Intrinsic value of Emergent Biosolutions - EBS

Previous Close

$38.26

  Intrinsic Value

$42.32

stock screener

  Rating & Target

hold

+11%

Previous close

$38.26

 
Intrinsic value

$42.32

 
Up/down potential

+11%

 
Rating

hold

We calculate the intrinsic value of EBS 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 1.6

 

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, %
  0.00
  11.00
  10.40
  9.86
  9.37
  8.94
  8.54
  8.19
  7.87
  7.58
  7.32
  7.09
  6.88
  6.69
  6.53
  6.37
  6.24
  6.11
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.31
  5.28
Revenue, $m
  489
  543
  599
  658
  720
  784
  851
  921
  994
  1,069
  1,147
  1,229
  1,313
  1,401
  1,492
  1,588
  1,687
  1,790
  1,897
  2,009
  2,126
  2,248
  2,375
  2,507
  2,646
  2,791
  2,943
  3,101
  3,267
  3,441
  3,622
Variable operating expenses, $m
 
  386
  426
  467
  511
  556
  603
  652
  703
  756
  811
  864
  924
  986
  1,050
  1,117
  1,187
  1,259
  1,335
  1,414
  1,496
  1,581
  1,671
  1,764
  1,862
  1,964
  2,071
  2,182
  2,299
  2,421
  2,549
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
  383
  386
  426
  467
  511
  556
  603
  652
  703
  756
  811
  864
  924
  986
  1,050
  1,117
  1,187
  1,259
  1,335
  1,414
  1,496
  1,581
  1,671
  1,764
  1,862
  1,964
  2,071
  2,182
  2,299
  2,421
  2,549
Operating income, $m
  106
  157
  174
  191
  209
  228
  248
  269
  290
  313
  336
  364
  389
  415
  442
  471
  500
  530
  562
  595
  630
  666
  704
  743
  784
  827
  872
  919
  968
  1,020
  1,074
EBITDA, $m
  144
  199
  220
  242
  264
  288
  312
  338
  365
  392
  421
  451
  482
  514
  548
  583
  619
  657
  696
  737
  780
  825
  871
  920
  971
  1,024
  1,080
  1,138
  1,199
  1,262
  1,329
Interest expense (income), $m
  8
  9
  10
  11
  13
  15
  16
  18
  20
  21
  23
  25
  27
  30
  32
  34
  36
  39
  42
  44
  47
  50
  53
  56
  60
  63
  67
  71
  75
  79
  83
Earnings before tax, $m
  99
  148
  163
  180
  196
  214
  232
  251
  271
  291
  313
  339
  362
  386
  411
  436
  463
  491
  521
  551
  583
  616
  651
  687
  725
  764
  805
  848
  894
  941
  990
Tax expense, $m
  36
  40
  44
  48
  53
  58
  63
  68
  73
  79
  84
  91
  98
  104
  111
  118
  125
  133
  141
  149
  157
  166
  176
  185
  196
  206
  217
  229
  241
  254
  267
Net income, $m
  52
  108
  119
  131
  143
  156
  169
  183
  198
  213
  228
  247
  264
  282
  300
  319
  338
  359
  380
  402
  426
  450
  475
  501
  529
  558
  588
  619
  652
  687
  723

