Intrinsic value of Advanced Drainage Systems - WMS

Previous Close

$28.99

  Intrinsic Value

$10.51

stock screener

  Rating & Target

str. sell

-64%

Previous close

$28.99

 
Intrinsic value

$10.51

 
Up/down potential

-64%

 
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 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 1.7

 

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, %
  2.40
  2.66
  2.89
  3.10
  3.29
  3.46
  3.62
  3.76
  3.88
  3.99
  4.09
  4.18
  4.27
  4.34
  4.41
  4.46
  4.52
  4.57
  4.61
  4.65
  4.68
  4.72
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
Revenue, $m
  1,362
  1,399
  1,439
  1,484
  1,533
  1,586
  1,643
  1,705
  1,771
  1,842
  1,917
  1,997
  2,082
  2,173
  2,268
  2,370
  2,477
  2,590
  2,709
  2,835
  2,968
  3,108
  3,255
  3,411
  3,574
  3,746
  3,927
  4,118
  4,318
  4,529
Variable operating expenses, $m
  1,145
  1,175
  1,209
  1,246
  1,287
  1,331
  1,378
  1,430
  1,484
  1,543
  1,591
  1,657
  1,728
  1,803
  1,883
  1,967
  2,056
  2,149
  2,248
  2,353
  2,463
  2,579
  2,702
  2,831
  2,966
  3,109
  3,259
  3,417
  3,584
  3,758
Fixed operating expenses, $m
  130
  133
  136
  139
  142
  145
  148
  151
  154
  158
  161
  165
  169
  172
  176
  180
  184
  188
  192
  196
  201
  205
  209
  214
  219
  224
  229
  234
  239
  244
Total operating expenses, $m
  1,275
  1,308
  1,345
  1,385
  1,429
  1,476
  1,526
  1,581
  1,638
  1,701
  1,752
  1,822
  1,897
  1,975
  2,059
  2,147
  2,240
  2,337
  2,440
  2,549
  2,664
  2,784
  2,911
  3,045
  3,185
  3,333
  3,488
  3,651
  3,823
  4,002
Operating income, $m
  87
  90
  94
  99
  104
  110
  117
  124
  132
  141
  165
  175
  186
  197
  210
  223
  237
  253
  269
  286
  304
  324
  344
  366
  389
  414
  439
  467
  496
  526
EBITDA, $m
  168
  173
  179
  186
  193
  202
  211
  221
  233
  245
  258
  272
  287
  303
  320
  338
  358
  378
  400
  424
  448
  474
  502
  531
  562
  595
  630
  667
  705
  746
Interest expense (income), $m
  17
  21
  21
  23
  24
  25
  27
  28
  30
  32
  34
  36
  38
  40
  43
  46
  49
  52
  55
  58
  62
  65
  69
  74
  78
  83
  88
  93
  98
  104
  110
Earnings before tax, $m
  67
  69
  72
  75
  79
  84
  89
  94
  100
  107
  129
  137
  145
  154
  164
  175
  186
  198
  211
  224
  239
  254
  271
  288
  306
  326
  347
  369
  392
  417
Tax expense, $m
  18
  19
  19
  20
  21
  23
  24
  25
  27
  29
  35
  37
  39
  42
  44
  47
  50
  53
  57
  61
  64
  69
  73
  78
  83
  88
  94
  100
  106
  112
Net income, $m
  49
  50
  52
  55
  58
  61
  65
  69
  73
  78
  94
  100
  106
  113
  120
  127
  136
  144
  154
  164
  174
  186
  198
  210
  224
  238
  253
  269
  286
  304

