Intrinsic value of Cantel Medical - CMD

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$76.60

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$76.60

 
Intrinsic value

$46.25

 
Up/down potential

-40%

 
Rating

sell

 
Value-price divergence* premium content

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Our model is not good at valuating stocks of financial companies, such as CMD.

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

We calculate the intrinsic value of CMD 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 3.3

 

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, %
  17.70
  17.10
  15.89
  14.80
  13.82
  12.94
  12.14
  11.43
  10.79
  10.21
  9.69
  9.22
  8.80
  8.42
  8.08
  7.77
  7.49
  7.24
  7.02
  6.82
  6.63
  6.47
  6.32
  6.19
  6.07
  5.97
  5.87
  5.78
  5.70
  5.63
  5.57
Revenue, $m
  665
  779
  902
  1,036
  1,179
  1,332
  1,494
  1,664
  1,844
  2,032
  2,229
  2,434
  2,648
  2,871
  3,103
  3,344
  3,595
  3,855
  4,126
  4,407
  4,699
  5,004
  5,320
  5,649
  5,992
  6,350
  6,723
  7,111
  7,517
  7,940
  8,382
Variable operating expenses, $m
 
  634
  730
  834
  945
  1,064
  1,190
  1,323
  1,462
  1,609
  1,762
  1,894
  2,060
  2,234
  2,414
  2,602
  2,796
  2,999
  3,209
  3,428
  3,656
  3,892
  4,138
  4,395
  4,661
  4,940
  5,229
  5,532
  5,847
  6,177
  6,521
Fixed operating expenses, $m
 
  25
  25
  26
  26
  27
  28
  29
  29
  30
  31
  31
  32
  33
  34
  35
  36
  37
  37
  38
  39
  40
  41
  42
  43
  44
  46
  47
  48
  49
  50
Total operating expenses, $m
  568
  659
  755
  860
  971
  1,091
  1,218
  1,352
  1,491
  1,639
  1,793
  1,925
  2,092
  2,267
  2,448
  2,637
  2,832
  3,036
  3,246
  3,466
  3,695
  3,932
  4,179
  4,437
  4,704
  4,984
  5,275
  5,579
  5,895
  6,226
  6,571
Operating income, $m
  97
  120
  147
  176
  207
  241
  276
  313
  352
  393
  436
  509
  556
  605
  655
  708
  763
  820
  879
  940
  1,004
  1,071
  1,140
  1,212
  1,288
  1,366
  1,447
  1,533
  1,622
  1,714
  1,811
EBITDA, $m
  122
  160
  189
  220
  253
  288
  326
  366
  407
  451
  497
  545
  595
  647
  701
  757
  816
  877
  940
  1,005
  1,074
  1,145
  1,219
  1,296
  1,376
  1,459
  1,547
  1,637
  1,732
  1,831
  1,935
Interest expense (income), $m
  3
  4
  5
  7
  9
  11
  13
  15
  17
  19
  21
  24
  26
  29
  32
  35
  38
  41
  44
  48
  51
  55
  59
  63
  67
  72
  76
  81
  86
  91
  96
Earnings before tax, $m
  94
  116
  142
  169
  199
  230
  263
  299
  336
  374
  415
  485
  529
  575
  623
  673
  725
  779
  834
  893
  953
  1,016
  1,081
  1,149
  1,220
  1,294
  1,371
  1,452
  1,536
  1,624
  1,715
Tax expense, $m
  34
  31
  38
  46
  54
  62
  71
  81
  91
  101
  112
  131
  143
  155
  168
  182
  196
  210
  225
  241
  257
  274
  292
  310
  329
  349
  370
  392
  415
  438
  463
Net income, $m
  60
  85
  103
  124
  145
  168
  192
  218
  245
  273
  303
  354
  387
  420
  455
  491
  529
  568
  609
  652
  696
  742
  789
  839
  891
  945
  1,001
  1,060
  1,121
  1,185
  1,252

