Intrinsic value of Advanced Drainage Systems - WMS

Previous Close

$31.30

  Intrinsic Value

$8.64

stock screener

  Rating & Target

str. sell

-72%

Previous close

$31.30

 
Intrinsic value

$8.64

 
Up/down potential

-72%

 
Rating

str. sell

We calculate the intrinsic value of WMS 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 2017), $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
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

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
  1,282
  1,312
  1,345
  1,383
  1,425
  1,471
  1,521
  1,575
  1,634
  1,697
  1,764
  1,835
  1,911
  1,992
  2,078
  2,169
  2,266
  2,368
  2,476
  2,589
  2,709
  2,836
  2,969
  3,110
  3,258
  3,414
  3,578
  3,751
  3,932
  4,123
Variable operating expenses, $m
  591
  604
  619
  636
  655
  676
  698
  722
  749
  777
  792
  824
  858
  894
  933
  974
  1,017
  1,063
  1,111
  1,162
  1,216
  1,273
  1,333
  1,396
  1,463
  1,533
  1,606
  1,684
  1,765
  1,851
Fixed operating expenses, $m
  628
  641
  655
  670
  685
  700
  715
  731
  747
  763
  780
  797
  815
  833
  851
  870
  889
  908
  928
  949
  970
  991
  1,013
  1,035
  1,058
  1,081
  1,105
  1,129
  1,154
  1,179
Total operating expenses, $m
  1,219
  1,245
  1,274
  1,306
  1,340
  1,376
  1,413
  1,453
  1,496
  1,540
  1,572
  1,621
  1,673
  1,727
  1,784
  1,844
  1,906
  1,971
  2,039
  2,111
  2,186
  2,264
  2,346
  2,431
  2,521
  2,614
  2,711
  2,813
  2,919
  3,030
Operating income, $m
  64
  66
  71
  77
  86
  96
  108
  122
  138
  157
  192
  214
  239
  265
  294
  326
  360
  397
  436
  478
  523
  572
  624
  679
  738
  800
  867
  938
  1,013
  1,093
EBITDA, $m
  136
  139
  145
  154
  164
  176
  191
  207
  226
  247
  270
  295
  323
  353
  386
  422
  460
  501
  545
  593
  643
  697
  755
  816
  882
  951
  1,025
  1,103
  1,187
  1,275
Interest expense (income), $m
  17
  23
  24
  25
  26
  28
  29
  31
  32
  34
  36
  39
  41
  44
  46
  49
  52
  55
  59
  62
  66
  70
  74
  79
  84
  89
  94
  99
  105
  111
  118
Earnings before tax, $m
  41
  42
  46
  51
  58
  67
  77
  90
  104
  120
  153
  173
  195
  219
  245
  274
  304
  338
  373
  412
  453
  497
  545
  595
  649
  706
  767
  832
  902
  975
Tax expense, $m
  11
  11
  12
  14
  16
  18
  21
  24
  28
  32
  41
  47
  53
  59
  66
  74
  82
  91
  101
  111
  122
  134
  147
  161
  175
  191
  207
  225
  243
  263
Net income, $m
  30
  31
  33
  37
  42
  49
  56
  66
  76
  88
  112
  126
  142
  160
  179
  200
  222
  247
  273
  301
  331
  363
  398
  434
  474
  516
  560
  608
  658
  712

