Intrinsic value of DepoMed - DEPO

Previous Close

$6.19

  Intrinsic Value

$1.01

stock screener

  Rating & Target

str. sell

-84%

  Value-price divergence*

-28%

Previous close

$6.19

 
Intrinsic value

$1.01

 
Up/down potential

-84%

 
Rating

str. sell

 
Value-price divergence*

-28%

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

We calculate the intrinsic value of DEPO 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 0.4

 

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, %
  32.94
  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
  456
  465
  476
  488
  502
  517
  534
  552
  572
  593
  615
  640
  666
  693
  723
  754
  787
  822
  859
  898
  939
  983
  1,029
  1,077
  1,128
  1,182
  1,238
  1,298
  1,361
  1,426
  1,496
Variable operating expenses, $m
 
  156
  160
  164
  169
  174
  179
  185
  192
  199
  207
  215
  224
  233
  243
  253
  264
  276
  289
  302
  316
  330
  346
  362
  379
  397
  416
  436
  457
  479
  503
Fixed operating expenses, $m
 
  292
  299
  307
  315
  322
  331
  339
  347
  356
  365
  374
  383
  393
  403
  413
  423
  434
  445
  456
  467
  479
  491
  503
  515
  528
  542
  555
  569
  583
  598
Total operating expenses, $m
  431
  448
  459
  471
  484
  496
  510
  524
  539
  555
  572
  589
  607
  626
  646
  666
  687
  710
  734
  758
  783
  809
  837
  865
  894
  925
  958
  991
  1,026
  1,062
  1,101
Operating income, $m
  25
  17
  17
  17
  19
  21
  24
  28
  32
  38
  44
  51
  59
  68
  77
  88
  100
  112
  126
  141
  157
  174
  192
  212
  234
  256
  281
  307
  334
  364
  395
EBITDA, $m
  134
  128
  130
  134
  139
  144
  151
  160
  169
  179
  191
  204
  218
  233
  250
  268
  288
  309
  331
  355
  381
  409
  438
  470
  503
  539
  577
  617
  660
  705
  753
Interest expense (income), $m
  71
  67
  66
  68
  70
  73
  76
  79
  83
  86
  90
  95
  99
  104
  109
  115
  121
  127
  134
  141
  148
  156
  165
  173
  182
  192
  202
  213
  225
  236
  249
Earnings before tax, $m
  -65
  -50
  -49
  -51
  -52
  -52
  -52
  -51
  -50
  -49
  -46
  -44
  -40
  -37
  -32
  -27
  -21
  -15
  -8
  0
  8
  18
  28
  39
  51
  64
  78
  94
  110
  128
  146
Tax expense, $m
  24
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  2
  5
  8
  11
  14
  17
  21
  25
  30
  34
  40
Net income, $m
  -89
  -50
  -49
  -51
  -52
  -52
  -52
  -51
  -50
  -49
  -46
  -44
  -40
  -37
  -32
  -27
  -21
  -15
  -8
  0
  6
  13
  20
  29
  37
  47
  57
  68
  80
  93
  107

