Intrinsic value of Capella Education - CPLA

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$89.35

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$89.35

 
Intrinsic value

$91.79

 
Up/down potential

+3%

 
Rating

hold

 
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 CPLA 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 1.0

 

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, %
  2.88
  4.70
  4.73
  4.76
  4.78
  4.80
  4.82
  4.84
  4.86
  4.87
  4.88
  4.90
  4.91
  4.92
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
  4.96
  4.97
  4.97
  4.97
  4.98
  4.98
  4.98
  4.98
  4.98
  4.99
Revenue, $m
  429
  449
  470
  493
  516
  541
  567
  595
  624
  654
  686
  719
  755
  792
  831
  872
  915
  960
  1,008
  1,058
  1,110
  1,165
  1,223
  1,284
  1,348
  1,415
  1,485
  1,559
  1,637
  1,718
  1,804
Variable operating expenses, $m
 
  373
  390
  409
  428
  449
  470
  493
  517
  542
  568
  593
  622
  653
  685
  719
  754
  792
  831
  872
  915
  961
  1,009
  1,059
  1,111
  1,167
  1,225
  1,286
  1,350
  1,417
  1,488
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
  361
  373
  390
  409
  428
  449
  470
  493
  517
  542
  568
  593
  622
  653
  685
  719
  754
  792
  831
  872
  915
  961
  1,009
  1,059
  1,111
  1,167
  1,225
  1,286
  1,350
  1,417
  1,488
Operating income, $m
  68
  76
  80
  84
  88
  93
  97
  102
  107
  112
  118
  126
  132
  139
  146
  153
  160
  168
  177
  185
  195
  204
  214
  225
  236
  248
  260
  273
  287
  301
  316
EBITDA, $m
  89
  83
  87
  91
  96
  100
  105
  110
  116
  121
  127
  133
  140
  147
  154
  162
  170
  178
  187
  196
  206
  216
  227
  238
  250
  262
  275
  289
  303
  319
  334
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  4
  5
  5
  6
  6
  6
  7
  7
Earnings before tax, $m
  68
  76
  80
  84
  88
  92
  97
  101
  106
  111
  117
  125
  131
  137
  144
  151
  158
  166
  174
  182
  191
  200
  210
  221
  232
  243
  255
  267
  281
  295
  309
Tax expense, $m
  26
  21
  22
  23
  24
  25
  26
  27
  29
  30
  32
  34
  35
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
  63
  66
  69
  72
  76
  80
  83
Net income, $m
  43
  56
  58
  61
  64
  67
  70
  74
  77
  81
  85
  91
  95
  100
  105
  110
  115
  121
  127
  133
  140
  146
  154
  161
  169
  177
  186
  195
  205
  215
  226

