Intrinsic value of Aqua America, Inc. - WTR

Previous Close

$44.52

  Intrinsic Value

$3.28

stock screener

  Rating & Target

str. sell

-93%

Previous close

$44.52

 
Intrinsic value

$3.28

 
Up/down potential

-93%

 
Rating

str. sell

We calculate the intrinsic value of WTR 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 7.9

 

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
  855
  874
  897
  922
  950
  981
  1,014
  1,050
  1,089
  1,131
  1,176
  1,224
  1,274
  1,328
  1,386
  1,446
  1,511
  1,579
  1,650
  1,726
  1,806
  1,891
  1,980
  2,073
  2,172
  2,276
  2,385
  2,500
  2,622
  2,749
Variable operating expenses, $m
  502
  513
  526
  541
  557
  575
  594
  615
  638
  662
  683
  710
  740
  771
  805
  840
  877
  917
  958
  1,002
  1,049
  1,098
  1,149
  1,204
  1,261
  1,322
  1,385
  1,452
  1,522
  1,596
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
  502
  513
  526
  541
  557
  575
  594
  615
  638
  662
  683
  710
  740
  771
  805
  840
  877
  917
  958
  1,002
  1,049
  1,098
  1,149
  1,204
  1,261
  1,322
  1,385
  1,452
  1,522
  1,596
Operating income, $m
  353
  361
  371
  381
  393
  406
  420
  435
  451
  469
  493
  513
  534
  557
  581
  606
  633
  662
  692
  724
  757
  793
  830
  869
  911
  954
  1,000
  1,048
  1,099
  1,153
EBITDA, $m
  552
  565
  579
  595
  613
  633
  655
  678
  703
  730
  759
  790
  823
  858
  895
  934
  975
  1,019
  1,066
  1,114
  1,166
  1,221
  1,278
  1,339
  1,402
  1,469
  1,540
  1,614
  1,693
  1,775
Interest expense (income), $m
  66
  139
  145
  151
  158
  166
  175
  185
  196
  207
  220
  233
  247
  263
  279
  296
  314
  334
  354
  376
  399
  423
  449
  476
  504
  534
  566
  599
  634
  671
  710
Earnings before tax, $m
  214
  217
  220
  223
  227
  231
  235
  240
  244
  249
  260
  266
  272
  278
  285
  292
  300
  308
  316
  325
  334
  344
  354
  365
  376
  388
  401
  414
  428
  443
Tax expense, $m
  58
  59
  59
  60
  61
  62
  63
  65
  66
  67
  70
  72
  73
  75
  77
  79
  81
  83
  85
  88
  90
  93
  96
  99
  102
  105
  108
  112
  116
  120
Net income, $m
  157
  158
  161
  163
  166
  169
  172
  175
  178
  182
  190
  194
  198
  203
  208
  213
  219
  225
  231
  237
  244
  251
  259
  266
  275
  283
  293
  302
  313
  323

