DCF Studio

    AWK · NYQ · Utilities

    American Water Works Company, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 21.90

    Market price

    USD 135.90

    Implied upside

    -83.9%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedFree cashflow is negative in at least one forecast year, so terminal value carries most of the valuation.
    AdjustedCapital expenditure runs at 64.2% of revenue against depreciation of 17.0%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Value Per Share

    Perpetuity growth
    USD 21.90-83.9%
    Exit multiple
    USD 152.37+12.1%
    Market price
    USD 135.90

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    -1557478890-7787394450FY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 5.7bnUSD 6.3bnUSD 7.0bnUSD 7.7bnUSD 8.5bn+10.7%
    EBITUSD 2.0bnUSD 2.2bnUSD 2.5bnUSD 2.7bnUSD 3.0bn+10.7%
    NOPATUSD 1.6bnUSD 1.8bnUSD 2.0bnUSD 2.2bnUSD 2.4bn+10.7%
    Add depreciation & amortisationUSD 966.4mUSD 1.1bnUSD 1.2bnUSD 1.3bnUSD 1.4bn+10.7%
    Less capital expenditureUSD -3.7bnUSD -4.0bnUSD -4.5bnUSD -5.0bnUSD -5.5bn+10.7%
    Less increase in working capitalUSD 48.8mUSD 54.0mUSD 59.7mUSD 66.1mUSD 73.1m-10.7%
    Free cashflow to firmUSD -1.0bnUSD -1.1bnUSD -1.3bnUSD -1.4bnUSD -1.6bn-10.7%
    Discount factor0.96630.90230.84250.78670.7346-
    Present valueUSD -1.0bnUSD -1.0bnUSD -1.1bnUSD -1.1bnUSD -1.1bn-3.3%
    Present Value Of The ForecastUSD -5.4bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.719Reported 0.580, pulled toward 1.0 (Blume)
    Cost of equity8.95%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 27.0bn62.9% of capital
    Total debtUSD 15.9bn37.1% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC7.10%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 21.90

    127% of EV

    Forecast FCFF, final year
    USD -1.6bn
    Capex at depreciation, working capital in reinvestment
    USD 2.4bn
    Less reinvestment at g/ROIC (35.2% of NOPAT)
    USD -845.2m
    Capitalised
    USD 1.6bn
    ROIC (WACC floor)
    7.1%
    Terminal value, undiscounted
    USD 34.7bn
    Terminal value, discounted
    USD 25.5bn
    Enterprise value
    USD 20.1bn
    Less net debt
    USD 15.8bn
    Equity value
    USD 4.3bn

    Exit at 15.4x EBITDA

    Value per shareUSD 152.37

    112% of EV

    Terminal value, undiscounted
    USD 69.3bn
    Terminal value, discounted
    USD 50.9bn
    Enterprise value
    USD 45.5bn
    Less net debt
    USD 15.8bn
    Equity value
    USD 29.7bn

    Spread between methods: 150%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    5.10%91.4195.42100.64107.92119.19
    6.10%47.6548.4249.2049.9750.74
    7.10%20.6321.2721.9022.5423.18
    8.10%0.671.201.742.272.81
    9.10%-14.58-14.13-13.67-13.21-12.76

    Outlined: this model. Green text: above today's price of 135.90. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year10.7%26.7%+16.1pp
    EBIT margin35.6%59.0%+23.5pp
    Discount rate7.1%4.8%-2.3pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.