Intrinsic value of Natus Medical - BABY

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$40.25

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$40.25

 
Intrinsic value

$31.54

 
Up/down potential

-22%

 
Rating

sell

 
Value-price divergence* premium content

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

We calculate the intrinsic value of BABY 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 1.3

 

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, %
  1.60
  8.00
  7.70
  7.43
  7.19
  6.97
  6.77
  6.59
  6.43
  6.29
  6.16
  6.05
  5.94
  5.85
  5.76
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.36
  5.33
  5.30
  5.27
  5.24
  5.22
  5.19
  5.17
  5.16
  5.14
Revenue, $m
  382
  413
  444
  477
  512
  547
  584
  623
  663
  705
  748
  793
  840
  890
  941
  994
  1,050
  1,109
  1,170
  1,233
  1,300
  1,370
  1,443
  1,519
  1,599
  1,683
  1,771
  1,863
  1,959
  2,060
  2,166
Variable operating expenses, $m
 
  342
  368
  394
  422
  450
  480
  511
  543
  577
  612
  637
  674
  714
  755
  798
  843
  890
  938
  990
  1,043
  1,099
  1,158
  1,219
  1,283
  1,350
  1,421
  1,495
  1,572
  1,653
  1,738
Fixed operating expenses, $m
 
  9
  9
  10
  10
  10
  10
  11
  11
  11
  12
  12
  12
  12
  13
  13
  13
  14
  14
  14
  15
  15
  15
  16
  16
  17
  17
  18
  18
  18
  19
Total operating expenses, $m
  327
  351
  377
  404
  432
  460
  490
  522
  554
  588
  624
  649
  686
  726
  768
  811
  856
  904
  952
  1,004
  1,058
  1,114
  1,173
  1,235
  1,299
  1,367
  1,438
  1,513
  1,590
  1,671
  1,757
Operating income, $m
  55
  61
  67
  73
  80
  87
  94
  101
  109
  117
  125
  145
  154
  163
  173
  183
  194
  205
  217
  229
  242
  256
  270
  284
  300
  316
  333
  350
  369
  389
  409
EBITDA, $m
  72
  81
  88
  95
  102
  109
  117
  125
  134
  143
  152
  162
  172
  182
  193
  204
  216
  229
  242
  255
  269
  284
  300
  316
  333
  351
  370
  390
  410
  432
  455
Interest expense (income), $m
  0
  5
  6
  6
  7
  8
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  22
  23
  24
  26
  27
  29
  31
  33
  34
  36
  38
  41
Earnings before tax, $m
  55
  56
  61
  67
  73
  79
  85
  92
  99
  106
  113
  132
  140
  149
  157
  167
  176
  186
  197
  208
  219
  231
  244
  257
  271
  285
  300
  316
  333
  350
  368
Tax expense, $m
  12
  15
  17
  18
  20
  21
  23
  25
  27
  29
  31
  36
  38
  40
  43
  45
  48
  50
  53
  56
  59
  62
  66
  69
  73
  77
  81
  85
  90
  95
  99
Net income, $m
  43
  41
  45
  49
  53
  58
  62
  67
  72
  77
  83
  97
  102
  109
  115
  122
  129
  136
  144
  152
  160
  169
  178
  187
  198
  208
  219
  231
  243
  256
  269

