Intrinsic value of Westar Energy - WR

Previous Close

$54.00

  Intrinsic Value

$10.88

stock screener

  Rating & Target

str. sell

-80%

Previous close

$54.00

 
Intrinsic value

$10.88

 
Up/down potential

-80%

 
Rating

str. sell

We calculate the intrinsic value of WR 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 7.7

 

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
  2,622
  2,683
  2,752
  2,829
  2,915
  3,009
  3,111
  3,222
  3,342
  3,470
  3,607
  3,754
  3,910
  4,075
  4,251
  4,437
  4,635
  4,843
  5,063
  5,296
  5,542
  5,800
  6,073
  6,361
  6,664
  6,983
  7,318
  7,671
  8,043
  8,434
Variable operating expenses, $m
  1,925
  1,969
  2,020
  2,077
  2,140
  2,209
  2,284
  2,365
  2,453
  2,547
  2,648
  2,755
  2,870
  2,991
  3,120
  3,257
  3,402
  3,555
  3,717
  3,887
  4,068
  4,258
  4,458
  4,669
  4,891
  5,125
  5,372
  5,631
  5,903
  6,190
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
  1,925
  1,969
  2,020
  2,077
  2,140
  2,209
  2,284
  2,365
  2,453
  2,547
  2,648
  2,755
  2,870
  2,991
  3,120
  3,257
  3,402
  3,555
  3,717
  3,887
  4,068
  4,258
  4,458
  4,669
  4,891
  5,125
  5,372
  5,631
  5,903
  6,190
Operating income, $m
  698
  714
  732
  753
  775
  800
  828
  857
  889
  923
  960
  998
  1,040
  1,084
  1,131
  1,180
  1,233
  1,288
  1,347
  1,409
  1,474
  1,543
  1,616
  1,692
  1,773
  1,857
  1,947
  2,041
  2,139
  2,243
EBITDA, $m
  1,679
  1,717
  1,761
  1,811
  1,866
  1,926
  1,992
  2,063
  2,139
  2,221
  2,309
  2,403
  2,503
  2,609
  2,721
  2,840
  2,967
  3,100
  3,241
  3,390
  3,547
  3,713
  3,888
  4,072
  4,265
  4,470
  4,684
  4,910
  5,148
  5,398
Interest expense (income), $m
  145
  220
  229
  239
  250
  262
  276
  291
  308
  326
  345
  366
  389
  412
  438
  464
  493
  523
  555
  589
  625
  663
  702
  744
  789
  835
  884
  936
  991
  1,048
  1,108
Earnings before tax, $m
  478
  485
  493
  503
  513
  524
  536
  549
  563
  578
  593
  610
  628
  646
  666
  687
  710
  733
  758
  784
  812
  841
  871
  903
  937
  973
  1,010
  1,050
  1,091
  1,135
Tax expense, $m
  129
  131
  133
  136
  139
  142
  145
  148
  152
  156
  160
  165
  169
  175
  180
  186
  192
  198
  205
  212
  219
  227
  235
  244
  253
  263
  273
  283
  295
  306
Net income, $m
  349
  354
  360
  367
  375
  383
  391
  401
  411
  422
  433
  445
  458
  472
  486
  502
  518
  535
  553
  572
  592
  614
  636
  659
  684
  710
  738
  766
  797
  829