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  28
  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
  695
  781
  905
  1,039
  1,183
  1,336
  1,498
  1,669
  1,849
  2,038
  2,236
  2,442
  2,656
  2,880
  3,113
  3,354
  3,606
  3,867
  4,138
  4,420
  4,714
  5,019
  5,336
  5,666
  6,010
  6,369
  6,743
  7,133
  7,539
  7,964
  8,408
Adjusted assets (=assets-cash), $m
  667
  781
  905
  1,039
  1,183
  1,336
  1,498
  1,669
  1,849
  2,038
  2,236
  2,442
  2,656
  2,880
  3,113
  3,354
  3,606
  3,867
  4,138
  4,420
  4,714
  5,019
  5,336
  5,666
  6,010
  6,369
  6,743
  7,133
  7,539
  7,964
  8,408
Revenue / Adjusted assets
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
Average production assets, $m
  168
  196
  227
  261
  297
  336
  376
  419
  465
  512
  562
  613
  667
  724
  782
  843
  906
  972
  1,040
  1,111
  1,184
  1,261
  1,341
  1,424
  1,510
  1,600
  1,694
  1,792
  1,894
  2,001
  2,112
Working capital, $m
  127
  116
  134
  154
  176
  198
  223
  248
  275
  303
  332
  363
  395
  428
  462
  498
  536
  574
  615
  657
  700
  746
  793
  842
  893
  946
  1,002
  1,060
  1,120
  1,183
  1,249
Total debt, $m
  116
  157
  202
  250
  302
  357
  416
  478
  543
  611
  682
  756
  834
  915
  999
  1,086
  1,177
  1,271
  1,369
  1,471
  1,577
  1,687
  1,801
  1,921
  2,045
  2,174
  2,309
  2,450
  2,597
  2,750
  2,910
Total liabilities, $m
  240
  282
  327
  375
  427
  482
  541
  603
  668
  736
  807
  881
  959
  1,040
  1,124
  1,211
  1,302
  1,396
  1,494
  1,596
  1,702
  1,812
  1,926
  2,046
  2,170
  2,299
  2,434
  2,575
  2,722
  2,875
  3,035
Total equity, $m
  454
  499
  578
  664
  756
  854
  957
  1,067
  1,182
  1,302
  1,429
  1,560
  1,697
  1,840
  1,989
  2,143
  2,304
  2,471
  2,644
  2,825
  3,012
  3,207
  3,410
  3,621
  3,841
  4,070
  4,309
  4,558
  4,818
  5,089
  5,373
Total liabilities and equity, $m
  694
  781
  905
  1,039
  1,183
  1,336
  1,498
  1,670
  1,850
  2,038
  2,236
  2,441
  2,656
  2,880
  3,113
  3,354
  3,606
  3,867
  4,138
  4,421
  4,714
  5,019
  5,336
  5,667
  6,011
  6,369
  6,743
  7,133
  7,540
  7,964
  8,408
Debt-to-equity ratio
  0.256
  0.310
  0.350
  0.380
  0.400
  0.420
  0.430
  0.450
  0.460
  0.470
  0.480
  0.480
  0.490
  0.500
  0.500
  0.510
  0.510
  0.510
  0.520
  0.520
  0.520
  0.530
  0.530
  0.530
  0.530
  0.530
  0.540
  0.540
  0.540
  0.540
  0.540
Adjusted equity ratio
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  60
  85
  103
  124
  145
  168
  192
  218
  245
  273
  303
  354
  387
  420
  455
  491
  529
  568
  609
  652
  696
  742
  789
  839
  891
  945
  1,001
  1,060
  1,121
  1,185
  1,252
Depreciation, amort., depletion, $m
  25
  39
  41
  43
  45
  48
  50
  53
  55
  58
  61
  36
  39
  42
  46
  49
  53
  57
  61
  65
  69
  74
  78
  83
  88
  94
  99
  105
  111
  117
  124
Funds from operations, $m
  69
  124
  145
  167
  190
  216
  242
  270
  300
  331
  364
  390
  426
  462
  501
  541
  582
  625
  670
  717
  765
  815
  868
  922
  979
  1,038
  1,100
  1,165
  1,232
  1,302
  1,376
Change in working capital, $m
  -11
  17
  18
  20
  21
  23
  24
  25
  27
  28
  29
  31
  32
  33
  35
  36
  37
  39
  40
  42
  44
  45
  47
  49
  51
  53
  56
  58
  60
  63
  66
Cash from operations, $m
  80
  126
  126
  147
  169
  193
  218
  245
  273
  303
  334
  360
  394
  429
  466
  505
  545
  586
  630
  675
  721
  770
  821
  873
  928
  985
  1,045
  1,107
  1,172
  1,239
  1,310
Maintenance CAPEX, $m
  0
  -10
  -11
  -13
  -15
  -17
  -20
  -22
  -25
  -27
  -30
  -33
  -36
  -39
  -42
  -46
  -49
  -53
  -57
  -61
  -65
  -69
  -74
  -78
  -83
  -88
  -94
  -99
  -105
  -111
  -117
New CAPEX, $m
  -19
  -29
  -31
  -34
  -36
  -38
  -41
  -43
  -45
  -47
  -50
  -52
  -54
  -56
  -58
  -61
  -63
  -66
  -68
  -71
  -74
  -77
  -80
  -83
  -86
  -90
  -94
  -98
  -102
  -107
  -111
Cash from investing activities, $m
  -113
  -39
  -42
  -47
  -51
  -55
  -61
  -65
  -70
  -74
  -80
  -85
  -90
  -95
  -100
  -107
  -112
  -119
  -125
  -132
  -139
  -146
  -154
  -161
  -169
  -178
  -188
  -197
  -207
  -218
  -228
Free cash flow, $m
  -33
  87
  84
  100
  118
  137
  158
  180
  204
  229
  255
  275
  304
  334
  365
  398
  432
  468
  505
  543
  583
  624
  667
  712
  758
  807
  857
  910
  965
  1,022
  1,081
Issuance/(repayment) of debt, $m
  38
  41
  45
  48
  52
  55
  59
  62
  65
  68
  71
  74
  78
  81
  84
  87
  91
  94
  98
  102
  106
  110
  115
  119
  124
  129
  135
  141
  147
  153
  160
Issuance/(repurchase) of shares, $m
  -4
  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  
  35
  41
  45
  48
  52
  55
  59
  62
  65
  68
  71
  74
  78
  81
  84
  87
  91
  94
  98
  102
  106
  110
  115
  119
  124
  129
  135
  141
  147
  153
  160
Total cash flow (excl. dividends), $m
  2
  128
  128
  148
  170
  192
  216
  242
  269
  297
  326
  349
  381
  415
  449
  486
  523
  562
  603
  645
  689
  734
  782
  831
  883
  936
  992
  1,050
  1,111
  1,175
  1,241
Retained Cash Flow (-), $m
  -47
  -73
  -79
  -86
  -92
  -98
  -104
  -109
  -115
  -121
  -126
  -132
  -137
  -143
  -149
  -155
  -161
  -167
  -173
  -180
  -187
  -195
  -203
  -211
  -220
  -229
  -239
  -249
  -260
  -271
  -283
Prev. year cash balance distribution, $m
 