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
  7,123
  7,287
  7,474
  7,684
  7,917
  8,173
  8,451
  8,753
  9,077
  9,426
  9,798
  10,196
  10,619
  11,069
  11,547
  12,053
  12,588
  13,155
  13,753
  14,385
  15,052
  15,755
  16,496
  17,277
  18,100
  18,966
  19,878
  20,837
  21,846
  22,907
Adjusted assets (=assets-cash), $m
  7,123
  7,287
  7,474
  7,684
  7,917
  8,173
  8,451
  8,753
  9,077
  9,426
  9,798
  10,196
  10,619
  11,069
  11,547
  12,053
  12,588
  13,155
  13,753
  14,385
  15,052
  15,755
  16,496
  17,277
  18,100
  18,966
  19,878
  20,837
  21,846
  22,907
Revenue / Adjusted assets
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
Average production assets, $m
  5,803
  5,936
  6,089
  6,260
  6,450
  6,658
  6,885
  7,131
  7,395
  7,679
  7,982
  8,306
  8,651
  9,018
  9,407
  9,819
  10,256
  10,717
  11,205
  11,719
  12,263
  12,836
  13,439
  14,076
  14,746
  15,451
  16,194
  16,975
  17,797
  18,662
Working capital, $m
  -88
  -90
  -92
  -95
  -98
  -101
  -104
  -108
  -112
  -116
  -121
  -126
  -131
  -137
  -143
  -149
  -156
  -163
  -170
  -178
  -186
  -195
  -204
  -214
  -224
  -234
  -246
  -258
  -270
  -283
Total debt, $m
  2,677
  2,793
  2,926
  3,076
  3,241
  3,423
  3,621
  3,835
  4,066
  4,314
  4,579
  4,862
  5,163
  5,483
  5,822
  6,182
  6,563
  6,965
  7,391
  7,840
  8,314
  8,814
  9,341
  9,897
  10,481
  11,097
  11,745
  12,427
  13,145
  13,899
Total liabilities, $m
  5,064
  5,181
  5,314
  5,464
  5,629
  5,811
  6,009
  6,223
  6,454
  6,702
  6,967
  7,249
  7,550
  7,870
  8,210
  8,570
  8,950
  9,353
  9,779
  10,228
  10,702
  11,202
  11,729
  12,284
  12,869
  13,485
  14,133
  14,815
  15,532
  16,287
Total equity, $m
  2,059
  2,106
  2,160
  2,221
  2,288
  2,362
  2,442
  2,529
  2,623
  2,724
  2,832
  2,947
  3,069
  3,199
  3,337
  3,483
  3,638
  3,802
  3,975
  4,157
  4,350
  4,553
  4,767
  4,993
  5,231
  5,481
  5,745
  6,022
  6,313
  6,620
Total liabilities and equity, $m
  7,123
  7,287
  7,474
  7,685
  7,917
  8,173
  8,451
  8,752
  9,077
  9,426
  9,799
  10,196
  10,619
  11,069
  11,547
  12,053
  12,588
  13,155
  13,754
  14,385
  15,052
  15,755
  16,496
  17,277
  18,100
  18,966
  19,878
  20,837
  21,845
  22,907
Debt-to-equity ratio
  1.300
  1.330
  1.350
  1.390
  1.420
  1.450
  1.480
  1.520
  1.550
  1.580
  1.620
  1.650
  1.680
  1.710
  1.740
  1.770
  1.800
  1.830
  1.860
  1.890
  1.910
  1.940
  1.960
  1.980
  2.000
  2.020
  2.040
  2.060
  2.080
  2.100
Adjusted equity ratio
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289
  0.289

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  157
  158
  161
  163
  166
  169
  172
  175
  178
  182
  190
  194
  198
  203
  208
  213
  219
  225
  231
  237
  244
  251
  259
  266
  275
  283
  293
  302
  313
  323
Depreciation, amort., depletion, $m
  199
  203
  208
  214
  220
  227
  235
  243
  252
  261
  266
  277
  288
  301
  314
  327
  342
  357
  373
  391
  409
  428
  448
  469
  492
  515
  540
  566
  593
  622
Funds from operations, $m
  355
  361
  369
  377
  386
  396
  406
  418
  430
  443
  456
  471
  487
  504
  522
  541
  561
  582
  604
  628
  653
  679
  706
  736
  766
  799
  833
  868
  906
  945
Change in working capital, $m
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
Cash from operations, $m
  357
  363
  371
  380
  389
  399
  410
  422
  434
  448
  461
  476
  492
  509
  527
  547
  567
  589
  612
  636
  661
  688
  716
  745
  776
  809
  844
  880
  918
  958
Maintenance CAPEX, $m
  -190
  -193
  -198
  -203
  -209
  -215
  -222
  -230
  -238
  -246
  -256
  -266
  -277
  -288
  -301
  -314
  -327
  -342
  -357
  -373
  -391
  -409
  -428
  -448
  -469
  -492
  -515
  -540
  -566
  -593
New CAPEX, $m
  -114
  -133
  -153
  -171
  -190
  -208
  -227
  -245
  -264
  -284
  -304
  -324
  -345
  -367
  -389
  -412
  -436
  -461
  -488
  -515
  -543
  -573
  -604
  -636
  -670
  -706
  -743
  -781
  -822
  -865
Cash from investing activities, $m
  -304
  -326
  -351
  -374
  -399
  -423
  -449
  -475
  -502
  -530
  -560
  -590
  -622
  -655
  -690
  -726
  -763
  -803
  -845
  -888
  -934
  -982
  -1,032
  -1,084
  -1,139
  -1,198
  -1,258
  -1,321
  -1,388
  -1,458
Free cash flow, $m
  53
  37
  21
  5
  -10
  -24
  -39
  -53
  -68
  -83
  -99
  -114
  -130
  -146
  -162
  -179
  -196
  -215
  -233
  -253
  -273
  -294
  -316
  -339
  -363
  -388
  -414
  -441
  -470
  -499
Issuance/(repayment) of debt, $m
  109
  116
  133
  149
  166
  182
  198
  214
  231
  248
  265
  283
  301
  320
  339
  360
  381
  403
  426
  449
  474
  500
  527
  555
  585
  616
  648
  682
  717
  755
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  
  109
  116
  133
  149
  166
  182
  198
  214
  231
  248
  265
  283
  301
  320
  339
  360
  381
  403
  426
  449
  474
  500
  527
  555
  585
  616
  648
  682
  717
  755
Total cash flow (excl. dividends), $m
  163
  153
  154
  155
  156
  157
  159
  161
  163
  165
  166
  169
  171
  174
  177
  181
  184
  188
  192
  197
  201
  206
  211
  216
  222
  228
  234
  241
  248
  255
Retained Cash Flow (-), $m
  -49
  -47
  -54
  -61
  -67
  -74
  -80
  -87
  -94
  -101
  -108
  -115
  -122
  -130
  -138
  -146
  -155
  -164
  -173
  -183
  -193
  -203
  -214
  -226
  -238
  -250
  -263
  -277
  -292
  -307
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
  113
  106
  100
  94
  89
  84
  79
  74
  69
  64
  58
  54
  49
  44
  39
  35
  30
  24
  19
  14
  8
  3
  -3
  -9
  -16
  -22
  -29
  -36
  -44
  -52
Discount rate, %
  8.70
  9.14
  9.59
  10.07
  10.57
  11.10
  11.66
  12.24
  12.85
  13.50
  14.17
  14.88
  15.62
  16.41
  17.23
  18.09
  18.99
  19.94
  20.94
  21.98
  23.08
  24.24
  25.45
  26.72
  28.06
  29.46
  30.93
  32.48
  34.11
  35.81
PV of cash for distribution, $m
  104
  89
  76
  64
  54
  44
  36
  29
  23
  18
  14
  10
  7
  5
  4
  2
  2
  1
  1
  0
  0
  0
  0
  0
  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