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
  1,067
  1,091
  1,119
  1,151
  1,186
  1,224
  1,266
  1,311
  1,359
  1,411
  1,467
  1,527
  1,590
  1,658
  1,729
  1,805
  1,885
  1,970
  2,060
  2,154
  2,254
  2,359
  2,470
  2,587
  2,710
  2,840
  2,977
  3,120
  3,271
  3,430
Adjusted assets (=assets-cash), $m
  1,067
  1,091
  1,119
  1,151
  1,186
  1,224
  1,266
  1,311
  1,359
  1,411
  1,467
  1,527
  1,590
  1,658
  1,729
  1,805
  1,885
  1,970
  2,060
  2,154
  2,254
  2,359
  2,470
  2,587
  2,710
  2,840
  2,977
  3,120
  3,271
  3,430
Revenue / Adjusted assets
  1.201
  1.203
  1.202
  1.202
  1.202
  1.202
  1.201
  1.201
  1.202
  1.203
  1.202
  1.202
  1.202
  1.201
  1.202
  1.202
  1.202
  1.202
  1.202
  1.202
  1.202
  1.202
  1.202
  1.202
  1.202
  1.202
  1.202
  1.202
  1.202
  1.202
Average production assets, $m
  567
  580
  595
  611
  630
  650
  672
  696
  722
  750
  780
  811
  845
  881
  919
  959
  1,002
  1,047
  1,094
  1,144
  1,198
  1,253
  1,312
  1,375
  1,440
  1,509
  1,581
  1,658
  1,738
  1,823
Working capital, $m
  140
  143
  147
  151
  155
  160
  166
  172
  178
  185
  192
  200
  208
  217
  227
  236
  247
  258
  270
  282
  295
  309
  324
  339
  355
  372
  390
  409
  429
  449
Total debt, $m
  445
  464
  486
  511
  539
  569
  602
  637
  675
  716
  760
  807
  857
  910
  966
  1,026
  1,089
  1,156
  1,226
  1,301
  1,379
  1,462
  1,550
  1,642
  1,739
  1,841
  1,948
  2,061
  2,180
  2,305
Total liabilities, $m
  839
  859
  881
  906
  933
  963
  996
  1,032
  1,070
  1,111
  1,155
  1,202
  1,252
  1,305
  1,361
  1,420
  1,484
  1,550
  1,621
  1,695
  1,774
  1,857
  1,944
  2,036
  2,133
  2,235
  2,343
  2,456
  2,575
  2,700
Total equity, $m
  227
  232
  238
  245
  253
  261
  270
  279
  290
  301
  313
  325
  339
  353
  368
  384
  402
  420
  439
  459
  480
  503
  526
  551
  577
  605
  634
  665
  697
  731
Total liabilities and equity, $m
  1,066
  1,091
  1,119
  1,151
  1,186
  1,224
  1,266
  1,311
  1,360
  1,412
  1,468
  1,527
  1,591
  1,658
  1,729
  1,804
  1,886
  1,970
  2,060
  2,154
  2,254
  2,360
  2,470
  2,587
  2,710
  2,840
  2,977
  3,121
  3,272
  3,431
Debt-to-equity ratio
  1.960
  2.000
  2.040
  2.090
  2.130
  2.180
  2.230
  2.280
  2.330
  2.380
  2.430
  2.480
  2.530
  2.580
  2.620
  2.670
  2.710
  2.750
  2.800
  2.840
  2.870
  2.910
  2.950
  2.980
  3.010
  3.040
  3.070
  3.100
  3.130
  3.150
Adjusted equity ratio
  0.213
  0.213
  0.213
  0.213
  0.213
  0.213
  0.213
  0.213
  0.213
  0.213
  0.213
  0.213
  0.213
  0.213
  0.213
  0.213
  0.213
  0.213
  0.213
  0.213
  0.213
  0.213
  0.213
  0.213
  0.213
  0.213
  0.213
  0.213
  0.213
  0.213