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  272
  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
  970
  774
  855
  939
  1,027
  1,119
  1,215
  1,314
  1,417
  1,525
  1,637
  1,753
  1,873
  1,999
  2,129
  2,265
  2,406
  2,553
  2,706
  2,866
  3,032
  3,206
  3,388
  3,577
  3,775
  3,982
  4,198
  4,424
  4,661
  4,908
  5,168
Adjusted assets (=assets-cash), $m
  698
  774
  855
  939
  1,027
  1,119
  1,215
  1,314
  1,417
  1,525
  1,637
  1,753
  1,873
  1,999
  2,129
  2,265
  2,406
  2,553
  2,706
  2,866
  3,032
  3,206
  3,388
  3,577
  3,775
  3,982
  4,198
  4,424
  4,661
  4,908
  5,168
Revenue / Adjusted assets
  0.701
  0.702
  0.701
  0.701
  0.701
  0.701
  0.700
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
Average production assets, $m
  390
  433
  478
  525
  574
  625
  679
  734
  792
  852
  914
  979
  1,047
  1,117
  1,190
  1,265
  1,344
  1,426
  1,512
  1,601
  1,694
  1,791
  1,893
  1,998
  2,109
  2,225
  2,345
  2,472
  2,604
  2,742
  2,887
Working capital, $m
  404
  169
  186
  205
  224
  244
  265
  286
  309
  332
  357
  382
  408
  436
  464
  494
  525
  557
  590
  625
  661
  699
  739
  780
  823
  868
  915
  964
  1,016
  1,070
  1,127
Total debt, $m
  268
  287
  327
  370
  415
  461
  510
  560
  613
  667
  724
  783
  844
  907
  973
  1,042
  1,114
  1,188
  1,266
  1,347
  1,431
  1,520
  1,611
  1,708
  1,808
  1,913
  2,022
  2,137
  2,257
  2,383
  2,514
Total liabilities, $m
  374
  393
  433
  476
  521
  567
  616
  666
  719
  773
  830
  889
  950
  1,013
  1,079
  1,148
  1,220
  1,294
  1,372
  1,453
  1,537
  1,626
  1,717
  1,814
  1,914
  2,019
  2,128
  2,243
  2,363
  2,489
  2,620
Total equity, $m
  596
  382
  421
  463
  506
  552
  599
  648
  699
  752
  807
  864
  924
  985
  1,050
  1,117
  1,186
  1,259
  1,334
  1,413
  1,495
  1,581
  1,670
  1,763
  1,861
  1,963
  2,070
  2,181
  2,298
  2,420
  2,548
Total liabilities and equity, $m
  970
  775
  854
  939
  1,027
  1,119
  1,215
  1,314
  1,418
  1,525
  1,637
  1,753
  1,874
  1,998
  2,129
  2,265
  2,406
  2,553
  2,706
  2,866
  3,032
  3,207
  3,387
  3,577
  3,775
  3,982
  4,198
  4,424
  4,661
  4,909
  5,168
Debt-to-equity ratio
  0.450
  0.750
  0.780
  0.800
  0.820
  0.840
  0.850
  0.860
  0.880
  0.890
  0.900
  0.910
  0.910
  0.920
  0.930
  0.930
  0.940
  0.940
  0.950
  0.950
  0.960
  0.960
  0.960
  0.970
  0.970
  0.970
  0.980
  0.980
  0.980
  0.980
  0.990
Adjusted equity ratio
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  52
  108
  119
  131
  143
  156
  169
  183
  198
  213
  228
  247
  264
  282
  300
  319
  338
  359
  380
  402
  426
  450
  475
  501
  529
  558
  588
  619
  652
  687
  723
Depreciation, amort., depletion, $m
  38
  42
  46
  51
  55
  59
  64
  69
  74
  79
  85
  87
  93
  99
  105
  112
  119
  126
  134
  142
  150
  159
  167
  177
  187
  197
  208
  219
  230
  243
  255
Funds from operations, $m
  8
  150
  166
  182
  198
  216
  234
  252
  272
  292
  313
  334
  357
  380
  405
  431
  457
  485
  514
  544
  575
  608
  642
  678
  716
  755
  795
  838
  883
  929
  978
Change in working capital, $m
  -45
  17
  18
  18
  19
  20
  21
  22
  23
  23
  24
  25
  26
  27
  28
  30
  31
  32
  33
  35
  36
  38
  40
  41
  43
  45
  47
  49
  52
  54
  57
Cash from operations, $m
  53
  134
  148
  163
  179
  196
  213
  231
  249
  269
  289
  309
  330
  353
  377
  401
  426
  453
  480
  509
  539
  570
  603
  637
  672
  709
  748
  789
  831
  875
  922
Maintenance CAPEX, $m
  0
  -34
  -38
  -42
  -46
  -51
  -55
  -60
  -65
  -70
  -75
  -81
  -87
  -93
  -99
  -105
  -112
  -119
  -126
  -134
  -142
  -150
  -159
  -167
  -177
  -187
  -197
  -208
  -219
  -230
  -243
New CAPEX, $m
  -76
  -43
  -45
  -47
  -49
  -51
  -53
  -56
  -58
  -60
  -62
  -65
  -67
  -70
  -73
  -76
  -79
  -82
  -86
  -89
  -93
  -97
  -101
  -106
  -111
  -116
  -121
  -126
  -132
  -138
  -145
Cash from investing activities, $m
  -76
  -77
  -83
  -89
  -95
  -102
  -108
  -116
  -123
  -130
  -137
  -146
  -154
  -163
  -172
  -181
  -191
  -201
  -212
  -223
  -235
  -247
  -260
  -273
  -288
  -303
  -318
  -334
  -351
  -368
  -388
Free cash flow, $m
  -23
  56
  65
  74
  83
  93
  104
  115
  127
  139
  151
  163
  176
  190
  205
  220
  236
  252
  269
  286
  304
  323
  343
  364
  385
  407
  431
  455
  480
  507
  534
Issuance/(repayment) of debt, $m
  0
  39
  41
  43
  45
  47
  48
  50
  52
  54
  57
  59
  61
  64
  66
  69
  72
  75
  78
  81
  84
  88
  92
  96
  100
  105
  110
  115
  120
  126
  131
Issuance/(repurchase) of shares, $m
  17
  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
  39
  41
  43
  45
  47
  48
  50
  52
  54
  57
  59
  61
  64
  66
  69
  72
  75
  78
  81
  84
  88
  92
  96
  100
  105
  110
  115
  120
  126
  131
Total cash flow (excl. dividends), $m
  -41
  95
  106
  117
  128
  140
  152
  165
  179
  193
  208
  222
  238
  254
  271
  289
  307
  326
  346
  367
  389
  411
  435
  460
  485
  512
  540
  569
  600
  632
  666
Retained Cash Flow (-), $m
  64
  -38
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -59
  -62
  -64
  -67
  -70
  -72
  -76
  -79
  -82
  -86
  -89
  -93
  -98
  -102
  -107
  -111
  -117
  -122
  -128
Prev. year cash balance distribution, $m
 
