Intrinsic value of AmerisourceBergen - ABC

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$82.05

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$82.05

 
Intrinsic value

$139.21

 
Up/down potential

+70%

 
Rating

str. buy

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

We calculate the intrinsic value of ABC 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 2016), $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 17.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  8.01
  4.00
  4.10
  4.19
  4.27
  4.34
  4.41
  4.47
  4.52
  4.57
  4.61
  4.65
  4.69
  4.72
  4.75
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
Revenue, $m
  146,850
  152,724
  158,986
  165,647
  172,722
  180,225
  188,172
  196,580
  205,469
  214,858
  224,769
  235,223
  246,246
  257,863
  270,101
  282,988
  296,555
  310,833
  325,856
  341,660
  358,282
  375,760
  394,137
  413,456
  433,762
  455,104
  477,533
  501,101
  525,864
  551,882
  579,217
Variable operating expenses, $m
 
  136,817
  142,402
  148,343
  154,653
  161,345
  168,433
  175,933
  183,861
  192,235
  201,075
  209,800
  219,632
  229,993
  240,908
  252,403
  264,503
  277,238
  290,638
  304,733
  319,558
  335,148
  351,539
  368,769
  386,881
  405,916
  425,921
  446,942
  469,029
  492,235
  516,615
Fixed operating expenses, $m
 
  14,466
  14,827
  15,198
  15,578
  15,968
  16,367
  16,776
  17,195
  17,625
  18,066
  18,517
  18,980
  19,455
  19,941
  20,440
  20,951
  21,475
  22,011
  22,562
  23,126
  23,704
  24,297
  24,904
  25,527
  26,165
  26,819
  27,489
  28,177
  28,881
  29,603
Total operating expenses, $m
  145,324
  151,283
  157,229
  163,541
  170,231
  177,313
  184,800
  192,709
  201,056
  209,860
  219,141
  228,317
  238,612
  249,448
  260,849
  272,843
  285,454
  298,713
  312,649
  327,295
  342,684
  358,852
  375,836
  393,673
  412,408
  432,081
  452,740
  474,431
  497,206
  521,116
  546,218
Operating income, $m
  1,526
  1,441
  1,757
  2,106
  2,491
  2,912
  3,372
  3,871
  4,413
  4,998
  5,628
  6,906
  7,634
  8,415
  9,251
  10,146
  11,101
  12,120
  13,207
  14,365
  15,597
  16,908
  18,302
  19,782
  21,355
  23,023
  24,793
  26,670
  28,659
  30,767
  32,999
EBITDA, $m
  1,919
  2,216
  2,538
  2,895
  3,288
  3,718
  4,186
  4,696
  5,247
  5,843
  6,485
  7,175
  7,916
  8,710
  9,561
  10,470
  11,441
  12,476
  13,580
  14,756
  16,008
  17,339
  18,753
  20,256
  21,851
  23,544
  25,340
  27,244
  29,261
  31,399
  33,662
Interest expense (income), $m
  124
  135
  66
  107
  151
  198
  248
  300
  356
  415
  477
  543
  612
  685
  762
  843
  929
  1,019
  1,113
  1,213
  1,318
  1,428
  1,544
  1,665
  1,794
  1,928
  2,070
  2,218
  2,374
  2,538
  2,711
Earnings before tax, $m
  1,391
  1,307
  1,691
  1,999
  2,339
  2,714
  3,124
  3,571
  4,056
  4,582
  5,151
  6,363
  7,022
  7,730
  8,489
  9,302
  10,172
  11,102
  12,094
  13,152
  14,280
  15,480
  16,758
  18,117
  19,561
  21,095
  22,724
  24,452
  26,285
  28,228
  30,288
Tax expense, $m
  -37
  353
  457
  540
  632
  733
  843
  964
  1,095
  1,237
  1,391
  1,718
  1,896
  2,087
  2,292
  2,512
  2,746
  2,997
  3,265
  3,551
  3,856
  4,180
  4,525
  4,892
  5,281
  5,696
  6,135
  6,602
  7,097
  7,622
  8,178
Net income, $m
  1,428
  954
  1,234
  1,459
  1,708
  1,981
  2,280
  2,607
  2,961
  3,345
  3,760
  4,645
  5,126
  5,643
  6,197
  6,791
  7,426
  8,104
  8,828
  9,601
  10,424
  11,301
  12,234
  13,225
  14,280
  15,399
  16,588
  17,850
  19,188
  20,607
  22,110