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  139
  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
  277
  144
  151
  159
  166
  174
  182
  191
  201
  210
  221
  231
  243
  255
  267
  280
  294
  309
  324
  340
  357
  375
  393
  413
  433
  455
  478
  501
  526
  553
  580
Adjusted assets (=assets-cash), $m
  138
  144
  151
  159
  166
  174
  182
  191
  201
  210
  221
  231
  243
  255
  267
  280
  294
  309
  324
  340
  357
  375
  393
  413
  433
  455
  478
  501
  526
  553
  580
Revenue / Adjusted assets
  3.109
  3.118
  3.113
  3.101
  3.108
  3.109
  3.115
  3.115
  3.104
  3.114
  3.104
  3.113
  3.107
  3.106
  3.112
  3.114
  3.112
  3.107
  3.111
  3.112
  3.109
  3.107
  3.112
  3.109
  3.113
  3.110
  3.107
  3.112
  3.112
  3.107
  3.110
Average production assets, $m
  22
  22
  24
  25
  26
  27
  28
  30
  31
  33
  34
  36
  38
  40
  42
  44
  46
  48
  50
  53
  56
  58
  61
  64
  67
  71
  74
  78
  82
  86
  90
Working capital, $m
  125
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -37
  -38
  -40
  -42
  -44
  -47
  -49
  -51
  -54
  -57
  -60
Total debt, $m
  0
  3
  7
  10
  14
  18
  22
  27
  31
  36
  41
  47
  52
  58
  65
  71
  78
  85
  93
  101
  110
  118
  128
  137
  148
  159
  170
  182
  194
  207
  221
Total liabilities, $m
  69
  72
  76
  79
  83
  87
  91
  96
  100
  105
  110
  116
  121
  127
  134
  140
  147
  154
  162
  170
  179
  187
  197
  206
  217
  228
  239
  251
  263
  276
  290
Total equity, $m
  208
  72
  76
  79
  83
  87
  91
  96
  100
  105
  110
  116
  121
  127
  134
  140
  147
  154
  162
  170
  179
  187
  197
  206
  217
  228
  239
  251
  263
  276
  290
Total liabilities and equity, $m
  277
  144
  152
  158
  166
  174
  182
  192
  200
  210
  220
  232
  242
  254
  268
  280
  294
  308
  324
  340
  358
  374
  394
  412
  434
  456
  478
  502
  526
  552
  580
Debt-to-equity ratio
  0.000
  0.040
  0.090
  0.130
  0.170
  0.210
  0.240
  0.280
  0.310
  0.340
  0.370
  0.400
  0.430
  0.460
  0.480
  0.510
  0.530
  0.550
  0.570
  0.590
  0.610
  0.630
  0.650
  0.670
  0.680
  0.700
  0.710
  0.720
  0.740
  0.750
  0.760
Adjusted equity ratio
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  43
  56
  58
  61
  64
  67
  70
  74
  77
  81
  85
  91
  95
  100
  105
  110
  115
  121
  127
  133
  140
  146
  154
  161
  169
  177
  186
  195
  205
  215
  226
Depreciation, amort., depletion, $m
  21
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  16
  16
  17
  18
Funds from operations, $m
  89
  63
  65
  68
  72
  75
  78
  82
  86
  90
  94
  98
  103
  108
  113
  119
  124
  131
  137
  144
  151
  158
  166
  174
  182
  191
  201
  211
  221
  232
  244
Change in working capital, $m
  7
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
Cash from operations, $m
  82
  85
  66
  69
  72
  76
  79
  83
  87
  91
  95
  99
  104
  109
  114
  120
  126
  132
  138
  145
  152
  160
  168
  176
  185
  194
  203
  213
  224
  235
  247
Maintenance CAPEX, $m
  0
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
New CAPEX, $m
  -21
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
Cash from investing activities, $m
  -39
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -14
  -14
  -15
  -15
  -16
  -16
  -18
  -19
  -20
  -20
  -21
Free cash flow, $m
  43
  80
  61
  63
  66
  69
  73
  76
  80
  83
  87
  91
  95
  100
  105
  110
  115
  121
  126
  133
  139
  146
  153
  161
  169
  177
  186
  195
  204
  214
  225
Issuance/(repayment) of debt, $m
  0
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
Issuance/(repurchase) of shares, $m
  -20
  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  
  -19
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
Total cash flow (excl. dividends), $m
  24
  83
  64
  67
  70
  73
  77
  80
  84
  88
  92
  96
  101
  106
  111
  116
  122
  128
  134
  141
  148
  155
  162
  170
  179
  188
  197
  207
  217
  228
  239
Retained Cash Flow (-), $m
  -10
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
Prev. year cash balance distribution, $m
 
  139
  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
 
  219
  61
  63
  66
  69
  73
  76
  80
  83
  87
  91
  95
  100
  105
  110
  115
  121
  126
  133
  139
  146
  153
  161
  169
  177
  186
  195
  204
  214
  225
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
 