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
  11,866
  12,139
  12,451
  12,801
  13,189
  13,615
  14,079
  14,581
  15,122
  15,702
  16,323
  16,985
  17,691
  18,440
  19,236
  20,079
  20,971
  21,915
  22,912
  23,964
  25,075
  26,247
  27,481
  28,782
  30,153
  31,595
  33,114
  34,712
  36,393
  38,161
Adjusted assets (=assets-cash), $m
  11,866
  12,139
  12,451
  12,801
  13,189
  13,615
  14,079
  14,581
  15,122
  15,702
  16,323
  16,985
  17,691
  18,440
  19,236
  20,079
  20,971
  21,915
  22,912
  23,964
  25,075
  26,247
  27,481
  28,782
  30,153
  31,595
  33,114
  34,712
  36,393
  38,161
Revenue / Adjusted assets
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
Average production assets, $m
  9,810
  10,036
  10,294
  10,584
  10,904
  11,257
  11,640
  12,055
  12,502
  12,982
  13,495
  14,043
  14,626
  15,246
  15,903
  16,600
  17,338
  18,118
  18,942
  19,813
  20,731
  21,700
  22,721
  23,796
  24,929
  26,122
  27,377
  28,698
  30,088
  31,550
Working capital, $m
  92
  94
  96
  99
  102
  105
  109
  113
  117
  121
  126
  131
  137
  143
  149
  155
  162
  170
  177
  185
  194
  203
  213
  223
  233
  244
  256
  268
  281
  295
Total debt, $m
  4,236
  4,417
  4,624
  4,857
  5,115
  5,397
  5,705
  6,039
  6,398
  6,783
  7,195
  7,635
  8,103
  8,601
  9,129
  9,689
  10,282
  10,908
  11,570
  12,269
  13,007
  13,785
  14,604
  15,468
  16,378
  17,336
  18,344
  19,405
  20,522
  21,696
Total liabilities, $m
  7,879
  8,060
  8,267
  8,500
  8,758
  9,041
  9,348
  9,682
  10,041
  10,426
  10,838
  11,278
  11,747
  12,244
  12,772
  13,332
  13,925
  14,551
  15,213
  15,912
  16,650
  17,428
  18,248
  19,112
  20,021
  20,979
  21,988
  23,049
  24,165
  25,339
Total equity, $m
  3,987
  4,079
  4,184
  4,301
  4,432
  4,575
  4,731
  4,899
  5,081
  5,276
  5,484
  5,707
  5,944
  6,196
  6,463
  6,746
  7,046
  7,363
  7,698
  8,052
  8,425
  8,819
  9,234
  9,671
  10,131
  10,616
  11,126
  11,663
  12,228
  12,822
Total liabilities and equity, $m
  11,866
  12,139
  12,451
  12,801
  13,190
  13,616
  14,079
  14,581
  15,122
  15,702
  16,322
  16,985
  17,691
  18,440
  19,235
  20,078
  20,971
  21,914
  22,911
  23,964
  25,075
  26,247
  27,482
  28,783
  30,152
  31,595
  33,114
  34,712
  36,393
  38,161
Debt-to-equity ratio
  1.060
  1.080
  1.110
  1.130
  1.150
  1.180
  1.210
  1.230
  1.260
  1.290
  1.310
  1.340
  1.360
  1.390
  1.410
  1.440
  1.460
  1.480
  1.500
  1.520
  1.540
  1.560
  1.580
  1.600
  1.620
  1.630
  1.650
  1.660
  1.680
  1.690
Adjusted equity ratio
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  349
  354
  360
  367
  375
  383
  391
  401
  411
  422
  433
  445
  458
  472
  486
  502
  518
  535
  553
  572
  592
  614
  636
  659
  684
  710
  738
  766
  797
  829
Depreciation, amort., depletion, $m
  981
  1,004
  1,029
  1,058
  1,090
  1,126
  1,164
  1,205
  1,250
  1,298
  1,350
  1,404
  1,463
  1,525
  1,590
  1,660
  1,734
  1,812
  1,894
  1,981
  2,073
  2,170
  2,272
  2,380
  2,493
  2,612
  2,738
  2,870
  3,009
  3,155
Funds from operations, $m
  1,330
  1,358
  1,390
  1,425
  1,465
  1,508
  1,555
  1,606
  1,661
  1,720
  1,783
  1,850
  1,921
  1,996
  2,077
  2,162
  2,252
  2,347
  2,447
  2,554
  2,666
  2,784
  2,908
  3,039
  3,177
  3,322
  3,475
  3,636
  3,806
  3,984
Change in working capital, $m
  2
  2
  2
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
Cash from operations, $m
  1,328
  1,355
  1,387
  1,423
  1,462
  1,505
  1,552
  1,602
  1,657
  1,715
  1,778
  1,844
  1,915
  1,991
  2,071
  2,155
  2,245
  2,340
  2,440
  2,545
  2,657
  2,775
  2,898
  3,029
  3,167
  3,311
  3,464
  3,624
  3,793
  3,970
Maintenance CAPEX, $m
  -962
  -981
  -1,004
  -1,029
  -1,058
  -1,090
  -1,126
  -1,164
  -1,205
  -1,250
  -1,298
  -1,350
  -1,404
  -1,463
  -1,525
  -1,590
  -1,660
  -1,734
  -1,812
  -1,894
  -1,981
  -2,073
  -2,170
  -2,272
  -2,380
  -2,493
  -2,612
  -2,738
  -2,870
  -3,009
New CAPEX, $m
  -192
  -226
  -258
  -290
  -321
  -352
  -383
  -415
  -447
  -480
  -513
  -548
  -583
  -620
  -658
  -697
  -738
  -780
  -824
  -870
  -918
  -969
  -1,021
  -1,076
  -1,133
  -1,193
  -1,255
  -1,321
  -1,390
  -1,462
Cash from investing activities, $m
  -1,154
  -1,207
  -1,262
  -1,319
  -1,379
  -1,442
  -1,509
  -1,579
  -1,652
  -1,730
  -1,811
  -1,898
  -1,987
  -2,083
  -2,183
  -2,287
  -2,398
  -2,514
  -2,636
  -2,764
  -2,899
  -3,042
  -3,191
  -3,348
  -3,513
  -3,686
  -3,867
  -4,059
  -4,260
  -4,471
Free cash flow, $m
  174
  149
  126
  104
  83
  63
  43
  23
  4
  -15
  -34
  -53
  -72
  -92
  -112
  -132
  -153
  -174
  -196
  -219
  -243
  -267
  -292
  -319
  -346
  -374
  -404
  -435
  -467
  -501
Issuance/(repayment) of debt, $m
  163
  181
  207
  233
  258
  283
  308
  333
  359
  385
  412
  440
  468
  498
  528
  560
  592
  627
  662
  699
  738
  778
  820
  864
  910
  958
  1,008
  1,061
  1,116
  1,174
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  
  163
  181
  207
  233
  258
  283
  308
  333
  359
  385
  412
  440
  468
  498
  528
  560
  592
  627
  662
  699
  738
  778
  820
  864
  910
  958
  1,008
  1,061
  1,116
  1,174
Total cash flow (excl. dividends), $m
  337
  330
  333
  336
  340
  345
  351
  357
  363
  371
  379
  387
  396
  406
  417
  428
  440
  452
  466
  480
  495
  511
  528
  545
  564
  584
  604
  626
  649
  673
Retained Cash Flow (-), $m
  -79
  -92
  -105
  -118
  -130
  -143
  -156
  -169
  -182
  -195
  -209
  -223
  -237
  -252
  -267
  -283
  -300
  -317
  -335
  -354
  -373
  -394
  -415
  -437
  -460
  -485
  -510
  -537
  -565
  -594
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
  8
  8
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
Cash available for distribution, $m
  257
  238
  228
  219
  210
  202
  195
  188
  182
  176
  170
  164
  159
  154
  149
  145
  140
  135
  131
  126
  122
  117
  113
  108
  103
  99
  94
  89
  84
  79
Discount rate, %
  7.60
  7.98
  8.38
  8.80
  9.24
  9.70
  10.18
  10.69
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.05
  15.80
  16.59
  17.42
  18.29
  19.20
  20.17
  21.17
  22.23
  23.34
  24.51
  25.74
  27.02
  28.37
  29.79
  31.28
PV of cash for distribution, $m
  239
  204
  179
  156
  135
  116
  99
  83
  70
  58
  47
  38
  30
  24
  18
  14
  10
  8
  5
  4
  3
  2
  1
  1
  0
  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