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,742
  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
  33,638
  32,132
  33,450
  34,851
  36,340
  37,918
  39,590
  41,359
  43,229
  45,205
  47,290
  49,489
  51,809
  54,253
  56,827
  59,539
  62,393
  65,397
  68,558
  71,883
  75,380
  79,057
  82,924
  86,988
  91,261
  95,751
  100,470
  105,428
  110,638
  116,112
  121,863
Adjusted assets (=assets-cash), $m
  30,896
  32,132
  33,450
  34,851
  36,340
  37,918
  39,590
  41,359
  43,229
  45,205
  47,290
  49,489
  51,809
  54,253
  56,827
  59,539
  62,393
  65,397
  68,558
  71,883
  75,380
  79,057
  82,924
  86,988
  91,261
  95,751
  100,470
  105,428
  110,638
  116,112
  121,863
Revenue / Adjusted assets
  4.753
  4.753
  4.753
  4.753
  4.753
  4.753
  4.753
  4.753
  4.753
  4.753
  4.753
  4.753
  4.753
  4.753
  4.753
  4.753
  4.753
  4.753
  4.753
  4.753
  4.753
  4.753
  4.753
  4.753
  4.753
  4.753
  4.753
  4.753
  4.753
  4.753
  4.753
Average production assets, $m
  3,843
  3,971
  4,134
  4,307
  4,491
  4,686
  4,892
  5,111
  5,342
  5,586
  5,844
  6,116
  6,402
  6,704
  7,023
  7,358
  7,710
  8,082
  8,472
  8,883
  9,315
  9,770
  10,248
  10,750
  11,278
  11,833
  12,416
  13,029
  13,672
  14,349
  15,060
Working capital, $m
  -2,428
  -4,734
  -4,929
  -5,135
  -5,354
  -5,587
  -5,833
  -6,094
  -6,370
  -6,661
  -6,968
  -7,292
  -7,634
  -7,994
  -8,373
  -8,773
  -9,193
  -9,636
  -10,102
  -10,591
  -11,107
  -11,649
  -12,218
  -12,817
  -13,447
  -14,108
  -14,804
  -15,534
  -16,302
  -17,108
  -17,956
Total debt, $m
  4,463
  1,873
  3,059
  4,320
  5,660
  7,080
  8,585
  10,177
  11,860
  13,638
  15,515
  17,495
  19,582
  21,781
  24,099
  26,539
  29,108
  31,812
  34,656
  37,649
  40,796
  44,106
  47,585
  51,244
  55,089
  59,130
  63,377
  67,839
  72,529
  77,455
  82,631
Total liabilities, $m
  31,508
  28,919
  30,105
  31,366
  32,706
  34,126
  35,631
  37,223
  38,906
  40,684
  42,561
  44,541
  46,628
  48,827
  51,145
  53,585
  56,154
  58,858
  61,702
  64,695
  67,842
  71,152
  74,631
  78,290
  82,135
  86,176
  90,423
  94,885
  99,575
  104,501
  109,677
Total equity, $m
  2,129
  3,213
  3,345
  3,485
  3,634
  3,792
  3,959
  4,136
  4,323
  4,520
  4,729
  4,949
  5,181
  5,425
  5,683
  5,954
  6,239
  6,540
  6,856
  7,188
  7,538
  7,906
  8,292
  8,699
  9,126
  9,575
  10,047
  10,543
  11,064
  11,611
  12,186
Total liabilities and equity, $m
  33,637
  32,132
  33,450
  34,851
  36,340
  37,918
  39,590
  41,359
  43,229
  45,204
  47,290
  49,490
  51,809
  54,252
  56,828
  59,539
  62,393
  65,398
  68,558
  71,883
  75,380
  79,058
  82,923
  86,989
  91,261
  95,751
  100,470
  105,428
  110,639
  116,112
  121,863
Debt-to-equity ratio
  2.096
  0.580
  0.910
  1.240
  1.560
  1.870
  2.170
  2.460
  2.740
  3.020
  3.280
  3.530
  3.780
  4.010
  4.240
  4.460
  4.670
  4.860
  5.060
  5.240
  5.410
  5.580
  5.740
  5.890
  6.040
  6.180
  6.310
  6.430
  6.560
  6.670
  6.780
Adjusted equity ratio
  -0.000
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,428
  954
  1,234
  1,459
  1,708
  1,981
  2,280
  2,607
  2,961
  3,345
  3,760
  4,645
  5,126
  5,643
  6,197
  6,791
  7,426
  8,104
  8,828
  9,601
  10,424
  11,301
  12,234
  13,225
  14,280
