Intrinsic value of Alere - ALR

Previous Close

$50.99

  Intrinsic Value

$27.95

stock screener

  Rating & Target

sell

-45%

  Value-price divergence*

+2%

Previous close

$50.99

 
Intrinsic value

$27.95

 
Up/down potential

-45%

 
Rating

sell

 
Value-price divergence*

+2%

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

We calculate the intrinsic value of ALR 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 4.5

 

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, %
  -3.26
  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
  2,376
  2,424
  2,479
  2,543
  2,615
  2,694
  2,781
  2,875
  2,978
  3,088
  3,207
  3,334
  3,469
  3,613
  3,766
  3,929
  4,101
  4,283
  4,476
  4,679
  4,894
  5,121
  5,361
  5,613
  5,878
  6,158
  6,453
  6,763
  7,089
  7,433
  7,794
Variable operating expenses, $m
 
  2,290
  2,336
  2,389
  2,448
  2,514
  2,586
  2,665
  2,750
  2,842
  2,940
  2,770
  2,882
  3,002
  3,129
  3,264
  3,407
  3,559
  3,719
  3,888
  4,067
  4,255
  4,454
  4,664
  4,884
  5,117
  5,362
  5,619
  5,890
  6,176
  6,476
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
  2,362
  2,290
  2,336
  2,389
  2,448
  2,514
  2,586
  2,665
  2,750
  2,842
  2,940
  2,770
  2,882
  3,002
  3,129
  3,264
  3,407
  3,559
  3,719
  3,888
  4,067
  4,255
  4,454
  4,664
  4,884
  5,117
  5,362
  5,619
  5,890
  6,176
  6,476
Operating income, $m
  15
  134
  143
  154
  166
  180
  194
  210
  228
  246
  266
  564
  587
  611
  637
  664
  694
  724
  757
  791
  828
  866
  907
  949
  994
  1,041
  1,091
  1,144
  1,199
  1,257
  1,318
EBITDA, $m
  301
  506
  517
  531
  546
  562
  580
  600
  622
  645
  669
  696
  724
  754
  786
  820
  856
  894
  934
  977
  1,022
  1,069
  1,119
  1,171
  1,227
  1,285
  1,347
  1,412
  1,480
  1,551
  1,627
Interest expense (income), $m
  158
  152
  156
  160
  166
  172
  178
  185
  193
  202
  211
  221
  231
  243
  255
  267
  281
  295
  310
  326
  343
  361
  380
  400
  421
  443
  466
  491
  517
  544
  573
Earnings before tax, $m
  -152
  -18
  -12
  -6
  1
  8
  16
  25
  34
  45
  55
  343
  355
  368
  382
  397
  413
  429
  447
  465
  484
  505
  526
  549
  573
  598
  625
  653
  682
  713
  746
Tax expense, $m
  36
  0
  0
  0
  0
  2
  4
  7
  9
  12
  15
  93
  96
  99
  103
  107
  111
  116
  121
  126
  131
  136
  142
  148
  155
  162
  169
  176
  184
  193
  201
Net income, $m
  -138
  -18
  -12
  -6
  1
  6
  12
  18
  25
  33
  41
  250
  259
  269
  279
  290
  301
  313
  326
  339
  354
  369
  384
  401
  418
  437
  456
  477
  498
  521
  544