  28
  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
 
  83
  49
  63
  78
  94
  113
  132
  154
  176
  200
  218
  244
  272
  301
  331
  362
  395
  429
  465
  501
  539
  579
  620
  663
  707
  753
  801
  851
  904
  958
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
 
  80
  45
  55
  64
  73
  82
  89
  96
  101
  105
  103
  104
  103
  101
  97
  92
  86
  79
  72
  64
  56
  48
  41
  34
  28
  22
  17
  13
  10
  7
Current shareholders' claim on cash, %
  100
  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
  100.0

FINANCIAL RATIOS  of  Cantel Medical (CMD)

Valuation Ratios
P/E Ratio 53.2
Price to Sales 4.8
Price to Book 7
Price to Tangible Book
Price to Cash Flow 39.9
Price to Free Cash Flow 52.4
Growth Rates
Sales Growth Rate 17.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 46.2%
Cap. Spend. - 3 Yr. Gr. Rate 22.1%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 25.6%
Total Debt to Equity 25.6%
Interest Coverage 32
Management Effectiveness
Return On Assets 9.7%
Ret/ On Assets - 3 Yr. Avg. 9%
Return On Total Capital 11.4%
Ret/ On T. Cap. - 3 Yr. Avg. 10.5%
Return On Equity 13.9%
Return On Equity - 3 Yr. Avg. 13%
Asset Turnover 1
Profitability Ratios
Gross Margin 46.6%
Gross Margin - 3 Yr. Avg. 45.1%
EBITDA Margin 18.3%
EBITDA Margin - 3 Yr. Avg. 18.3%
Operating Margin 14.6%
Oper. Margin - 3 Yr. Avg. 14.4%
Pre-Tax Margin 14.1%
Pre-Tax Margin - 3 Yr. Avg. 13.9%
Net Profit Margin 9%
Net Profit Margin - 3 Yr. Avg. 8.8%
Effective Tax Rate 36.2%
Eff/ Tax Rate - 3 Yr. Avg. 36.9%
Payout Ratio 8.3%

CMD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CMD stock intrinsic value calculation we used $665 million for the last fiscal year's total revenue generated by Cantel Medical. The default revenue input number comes from 2016 income statement of Cantel 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 CMD stock valuation model: a) initial revenue growth rate of 17.1% 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 CMD is calculated based on our internal credit rating of Cantel 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 Cantel 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 CMD stock the variable cost ratio is equal to 82%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $24 million in the base year in the intrinsic value calculation for CMD 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 Cantel Medical.

Corporate tax rate of 27% is the nominal tax rate for Cantel 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 CMD 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 CMD are equal to 25.2%.

Life of production assets of 17.1 years is the average useful life of capital assets used in Cantel 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 CMD is equal to 14.9%. 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 - $454 million for Cantel 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 42.85 million for Cantel 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 Cantel Medical at the current share price and the inputted number of shares is $3.3 billion.


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COMPANY NEWS

▶ Cantel posts 2Q profit   [08:16AM  Associated Press]
▶ Cantel Medical Corp. Takes Its First Step Towards Doubling   [Dec-13-16 04:18PM  at Motley Fool]
▶ Cantel Medical Changes Ticker Symbol (CMD)   [Dec-05-16 10:56AM  at Investopedia]
Stock chart of CMD Financial statements of CMD Annual reports of CMD
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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