Intrinsic value of Bridgepoint Education - BPI

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$14.70

  Intrinsic Value

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  Value-price divergence*

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

We calculate the intrinsic value of BPI 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 0.7

 

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, %
  -6.23
  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
  527
  573
  586
  601
  618
  637
  658
  680
  704
  731
  759
  789
  821
  855
  891
  929
  970
  1,013
  1,059
  1,107
  1,158
  1,211
  1,268
  1,328
  1,390
  1,457
  1,526
  1,600
  1,677
  1,758
  1,844
Variable operating expenses, $m
 
  149
  152
  156
  161
  166
  171
  177
  183
  190
  197
  205
  213
  222
  231
  241
  252
  263
  275
  287
  300
  314
  329
  344
  361
  378
  396
  415
  435
  456
  478
Fixed operating expenses, $m
 
  481
  493
  505
  518
  531
  544
  557
  571
  586
  600
  615
  631
  647
  663
  679
  696
  714
  731
  750
  769
  788
  807
  828
  848
  869
  891
  914
  936
  960
  984
Total operating expenses, $m
  567
  630
  645
  661
  679
  697
  715
  734
  754
  776
  797
  820
  844
  869
  894
  920
  948
  977
  1,006
  1,037
  1,069
  1,102
  1,136
  1,172
  1,209
  1,247
  1,287
  1,329
  1,371
  1,416
  1,462
Operating income, $m
  -40
  -57
  -59
  -60
  -60
  -59
  -57
  -54
  -50
  -45
  -39
  -31
  -23
  -14
  -3
  9
  22
  37
  52
  70
  89
  109
  132
  156
  181
  209
  239
  271
  305
  342
  381
EBITDA, $m
  -27
  -42
  -44
  -45
  -44
  -43
  -40
  -37
  -32
  -26
  -20
  -12
  -3
  8
  19
  32
  46
  62
  79
  98
  118
  140
  163
  189
  216
  246
  277
  311
  347
  386
  428
Interest expense (income), $m
  0
  0
  -1
  0
  0
  0
  0
  0
  1
  1
  1
  2
  2
  2
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  9
  10
  10
  11
  12
  13
Earnings before tax, $m
  -38
  -57
  -58
  -60
  -60
  -59
  -57
  -55
  -51
  -46
  -40
  -33
  -25
  -16
  -6
  6
  18
  33
  48
  65
  83
  103
  125
  148
  173
  200
  229
  261
  294
  330
  368
Tax expense, $m
  -8
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  2
  5
  9
  13
  18
  22
  28
  34
  40
  47
  54
  62
  70
  79
  89
  99
Net income, $m
  -30
  -57
  -58
  -60
  -60
  -59
  -57
  -55
  -51
  -46
  -40
  -33
  -25
  -16
  -6
  4
  13
  24
  35
  47
  61
  75
  91
  108
  126
  146
  167
  190
  215
  241
  269