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  567
  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
  5,648
  5,178
  5,298
  5,434
  5,587
  5,756
  5,942
  6,144
  6,363
  6,599
  6,852
  7,123
  7,412
  7,720
  8,047
  8,395
  8,762
  9,152
  9,564
  9,999
  10,458
  10,943
  11,454
  11,993
  12,561
  13,159
  13,788
  14,451
  15,148
  15,882
  16,654
Adjusted assets (=assets-cash), $m
  5,081
  5,178
  5,298
  5,434
  5,587
  5,756
  5,942
  6,144
  6,363
  6,599
  6,852
  7,123
  7,412
  7,720
  8,047
  8,395
  8,762
  9,152
  9,564
  9,999
  10,458
  10,943
  11,454
  11,993
  12,561
  13,159
  13,788
  14,451
  15,148
  15,882
  16,654
Revenue / Adjusted assets
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
Average production assets, $m
  1,373
  1,401
  1,433
  1,470
  1,511
  1,557
  1,607
  1,662
  1,721
  1,785
  1,854
  1,927
  2,005
  2,088
  2,177
  2,271
  2,370
  2,476
  2,587
  2,705
  2,829
  2,960
  3,098
  3,244
  3,398
  3,560
  3,730
  3,909
  4,098
  4,296
  4,505
Working capital, $m
  784
  308
  315
  323
  332
  342
  353
  365
  378
  392
  407
  423
  441
  459
  478
  499
  521
  544
  568
  594
  622
  650
  681
  713
  747
  782
  820
  859
  900
  944
  990
Total debt, $m
  2,951
  2,936
  3,024
  3,124
  3,236
  3,361
  3,497
  3,646
  3,807
  3,980
  4,167
  4,366
  4,578
  4,804
  5,045
  5,300
  5,570
  5,857
  6,159
  6,479
  6,817
  7,173
  7,549
  7,945
  8,362
  8,802
  9,264
  9,752
  10,264
  10,803
  11,370
Total liabilities, $m
  3,821
  3,806
  3,894
  3,994
  4,106
  4,231
  4,367
  4,516
  4,677
  4,850
  5,037
  5,236
  5,448
  5,674
  5,915
  6,170
  6,440
  6,727
  7,029
  7,349
  7,687
  8,043
  8,419
  8,815
  9,232
  9,672
  10,134
  10,622
  11,134
  11,673
  12,240
Total equity, $m
  1,827
  1,372
  1,404
  1,440
  1,480
  1,525
  1,575
  1,628
  1,686
  1,749
  1,816
  1,888
  1,964
  2,046
  2,133
  2,225
  2,322
  2,425
  2,534
  2,650
  2,771
  2,900
  3,035
  3,178
  3,329
  3,487
  3,654
  3,830
  4,014
  4,209
  4,413
Total liabilities and equity, $m
  5,648
  5,178
  5,298
  5,434
  5,586
  5,756
  5,942
  6,144
  6,363
  6,599
  6,853
  7,124
  7,412
  7,720
  8,048
  8,395
  8,762
  9,152
  9,563
  9,999
  10,458
  10,943
  11,454
  11,993
  12,561
  13,159
  13,788
  14,452
  15,148
  15,882
  16,653
Debt-to-equity ratio
  1.615
  2.140
  2.150
  2.170
  2.190
  2.200
  2.220
  2.240
  2.260
  2.280
  2.290
  2.310
  2.330
  2.350
  2.370
  2.380
  2.400
  2.410
  2.430
  2.450
  2.460
  2.470
  2.490
  2.500
  2.510
  2.520
  2.540
  2.550
  2.560
  2.570
  2.580
Adjusted equity ratio
  0.248
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265
  0.265

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -138
  -18
  -12
  -6
  1
  6
  12
  18
  25
  33
  41
  250
  259
  269
  279
  290
  301
  313
  326
  339
  354
  369
  384
  401
  418
  437
  456
  477
  498
  521
  544
Depreciation, amort., depletion, $m
  286
  372
  374
  377
  379
  383
  386
  390
  394
  398
  403
  132
  137
  143
  149
  156
  162
  170
  177
  185
  194
  203
  212
  222
  233
  244
  255
  268
  281
  294
  309
Funds from operations, $m
  251
  354
  362
  370
  380
  388
  398
  408
  419
  431
  443
  382
  397
  412
  428
  445
  464
  483
  503
  525
  547
  571
  596
  623
  651
  681
  712
  744
  779
  815
  853
Change in working capital, $m
  72
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  21
  22
  23
  24
  26
  27
  29
  30
  32
  34
  36
  37
  39
  41
  44
  46
Cash from operations, $m
  179
  348
  355
  362
  371
  378
  387
  396
  406
  417
  428
  366
  380
  394
  409
  425
  442
  460
  479
  499
  520
  542
  566
  591
  617
  645
  674
  705
  737
  771
  807
Maintenance CAPEX, $m
  0
  -94
  -96
  -98
  -101
  -104
  -107
  -110
  -114
  -118
  -122
  -127
  -132
  -137
  -143
  -149
  -156
  -162
  -170
  -177
  -185
  -194
  -203
  -212
  -222
  -233
  -244
  -255
  -268
  -281
  -294
New CAPEX, $m
  -68
  -28
  -32
  -37
  -41
  -46
  -50
  -55
  -59
  -64
  -69
  -73
  -78
  -83
  -88
  -94
  -100
  -105
  -111
  -118
  -124
  -131
  -138
  -146
  -154
  -162
  -170
  -179
  -189
  -198
  -209
Cash from investing activities, $m
  3
  -122
  -128
  -135
  -142
  -150
  -157
  -165
  -173
  -182
  -191
  -200
  -210
  -220
  -231
  -243
  -256
  -267
  -281
  -295
  -309
  -325
  -341
  -358
  -376
  -395
  -414
  -434
  -457
  -479
  -503
Free cash flow, $m
  182
  226
  227
  227
  229
  229
  230
  231
  233
  235
  238
  166
  169
  173
  177
  182
  187
  192
  198
  204
  211
  218
  225
  233
  242
  251
  260
  270
  281
  292
  304
Issuance/(repayment) of debt, $m
  -78
  70
  88
  100
  112
  124
  137
  149
  161
  173
  186
  199
  212
  226
  240
  255
  270
  286
  303
  320
  338
  356
  376
  396
  417
  440
  463
  487
  513
  539
  567
Issuance/(repurchase) of shares, $m
  19
  45
  44
  42
  40
  39
  37
  35
  33
  30
  27
  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  
  -89
  115
  132
  142
  152
  163
  174
  184
  194
  203
  213
  199
  212
  226
  240
  255
  270
  286
  303
  320
  338
  356
  376
  396
  417
  440
  463
  487
  513
  539
  567
Total cash flow (excl. dividends), $m
  86
  341
  358
  370
  381
  393
  404
  415
  427
  438
  450
  365
  382
  399
  418
  437
  457
  478
  500
  524
  548
  574
  601
  629
  659
  690
  723
  757
  793
  831
  871
Retained Cash Flow (-), $m
  224
  -45
  -44
  -42
  -41
  -45
  -49
  -54
  -58
  -63
  -67
  -72
  -77
  -82
  -87
  -92
  -97
  -103
  -109
  -115
  -122
  -128
  -135
  -143
  -150
  -158
  -167
  -176
  -185
  -194
  -204
Prev. year cash balance distribution, $m
 