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  248
  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
  649
  433
  466
  501
  537
  574
  613
  654
  696
  739
  785
  832
  882
  934
  987
  1,043
  1,102
  1,163
  1,227
  1,294
  1,364
  1,437
  1,514
  1,594
  1,678
  1,766
  1,858
  1,954
  2,056
  2,162
  2,273
Adjusted assets (=assets-cash), $m
  401
  433
  466
  501
  537
  574
  613
  654
  696
  739
  785
  832
  882
  934
  987
  1,043
  1,102
  1,163
  1,227
  1,294
  1,364
  1,437
  1,514
  1,594
  1,678
  1,766
  1,858
  1,954
  2,056
  2,162
  2,273
Revenue / Adjusted assets
  0.953
  0.954
  0.953
  0.952
  0.953
  0.953
  0.953
  0.953
  0.953
  0.954
  0.953
  0.953
  0.952
  0.953
  0.953
  0.953
  0.953
  0.954
  0.954
  0.953
  0.953
  0.953
  0.953
  0.953
  0.953
  0.953
  0.953
  0.953
  0.953
  0.953
  0.953
Average production assets, $m
  99
  106
  115
  123
  132
  141
  151
  161
  171
  182
  193
  205
  217
  230
  243
  257
  271
  286
  302
  318
  335
  353
  372
  392
  413
  434
  457
  481
  505
  531
  559
Working capital, $m
  326
  84
  91
  97
  104
  112
  119
  127
  135
  144
  153
  162
  171
  181
  192
  203
  214
  226
  239
  252
  265
  279
  294
  310
  326
  343
  361
  380
  400
  420
  442
Total debt, $m
  140
  159
  178
  198
  219
  241
  263
  286
  311
  336
  363
  390
  419
  448
  480
  512
  546
  582
  619
  657
  698
  740
  785
  831
  880
  930
  984
  1,040
  1,098
  1,160
  1,224
Total liabilities, $m
  232
  251
  270
  290
  311
  333
  355
  378
  403
  428
  455
  482
  511
  540
  572
  604
  638
  674
  711
  749
  790
  832
  877
  923
  972
  1,022
  1,076
  1,132
  1,190
  1,252
  1,316
Total equity, $m
  417
  182
  196
  211
  226
  242
  258
  275
  293
  311
  330
  350
  371
  393
  416
  439
  464
  490
  517
  545
  574
  605
  637
  671
  706
  743
  782
  823
  865
  910
  957
Total liabilities and equity, $m
  649
  433
  466
  501
  537
  575
  613
  653
  696
  739
  785
  832
  882
  933
  988
  1,043
  1,102
  1,164
  1,228
  1,294
  1,364
  1,437
  1,514
  1,594
  1,678
  1,765
  1,858
  1,955
  2,055
  2,162
  2,273
Debt-to-equity ratio
  0.336
  0.870
  0.910
  0.940
  0.970
  0.990
  1.020
  1.040
  1.060
  1.080
  1.100
  1.110
  1.130
  1.140
  1.150
  1.170
  1.180
  1.190
  1.200
  1.210
  1.220
  1.220
  1.230
  1.240
  1.250
  1.250
  1.260
  1.260
  1.270
  1.270
  1.280
Adjusted equity ratio
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  43
  41
  45
  49
  53
  58
  62
  67
  72
  77
  83
  97
  102
  109
  115
  122
  129
  136
  144
  152
  160
  169
  178
  187
  198
  208
  219
  231
  243
  256
  269
Depreciation, amort., depletion, $m
  17
  20
  21
  21
  22
  23
  24
  24
  25
  26
  27
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  30
  32
  34
  35
  37
  39
  41
  43
  45
Funds from operations, $m
  76
  61
  66
  70
  75
  80
  86
  91
  97
  103
  110
  113
  120
  127
  135
  143
  151
  159
  168
  177
  187
  197
  208
  219
  231
  243
  256
  270
  284
  299
  314
Change in working capital, $m
  3
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
Cash from operations, $m
  73
  50
  59
  64
  68
  73
  78
  84
  89
  95
  101
  104
  110
  117
  124
  132
  139
  147
  156
  164
  174
  183
  193
  204
  215
  226
  238
  251
  264
  278
  293
Maintenance CAPEX, $m
  0
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -34
  -35
  -37
  -39
  -41
  -43
New CAPEX, $m
  -3
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
Cash from investing activities, $m
  -53
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
  -48
  -50
  -53
  -56
  -58
  -61
  -64
  -67
  -70
Free cash flow, $m
  20
  34
  42
  46
  49
  53
  57
  61
  66
  70
  75
  77
  82
  87
  92
  98
  104
  110
  117
  123
  131
  138
  146
  154
  162
  171
  180
  190
  200
  211
  222
Issuance/(repayment) of debt, $m
  140
  19
  19
  20
  21
  22
  23
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
  35
  37
  39
  41
  42
  44
  46
  49
  51
  53
  56
  59
  61
  64
Issuance/(repurchase) of shares, $m
  -16
  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  
  118
  19
  19
  20
  21
  22
  23
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
  35
  37
  39
  41
  42
  44
  46
  49
  51
  53
  56
  59
  61
  64
Total cash flow (excl. dividends), $m
  131
  53
  61
  66
  70
  75
  80
  85
  90
  95
  101
  104
  110
  117
  124
  131
  138
  146
  154
  162
  171
  180
  190
  200
  211
  222
  234
  246
  259
  272
  287
Retained Cash Flow (-), $m
  -26
  -13
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
  -47
Prev. year cash balance distribution, $m
 
  248
  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
 
  288
  47
  51
  55
  59
  63
  68
  72
  77
  82
  84
  89
  95
  101
  107
  113
  120
  127
  134
  142
  150
  158
  166
  176
  185
  195
  205
  216
  228
  240
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
 