Westar Energy, Inc. is an electric utility. The Company provides electric generation, transmission and distribution services. The Company provides these services in central and northeastern Kansas, including the cities of Topeka, Lawrence, Manhattan, Salina and Hutchinson. Its subsidiary, Kansas Gas and Electric Company (KGE), provides these services in south-central and southeastern Kansas, including the city of Wichita. Both the Company and KGE conduct business using the name Westar Energy. The Company supplies electric energy at retail to customers in Kansas. The Company also supplies electric energy at wholesale to municipalities and electric cooperatives in Kansas, and has contracts for the sale or purchase of wholesale electricity with other utilities. As of December 31, 2016, it had 6,292 megawatts (MW) of generating capacity in service.

FINANCIAL RATIOS  of  Westar Energy (WR)

Valuation Ratios
P/E Ratio 22.1
Price to Sales 3
Price to Book 2
Price to Tangible Book
Price to Cash Flow 9.3
Price to Free Cash Flow -28.9
Growth Rates
Sales Growth Rate 4.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 55.3%
Cap. Spend. - 3 Yr. Gr. Rate 6.9%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 91.9%
Total Debt to Equity 105.6%
Interest Coverage 5
Management Effectiveness
Return On Assets 4%
Ret/ On Assets - 3 Yr. Avg. 3.7%
Return On Total Capital 4.6%
Ret/ On T. Cap. - 3 Yr. Avg. 4.4%
Return On Equity 9.3%
Return On Equity - 3 Yr. Avg. 9.2%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 40.2%
EBITDA Margin - 3 Yr. Avg. 35.8%
Operating Margin 26.6%
Oper. Margin - 3 Yr. Avg. 25.4%
Pre-Tax Margin 21.3%
Pre-Tax Margin - 3 Yr. Avg. 19.3%
Net Profit Margin 13.5%
Net Profit Margin - 3 Yr. Avg. 12.5%
Effective Tax Rate 33.9%
Eff/ Tax Rate - 3 Yr. Avg. 33.1%
Payout Ratio 58.8%

WR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the WR stock intrinsic value calculation we used $2571 million for the last fiscal year's total revenue generated by Westar Energy. The default revenue input number comes from 2017 income statement of Westar Energy. 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 WR 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 7.6%, whose default value for WR is calculated based on our internal credit rating of Westar Energy, 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 Westar Energy.
    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 WR stock the variable cost ratio is equal to 73.4%.

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 WR 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 Westar Energy.

Corporate tax rate of 27% is the nominal tax rate for Westar Energy. 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 WR stock is equal to 0.3%.

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 WR are equal to 374.1%.

Life of production assets of 10 years is the average useful life of capital assets used in Westar Energy 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 WR is equal to 3.5%. 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 - $3908 million for Westar Energy - 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 142 million for Westar Energy 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 Westar Energy at the current share price and the inputted number of shares is $7.7 billion.

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