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  177
  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
  1,225
  1,069
  1,094
  1,122
  1,154
  1,188
  1,227
  1,269
  1,314
  1,363
  1,415
  1,471
  1,531
  1,594
  1,662
  1,733
  1,809
  1,890
  1,975
  2,065
  2,159
  2,259
  2,365
  2,476
  2,594
  2,717
  2,847
  2,984
  3,128
  3,279
  3,439
Adjusted assets (=assets-cash), $m
  1,048
  1,069
  1,094
  1,122
  1,154
  1,188
  1,227
  1,269
  1,314
  1,363
  1,415
  1,471
  1,531
  1,594
  1,662
  1,733
  1,809
  1,890
  1,975
  2,065
  2,159
  2,259
  2,365
  2,476
  2,594
  2,717
  2,847
  2,984
  3,128
  3,279
  3,439
Revenue / Adjusted assets
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
Average production assets, $m
  971
  990
  1,013
  1,039
  1,068
  1,100
  1,136
  1,174
  1,216
  1,261
  1,310
  1,362
  1,417
  1,476
  1,538
  1,604
  1,675
  1,749
  1,828
  1,911
  1,999
  2,092
  2,189
  2,292
  2,401
  2,515
  2,635
  2,762
  2,895
  3,036
  3,183
Working capital, $m
  79
  -100
  -102
  -105
  -108
  -111
  -115
  -119
  -123
  -127
  -132
  -138
  -143
  -149
  -155
  -162
  -169
  -177
  -185
  -193
  -202
  -211
  -221
  -232
  -243
  -254
  -266
  -279
  -293
  -307
  -322
Total debt, $m
  729
  717
  739
  765
  793
  825
  859
  897
  937
  981
  1,028
  1,079
  1,132
  1,190
  1,250
  1,315
  1,383
  1,456
  1,532
  1,613
  1,698
  1,789
  1,884
  1,984
  2,089
  2,200
  2,317
  2,440
  2,570
  2,706
  2,850
Total liabilities, $m
  975
  962
  984
  1,010
  1,038
  1,070
  1,104
  1,142
  1,182
  1,226
  1,273
  1,324
  1,377
  1,435
  1,495
  1,560
  1,628
  1,701
  1,777
  1,858
  1,943
  2,034
  2,129
  2,229
  2,334
  2,445
  2,562
  2,685
  2,815
  2,951
  3,095
Total equity, $m
  251
  107
  109
  112
  115
  119
  123
  127
  131
  136
  141
  147
  153
  159
  166
  173
  181
  189
  197
  206
  216
  226
  237
  248
  259
  272
  285
  298
  313
  328
  344
Total liabilities and equity, $m
  1,226
  1,069
  1,093
  1,122
  1,153
  1,189
  1,227
  1,269
  1,313
  1,362
  1,414
  1,471
  1,530
  1,594
  1,661
  1,733
  1,809
  1,890
  1,974
  2,064
  2,159
  2,260
  2,366
  2,477
  2,593
  2,717
  2,847
  2,983
  3,128
  3,279
  3,439
Debt-to-equity ratio
  2.904
  6.710
  6.760
  6.820
  6.880
  6.940
  7.000
  7.070
  7.140
  7.200
  7.270
  7.330
  7.400
  7.460
  7.530
  7.590
  7.650
  7.700
  7.760
  7.810
  7.870
  7.920
  7.960
  8.010
  8.060
  8.100
  8.140
  8.180
  8.220
  8.250
  8.290
Adjusted equity ratio
  0.071
  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
  -89
  -50
  -49
  -51
  -52
  -52
  -52
  -51
  -50
  -49
  -46
  -44
  -40
  -37
  -32
  -27
  -21
  -15
  -8
  0
  6
  13
  20
  29
  37
  47
  57
  68
  80
  93
  107
Depreciation, amort., depletion, $m
  109
  111
  114
  117
  120
  124
  128
  132
  137
  142
  147
  153
  159
  166
  173
  180
  188
  197
  205
  215
  225
  235
  246
  258
  270
  283
  296
  310
  325
  341
  358
Funds from operations, $m
  52
  61
  64
  66
  68
  71
  76
  81
  86
  93
  101
  109
  119
  129
  141
  153
  167
  181
  197
  214
  231
  248
  266
  286
  307
  329
  353
  379
  406
  434
  465
Change in working capital, $m
  -14
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -13
  -14
  -15
Cash from operations, $m
  66
  63
  67
  68
  71
  75
  79
  84
  91
  98
  106
  114
  124
  135
  147
  160
  174
  189
  205
  223
  240
  257
  276
  296
  318
  341
  365
  391
  419
  448
  479
Maintenance CAPEX, $m
  0
  -109
  -111
  -114
  -117
  -120
  -124
  -128
  -132
  -137
  -142
  -147
  -153
  -159
  -166
  -173
  -180
  -188
  -197
  -205
  -215
  -225
  -235
  -246
  -258
  -270
  -283
  -296
  -310
  -325
  -341
New CAPEX, $m
  -3
  -19
  -23
  -26
  -29
  -32
  -36
  -39
  -42
  -45
  -48
  -52
  -55
  -59
  -63
  -66
  -70
  -74
  -79
  -83
  -88
  -93
  -98
  -103
  -109
  -114
  -120
  -127
  -133
  -140
  -147
Cash from investing activities, $m
  46
  -128
  -134
  -140
  -146
  -152
  -160
  -167
  -174
  -182
  -190
  -199
  -208
  -218
  -229
  -239
  -250
  -262
  -276
  -288
  -303
  -318
  -333
  -349
  -367
  -384
  -403
  -423
  -443
  -465
  -488
Free cash flow, $m
  112
  -66
  -67
  -71
  -75
  -78
  -80
  -82
  -83
  -84
  -85
  -84
  -84
  -83
  -81
  -79
  -77
  -74
  -70
  -66
  -63
  -60
  -56
  -53
  -48
  -43
  -37
  -31
  -25
  -17
  -9
Issuance/(repayment) of debt, $m
  -100
  -12
  22
  25
  28
  31
  35
  38
  41
  44
  47
  50
  54
  57
  61
  65
  68
  72
  77
  81
  85
  90
  95
  100
  106
  111
  117
  123
  130
  136
  143
Issuance/(repurchase) of shares, $m
  10
  83
  52
  54
  55
  56
  56
  56
  55
  53
  52
  49
  46
  43
  39
  34
  29
  23
  17
  9
  3
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -94
  71
  74
  79
  83
  87
  91
  94
  96
  97
  99
  99
  100
  100
  100
  99
  97
  95
  94
  90
  88
  90
  95
  100
  106
  111
  117
  123
  130
  136
  143
Total cash flow (excl. dividends), $m
  17
  6
  7
  8
  9
  10
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  21
  22
  23
  24
  26
  30
  39
  48
  57
  68
  80
  92
  105
  119
  134
Retained Cash Flow (-), $m
  64
  -83
  -52
  -54
  -55
  -56
  -56
  -56
  -55
  -53
  -52
  -49
  -46
  -43
  -39
  -34
  -29
  -23
  -17
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
Prev. year cash balance distribution, $m
 