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
  1,068
  1,097
  1,129
  1,164
  1,202
  1,244
  1,289
  1,337
  1,389
  1,444
  1,504
  1,566
  1,633
  1,704
  1,779
  1,859
  1,943
  2,031
  2,125
  2,224
  2,328
  2,438
  2,553
  2,675
  2,803
  2,938
  3,080
  3,230
  3,387
  3,552
Adjusted assets (=assets-cash), $m
  1,068
  1,097
  1,129
  1,164
  1,202
  1,244
  1,289
  1,337
  1,389
  1,444
  1,504
  1,566
  1,633
  1,704
  1,779
  1,859
  1,943
  2,031
  2,125
  2,224
  2,328
  2,438
  2,553
  2,675
  2,803
  2,938
  3,080
  3,230
  3,387
  3,552
Revenue / Adjusted assets
  1.275
  1.275
  1.275
  1.275
  1.275
  1.275
  1.275
  1.275
  1.275
  1.276
  1.275
  1.275
  1.275
  1.275
  1.275
  1.275
  1.275
  1.275
  1.275
  1.275
  1.275
  1.275
  1.275
  1.275
  1.275
  1.275
  1.275
  1.275
  1.275
  1.275
Average production assets, $m
  489
  502
  517
  533
  550
  569
  590
  612
  636
  661
  688
  717
  748
  780
  814
  851
  889
  930
  973
  1,018
  1,066
  1,116
  1,169
  1,224
  1,283
  1,345
  1,410
  1,478
  1,550
  1,626
Working capital, $m
  275
  283
  291
  300
  310
  320
  332
  344
  358
  372
  387
  403
  421
  439
  458
  479
  500
  523
  547
  573
  600
  628
  658
  689
  722
  757
  793
  832
  872
  915
Total debt, $m
  397
  417
  440
  464
  491
  521
  553
  587
  623
  662
  704
  748
  796
  845
  898
  954
  1,014
  1,076
  1,142
  1,212
  1,285
  1,363
  1,444
  1,530
  1,620
  1,716
  1,816
  1,921
  2,032
  2,148
Total liabilities, $m
  753
  773
  796
  820
  847
  877
  908
  943
  979
  1,018
  1,060
  1,104
  1,151
  1,201
  1,254
  1,310
  1,370
  1,432
  1,498
  1,568
  1,641
  1,719
  1,800
  1,886
  1,976
  2,071
  2,172
  2,277
  2,388
  2,504
Total equity, $m
  315
  324
  333
  343
  355
  367
  380
  394
  410
  426
  444
  462
  482
  503
  525
  548
  573
  599
  627
  656
  687
  719
  753
  789
  827
  867
  909
  953
  999
  1,048
Total liabilities and equity, $m
  1,068
  1,097
  1,129
  1,163
  1,202
  1,244
  1,288
  1,337
  1,389
  1,444
  1,504
  1,566
  1,633
  1,704
  1,779
  1,858
  1,943
  2,031
  2,125
  2,224
  2,328
  2,438
  2,553
  2,675
  2,803
  2,938
  3,081
  3,230
  3,387
  3,552
Debt-to-equity ratio
  1.260
  1.290
  1.320
  1.350
  1.390
  1.420
  1.450
  1.490
  1.520
  1.550
  1.590
  1.620
  1.650
  1.680
  1.710
  1.740
  1.770
  1.800
  1.820
  1.850
  1.870
  1.890
  1.920
  1.940
  1.960
  1.980
  2.000
  2.020
  2.030
  2.050
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
  49
  50
  52
  55
  58
  61
  65
  69
  73
  78
  94
  100
  106
  113
  120
  127
  136
  144
  154
  164
  174
  186
  198
  210
  224
  238
  253
  269
  286
  304
Depreciation, amort., depletion, $m
  81
  83
  85
  87
  89
  92
  94
  97
  101
  104
  93
  97
  101
  105
  110
  115
  120
  126
  131
  138
  144
  151
  158
  165
  173
  182
  191
  200
  209
  220
Funds from operations, $m
  129
  133
  137
  142
  147
  153
  159
  166
  174
  182
  187
  197
  207
  218
  230
  242
  256
  270
  285
  301
  318
  336
  355
  376
  397
  420
  444
  469
  496
  524
Change in working capital, $m
  6
  7
  8
  9
  10
  11
  12
  12
  13
  14
  15
  16
  17
  18
  19
  20
  22
  23
  24
  25
  27
  28
  30
  31
  33
  35
  37
  38
  40
  43
Cash from operations, $m
  123
  126
  129
  133
  137
  142
  148
  154
  161
  168
  172
  181
  190
  200
  211
  222
  234
  247
  261
  276
  291
  308
  326
  344
  364
  385
  407
  430
  455
  481
Maintenance CAPEX, $m
  -65
  -66
  -68
  -70
  -72
  -74
  -77
  -80
  -83