  482
  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
 
  778
  314
  327
  341
  348
  355
  362
  369
  376
  383
  293
  305
  318
  331
  345
  360
  375
  391
  408
  426
  445
  465
  486
  508
  532
  556
  582
  609
  637
  667
Discount rate, %
 
  9.40
  9.87
  10.36
  10.88
  11.43
  12.00
  12.60
  13.23
  13.89
  14.58
  15.31
  16.08
  16.88
  17.73
  18.61
  19.54
  20.52
  21.54
  22.62
  23.75
  24.94
  26.19
  27.50
  28.87
  30.32
  31.83
  33.42
  35.09
  36.85
  38.69
PV of cash for distribution, $m
 
  711
  260
  244
  225
  202
  180
  158
  136
  117
  98
  61
  51
  42
  34
  27
  21
  16
  12
  8
  6
  4
  3
  2
  1
  1
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  98.7
  97.4
  96.3
  95.2
  94.2
  93.3
  92.4
  91.7
  91.0
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5

Alere Inc. is a provider of health information through diagnostic tests. The Company's segments include professional diagnostics, consumer diagnostics, and corporate and other. The professional diagnostics segment includes an array of diagnostic test products and other in vitro diagnostic tests marketed to medical professionals and laboratories for detection of diseases and conditions within its areas of focus. The consumer diagnostics segment consists primarily of manufacturing operations related to its role as the exclusive manufacturer of products for SPD Swiss Precision Diagnostics (SPD), its joint venture with The Procter & Gamble Company (P&G). The Company's professional diagnostic solutions allow patients and their healthcare providers to work together to manage patients' conditions over the continuum of care, from the hospital to home. The Company offers lines of drugs-of-abuse tests, reagent systems and laboratory testing options.

FINANCIAL RATIOS  of  Alere (ALR)

Valuation Ratios
P/E Ratio -32.2
Price to Sales 1.9
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 24.8
Price to Free Cash Flow 40
Growth Rates
Sales Growth Rate -3.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -25.3%
Cap. Spend. - 3 Yr. Gr. Rate -7.4%
Financial Strength
Quick Ratio 7
Current Ratio 0.1
LT Debt to Equity 156.9%
Total Debt to Equity 161.5%
Interest Coverage 0
Management Effectiveness
Return On Assets 1%
Ret/ On Assets - 3 Yr. Avg. 3.1%
Return On Total Capital -2.8%
Ret/ On T. Cap. - 3 Yr. Avg. 0.1%
Return On Equity -7.1%
Return On Equity - 3 Yr. Avg. 0.5%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 46.1%
Gross Margin - 3 Yr. Avg. 46.3%
EBITDA Margin 12.3%
EBITDA Margin - 3 Yr. Avg. 14.7%
Operating Margin 0.6%
Oper. Margin - 3 Yr. Avg. 3.2%
Pre-Tax Margin -6.4%
Pre-Tax Margin - 3 Yr. Avg. -4.8%
Net Profit Margin -5.8%
Net Profit Margin - 3 Yr. Avg. 0.4%
Effective Tax Rate -23.7%
Eff/ Tax Rate - 3 Yr. Avg. -6.8%
Payout Ratio -15.2%

ALR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ALR stock intrinsic value calculation we used $2376 million for the last fiscal year's total revenue generated by Alere. The default revenue input number comes from 2016 income statement of Alere. 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 ALR 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 9.4%, whose default value for ALR is calculated based on our internal credit rating of Alere, 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 Alere.
    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 ALR stock the variable cost ratio is equal to 94.7%.

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 ALR 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 5.3% for Alere.

Corporate tax rate of 27% is the nominal tax rate for Alere. 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 ALR 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 ALR are equal to 57.8%.

Life of production assets of 14.6 years is the average useful life of capital assets used in Alere 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 ALR is equal to 12.7%. 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 - $1827 million for Alere - 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 89.045 million for Alere 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 Alere at the current share price and the inputted number of shares is $4.5 billion.

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Financial statements of ALR
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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