Intrinsic value of Amphastar Pharmaceuticals - AMPH

Previous Close

$16.64

  Intrinsic Value

$1.59

stock screener

  Rating & Target

str. sell

-90%

Previous close

$16.64

 
Intrinsic value

$1.59

 
Up/down potential

-90%

 
Rating

str. sell

We calculate the intrinsic value of AMPH 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  1.19
  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
  255
  245
  250
  257
  264
  272
  281
  290
  301
  312
  324
  337
  350
  365
  380
  397
  414
  433
  452
  473
  494
  517
  541
  567
  594
  622
  652
  683
  716
  751
  787
Variable operating expenses, $m
 
  229
  234
  240
  247
  254
  262
  271
  281
  291
  302
  309
  322
  335
  349
  364
  380
  397
  415
  434
  454
  475
  497
  521
  545
  571
  599
  627
  658
  689
  723
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
  239
  229
  234
  240
  247
  254
  262
  271
  281
  291
  302
  309
  322
  335
  349
  364
  380
  397
  415
  434
  454
  475
  497
  521
  545
  571
  599
  627
  658
  689
  723
Operating income, $m
  16
  16
  16
  16
  17
  18
  18
  19
  20
  21
  22
  28
  29
  30
  31
  32
  34
  35
  37
  39
  40
  42
  44
  46
  49
  51
  53
  56
  59
  61
  64
EBITDA, $m
  31
  42
  43
  44
  45
  47
  48
  50
  52
  54
  56
  58
  60
  63
  65
  68
  71
  74
  78
  81
  85
  89
  93
  98
  102
  107
  112
  118
  123
  129
  135
Interest expense (income), $m
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
Earnings before tax, $m
  15
  13
  14
  14
  14
  15
  15
  16
  17
  17
  18
  23
  24
  25
  26
  27
  28
  29
  30
  31
  32
  34
  35
  36
  38
  40
  41
  43
  45
  47
  49
Tax expense, $m
  4
  4
  4
  4
  4
  4
  4
  4
  4
  5
  5
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
Net income, $m
  11
  10
  10
  10
  11
  11
  11
  12
  12
  13
  13
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
  36

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  73
  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
  428
  458
  469
  481
  495
  510
  526
  544
  563
  584
  607
  631
  656
  683
  712
  743
  776
  810
  847
  885
  926
  969
  1,014
  1,062
  1,112
  1,165
  1,221
  1,279
  1,341
  1,406
  1,474
Adjusted assets (=assets-cash), $m
  355
  458
  469
  481
  495
  510
  526
  544
  563
  584
  607
  631
  656
  683
  712
  743
  776
  810
  847
  885
  926
  969
  1,014
  1,062
  1,112
  1,165
  1,221
  1,279
  1,341
  1,406
  1,474
Revenue / Adjusted assets
  0.718
  0.535
  0.533
  0.534
  0.533
  0.533
  0.534
  0.533
  0.535
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
  0.535
  0.534
  0.534
  0.533
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
  0.534
Average production assets, $m
  189
  221
  226
  232
  238
  246
  254
  262
  272
  282
  293
  304
  316
  330
  344
  358
  374
  391
  408
  427
  446
  467
  489
  512
  536
  562
  589
  617
  647
  678
  711
Working capital, $m
  123
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
Total debt, $m
  38
  44
  47
  50
  53
  57
  61
  65
  70
  76
  81
  87
  94
  100
  108
  115
  123
  132
  141
  151
  161
  172
  183
  195
  207
  221
  235
  249
  265
  281
  298
Total liabilities, $m
  98
  115
  117
  120
  124
  127
  131
  136
  141
  146
  152
  158
  164
  171
  178
  186
  194
  203
  212
  221
  231
  242
  253
  265
  278
  291
  305
  320
  335
  351
  369
Total equity, $m
  329
  344
  352
  361
  371
  382
  394
  408
  422
  438
  455
  473
  492
  513
  534
  557
  582
  608
  635
  664
  694
  727
  760
  796
  834
  874
  915
  959
  1,006
  1,054
  1,106
Total liabilities and equity, $m
  427
  459
  469
  481
  495
  509
  525
  544
  563
  584
  607
  631
  656
  684
  712
  743
  776
  811
  847
  885
  925
  969
  1,013
  1,061
  1,112
  1,165
  1,220
  1,279
  1,341
  1,405
  1,475
Debt-to-equity ratio
  0.116
  0.130
  0.130
  0.140
  0.140
  0.150
  0.150
  0.160
  0.170
  0.170
  0.180
  0.180
  0.190
  0.200
  0.200
  0.210
  0.210
  0.220
  0.220
  0.230
  0.230
  0.240
  0.240
  0.240
  0.250
  0.250
  0.260
  0.260
  0.260
  0.270
  0.270
Adjusted equity ratio
  0.721
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750
  0.750