  252
  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
 
  309
  66
  75
  85
  95
  105
  116
  128
  140
  153
  165
  178
  192
  207
  222
  238
  254
  271
  288
  307
  326
  346
  366
  388
  410
  434
  458
  483
  510
  538
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
 
  296
  60
  65
  70
  73
  76
  79
  80
  80
  80
  78
  76
  73
  69
  65
  60
  55
  50
  44
  39
  34
  29
  24
  20
  16
  13
  10
  7
  6
  4
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

Emergent BioSolutions Inc. is a life sciences company. The Company focuses on protecting and enhancing life by providing specialty products for civilian and military populations that address accidental, intentional and naturally emerging public health threats. It focuses on developing, manufacturing and commercializing medical countermeasures that address public health threats (PHTs). The PHTs operates through two categories: Chemical, Biological, Radiological and Nuclear, as well as explosive-related threats and emerging infectious diseases. It operates through four business units: Vaccines and Anti-infectives; Antibody Therapeutics; Devices, and Contract Manufacturing. Vaccines and Anti-infectives business unit consists of BioThrax, which is for the general use prophylaxis and post-exposure prophylaxis of anthrax disease. Devices business unit consists of marketed products, such as Reactive Skin Decontamination Lotion Kit (RSDL) and Trobigard (atropine sulfate, obidoxime chloride).

