Intrinsic value of Globus Medical - GMED

Previous Close

$30.65

  Intrinsic Value

$18.38

stock screener

  Rating & Target

sell

-40%

Previous close

$30.65

 
Intrinsic value

$18.38

 
Up/down potential

-40%

 
Rating

sell

We calculate the intrinsic value of GMED 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 2013), $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 3.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2013(a)
   2014
   2015
   2016
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  12.44
  8.60
  8.24
  7.92
  7.62
  7.36
  7.13
  6.91
  6.72
  6.55
  6.39
  6.26
  6.13
  6.02
  5.92
  5.82
  5.74
  5.67
  5.60
  5.54
  5.49
  5.44
  5.39
  5.35
  5.32
  5.29
  5.26
  5.23
  5.21
  5.19
  5.17
Revenue, $m
  434
  471
  510
  551
  593
  636
  681
  729
  778
  828
  881
  937
  994
  1,054
  1,116
  1,181
  1,249
  1,320
  1,394
  1,471
  1,552
  1,636
  1,724
  1,817
  1,913
  2,014
  2,120
  2,231
  2,347
  2,469
  2,597
Variable operating expenses, $m
 
  331
  358
  387
  416
  446
  478
  511
  545
  581
  618
  655
  695
  736
  780
  825
  873
  922
  974
  1,028
  1,084
  1,143
  1,205
  1,269
  1,337
  1,408
  1,482
  1,559
  1,640
  1,726
  1,815
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
  333
  331
  358
  387
  416
  446
  478
  511
  545
  581
  618
  655
  695
  736
  780
  825
  873
  922
  974
  1,028
  1,084
  1,143
  1,205
  1,269
  1,337
  1,408
  1,482
  1,559
  1,640
  1,726
  1,815
Operating income, $m
  102
  140
  152
  164
  177
  190
  203
  218
  232
  248
  264
  282
  299
  317
  336
  356
  376
  397
  420
  443
  467
  493
  519
  547
  576
  607
  638
  672
  707
  744
  782
EBITDA, $m
  121
  159
  172
  186
  200
  215
  230
  246
  263
  280
  298
  316
  336
  356
  377
  399
  422
  446
  471
  497
  524
  552
  582
  613
  646
  680
  716
  753
  793
  834
  877
Interest expense (income), $m
  0
  0
  0
  1
  1
  1
  2
  2
  2
  3
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  13
  14
  14
  15
Earnings before tax, $m
  102
  140
  152
  163
  176
  189
  202
  216
  230
  245
  261
  279
  296
  313
  331
  351
  370
  391
  413
  436
  459
  484
  510
  537
  566
  595
  627
  659
  693
  729
  767
Tax expense, $m
  33
  38
  41
  44
  47
  51
  55
  58
  62
  66
  70
  75
  80
  85
  89
  95
  100
  106
  112
  118
  124
  131
  138
  145
  153
  161
  169
  178
  187
  197
  207
Net income, $m
  69
  102
  111
  119
  128
  138
  147
  157
  168
  179
  190
  203
  216
  229
  242
  256
  270
  286
  301
  318
  335
  353
  372
  392
  413
  435
  457
  481
  506
  532
  560