  15,399
  16,588
  17,850
  19,188
  20,607
  22,110
Depreciation, amort., depletion, $m
  393
  774
  781
  789
  797
  806
  815
  824
  835
  845
  857
  269
  282
  295
  309
  324
  340
  356
  373
  391
  410
  430
  451
  474
  497
  521
  547
  574
  602
  632
  663
Funds from operations, $m
  4,207
  1,728
  2,016
  2,248
  2,505
  2,787
  3,095
  3,431
  3,796
  4,190
  4,617
  4,914
  5,408
  5,938
  6,506
  7,115
  7,765
  8,460
  9,202
  9,992
  10,835
  11,731
  12,685
  13,699
  14,776
  15,921
  17,135
  18,424
  19,790
  21,239
  22,774
Change in working capital, $m
  1,028
  -182
  -194
  -207
  -219
  -233
  -246
  -261
  -276
  -291
  -307
  -324
  -342
  -360
  -379
  -400
  -421
  -443
  -466
  -490
  -515
  -542
  -570
  -599
  -629
  -662
  -695
  -731
  -768
  -807
  -847
Cash from operations, $m
  3,179
  2,567
  2,210
  2,455
  2,724
  3,019
  3,342
  3,692
  4,071
  4,482
  4,924
  5,238
  5,750
  6,298
  6,886
  7,514
  8,186
  8,903
  9,667
  10,482
  11,350
  12,273
  13,255
  14,298
  15,406
  16,582
  17,830
  19,154
  20,558
  22,045
  23,621
Maintenance CAPEX, $m
  0
  -169
  -175
  -182
  -190
  -198
  -206
  -216
  -225
  -235
  -246
  -257
  -269
  -282
  -295
  -309
  -324
  -340
  -356
  -373
  -391
  -410
  -430
  -451
  -474
  -497
  -521
  -547
  -574
  -602
  -632
New CAPEX, $m
  -465
  -128
  -163
  -173
  -184
  -195
  -207
  -219
  -231
  -244
  -258
  -272
  -287
  -302
  -318
  -335
  -353
  -371
  -391
  -411
  -432
  -454
  -478
  -502
  -528
  -555
  -583
  -613
  -644
  -676
  -711
Cash from investing activities, $m
  -3,169
  -297
  -338
  -355
  -374
  -393
  -413
  -435
  -456
  -479
  -504
  -529
  -556
  -584
  -613
  -644
  -677
  -711
  -747
  -784
  -823
  -864
  -908
  -953
  -1,002
  -1,052
  -1,104
  -1,160
  -1,218
  -1,278
  -1,343
Free cash flow, $m
  10
  2,269
  1,872
  2,099
  2,350
  2,626
  2,928
  3,258
  3,615
  4,002
  4,420
  4,709
  5,194
  5,714
  6,272
  6,870
  7,509
  8,192
  8,921
  9,698
  10,526
  11,408
  12,346
  13,344
  14,404
  15,531
  16,726
  17,995
  19,340
  20,766
  22,278
Issuance/(repayment) of debt, $m
  713
  -1,980
  1,186
  1,261
  1,340
  1,421
  1,505
  1,592
  1,683
  1,778
  1,877
  1,980
  2,087
  2,200
  2,317
  2,440
  2,569
  2,704
  2,845
  2,993
  3,147
  3,310
  3,480
  3,658
  3,845
  4,041
  4,247
  4,463
  4,689
  4,927
  5,176
Issuance/(repurchase) of shares, $m
  -2,192
  795
  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  
  853
  -1,185
  1,186
  1,261
  1,340
  1,421
  1,505
  1,592
  1,683
  1,778
  1,877
  1,980
  2,087
  2,200
  2,317
  2,440
  2,569
  2,704
  2,845
  2,993
  3,147
  3,310
  3,480
  3,658
  3,845
  4,041
  4,247
  4,463
  4,689
  4,927
  5,176
Total cash flow (excl. dividends), $m
  862
  289
  3,058
  3,361
  3,690
  4,047
  4,433
  4,850
  5,298
  5,780
  6,297
  6,689
  7,281
  7,914
  8,589
  9,310
  10,078
  10,896
  11,766
  12,691
  13,674
  14,718
  15,826
  17,002
  18,249
  19,572
  20,973
  22,457
  24,029
  25,693
  27,454
Retained Cash Flow (-), $m
  -1,513
  -3,216
  -132
  -140
  -149
  -158
  -167
  -177
  -187
  -198
  -209
  -220
  -232
  -244
  -257
  -271
  -285
  -300
  -316
  -333
  -350
  -368
  -387
  -406
  -427
  -449
  -472
  -496
  -521
  -547
  -575
Prev. year cash balance distribution, $m
 