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  11
  10
  10
  10
  11
  11
  11
  12
  12
  13
  13
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
  36
Depreciation, amort., depletion, $m
  15
  27
  27
  28
  28
  29
  30
  31
  32
  33
  34
  30
  32
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
  71
Funds from operations, $m
  36
  36
  37
  38
  39
  40
  41
  42
  44
  45
  47
  47
  49
  51
  53
  55
  58
  60
  63
  65
  68
  71
  74
  78
  81
  85
  89
  93
  98
  102
  107
Change in working capital, $m
  -3
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
Cash from operations, $m
  39
  36
  37
  38
  39
  40
  41
  42
  43
  45
  47
  47
  49
  51
  53
  55
  57
  60
  62
  65
  68
  71
  74
  77
  81
  84
  88
  92
  97
  101
  106
Maintenance CAPEX, $m
  0
  -22
  -22
  -23
  -23
  -24
  -25
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -54
  -56
  -59
  -62
  -65
  -68
New CAPEX, $m
  -21
  -4
  -5
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -31
  -33
Cash from investing activities, $m
  -40
  -26
  -27
  -29
  -30
  -31
  -33
  -34
  -35
  -37
  -39
  -41
  -42
  -45
  -47
  -49
  -52
  -54
  -57
  -60
  -63
  -66
  -69
  -72
  -75
  -80
  -83
  -87
  -92
  -96
  -101
Free cash flow, $m
  -1
  10
  10
  9
  9
  9
  8
  8
  8
  8
  8
  6
  6
  6
  6
  6
  6
  6
  5
  5
  5
  5
  5
  5
  5
  5
  5
  5
  5
  5
  5
Issuance/(repayment) of debt, $m
  -4
  2
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
Issuance/(repurchase) of shares, $m
  21
  0
  0
  0
  0
  0
  1
  2
  2
  3
  4
  1
  2
  2
  3
  4
  4
  5
  6
  6
  7
  8
  8
  9
  10
  11
  12
  12
  13
  14
  15
Cash from financing (excl. dividends), $m  
  7
  2
  3
  3
  3
  4
  5
  6
  7
  8
  10
  7
  8
  9
  10
  12
  12
  14
  15
  16
  17
  19
  19
  21
  23
  24
  26
  27
  28
  30
  32
Total cash flow (excl. dividends), $m
  6
  12
  12
  12
  12
  13
  14
  14
  15
  16
  17
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  28
  29
  31
  32
  34
  36
  38
Retained Cash Flow (-), $m
  -33
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -15
  -16
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -26
  -27
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -49
  -51
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
 
  17
  17
  18
  18
  19
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  34
  35
  37
  38
  40
  42
  44
  46
  49
  51
  53
Cash available for distribution, $m
 
  6
  4
  3
  2
  2
  1
  1
  1
  0
  0
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -13
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
 
  5
  4
  3
  2
  1
  1
  1
  0
  0
  0
  -2
  -2
  -2
  -2
  -2
  -2
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  99.8
  99.6
  99.4
  99.0
  98.7
  98.6
  98.4
  98.2
  98.0
  97.7
  97.3
  97.0
  96.6
  96.2
  95.7
  95.3
  94.8
  94.3
  93.8
  93.2
  92.7
  92.1
  91.6
  91.0
  90.4

Amphastar Pharmaceuticals, Inc. is a specialty pharmaceutical company. The Company focuses primarily on developing, manufacturing, marketing and selling generic and injectable, inhalation and intranasal products. The Company has two segments: finished pharmaceutical products and active pharmaceutical ingredients (API) products. The finished pharmaceutical products segment manufactures, markets and distributes enoxaparin, Cortrosyn, Amphadase, naloxone, lidocaine jelly, as well as various other critical and non-critical care drugs. The API segment manufactures and distributes recombinant human insulin and porcine insulin. The Company also manufactures and sells insulin API. As of December 31, 2016, the Company manufactured and sold 19 products. As of December 31, 2016, the Company developed a portfolio of 15 generic abbreviated new drug applications (ANDAs) three generic biosimilar product candidates and six injectable and inhalation product candidates.

FINANCIAL RATIOS  of  Amphastar Pharmaceuticals (AMPH)

Valuation Ratios
P/E Ratio 70
Price to Sales 3
Price to Book 2.3
Price to Tangible Book
Price to Cash Flow 19.7
Price to Free Cash Flow 42.8
Growth Rates
Sales Growth Rate 1.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 50%
Cap. Spend. - 3 Yr. Gr. Rate 3.1%
Financial Strength
Quick Ratio 15
Current Ratio 0
LT Debt to Equity 10%
Total Debt to Equity 11.6%
Interest Coverage 9
Management Effectiveness
Return On Assets 3%
Ret/ On Assets - 3 Yr. Avg. -0%
Return On Total Capital 3.1%
Ret/ On T. Cap. - 3 Yr. Avg. -0.5%
Return On Equity 3.5%
Return On Equity - 3 Yr. Avg. -0.5%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 40.8%
Gross Margin - 3 Yr. Avg. 31.9%
EBITDA Margin 12.5%
EBITDA Margin - 3 Yr. Avg. 4.8%
Operating Margin 6.3%
Oper. Margin - 3 Yr. Avg. -1.6%
Pre-Tax Margin 5.9%
Pre-Tax Margin - 3 Yr. Avg. -2.2%
Net Profit Margin 4.3%
Net Profit Margin - 3 Yr. Avg. -0.7%
Effective Tax Rate 26.7%
Eff/ Tax Rate - 3 Yr. Avg. 45.2%
Payout Ratio 0%

AMPH stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AMPH stock intrinsic value calculation we used $240 million for the last fiscal year's total revenue generated by Amphastar Pharmaceuticals. The default revenue input number comes from 2016 income statement of Amphastar Pharmaceuticals. 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 AMPH 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 4.3%, whose default value for AMPH is calculated based on our internal credit rating of Amphastar Pharmaceuticals, 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 Amphastar Pharmaceuticals.
    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 AMPH stock the variable cost ratio is equal to 93.7%.

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 AMPH 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 Amphastar Pharmaceuticals.

Corporate tax rate of 27% is the nominal tax rate for Amphastar Pharmaceuticals. 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 AMPH stock is equal to 7.1%.

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 AMPH are equal to 90.3%.

Life of production assets of 10 years is the average useful life of capital assets used in Amphastar Pharmaceuticals 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 AMPH is equal to 2.5%. 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 - $337 million for Amphastar Pharmaceuticals - 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 46 million for Amphastar Pharmaceuticals 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 Amphastar Pharmaceuticals at the current share price and the inputted number of shares is $0.8 billion.

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Financial statements of AMPH
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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