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  30
  31
  33
  37
  42
  49
  56
  66
  76
  88
  112
  126
  142
  160
  179
  200
  222
  247
  273
  301
  331
  363
  398
  434
  474
  516
  560
  608
  658
  712
Depreciation, amort., depletion, $m
  72
  73
  75
  76
  78
  80
  82
  85
  87
  90
  78
  81
  84
  88
  92
  96
  100
  105
  109
  114
  120
  125
  131
  137
  144
  151
  158
  166
  174
  182
Funds from operations, $m
  102
  104
  108
  114
  121
  129
  139
  150
  163
  178
  190
  207
  227
  248
  271
  296
  322
  351
  382
  415
  451
  488
  529
  572
  618
  667
  718
  773
  832
  894
Change in working capital, $m
  3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
Cash from operations, $m
  99
  101
  104
  109
  116
  124
  133
  144
  157
  171
  182
  200
  219
  239
  262
  286
  312
  340
  370
  403
  437
  475
  514
  557
  602
  650
  700
  755
  812
  873
Maintenance CAPEX, $m
  -56
  -57
  -58
  -59
  -61
  -63
  -65
  -67
  -70
  -72
  -75
  -78
  -81
  -84
  -88
  -92
  -96
  -100
  -105
  -109
  -114
  -120
  -125
  -131
  -137
  -144
  -151
  -158
  -166
  -174
New CAPEX, $m
  -11
  -13
  -15
  -17
  -19
  -20
  -22
  -24
  -26
  -28
  -30
  -32
  -34
  -36
  -38
  -40
  -43
  -45
  -48
  -50
  -53
  -56
  -59
  -62
  -65
  -69
  -73
  -76
  -80
  -84
Cash from investing activities, $m
  -67
  -70
  -73
  -76
  -80
  -83
  -87
  -91
  -96
  -100
  -105
  -110
  -115
  -120
  -126
  -132
  -139
  -145
  -153
  -159
  -167
  -176
  -184
  -193
  -202
  -213
  -224
  -234
  -246
  -258
Free cash flow, $m
  32
  31
  31
  33
  36
  41
  46
  53
  61
  71
  78
  90
  104
  119
  135
  154
  173
  195
  218
  243
  270
  299
  330
  363
  399
  437
  477
  520
  566
  615
Issuance/(repayment) of debt, $m
  16
  19
  22
  25
  27
  30
  33
  36
  38
  41
  44
  47
  50
  53
  56
  60
  63
  67
  71
  74
  79
  83
  87
  92
  97
  102
  107
  113
  119
  125
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  
  16
  19
  22
  25
  27
  30
  33
  36
  38
  41
  44
  47
  50
  53
  56
  60
  63
  67
  71
  74
  79
  83
  87
  92
  97
  102
  107
  113
  119
  125
Total cash flow (excl. dividends), $m
  49
  50
  54
  58
  64
  71
  79
  89
  100
  112
  122
  137
  154
  172
  192
  213
  237
  262
  289
  318
  349
  382
  417
  455
  496
  539
  585
  633
  685
  740
Retained Cash Flow (-), $m
  -4
  -5
  -6
  -7
  -7
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -34
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
  18
  18
  18
  19
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  35
  36
  38
  40
  42
  44
  46
  48
  50
  53
  55
Cash available for distribution, $m
  44
  45
  48
  51
  56
  63
  70
  79
  89
  101
  110
  124
  140
  158
  177
  197
  219
  244
  269
  297
  327
  359
  394
  430
  469
  511
  555
  603
  653
  706
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
  41
  38
  36
  34
  33
  32
  31
  30
  28
  27
  24
  22
  19
  17
  14
  12
  10
  8
  6
  5
  3
  2
  2
  1
  1
  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

Advanced Drainage Systems, Inc. is engaged in designing, manufacturing and marketing of thermoplastic corrugated pipe and related water management products, primarily in North and South America, and Europe. The Company operates through two segments: Domestic and International. The Domestic segment manufactures and markets products throughout the United States. The International segment manufactures and markets products in certain regions outside of the United States, with a focus on its owned facilities in Canada and through its joint ventures with local partners in Mexico, Central America and South America. Its product line includes corrugated high density polyethylene (HDPE) pipe, polypropylene (PP) pipe and related water management products. Its products are used across a range of end markets and applications, including non-residential, residential, agriculture and infrastructure applications.