  2,132
  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
 
  0
  2,926
  3,220
  3,541
  3,889
  4,266
  4,673
  5,111
  5,582
  6,088
  6,469
  7,049
  7,669
  8,332
  9,039
  9,792
  10,595
  11,449
  12,358
  13,324
  14,350
  15,440
  16,596
  17,822
  19,123
  20,501
  21,961
  23,508
  25,146
  26,879
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  0
  2,679
  2,803
  2,916
  3,015
  3,096
  3,157
  3,195
  3,207
  3,192
  3,072
  3,008
  2,916
  2,797
  2,654
  2,488
  2,305
  2,109
  1,903
  1,693
  1,484
  1,281
  1,088
  908
  744
  598
  471
  364
  274
  202
Current shareholders' claim on cash, %
  100
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

AmerisourceBergen Corporation sources and distributes pharmaceutical products in the United States and internationally. Its Pharmaceutical Distribution segment distributes brand-name and generic pharmaceuticals, over-the-counter healthcare products, home healthcare supplies and equipment, outsourced compounded sterile preparations, and related services to various healthcare providers, including acute care hospitals and health systems, independent and chain retail pharmacies, mail order pharmacies, medical clinics, long-term care and other alternate site pharmacies, and other customers. It also provides pharmacy management, staffing, and other consulting services; supply management software to retail and institutional healthcare providers; and packaging solutions to various institutional and retail healthcare providers. In addition, this segment provides pharmaceutical distribution and other services primarily to physicians who specialize in various disease states, primarily oncology, as well as to other healthcare providers, including hospitals and dialysis clinics; distributes plasma and other blood products, injectable pharmaceuticals, vaccines, and other specialty products; and offers third party logistics and outcomes research, and other services for biotechnology and other pharmaceutical manufacturers. The company’s Other segment provides commercialization support services, including reimbursement support programs, outcomes research, contract field staffing, patient assistance and co-pay assistance programs, adherence programs, risk mitigation services, and other market access programs to pharmaceutical and biotechnology manufacturers; specialty transportation and logistics services for the biopharmaceutical industry; and animal health care products. It markets its products and services through independent sales forces and marketing organizations. AmerisourceBergen Corporation was founded in 1985 and is headquartered in Chesterbrook, Pennsylvania.