  276
  43
  45
  45
  46
  46
  46
  45
  44
  43
  40
  38
  36
  34
  31
  29
  26
  23
  21
  18
  15
  13
  11
  9
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  4
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  2
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
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  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
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  100.0
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  100.0

Natus Medical Incorporated designs, manufactures, and markets newborn care and neurology healthcare products and services worldwide. It offers products and services used for the screening, diagnosis, detection, treatment, monitoring, and tracking of common medical ailments in newborn care, hearing impairment, neurological dysfunction, epilepsy, sleep disorders, neuromuscular diseases, and balance and mobility disorders. The company’s product offerings include computerized neurodiagnostic systems for audiology, neurology, polysomnography, and neonatology; and software systems for managing and tracking disorders and diseases for public health laboratories. It offers neurology products, such as diagnostic electroencephalography and long-term monitoring products, electrodiagnostic monitoring products, diagnostic polysomnography monitoring products, diagnostic intraoperative monitoring products, and transcranial Doppler products. The company also provides newborn care products, including hearing screening products to screen the hearing; brain injury products to diagnose the severity of brain injury, monitor the effectiveness of drug therapies, detect seizure activity, and monitor general neurological status; and thermoregulation products to control the newborn environment, including incubators and warmers. Its newborn care also comprise jaundice management products to measure bilirubin levels and treat jaundice; diagnostic hearing assessment products to screen for or diagnose hearing loss, or to identify abnormalities affecting the peripheral and central auditory nervous systems in patients of all ages; balance and mobility systems to diagnose and assist in treating balance disorders; and NicView video for families with babies in the neonatal intensive care unit. The company serves hospitals, clinics, laboratories, physicians, nurses, audiologists, and governmental agencies. Natus Medical Incorporated was founded in 1987 and is headquartered in Pleasanton, California.

FINANCIAL RATIOS  of  Natus Medical (BABY)

Valuation Ratios
P/E Ratio 30.8
Price to Sales 3.5
Price to Book 3.2
Price to Tangible Book
Price to Cash Flow 18.2
Price to Free Cash Flow 18.9
Growth Rates
Sales Growth Rate 1.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -40%
Cap. Spend. - 3 Yr. Gr. Rate -5.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 33.6%
Total Debt to Equity 33.6%
Interest Coverage 0
Management Effectiveness
Return On Assets 7.6%
Ret/ On Assets - 3 Yr. Avg. 7.8%
Return On Total Capital 9.1%
Ret/ On T. Cap. - 3 Yr. Avg. 9.5%
Return On Equity 10.6%
Return On Equity - 3 Yr. Avg. 10.2%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 61.5%
Gross Margin - 3 Yr. Avg. 60.8%
EBITDA Margin 18.8%
EBITDA Margin - 3 Yr. Avg. 17.7%
Operating Margin 14.4%
Oper. Margin - 3 Yr. Avg. 13.9%
Pre-Tax Margin 14.4%
Pre-Tax Margin - 3 Yr. Avg. 13.7%
Net Profit Margin 11.3%
Net Profit Margin - 3 Yr. Avg. 10.1%
Effective Tax Rate 21.8%
Eff/ Tax Rate - 3 Yr. Avg. 26.4%
Payout Ratio 0%

BABY stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BABY stock intrinsic value calculation we used $382 million for the last fiscal year's total revenue generated by Natus Medical. The default revenue input number comes from 2016 income statement of Natus Medical. 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 BABY stock valuation model: a) initial revenue growth rate of 8% 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 BABY is calculated based on our internal credit rating of Natus Medical, 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 Natus Medical.
    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 BABY stock the variable cost ratio is equal to 83.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $9 million in the base year in the intrinsic value calculation for BABY 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 Natus Medical.

Corporate tax rate of 27% is the nominal tax rate for Natus Medical. 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 BABY 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 BABY are equal to 25.8%.

Life of production assets of 12.3 years is the average useful life of capital assets used in Natus Medical 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 BABY is equal to 20.4%. 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 - $417 million for Natus Medical - 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 33.376 million for Natus Medical 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 Natus Medical at the current share price and the inputted number of shares is $1.3 billion.


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COMPANY NEWS

▶ 3 Top Medical Device Stocks to Buy in 2017   [03:02PM  at Motley Fool]
▶ Natus to Present at 29th Annual Roth Conference   [Mar-01-17 07:00AM  GlobeNewswire]
▶ Natus Medical Inc Hears a Bright 2017   [02:15PM  at Motley Fool]
Stock chart of BABY Financial statements of BABY
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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