 1.4%
Operating Margin -0.7%
Oper. Margin - 3 Yr. Avg. -1.2%
Pre-Tax Margin -1%
Pre-Tax Margin - 3 Yr. Avg. -1.5%
Net Profit Margin -1.3%
Net Profit Margin - 3 Yr. Avg. -2%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 0%

STRL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the STRL stock intrinsic value calculation we used $1038 million for the last fiscal year's total revenue generated by Sterling Construction Company Inc. The default revenue input number comes from 0001 income statement of Sterling Construction Company 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 STRL 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 4.3%, whose default value for STRL is calculated based on our internal credit rating of Sterling Construction Company 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 Sterling Construction Company 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 STRL stock the variable cost ratio is equal to 79.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $179 million in the base year in the intrinsic value calculation for STRL 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 14.3% for Sterling Construction Company Inc.

Corporate tax rate of 27% is the nominal tax rate for Sterling Construction Company 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 STRL 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 STRL are equal to 11.3%.

Life of production assets of 10.9 years is the average useful life of capital assets used in Sterling Construction Company 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 STRL is equal to 3.1%. 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 - $164.401 million for Sterling Construction Company 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 26.640 million for Sterling Construction Company 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 Sterling Construction Company Inc at the current share price and the inputted number of shares is $0.4 billion.

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