FINANCIAL RATIOS  of  Advanced Drainage Systems (WMS)

Valuation Ratios
P/E Ratio 52.5
Price to Sales 1.4
Price to Book 5.3
Price to Tangible Book
Price to Cash Flow 16.7
Price to Free Cash Flow 32.7
Growth Rates
Sales Growth Rate -2.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 13.3%
Cap. Spend. - 3 Yr. Gr. Rate 4.5%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 113.1%
Total Debt to Equity 131.2%
Interest Coverage 5
Management Effectiveness
Return On Assets 4.2%
Ret/ On Assets - 3 Yr. Avg. 2.2%
Return On Total Capital 4.5%
Ret/ On T. Cap. - 3 Yr. Avg. 2.3%
Return On Equity 10.7%
Return On Equity - 3 Yr. Avg. 5.3%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 23.5%
Gross Margin - 3 Yr. Avg. 21%
EBITDA Margin 12.3%
EBITDA Margin - 3 Yr. Avg. 10.4%
Operating Margin 6%
Oper. Margin - 3 Yr. Avg. 5.6%
Pre-Tax Margin 5.2%
Pre-Tax Margin - 3 Yr. Avg. 3.4%
Net Profit Margin 2.6%
Net Profit Margin - 3 Yr. Avg. 1.3%
Effective Tax Rate 38.5%
Eff/ Tax Rate - 3 Yr. Avg. 65.8%
Payout Ratio 51.5%

WMS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the WMS stock intrinsic value calculation we used $1257 million for the last fiscal year's total revenue generated by Advanced Drainage Systems. The default revenue input number comes from 2017 income statement of Advanced Drainage Systems. 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 WMS 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 9.2%, whose default value for WMS is calculated based on our internal credit rating of Advanced Drainage Systems, 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 Advanced Drainage Systems.
    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 WMS stock the variable cost ratio is equal to 46.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $614 million in the base year in the intrinsic value calculation for WMS 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 Advanced Drainage Systems.

Corporate tax rate of 27% is the nominal tax rate for Advanced Drainage Systems. 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 WMS stock is equal to 1.4%.

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 WMS are equal to 44.2%.

Life of production assets of 10 years is the average useful life of capital assets used in Advanced Drainage Systems 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 WMS is equal to 10.9%. 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 - $223 million for Advanced Drainage Systems - 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 55 million for Advanced Drainage Systems 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 Advanced Drainage Systems at the current share price and the inputted number of shares is $1.7 billion.

RELATED COMPANIES Price Int.Val. Rating
WLK Westlake Chemi 96.93 783.21  str.buy
NWPX Northwest Pipe 17.52 5.00  str.sell
OFLX Omega Flex 89.27 39.59  sell
SLGN Silgan Holding 27.23 39.73  buy

COMPANY NEWS

▶ Advanced Drainage: Fiscal 1Q Earnings Snapshot   [06:51AM  Associated Press]
▶ Two manufacturers to add $23M investment, dozens of jobs in Charlotte region   [Jul-11-18 02:30PM  American City Business Journals]
▶ Advanced Drainage Systems, Inc. Appoints New Directors   [May-30-18 04:45PM  Business Wire]
▶ Advanced Drainage: Fiscal 4Q Earnings Snapshot   [May-29-18 08:50AM  Associated Press]
▶ New Strong Buy Stocks for April 3rd   [Apr-03-18 10:50AM  Zacks]
▶ Advanced Drainage posts 3Q profit   [06:55AM  Associated Press]
▶ Advanced Drainage posts 2Q profit   [Nov-02-17 07:03AM  Associated Press]
▶ New Strong Sell Stocks for October 17th   [Oct-17-17 09:53AM  Zacks]
▶ Advanced Drainage Systems Announces Key Management Changes   [Aug-17-17 06:45AM  Business Wire]
▶ Advanced Drainage posts 1Q profit   [07:11AM  Associated Press]
▶ Advanced Drainage reports 4Q loss   [May-25-17 07:32AM  Associated Press]
▶ New Strong Sell Stocks for May 10th   [May-10-17 09:06AM  Zacks]
Follow us on:   twitter   twitter   twitter   twitter

ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2018. All rigths reserved.