  -86
  -89
  -93
  -97
  -101
  -105
  -110
  -115
  -120
  -126
  -131
  -138
  -144
  -151
  -158
  -165
  -173
  -182
  -191
  -200
  -209
New CAPEX, $m
  -11
  -13
  -15
  -16
  -18
  -19
  -21
  -22
  -24
  -25
  -27
  -29
  -31
  -32
  -34
  -36
  -38
  -41
  -43
  -45
  -48
  -50
  -53
  -56
  -59
  -62
  -65
  -68
  -72
  -76
Cash from investing activities, $m
  -76
  -79
  -83
  -86
  -90
  -93
  -98
  -102
  -107
  -111
  -116
  -122
  -128
  -133
  -139
  -146
  -153
  -161
  -169
  -176
  -186
  -194
  -204
  -214
  -224
  -235
  -247
  -259
  -272
  -285
Free cash flow, $m
  47
  47
  46
  47
  48
  49
  50
  52
  54
  57
  55
  59
  62
  66
  71
  76
  81
  86
  93
  99
  106
  114
  122
  131
  140
  150
  160
  172
  183
  196
Issuance/(repayment) of debt, $m
  18
  20
  22
  25
  27
  29
  32
  34
  37
  39
  42
  44
  47
  50
  53
  56
  59
  63
  66
  70
  73
  77
  82
  86
  90
  95
  100
  105
  111
  116
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  
  18
  20
  22
  25
  27
  29
  32
  34
  37
  39
  42
  44
  47
  50
  53
  56
  59
  63
  66
  70
  73
  77
  82
  86
  90
  95
  100
  105
  111
  116
Total cash flow (excl. dividends), $m
  65
  67
  69
  72
  75
  78
  82
  86
  91
  96
  97
  103
  109
  116
  124
  132
  140
  149
  159
  169
  180
  191
  204
  217
  230
  245
  260
  277
  294
  313
Retained Cash Flow (-), $m
  -8
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -49
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
  57
  58
  60
  61
  63
  66
  69
  72
  75
  79
  80
  85
  90
  95
  102
  108
  115
  123
  131
  140
  149
  159
  169
  181
  193
  205
  219
  233
  248
  264
Discount rate, %
  6.50
  6.83
  7.17
  7.52
  7.90
  8.30
  8.71
  9.15
  9.60
  10.08
  10.59
  11.12
  11.67
  12.26
  12.87
  13.51
  14.19
  14.90
  15.64
  16.43
  17.25
  18.11
  19.01
  19.96
  20.96
  22.01
  23.11
  24.27
  25.48
  26.75
PV of cash for distribution, $m
  54
  51
  48
  46
  43
  41
  38
  36
  33
  30
  26
  24
  21
  19
  17
  14
  12
  10
  8
  7
  5
  4
  3
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  2
  1
  1
  1
  0
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Current shareholders' claim on cash, %
  100.0
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  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 48.6
Price to Sales 1.3
Price to Book 4.9
Price to Tangible Book
Price to Cash Flow 15.4
Price to Free Cash Flow 30.3
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 $1330.354 million for the last fiscal year's total revenue generated by Advanced Drainage Systems. The default revenue input number comes from 0001 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 2.4% 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 6.5%, 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 84.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $127 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 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 35.9%.

Life of production assets of 7.4 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 20.2%. 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 - $307.596 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 56.929 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
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COMPANY NEWS

▶ Advanced Drainage Systems to Host Inaugural Investor Day   [Oct-16-18 04:05PM  Business Wire]
▶ 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]

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