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  239
  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
  566
  355
  384
  415
  447
  479
  514
  549
  586
  624
  664
  706
  749
  794
  841
  890
  941
  995
  1,050
  1,108
  1,169
  1,233
  1,299
  1,369
  1,442
  1,518
  1,598
  1,681
  1,769
  1,861
  1,957
Adjusted assets (=assets-cash), $m
  327
  355
  384
  415
  447
  479
  514
  549
  586
  624
  664
  706
  749
  794
  841
  890
  941
  995
  1,050
  1,108
  1,169
  1,233
  1,299
  1,369
  1,442
  1,518
  1,598
  1,681
  1,769
  1,861
  1,957
Revenue / Adjusted assets
  1.327
  1.327
  1.328
  1.328
  1.327
  1.328
  1.325
  1.328
  1.328
  1.327
  1.327
  1.327
  1.327
  1.327
  1.327
  1.327
  1.327
  1.327
  1.328
  1.328
  1.328
  1.327
  1.327
  1.327
  1.327
  1.327
  1.327
  1.327
  1.327
  1.327
  1.327
Average production assets, $m
  83
  90
  97
  105
  113
  121
  129
  138
  148
  157
  167
  178
  189
  200
  212
  224
  237
  251
  265
  279
  295
  311
  328
  345
  363
  383
  403
  424
  446
  469
  493
Working capital, $m
  349
  119
  129
  139
  150
  161
  172
  184
  197
  210
  223
  237
  251
  267
  282
  299
  316
  334
  353
  372
  393
  414
  436
  460
  484
  510
  536
  564
  594
  625
  657
Total debt, $m
  0
  8
  16
  25
  34
  44
  53
  64
  74
  85
  97
  109
  121
  134
  147
  161
  176
  191
  207
  224
  242
  260
  279
  299
  320
  342
  365
  389
  414
  440
  468
Total liabilities, $m
  94
  102
  110
  119
  128
  138
  147
  158
  168
  179
  191
  203
  215
  228
  241
  255
  270
  285
  301
  318
  336
  354
  373
  393
  414
  436
  459
  483
  508
  534
  562
Total equity, $m
  472
  253
  274
  296
  318
  342
  366
  391
  418
  445
  474
  503
  534
  566
  600
  635
  671
  709
  749
  790
  834
  879
  926
  976
  1,028
  1,082
  1,139
  1,199
  1,261
  1,327
  1,395
Total liabilities and equity, $m
  566
  355
  384
  415
  446
  480
  513
  549
  586
  624
  665
  706
  749
  794
  841
  890
  941
  994
  1,050
  1,108
  1,170
  1,233
  1,299
  1,369
  1,442
  1,518
  1,598
  1,682
  1,769
  1,861
  1,957
Debt-to-equity ratio
  0.000
  0.030
  0.060
  0.080
  0.110
  0.130
  0.150
  0.160
  0.180
  0.190
  0.200
  0.220
  0.230
  0.240
  0.250
  0.250
  0.260
  0.270
  0.280
  0.280
  0.290
  0.300
  0.300
  0.310
  0.310
  0.320
  0.320
  0.320
  0.330
  0.330
  0.340
Adjusted equity ratio
  0.713
  0.713
  0.713
  0.713
  0.713
  0.713
  0.713
  0.713
  0.713
  0.713
  0.713
  0.713
  0.713
  0.713
  0.713
  0.713
  0.713
  0.713
  0.713
  0.713
  0.713
  0.713
  0.713
  0.713
  0.713
  0.713
  0.713
  0.713
  0.713
  0.713
  0.713

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  69
  102
  111
  119
  128
  138
  147
  157
  168
  179
  190
  203
  216
  229
  242
  256
  270
  286
  301
  318
  335
  353
  372
  392
  413
  435
  457
  481
  506
  532
  560
Depreciation, amort., depletion, $m
  19
  19
  20
  22
  23
  25
  27
  28
  30
  32
  34
  34
  36
  39
  41
  43
  46
  48
  51
  54
  57
  60
  63
  66
  70
  74
  77
  82
  86
  90
  95
Funds from operations, $m
  99
  121
  131
  141
  152
  163
  174
  186
  198
  211
  224
  238
  252
  267
  283
  299
  316
  334
  352
  372
  392
  413
  435
  459
  483
  508
  535
  563
  592
  622
  655
Change in working capital, $m
  6
  9
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  16
  17
  18
  19
  20
  20
  21
  22
  23
  24
  26
  27
  28
  29
  31
  32
Cash from operations, $m
  93
  112
  121
  131
  141
  152
  163
  174
  186
  198
  211
  224
  238
  252
  267
  283
  299
  316
  334
  352
  372
  392
  413
  435
  458
  483
  508
  535
  562
  592
  622
Maintenance CAPEX, $m
  0
  -16
  -17
  -19
  -20
  -22
  -23
  -25
  -27
  -28
  -30
  -32
  -34
  -36
  -39
  -41
  -43
  -46
  -48
  -51
  -54
  -57
  -60
  -63
  -66
  -70
  -74
  -77
  -82
  -86
  -90
New CAPEX, $m
  -24
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
Cash from investing activities, $m
  -227
  -23
  -24
  -27
  -28
  -30
  -32
  -34
  -36
  -38
  -40
  -42
  -45
  -47
  -51
  -53
  -56
  -59
  -62
  -66
  -69
  -73
  -77
  -81
  -84
  -89
  -94
  -98
  -104
  -109
  -114
Free cash flow, $m
  -134
  89
  97
  105
  113
  122
  131
  140
  150
  160
  171
  181
  192
  204
  217
  229
  243
  257
  271
  287
  303
  319
  337
  355
  374
  394
  414
  436
  459
  483
  508
Issuance/(repayment) of debt, $m
  0
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
Issuance/(repurchase) of shares, $m
  8
  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  
  11
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
Total cash flow (excl. dividends), $m
  -122
  97
  105
  113
  122
  131
  141
  150
  160
  171
  182
  193
  205
  217
  230
  244
  258
  272
  287
  303
  320
  337
  356
  375
  395
  415
  437
  460
  484
  509
  535
Retained Cash Flow (-), $m
  -85
  -20
  -21
  -22
  -23
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -32
  -33
  -35
  -36
  -38
  -40
  -41
  -43
  -45
  -47
  -50
  -52
  -54
  -57
  -60
  -62
  -65
  -69
Prev. year cash balance distribution, $m
 
