Intrinsic value of Foundation Medicine - FMI

Previous Close

$39.10

  Intrinsic Value

$1.15

stock screener

  Rating & Target

str. sell

-97%

  Value-price divergence*

-70%

Previous close

$39.10

 
Intrinsic value

$1.15

 
Up/down potential

-97%

 
Rating

str. sell

 
Value-price divergence*

-70%

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

We calculate the intrinsic value of FMI 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 1.4

 

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, %
  25.81
  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
  117
  119
  122
  125
  129
  133
  137
  142
  147
  152
  158
  164
  171
  178
  185
  193
  202
  211
  220
  230
  241
  252
  264
  276
  289
  303
  318
  333
  349
  366
  384
Variable operating expenses, $m
 
  235
  240
  246
  253
  261
  269
  278
  288
  299
  310
  323
  336
  350
  365
  380
  397
  415
  433
  453
  474
  496
  519
  543
  569
  596
  625
  655
  686
  720
  755
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
  231
  235
  240
  246
  253
  261
  269
  278
  288
  299
  310
  323
  336
  350
  365
  380
  397
  415
  433
  453
  474
  496
  519
  543
  569
  596
  625
  655
  686
  720
  755
Operating income, $m
  -114
  -115
  -118
  -121
  -124
  -128
  -132
  -137
  -142
  -147
  -153
  -159
  -165
  -172
  -179
  -187
  -195
  -204
  -213
  -223
  -233
  -244
  -255
  -267
  -280
  -293
  -307
  -322
  -337
  -354
  -371
EBITDA, $m
  -98
  -111
  -114
  -117
  -120
  -123
  -127
  -132
  -136
  -142
  -147
  -153
  -159
  -166
  -173
  -180
  -188
  -196
  -205
  -214
  -224
  -235
  -246
  -257
  -269
  -282
  -296
  -310
  -325
  -341
  -357
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
Earnings before tax, $m
  -113
  -115
  -118
  -121
  -124
  -128
  -133
  -137
  -142
  -147
  -153
  -159
  -166
  -173
  -180
  -188
  -196
  -205
  -214
  -224
  -234
  -245
  -257
  -269
  -282
  -295
  -310
  -325
  -340
  -357
  -374
Tax expense, $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
  0
Net income, $m
  -113
  -115
  -118
  -121
  -124
  -128
  -133
  -137
  -142
  -147
  -153
  -159
  -166
  -173
  -180
  -188
  -196
  -205
  -214
  -224
  -234
  -245
  -257
  -269
  -282
  -295
  -310
  -325
  -340
  -357
  -374

