Intrinsic value of Advanced Drainage Systems - WMS

Previous Close

$24.00

  Intrinsic Value

$45.06

stock screener

  Rating & Target

str. buy

+88%

Previous close

$24.00

 
Intrinsic value

$45.06

 
Up/down potential

+88%

 
Rating

str. buy

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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, %
  -2.63
  11.10
  10.49
  9.94
  9.45
  9.00
  8.60
  8.24
  7.92
  7.63
  7.36
  7.13
  6.91
  6.72
  6.55
  6.40
  6.26
  6.13
  6.02
  5.92
  5.82
  5.74
  5.67
  5.60
  5.54
  5.49
  5.44
  5.39
  5.35
  5.32
  5.29
Revenue, $m
  1,257
  1,397
  1,543
  1,696
  1,857
  2,024
  2,198
  2,379
  2,567
  2,763
  2,967
  3,178
  3,398
  3,626
  3,864
  4,111
  4,368
  4,636
  4,915
  5,206
  5,509
  5,825
  6,155
  6,500
  6,860
  7,236
  7,630
  8,041
  8,472
  8,923
  9,395
Variable operating expenses, $m
 
  616
  680
  746
  816
  888
  964
  1,043
  1,124
  1,209
  1,298
  1,379
  1,475
  1,574
  1,677
  1,784
  1,896
  2,012
  2,133
  2,259
  2,391
  2,528
  2,671
  2,821
  2,977
  3,140
  3,311
  3,490
  3,677
  3,872
  4,077
Fixed operating expenses, $m
 
  658
  675
  691
  709
  726
  745
  763
  782
  802
  822
  842
  863
  885
  907
  930
  953
  977
  1,001
  1,026
  1,052
  1,078
  1,105
  1,133
  1,161
  1,190
  1,220
  1,250
  1,282
  1,314
  1,347
Total operating expenses, $m
  1,181
  1,274
  1,355
  1,437
  1,525
  1,614
  1,709
  1,806
  1,906
  2,011
  2,120
  2,221
  2,338
  2,459
  2,584
  2,714
  2,849
  2,989
  3,134
  3,285
  3,443
  3,606
  3,776
  3,954
  4,138
  4,330
  4,531
  4,740
  4,959
  5,186
  5,424
Operating income, $m
  76
  122
  189
  259
  332
  409
  489
  573
  661
  752
  847
  957
  1,060
  1,168
  1,280
  1,397
  1,519
  1,647
  1,781
  1,920
  2,066
  2,219
  2,379
  2,546
  2,722
  2,906
  3,099
  3,301
  3,514
  3,737
  3,971
EBITDA, $m
  148
  198
  272
  349
  430
  515
  603
  696
  792
  893
  997
  1,106
  1,220
  1,339
  1,462
  1,591
  1,726
  1,866
  2,013
  2,166
  2,326
  2,494
  2,669
  2,853
  3,045
  3,247
  3,459
  3,681
  3,913
  4,158
  4,414
Interest expense (income), $m
  17
  17
  20
  23
  27
  31
  34
  38
  42
  47
  51
  56
  61
  66
  71
  76
  82
  88
  94
  100
  107
  113
  121
  128
  136
  144
  153
  162
  171
  181
  191
Earnings before tax, $m
  65
  105
  169
  235
  305
  379
  455
  535
  619
  706
  796
  901
  999
  1,102
  1,209
  1,321
  1,438
  1,560
  1,687
  1,820
  1,960
  2,105
  2,258
  2,418
  2,586
  2,762
  2,946
  3,140
  3,343
  3,556
  3,780
Tax expense, $m
  25
  28
  46
  64
  82
  102
  123
  144
  167
  190
  215
  243
  270
  298
  326
  357
  388
  421
  456
  491
  529
  568
  610
  653
  698
  746
  795
  848
  903
  960
  1,021
Net income, $m
  33
  77
  123
  172
  223
  276
  332
  391
  452
  515
  581
  658
  730
  805
  883
  964
  1,050
  1,139
  1,232
  1,329
  1,431
  1,537
  1,648
  1,765
  1,888
  2,016
  2,151
  2,292
  2,440
  2,596
  2,759