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  357
  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
  463
  209
  214
  219
  226
  232
  240
  248
  257
  267
  277
  288
  299
  312
  325
  339
  354
  370
  386
  404
  422
  442
  463
  484
  507
  531
  557
  584
  612
  641
  673
Adjusted assets (=assets-cash), $m
  106
  209
  214
  219
  226
  232
  240
  248
  257
  267
  277
  288
  299
  312
  325
  339
  354
  370
  386
  404
  422
  442
  463
  484
  507
  531
  557
  584
  612
  641
  673
Revenue / Adjusted assets
  4.972
  2.742
  2.738
  2.744
  2.735
  2.746
  2.742
  2.742
  2.739
  2.738
  2.740
  2.740
  2.746
  2.740
  2.742
  2.740
  2.740
  2.738
  2.744
  2.740
  2.744
  2.740
  2.739
  2.744
  2.742
  2.744
  2.740
  2.740
  2.740
  2.743
  2.740
Average production assets, $m
  34
  72
  73
  75
  77
  80
  82
  85
  88
  91
  95
  99
  103
  107
  111
  116
  121
  127
  132
  138
  145
  151
  158
  166
  174
  182
  191
  200
  210
  220
  230
Working capital, $m
  279
  -68
  -70
  -72
  -74
  -76
  -78
  -81
  -84
  -87
  -90
  -94
  -98
  -102
  -106
  -111
  -115
  -121
  -126
  -132
  -138
  -144
  -151
  -158
  -165
  -173
  -182
  -190
  -200
  -209
  -219
Total debt, $m
  0
  -15
  -10
  -6
  0
  6
  13
  20
  28
  37
  46
  56
  66
  78
  89
  102
  115
  130
  145
  160
  177
  195
  213
  233
  254
  275
  298
  322
  348
  374
  402
Total liabilities, $m
  183
  188
  193
  197
  203
  209
  216
  223
  231
  240
  249
  259
  269
  281
  292
  305
  318
  333
  348
  363
  380
  398
  416
  436
  457
  478
  501
  525
  551
  577
  605
Total equity, $m
  281
  21
  21
  22
  23
  23
  24
  25
  26
  27
  28
  29
  30
  31
  32
  34
  35
  37
  39
  40
  42
  44
  46
  48
  51
  53
  56
  58
  61
  64
  67
Total liabilities and equity, $m
  464
  209
  214
  219
  226
  232
  240
  248
  257
  267
  277
  288
  299
  312
  324
  339
  353
  370
  387
  403
  422
  442
  462
  484
  508
  531
  557
  583
  612
  641
  672
Debt-to-equity ratio
  0.000
  -0.710
  -0.490
  -0.250
  0.000
  0.270
  0.540
  0.820
  1.100
  1.380
  1.660
  1.940
  2.220
  2.490
  2.750
  3.010
  3.260
  3.510
  3.740
  3.970
  4.190
  4.410
  4.610
  4.810
  5.000
  5.180
  5.350
  5.520
  5.680
  5.840
  5.980
Adjusted equity ratio
  -0.717
  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
  -30
  -57
  -58
  -60
  -60
  -59
  -57
  -55
  -51
  -46
  -40
  -33
  -25
  -16
  -6
  4
  13
  24
  35
  47
  61
  75
  91
  108
  126
  146
  167
  190
  215
  241
  269
Depreciation, amort., depletion, $m
  13
  15
  15
  15
  16
  16
  17
  17
  18
  19
  19
  20
  21
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  33
  35
  36
  38
  40
  42
  44
  46
Funds from operations, $m
  -25
  -42
  -43
  -44
  -44
  -43
  -41
  -37
  -33
  -27
  -21
  -13
  -5
  5
  17
  27
  38
  49
  61
  75
  90
  106
  123
  141
  161
  183
  206
  230
  257
  285
  315
Change in working capital, $m
  -36
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
Cash from operations, $m
  11
  -70
  -42
  -42
  -42
  -41
  -38
  -35
  -30
  -24
  -18
  -10
  -1
  9
  21
  32
  43
  54
  67
  81
  96
  112
  129
  148
  169
  191
  214
  239
  266
  295
  325
Maintenance CAPEX, $m
  0
  -14
  -14
  -15
  -15
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -40
  -42
  -44
New CAPEX, $m
  -2
  -1
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
Cash from investing activities, $m
  15
  -15
  -16
  -17
  -17
  -17
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -50
  -52
  -55
Free cash flow, $m
  26
  -85
  -58
  -59
  -59
  -58
  -57
  -54
  -50
  -45
  -39
  -32
  -24
  -15
  -5
  5
  14
  25
  36
  48
  62
  76
  92
  109
  128
  147
  169
  192
  216
  242
  271
Issuance/(repayment) of debt, $m
  0
  -15
  4
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
Issuance/(repurchase) of shares, $m
  2
  0
  54
  55
  54
  53
  51
  47
  43
  38
  31
  24
  15
  5
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  0
  -15
  58
  60
  60
  59
  58
  54
  51
  47
  40
  34
  26
  16
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
Total cash flow (excl. dividends), $m
  26
  -100
  -53
  -54
  -54
  -52
  -50
  -47
  -42
  -37
  -30
  -23
  -14
  -4
  7
  18
  28
  39
  51
  64
  78
  94
  111
  129
  148
  169
  192
  216
  242
  269
  299
Retained Cash Flow (-), $m
  23
  -19
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
Prev. year cash balance distribution, $m
 