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  143
  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
  214
  72
  74
  76
  78
  80
  83
  86
  89
  92
  96
  100
  104
  108
  113
  117
  123
  128
  134
  140
  146
  153
  160
  168
  176
  184
  193
  202
  212
  222
  233
Adjusted assets (=assets-cash), $m
  71
  72
  74
  76
  78
  80
  83
  86
  89
  92
  96
  100
  104
  108
  113
  117
  123
  128
  134
  140
  146
  153
  160
  168
  176
  184
  193
  202
  212
  222
  233
Revenue / Adjusted assets
  1.648
  1.653
  1.649
  1.645
  1.654
  1.663
  1.651
  1.651
  1.652
  1.652
  1.646
  1.640
  1.644
  1.648
  1.637
  1.650
  1.642
  1.648
  1.642
  1.643
  1.651
  1.647
  1.650
  1.643
  1.642
  1.647
  1.648
  1.649
  1.646
  1.649
  1.648
Average production assets, $m
  42
  42
  43
  44
  46
  47
  49
  50
  52
  54
  56
  58
  61
  63
  66
  69
  72
  75
  78
  82
  86
  90
  94
  98
  103
  108
  113
  118
  124
  130
  136
Working capital, $m
  128
  -12
  -12
  -13
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -35
  -37
  -38
Total debt, $m
  0
  1
  2
  3
  5
  7
  8
  10
  12
  15
  17
  20
  23
  25
  29
  32
  36
  39
  43
  47
  52
  57
  62
  67
  72
  78
  84
  90
  97
  104
  112
Total liabilities, $m
  49
  50
  51
  52
  54
  56
  57
  59
  61
  64
  66
  69
  72
  74
  78
  81
  85
  88
  92
  96
  101
  106
  111
  116
  121
  127
  133
  139
  146
  153
  161
Total equity, $m
  165
  22
  23
  24
  24
  25
  26
  27
  28
  29
  30
  31
  32
  33
  35
  36
  38
  40
  41
  43
  45
  47
  50
  52
  54
  57
  60
  63
  66
  69
  72
Total liabilities and equity, $m
  214
  72
  74
  76
  78
  81
  83
  86
  89
  93
  96
  100
  104
  107
  113
  117
  123
  128
  133
  139
  146
  153
  161
  168
  175
  184
  193
  202
  212
  222
  233
Debt-to-equity ratio
  0.000
  0.040
  0.090
  0.150
  0.200
  0.260
  0.320
  0.390
  0.450
  0.510
  0.580
  0.640
  0.700
  0.760
  0.820
  0.880
  0.940
  0.990
  1.040
  1.100
  1.140
  1.190
  1.240
  1.280
  1.330
  1.370
  1.410
  1.440
  1.480
  1.510
  1.550
Adjusted equity ratio
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -113
  -115
  -118
  -121
  -124
  -128
  -133
  -137
  -142
  -147
  -153
  -159
  -166
  -173
  -180
  -188
  -196
  -205
  -214
  -224
  -234
  -245
  -257
  -269
  -282
  -295
  -310
  -325
  -340
  -357
  -374
Depreciation, amort., depletion, $m
  16
  4
  4
  4
  5
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
Funds from operations, $m
  -57
  -111
  -114
  -117
  -120
  -124
  -128
  -132
  -137
  -142
  -147
  -153
  -160
  -166
  -173
  -181
  -189
  -197
  -206
  -216
  -226
  -236
  -248
  -259
  -272
  -285
  -298
  -313
  -328
  -344
  -361
Change in working capital, $m
  10
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
Cash from operations, $m
  -67
  -111
  -113
  -116
  -120
  -123
  -127
  -132
  -136
  -141
  -147
  -153
  -159
  -166
  -173
  -180
  -188
  -197
  -206
  -215
  -225
  -235
  -246
  -258
  -270
  -283
  -297
  -311
  -326
  -342
  -359
Maintenance CAPEX, $m
  0
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
New CAPEX, $m
  -21
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
Cash from investing activities, $m
  13
  -5
  -5
  -5
  -5
  -6
  -7
  -7
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -10
  -12
  -12
  -13
  -13
  -13
  -15
  -15
  -16
  -16
  -18
  -18
  -19
Free cash flow, $m
  -54
  -116
  -119
  -122
  -125
  -129
  -133
  -138
  -143
  -149
  -154
  -161
  -167
  -174
  -182
  -190
  -198
  -207
  -216
  -226
  -237
  -248
  -260
  -272
  -285
  -298
  -313
  -328
  -344
  -361
  -378
Issuance/(repayment) of debt, $m
  0
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
Issuance/(repurchase) of shares, $m
  1
  116
  118
  122
  125
  129
  133
  138
  143
  148
  154
  160
  167
  174
  181
  189
  198
  207
  216
  226
  236
  248
  259
  271
  284
  298
  312
  328
  343
  360
  378
Cash from financing (excl. dividends), $m  
  0
  117
  119
  123
  126
  131
  135
  140
  145
  150
  156
  163
  170
  177
  184
  192
  202
  211
  220
  230
  240
  253
  264
  276
  289
  304
  318
  334
  350
  367
  385
Total cash flow (excl. dividends), $m
  -54
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
Retained Cash Flow (-), $m
  93
  -116
  -118
  -122
  -125
  -129
  -133
  -138
  -143
  -148
  -154
  -160
  -167
  -174
  -181
  -189
  -198
  -207
  -216
  -226
  -236
  -248
  -259
  -271
  -284
  -298
  -312
  -328
  -343
  -360
  -378
Prev. year cash balance distribution, $m
 
  143
  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
 
  28
  -117
  -120
  -124
  -128
  -132
  -136
  -141
  -146
  -152
  -158
  -164
  -171
  -179
  -186
  -194
  -203
  -212
  -222
  -232
  -243
  -255
  -267
  -279
  -293
  -307
  -322
  -337
  -354
  -371
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
 