  177
  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
 
  100
  -45
  -46
  -46
  -46
  -45
  -44
  -42
  -40
  -37
  -34
  -30
  -26
  -21
  -15
  -8
  -1
  7
  15
  16
  20
  28
  37
  46
  56
  67
  78
  91
  104
  118
Discount rate, %
 
  9.00
  9.45
  9.92
  10.42
  10.94
  11.49
  12.06
  12.66
  13.30
  13.96
  14.66
  15.39
  16.16
  16.97
  17.82
  18.71
  19.65
  20.63
  21.66
  22.74
  23.88
  25.07
  26.33
  27.64
  29.03
  30.48
  32.00
  33.60
  35.28
  37.05
PV of cash for distribution, $m
 
  92
  -38
  -35
  -31
  -27
  -24
  -20
  -16
  -13
  -10
  -8
  -5
  -4
  -2
  -1
  -1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  57.6
  43.7
  33.1
  25.1
  19.0
  14.6
  11.2
  8.8
  6.9
  5.5
  4.5
  3.7
  3.2
  2.7
  2.4
  2.2
  2.0
  1.9
  1.8
  1.8
  1.8
  1.8
  1.8
  1.8
  1.8
  1.8
  1.8
  1.8
  1.8
  1.8

Depomed, Inc. is a specialty pharmaceutical company. The Company focuses on pain and other central nervous system (CNS) conditions. Its products include NUCYNTA ER (tapentadol extended release tablets), NUCYNTA IR (NUCYNTA) (tapentadol), Gralise (gabapentin), CAMBIA (diclofenac potassium for oral solution), Zipsor (diclofenac potassium) and Lazanda (fentanyl). Its NUCYNTA ER (tapentadol extended release tablets) is a product for the management of pain severe enough to require daily long term opioid treatment, including neuropathic pain associated with diabetic peripheral neuropathy in adults, and its NUCYNTA (tapentadol) is a product for the management of moderate to severe acute pain in adults. Its Gralise (gabapentin) is a once-daily product for the management of postherpetic neuralgia. Its CAMBIA (diclofenac potassium for oral solution) is a product for the acute treatment of migraine attacks.

FINANCIAL RATIOS  of  DepoMed (DEPO)

Valuation Ratios
P/E Ratio -4.3
Price to Sales 0.8
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 5.8
Price to Free Cash Flow 6.1
Growth Rates
Sales Growth Rate 32.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 50%
Cap. Spend. - 3 Yr. Gr. Rate 8.4%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 290.4%
Total Debt to Equity 290.4%
Interest Coverage 0
Management Effectiveness
Return On Assets 0.6%
Ret/ On Assets - 3 Yr. Avg. 5.8%
Return On Total Capital -8.4%
Ret/ On T. Cap. - 3 Yr. Avg. 5.9%
Return On Equity -31.4%
Return On Equity - 3 Yr. Avg. -0.4%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 80.7%
Gross Margin - 3 Yr. Avg. 85.7%
EBITDA Margin 25.2%
EBITDA Margin - 3 Yr. Avg. 27.9%
Operating Margin 5.5%
Oper. Margin - 3 Yr. Avg. 17.1%
Pre-Tax Margin -14.3%
Pre-Tax Margin - 3 Yr. Avg. 1.5%
Net Profit Margin -19.5%
Net Profit Margin - 3 Yr. Avg. -2.6%
Effective Tax Rate -36.9%
Eff/ Tax Rate - 3 Yr. Avg. 13.1%
Payout Ratio 0%

DEPO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DEPO stock intrinsic value calculation we used $456 million for the last fiscal year's total revenue generated by DepoMed. The default revenue input number comes from 2016 income statement of DepoMed. 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 DEPO 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 9%, whose default value for DEPO is calculated based on our internal credit rating of DepoMed, 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 DepoMed.
    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 DEPO stock the variable cost ratio is equal to 33.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $285 million in the base year in the intrinsic value calculation for DEPO 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 9.2% for DepoMed.

Corporate tax rate of 27% is the nominal tax rate for DepoMed. 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 DEPO 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 DEPO are equal to 212.8%.

Life of production assets of 8.9 years is the average useful life of capital assets used in DepoMed 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 DEPO is equal to -21.5%. 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 - $251 million for DepoMed - 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 61.972 million for DepoMed 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 DepoMed at the current share price and the inputted number of shares is $0.4 billion.

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Financial statements of DEPO
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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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