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  6
  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
  1,046
  1,155
  1,276
  1,403
  1,536
  1,674
  1,818
  1,968
  2,124
  2,286
  2,454
  2,629
  2,810
  2,999
  3,196
  3,400
  3,613
  3,834
  4,065
  4,306
  4,556
  4,818
  5,091
  5,376
  5,674
  5,985
  6,311
  6,651
  7,008
  7,380
  7,770
Adjusted assets (=assets-cash), $m
  1,040
  1,155
  1,276
  1,403
  1,536
  1,674
  1,818
  1,968
  2,124
  2,286
  2,454
  2,629
  2,810
  2,999
  3,196
  3,400
  3,613
  3,834
  4,065
  4,306
  4,556
  4,818
  5,091
  5,376
  5,674
  5,985
  6,311
  6,651
  7,008
  7,380
  7,770
Revenue / Adjusted assets
  1.209
  1.210
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
Average production assets, $m
  463
  514
  568
  624
  683
  745
  809
  875
  945
  1,017
  1,092
  1,170
  1,250
  1,334
  1,422
  1,513
  1,607
  1,706
  1,809
  1,916
  2,027
  2,144
  2,265
  2,392
  2,524
  2,663
  2,808
  2,959
  3,118
  3,284
  3,457
Working capital, $m
  185
  264
  292
  321
  351
  383
  415
  450
  485
  522
  561
  601
  642
  685
  730
  777
  826
  876
  929
  984
  1,041
  1,101
  1,163
  1,228
  1,297
  1,368
  1,442
  1,520
  1,601
  1,686
  1,776
Total debt, $m
  429
  502
  586
  673
  763
  858
  957
  1,060
  1,167
  1,278
  1,393
  1,513
  1,638
  1,768
  1,902
  2,043
  2,189
  2,340
  2,499
  2,664
  2,836
  3,015
  3,203
  3,398
  3,602
  3,816
  4,039
  4,273
  4,517
  4,773
  5,041
Total liabilities, $m
  719
  792
  876
  963
  1,053
  1,148
  1,247
  1,350
  1,457
  1,568
  1,683
  1,803
  1,928
  2,058
  2,192
  2,333
  2,479
  2,630
  2,789
  2,954
  3,126
  3,305
  3,493
  3,688
  3,892
  4,106
  4,329
  4,563
  4,807
  5,063
  5,331
Total equity, $m
  327
  363
  401
  441
  482
  526
  571
  618
  667
  718
  770
  825
  882
  942
  1,004
  1,068
  1,134
  1,204
  1,276
  1,352
  1,431
  1,513
  1,599
  1,688
  1,782
  1,879
  1,982
  2,089
  2,200
  2,317
  2,440
Total liabilities and equity, $m
  1,046
  1,155
  1,277
  1,404
  1,535
  1,674
  1,818
  1,968
  2,124
  2,286
  2,453
  2,628
  2,810
  3,000
  3,196
  3,401
  3,613
  3,834
  4,065
  4,306
  4,557
  4,818
  5,092
  5,376
  5,674
  5,985
  6,311
  6,652
  7,007
  7,380
  7,771
Debt-to-equity ratio
  1.312
  1.390
  1.460
  1.530
  1.580
  1.630
  1.680
  1.720
  1.750
  1.780
  1.810
  1.830
  1.860
  1.880
  1.900
  1.910
  1.930
  1.940
  1.960
  1.970
  1.980
  1.990
  2.000
  2.010
  2.020
  2.030
  2.040
  2.050
  2.050
  2.060
  2.070
Adjusted equity ratio
  0.309
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  33
  77
  123
  172
  223
  276
  332
  391
  452
  515
  581
  658
  730
  805
  883
  964
  1,050
  1,139
  1,232
  1,329
  1,431
  1,537
  1,648
  1,765
  1,888
  2,016
  2,151
  2,292
  2,440
  2,596
  2,759
Depreciation, amort., depletion, $m
  72
  76
  83
  90
  98
  106
  114
  122
  131
  140
  150
  150
  160
  171
  182
  194
  206
  219
  232
  246
  260
  275
  290
  307
  324
  341
  360
  379
  400
  421
  443
Funds from operations, $m
  90
  153
  206
  262
  321
  382
  446
  513
  583
  656
  731
  808
  890
  976
  1,065
  1,158
  1,256
  1,357
  1,463
  1,574
  1,690
  1,812
  1,939
  2,072
  2,211
  2,357
  2,511
  2,671
  2,840
  3,017
  3,203
Change in working capital, $m
  -14
  26
  28
  29
  30
  32
  33
  34
  36
  37
  38
  40
  42
  43
  45
  47
  49
  51
  53
  55
  57
  60
  62
  65
  68
  71
  74
  78
  81
  85
  89
Cash from operations, $m
  104
  127
  178
  233
  290
  350
  413
  479
  547
  618
  693
  768
  848
  932
  1,020
  1,112
  1,207
  1,307
  1,411
  1,519
  1,633
  1,752
  1,876
  2,007
  2,143
  2,286
  2,436
  2,594
  2,759
  2,932
  3,114
Maintenance CAPEX, $m
  0
  -59
  -66
  -73
  -80
  -88
  -95
  -104
  -112
  -121
  -130
  -140
  -150
  -160
  -171
  -182
  -194
  -206
  -219
  -232
  -246
  -260
  -275
  -290
  -307
  -324
  -341
  -360
  -379
  -400
  -421
New CAPEX, $m
  -51
  -51
  -54
  -56
  -59
  -62
  -64
  -67
  -69
  -72
  -75
  -78
  -81
  -84
  -87
  -91
  -95
  -99
  -103
  -107
  -112
  -116
  -121
  -127
  -133
  -139
  -145
  -151
  -158
  -166
  -174
Cash from investing activities, $m
  -61
  -110
  -120
  -129
  -139
  -150
  -159
  -171
  -181
  -193
  -205
  -218
  -231
  -244
  -258
  -273
  -289
  -305
  -322
  -339
  -358
  -376
  -396
  -417
  -440
  -463
  -486
  -511
  -537
  -566
  -595
Free cash flow, $m
  43
  16
  59
  104
  151
  201
  254
  308
  366
  425
  488
  550
  617
  688
  762
  838
  918
  1,002
  1,089
  1,181
  1,276
  1,376
  1,480
  1,590
  1,704
  1,824
  1,950
  2,082
  2,221
  2,366
  2,519
Issuance/(repayment) of debt, $m
  -34
  79
  83
  87
  91
  95
  99
  103
  107
  111
  115
  120
  125
  130
  135
  140
  146
  152
  158
  165
  172
  179
  187
  196
  204
  214
  223
  234
  244
  256
  268
Issuance/(repurchase) of shares, $m
  4
  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  
  -26
  79
  83
  87
  91
  95
  99
  103
  107
  111
  115
  120
  125
  130
  135
  140
  146
  152
  158
  165
  172
  179
  187
  196
  204
  214
  223
  234
  244
  256
  268
Total cash flow (excl. dividends), $m
  17
  96
  142
  191
  242
  296
  352
  411
  472
  536
  603
  670
  742
  818
  896
  979
  1,064
  1,154
  1,248
  1,346
  1,448
  1,555
  1,667
  1,785
  1,908
  2,038
  2,173
  2,316
  2,465
  2,622
  2,787
Retained Cash Flow (-), $m
  -35
  -36
  -38
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -59
  -62
  -64
  -67
  -70
  -72
  -76
  -79
  -82
  -86
  -90
  -94
  -98
  -102
  -107
  -112
  -117
  -123
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
 