  302
  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
 
  183
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  6
  16
  26
  37
  49
  62
  77
  92
  109
  127
  146
  167
  189
  213
  239
  266
  295
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
 
  175
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  2
  5
  7
  8
  9
  10
  10
  10
  9
  8
  7
  6
  6
  5
  4
  3
  2
Current shareholders' claim on cash, %
  100
  100.0
  46.2
  21.4
  10.1
  4.9
  2.5
  1.3
  0.7
  0.4
  0.3
  0.2
  0.2
  0.2
  0.2
  0.2
  0.2
  0.2
  0.2
  0.2
  0.2
  0.2
  0.2
  0.2
  0.2
  0.2
  0.2
  0.2
  0.2
  0.2
  0.2

Bridgepoint Education, Inc., together with its subsidiaries, provides postsecondary education services. Its academic institutions, Ashford University and University of the Rockies, offer associate's, bachelor's, master's, and doctoral degree programs in the disciplines of business, education, psychology, social sciences, and health sciences. The company offers its programs online; and at its campuses located in Iowa and Colorado. As of December 31, 2015, its institutions offered approximately 1,850 courses, 80 degree programs, and 150 specializations; and had 49,159 students enrolled. The company was formerly known as TeleUniversity, Inc. and changed its name to Bridgepoint Education, Inc. in February 2004. Bridgepoint Education, Inc. was founded in 1999 and is headquartered in San Diego, California.

FINANCIAL RATIOS  of  Bridgepoint Education (BPI)

Valuation Ratios
P/E Ratio -22.8
Price to Sales 1.3
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 62.1
Price to Free Cash Flow 75.9
Growth Rates
Sales Growth Rate -6.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate -33.2%
Financial Strength
Quick Ratio NaN
Current Ratio 0.2
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets -6.2%
Ret/ On Assets - 3 Yr. Avg. -5.9%
Return On Total Capital -10.3%
Ret/ On T. Cap. - 3 Yr. Avg. -9.4%
Return On Equity -10.3%
Return On Equity - 3 Yr. Avg. -9.4%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 49.9%
Gross Margin - 3 Yr. Avg. 49.8%
EBITDA Margin -4.7%
EBITDA Margin - 3 Yr. Avg. -0.7%
Operating Margin -7.6%
Oper. Margin - 3 Yr. Avg. -4.2%
Pre-Tax Margin -7.2%
Pre-Tax Margin - 3 Yr. Avg. -3.9%
Net Profit Margin -5.7%
Net Profit Margin - 3 Yr. Avg. -5.5%
Effective Tax Rate 21.1%
Eff/ Tax Rate - 3 Yr. Avg. -4.3%
Payout Ratio 0%

BPI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BPI stock intrinsic value calculation we used $562 million for the last fiscal year's total revenue generated by Bridgepoint Education. The default revenue input number comes from 2016 income statement of Bridgepoint Education. 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 BPI 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 BPI is calculated based on our internal credit rating of Bridgepoint Education, 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 Bridgepoint Education.
    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 BPI stock the variable cost ratio is equal to 26%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $469 million in the base year in the intrinsic value calculation for BPI 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 Bridgepoint Education.

Corporate tax rate of 27% is the nominal tax rate for Bridgepoint Education. 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 BPI 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 BPI are equal to 12.5%.

Life of production assets of 3.7 years is the average useful life of capital assets used in Bridgepoint Education 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 BPI is equal to -11.9%. 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 - $304 million for Bridgepoint Education - 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 45.7 million for Bridgepoint Education 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 Bridgepoint Education at the current share price and the inputted number of shares is $0.7 billion.


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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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