  210
  55
  55
  55
  54
  53
  51
  50
  48
  46
  43
  41
  38
  35
  32
  29
  26
  23
  20
  18
  15
  13
  11
  9
  7
  5
  4
  3
  2
  2
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
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Capella Education Company, through its subsidiaries, provides online postsecondary education and job-ready skills development services in the United States. Its Post-Secondary segment offers various doctoral, master’s, and bachelor’s online programs for working adults in business and technology, education, nursing and health sciences, public service leadership, social and behavioral sciences, and undergraduate studies markets; and learning courses that are eligible for transfer into credit at approximately 2,000 colleges and universities. At December 31, 2016, it offered approximately 1,940 online courses and 53 academic programs with 153 specializations to approximately 38,000 learners. The company’s Job-Ready Skills segment provides online non-degree job-ready skills, training solutions, and services to individuals and corporate partners; software development program for women with placement and coaching services; and software coding education services. Capella Education Company also offers learner support services, which include academic services comprising new learner orientation, technical support, academic advisory and research, re-register reminder, writing, tutoring, and educational accommodation services, as well as operates an online portal, which provides academic and personal skills; administrative services, including online class registration and transcript requests; library services; financial aid counseling; and career counseling services. The company was founded in 1991 and is headquartered in Minneapolis, Minnesota.

FINANCIAL RATIOS  of  Capella Education (CPLA)

Valuation Ratios
P/E Ratio 24
Price to Sales 2.4
Price to Book 5
Price to Tangible Book
Price to Cash Flow 12.6
Price to Free Cash Flow 16.9
Growth Rates
Sales Growth Rate 2.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 2%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 16.3%
Ret/ On Assets - 3 Yr. Avg. 15.8%
Return On Total Capital 21.2%
Ret/ On T. Cap. - 3 Yr. Avg. 20.6%
Return On Equity 21.2%
Return On Equity - 3 Yr. Avg. 20.6%
Asset Turnover 1.6
Profitability Ratios
Gross Margin 56.6%
Gross Margin - 3 Yr. Avg. 56.4%
EBITDA Margin 20.7%
EBITDA Margin - 3 Yr. Avg. 21.8%
Operating Margin 15.9%
Oper. Margin - 3 Yr. Avg. 16.4%
Pre-Tax Margin 15.9%
Pre-Tax Margin - 3 Yr. Avg. 16.4%
Net Profit Margin 10%
Net Profit Margin - 3 Yr. Avg. 9.6%
Effective Tax Rate 38.2%
Eff/ Tax Rate - 3 Yr. Avg. 37.6%
Payout Ratio 41.9%

CPLA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CPLA stock intrinsic value calculation we used $429 million for the last fiscal year's total revenue generated by Capella Education. The default revenue input number comes from 2016 income statement of Capella 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 CPLA stock valuation model: a) initial revenue growth rate of 4.7% 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 CPLA is calculated based on our internal credit rating of Capella 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 Capella 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 CPLA stock the variable cost ratio is equal to 83%.

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 CPLA 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 Capella Education.

Corporate tax rate of 27% is the nominal tax rate for Capella 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 CPLA 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 CPLA are equal to 5%.

Life of production assets of 1.6 years is the average useful life of capital assets used in Capella 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 CPLA is equal to -3.3%. 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 - $208 million for Capella 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 11.503 million for Capella 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 Capella Education at the current share price and the inputted number of shares is $1.0 billion.


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COMPANY NEWS

▶ Company Profile for Capella University   [Feb-17-17 10:40AM  Business Wire]
▶ Is Capella Education Company (CPLA) A Good Stock To Buy?   [Dec-08-16 10:17AM  at Insider Monkey]
▶ Congress could undo Obama-era student loan relief   [Nov-17-16 03:26PM  Reuters]
▶ Capella Education Company Announces Quarterly Cash Dividend   [Aug-04-16 04:31PM  Business Wire]
Stock chart of CPLA Financial statements of CPLA
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