  60
  104
  151
  201
  253
  307
  364
  424
  486
  550
  615
  685
  758
  835
  914
  998
  1,084
  1,175
  1,270
  1,369
  1,473
  1,582
  1,696
  1,815
  1,940
  2,071
  2,209
  2,353
  2,505
  2,664
Discount rate, %
 
  7.80
  8.19
  8.60
  9.03
  9.48
  9.95
  10.45
  10.98
  11.52
  12.10
  12.71
  13.34
  14.01
  14.71
  15.44
  16.22
  17.03
  17.88
  18.77
  19.71
  20.70
  21.73
  22.82
  23.96
  25.16
  26.41
  27.73
  29.12
  30.58
  32.11
PV of cash for distribution, $m
 
  56
  89
  118
  142
  161
  174
  182
  184
  182
  176
  165
  152
  138
  122
  106
  90
  75
  61
  48
  37
  28
  21
  15
  10
  7
  5
  3
  2
  1
  1
Current shareholders' claim on cash, %
  100
  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 40.2
Price to Sales 1.1
Price to Book 4.1
Price to Tangible Book
Price to Cash Flow 12.8
Price to Free Cash Flow 25.1
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 11.1% 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 7.8%, 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 44.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $642 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 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 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 WMS are equal to 36.8%.

Life of production assets of 7.8 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 18.9%. 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 - $327 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 56.604 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 $1.4 billion.

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COMPANY NEWS

▶ 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]
▶ New Strong Sell Stocks for May 3rd   [May-03-17 09:30AM  Zacks]
▶ Advanced Drainage posts 3Q profit   [06:49AM  Associated Press]
Financial statements of WMS
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