Aqua America, Inc. is a holding company. The Company is engaged in providing water or wastewater services concentrated in Pennsylvania, Ohio, Texas, Illinois, North Carolina, New Jersey, Indiana and Virginia. The Company is the holding company for its primary subsidiary, Aqua Pennsylvania, Inc. Its market-based activities are conducted through Aqua Resources, Inc. (Aqua Resources) and Aqua Infrastructure, LLC (Aqua Infrastructure). Aqua Resources, Inc. provides water and wastewater service through operating and maintenance contracts with municipal authorities and other parties close to its utility companies' service territories, and offers, through a third party, water and sewer line repair service and protection solutions to households. Aqua Infrastructure provides non-utility raw water supply services for firms in the natural gas drilling industry. The Company owns several wastewater collection systems that convey the wastewater to a municipally-owned facility for treatment.

FINANCIAL RATIOS  of  Aqua America, Inc. (WTR)

Valuation Ratios
P/E Ratio 33.7
Price to Sales 9.6
Price to Book 4.3
Price to Tangible Book
Price to Cash Flow 19.9
Price to Free Cash Flow 607.5
Growth Rates
Sales Growth Rate 0.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 4.9%
Cap. Spend. - 3 Yr. Gr. Rate 4.5%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 93.9%
Total Debt to Equity 102.4%
Interest Coverage 5
Management Effectiveness
Return On Assets 5%
Ret/ On Assets - 3 Yr. Avg. 5.2%
Return On Total Capital 6.5%
Ret/ On T. Cap. - 3 Yr. Avg. 6.6%
Return On Equity 13.1%
Return On Equity - 3 Yr. Avg. 13.2%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 55.4%
EBITDA Margin - 3 Yr. Avg. 54.2%
Operating Margin 39.8%
Oper. Margin - 3 Yr. Avg. 39.9%
Pre-Tax Margin 31.1%
Pre-Tax Margin - 3 Yr. Avg. 29.5%
Net Profit Margin 28.5%
Net Profit Margin - 3 Yr. Avg. 27.7%
Effective Tax Rate 8.2%
Eff/ Tax Rate - 3 Yr. Avg. 8.5%
Payout Ratio 56%

WTR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the WTR stock intrinsic value calculation we used $838 million for the last fiscal year's total revenue generated by Aqua America, Inc.. The default revenue input number comes from 0001 income statement of Aqua America, 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 WTR 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 8.7%, whose default value for WTR is calculated based on our internal credit rating of Aqua America, 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 Aqua America, 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 WTR stock the variable cost ratio is equal to 58.7%.

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 WTR 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 Aqua America, Inc..

Corporate tax rate of 27% is the nominal tax rate for Aqua America, 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 WTR 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 WTR are equal to 678.9%.

Life of production assets of 38.9 years is the average useful life of capital assets used in Aqua America, 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 WTR is equal to -10.3%. 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 - $2009.364 million for Aqua America, 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 178.254 million for Aqua America, 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 Aqua America, Inc. at the current share price and the inputted number of shares is $7.9 billion.

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