FINANCIAL RATIOS  of  AmerisourceBergen (ABC)

Valuation Ratios
P/E Ratio 12.6
Price to Sales 0.1
Price to Book 8.5
Price to Tangible Book
Price to Cash Flow 5.7
Price to Free Cash Flow 6.7
Growth Rates
Sales Growth Rate 8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 100.4%
Cap. Spend. - 3 Yr. Gr. Rate 18.1%
Financial Strength
Quick Ratio 4
Current Ratio 0
LT Debt to Equity 181%
Total Debt to Equity 209.6%
Interest Coverage 12
Management Effectiveness
Return On Assets 5%
Ret/ On Assets - 3 Yr. Avg. 1.9%
Return On Total Capital 26.1%
Ret/ On T. Cap. - 3 Yr. Avg. 10%
Return On Equity 104%
Return On Equity - 3 Yr. Avg. 35.4%
Asset Turnover 4.8
Profitability Ratios
Gross Margin 2.8%
Gross Margin - 3 Yr. Avg. 2.6%
EBITDA Margin 1.3%
EBITDA Margin - 3 Yr. Avg. 0.8%
Operating Margin 1%
Oper. Margin - 3 Yr. Avg. 0.7%
Pre-Tax Margin 0.9%
Pre-Tax Margin - 3 Yr. Avg. 0.6%
Net Profit Margin 1%
Net Profit Margin - 3 Yr. Avg. 0.4%
Effective Tax Rate -2.7%
Eff/ Tax Rate - 3 Yr. Avg. 68.9%
Payout Ratio 20.2%

ABC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ABC stock intrinsic value calculation we used $146850 million for the last fiscal year's total revenue generated by AmerisourceBergen. The default revenue input number comes from 2016 income statement of AmerisourceBergen. 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 ABC stock valuation model: a) initial revenue growth rate of 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 4.3%, whose default value for ABC is calculated based on our internal credit rating of AmerisourceBergen, 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 AmerisourceBergen.
    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 ABC stock the variable cost ratio is equal to 89.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $14113 million in the base year in the intrinsic value calculation for ABC 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 3.5% for AmerisourceBergen.

Corporate tax rate of 27% is the nominal tax rate for AmerisourceBergen. 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 ABC 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 ABC are equal to 2.6%.

Life of production assets of 22.7 years is the average useful life of capital assets used in AmerisourceBergen 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 ABC is equal to -3.1%. 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 - $2129 million for AmerisourceBergen - 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 215.706 million for AmerisourceBergen 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 AmerisourceBergen at the current share price and the inputted number of shares is $17.7 billion.


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COMPANY NEWS

▶ AmerisourceBergen CEO on drug pricing: 'Weve had some bad actors'   [Apr-26-17 02:50PM  American City Business Journals]
▶ [$$] Cardinal Health to Buy Medtronic Businesses for $6.1 Billion   [Apr-18-17 11:25AM  The Wall Street Journal]
▶ What's working: Health and housing plays   [Feb-21-17 08:15AM  CNBC Videos]
▶ AmerisourceBergen plans $40 million Amazon-like distribution center in metro Atlanta   [Feb-16-17 11:42AM  American City Business Journals]
▶ Here's Why AmerisourceBergen Is Up 16% This Year   [Feb-15-17 09:24PM  TheStreet.com]
▶ AmerisourceBergen Declares Quarterly Dividend   [Feb-09-17 09:26AM  Business Wire]
▶ [$$] Comings & Goings   [Feb-01-17 10:26AM  at The Wall Street Journal]
▶ 5 Stocks Billionaires Were Dumping in Q3   [Nov-28-16 10:27PM  at Insider Monkey]
▶ AmerisourceBergen Increases Dividend 7 Percent   [Nov-10-16 09:45AM  Business Wire]
▶ These 3 Healthcare Stocks Are Ridiculously Cheap   [Oct-08-16 09:58AM  at Motley Fool]
▶ Would A 'Star Wars' TV Show Even Work?   [Oct-05-16 11:01AM  at Forbes]
Stock chart of ABC Financial statements of ABC
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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