FINANCIAL RATIOS  of  Emergent Biosolutions (EBS)

Valuation Ratios
P/E Ratio 29.9
Price to Sales 3.2
Price to Book 2.6
Price to Tangible Book
Price to Cash Flow 29.3
Price to Free Cash Flow -67.5
Growth Rates
Sales Growth Rate 0%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 68.9%
Cap. Spend. - 3 Yr. Gr. Rate 12.6%
Financial Strength
Quick Ratio 14
Current Ratio 0
LT Debt to Equity 41.6%
Total Debt to Equity 45%
Interest Coverage 13
Management Effectiveness
Return On Assets 5.7%
Ret/ On Assets - 3 Yr. Avg. 5.9%
Return On Total Capital 5.9%
Ret/ On T. Cap. - 3 Yr. Avg. 6.2%
Return On Equity 8.3%
Return On Equity - 3 Yr. Avg. 8.6%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 73.2%
Gross Margin - 3 Yr. Avg. 75.4%
EBITDA Margin 29.7%
EBITDA Margin - 3 Yr. Avg. 32%
Operating Margin 21.7%
Oper. Margin - 3 Yr. Avg. 24.2%
Pre-Tax Margin 20.2%
Pre-Tax Margin - 3 Yr. Avg. 22.9%
Net Profit Margin 10.6%
Net Profit Margin - 3 Yr. Avg. 10.9%
Effective Tax Rate 36.4%
Eff/ Tax Rate - 3 Yr. Avg. 35.1%
Payout Ratio 0%

EBS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the EBS stock intrinsic value calculation we used $489 million for the last fiscal year's total revenue generated by Emergent Biosolutions. The default revenue input number comes from 2016 income statement of Emergent Biosolutions. 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 EBS stock valuation model: a) initial revenue growth rate of 11% 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 EBS is calculated based on our internal credit rating of Emergent Biosolutions, 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 Emergent Biosolutions.
    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 EBS stock the variable cost ratio is equal to 71.2%.

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 EBS 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 Emergent Biosolutions.

Corporate tax rate of 27% is the nominal tax rate for Emergent Biosolutions. 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 EBS 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 EBS are equal to 79.7%.

Life of production assets of 11.3 years is the average useful life of capital assets used in Emergent Biosolutions 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 EBS is equal to 31.1%. 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 - $596 million for Emergent Biosolutions - 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 41.153 million for Emergent Biosolutions 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 Emergent Biosolutions at the current share price and the inputted number of shares is $1.6 billion.

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COMPANY NEWS

▶ Emergent Biosolutions beats 3Q profit forecasts   [Nov-06-17 05:38AM  Associated Press]
▶ Why Emergent BioSolutions Inc. Jumped Higher Today   [Nov-03-17 01:33PM  Motley Fool]
▶ Emergent Biosolutions Inc Diversifies Its Revenue   [Aug-07-17 03:43PM  Motley Fool]
▶ Emergent Biosolutions misses 2Q profit forecasts   [Aug-05-17 01:10AM  Associated Press]
▶ Emergent acquires Sanofi smallpox vaccine in deal worth up to $125 million   [Jul-14-17 01:50PM  American City Business Journals]
▶ Emergent Biosolutions beats 1Q profit forecasts   [May-04-17 07:10PM  Associated Press]
▶ Emergent BioSolutions gets $100 million anthrax contract from feds   [05:40AM  American City Business Journals]
▶ Local drug company stocks react to Trump's proposed cuts to NIH, FDA   [05:50PM  American City Business Journals]
▶ Emergent BioSolutions Inc Sets its Goal   [Feb-24-17 06:31PM  Motley Fool]
▶ Emergent BioSolutions Inc Sets its Goal   [06:31PM  at Motley Fool]
Financial statements of EBS
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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