  27
  -107
  -105
  -102
  -99
  -96
  -92
  -88
  -84
  -80
  -75
  -70
  -65
  -60
  -55
  -49
  -44
  -39
  -34
  -30
  -25
  -21
  -17
  -14
  -11
  -9
  -7
  -5
  -4
  -3
Current shareholders' claim on cash, %
  100
  61.8
  38.2
  23.6
  14.5
  8.9
  5.5
  3.4
  2.1
  1.3
  0.8
  0.5
  0.3
  0.2
  0.1
  0.1
  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

Foundation Medicine, Inc. provides various molecular information products in the United States. The company’s molecular information platform includes proprietary methods and algorithms to analyze specimens across various types of cancer, as well as for incorporating that information into clinical care; and offers genomic information about each patient’s individual cancer, enabling physicians to optimize treatments in clinical practice and biopharmaceutical companies to develop targeted oncology therapies. It provides clinical products, such as FoundationOne for solid tumors; and FoundationOne Heme for blood-based cancers, or hematologic malignancies, including leukemia, lymphoma, and myeloma, as well as sarcomas and pediatric cancers. The company also offers FoundationCORE, a knowledgebase to publish scientific and medical advances, and foster relationships throughout the oncology community. In addition, it has strategic collaboration agreements with WuXi PharmaTech Inc.; F. Hoffmann-La Roche Ltd.; Horizon Healthcare Services, Inc.; AstraZeneca PLC, and Clinical Outcomes Tracking and Analysis. The company was founded in 2009 and is headquartered in Cambridge, Massachusetts. Foundation Medicine, Inc. is a subsidiary of Roche Holdings, Inc.

FINANCIAL RATIOS  of  Foundation Medicine (FMI)

Valuation Ratios
P/E Ratio -12.2
Price to Sales 11.8
Price to Book 8.4
Price to Tangible Book
Price to Cash Flow -20.6
Price to Free Cash Flow -15.7
Growth Rates
Sales Growth Rate 25.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -16%
Cap. Spend. - 3 Yr. Gr. Rate 24.6%
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 -44.1%
Ret/ On Assets - 3 Yr. Avg. -42.2%
Return On Total Capital -53.4%
Ret/ On T. Cap. - 3 Yr. Avg. -51%
Return On Equity -53.4%
Return On Equity - 3 Yr. Avg. -51.2%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 51.3%
Gross Margin - 3 Yr. Avg. 55%
EBITDA Margin -82.9%
EBITDA Margin - 3 Yr. Avg. -80%
Operating Margin -97.4%
Oper. Margin - 3 Yr. Avg. -93.7%
Pre-Tax Margin -96.6%
Pre-Tax Margin - 3 Yr. Avg. -92.9%
Net Profit Margin -96.6%
Net Profit Margin - 3 Yr. Avg. -92.9%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 0%

FMI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FMI stock intrinsic value calculation we used $117 million for the last fiscal year's total revenue generated by Foundation Medicine. The default revenue input number comes from 2016 income statement of Foundation Medicine. 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 FMI 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 FMI is calculated based on our internal credit rating of Foundation Medicine, 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 Foundation Medicine.
    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 FMI stock the variable cost ratio is equal to 196.6%.

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 FMI 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 Foundation Medicine.

Corporate tax rate of 27% is the nominal tax rate for Foundation Medicine. 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 FMI 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 FMI are equal to 35.5%.

Life of production assets of 10 years is the average useful life of capital assets used in Foundation Medicine 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 FMI is equal to -10%. 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 - $165 million for Foundation Medicine - 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 35.965 million for Foundation Medicine 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 Foundation Medicine at the current share price and the inputted number of shares is $1.4 billion.

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COMPANY NEWS

▶ Foundation Medicine reports 2Q loss   [09:47PM  Associated Press]
▶ Mutual Funds Tilting Toward Tech, Health Care, Foreign Stocks   [02:40PM  Investor's Business Daily]
▶ ETF Winner of 1H17 and its Top 5 Stocks   [Jun-28-17 09:32AM  Zacks]
▶ Foundation Medicine reports 1Q loss   [May-09-17 05:12PM  Associated Press]
▶ Harry Boxers two infrastructure stocks to watch   [Apr-26-17 03:23PM  MarketWatch]
▶ Foundation Medicine reports 4Q loss   [04:12PM  Associated Press]
▶ [$$] Third Rock Ventures Adds Partner Focused on HR   [Jan-27-17 07:49PM  at The Wall Street Journal]
Stock chart of FMI Financial statements of FMI
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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