  239
  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
 
  316
  84
  92
  100
  108
  116
  125
  134
  144
  154
  163
  174
  185
  197
  209
  221
  234
  248
  262
  277
  292
  308
  325
  343
  361
  380
  400
  422
  444
  467
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
 
  303
  77
  80
  82
  84
  84
  84
  84
  83
  80
  78
  74
  70
  66
  61
  56
  51
  46
  40
  35
  30
  26
  21
  17
  14
  11
  9
  7
  5
  4
Current shareholders' claim on cash, %
  100
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Globus Medical, Inc. is a medical device company. The Company is focused on developing products for patients with musculoskeletal disorders. It is focused on products to treat patients with spine disorders. The Company's products fall under categories, which include Innovative Fusion and Disruptive Technologies. The Innovative Fusion category products include fusion products to treat spinal disorders for the entire spine, and they can be used in various surgical approaches. The Disruptive Technologies category represents a shift in the treatment of spinal disorders by allowing for surgical procedures and the treatment of spinal disorders. QUARTEX is its Occipito-Cervico-Thoracic (OCT) stabilization system. QUARTEX features a threading locking cap to enable low-torque. The Company's portfolio of approved and pipeline Disruptive Technology products includes products that allow for minimally invasive surgical (MIS) techniques. _tck('aft');

FINANCIAL RATIOS  of  Globus Medical (GMED)

Valuation Ratios
P/E Ratio 41.5
Price to Sales 6.6
Price to Book 6.1
Price to Tangible Book
Price to Cash Flow 30.8
Price to Free Cash Flow 41.5
Growth Rates
Sales Growth Rate 12.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -4%
Cap. Spend. - 3 Yr. Gr. Rate 14.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0.5
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 13.6%
Ret/ On Assets - 3 Yr. Avg. 17.7%
Return On Total Capital 16.1%
Ret/ On T. Cap. - 3 Yr. Avg. 20.6%
Return On Equity 16.1%
Return On Equity - 3 Yr. Avg. 20.7%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 77.2%
Gross Margin - 3 Yr. Avg. 79.1%
EBITDA Margin 27.9%
EBITDA Margin - 3 Yr. Avg. 32.3%
Operating Margin 23.3%
Oper. Margin - 3 Yr. Avg. 27.5%
Pre-Tax Margin 23.5%
Pre-Tax Margin - 3 Yr. Avg. 27.5%
Net Profit Margin 15.9%
Net Profit Margin - 3 Yr. Avg. 17.8%
Effective Tax Rate 32.4%
Eff/ Tax Rate - 3 Yr. Avg. 35%
Payout Ratio 0%

GMED stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GMED stock intrinsic value calculation we used $434 million for the last fiscal year's total revenue generated by Globus Medical. The default revenue input number comes from 2013 income statement of Globus 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 GMED stock valuation model: a) initial revenue growth rate of 8.6% 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 GMED is calculated based on our internal credit rating of Globus 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 Globus 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 GMED stock the variable cost ratio is equal to 70.3%.

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 GMED 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 Globus Medical.

Corporate tax rate of 27% is the nominal tax rate for Globus 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 GMED 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 GMED are equal to 19%.

Life of production assets of 5.2 years is the average useful life of capital assets used in Globus 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 GMED is equal to 25.3%. 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 - $472 million for Globus 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 96.248 million for Globus 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 Globus Medical at the current share price and the inputted number of shares is $3.0 billion.

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COMPANY NEWS

▶ Globus Medical Announces First Case in Orthopedic Trauma   [Sep-14-17 04:15PM  GlobeNewswire]
▶ Globus Medical Appoints David M. Demski as CEO   [Aug-29-17 04:15PM  GlobeNewswire]
▶ Globus Medical beats Street 2Q forecasts   [Aug-04-17 03:17AM  Associated Press]
▶ Globus Medical Reports Second Quarter 2017 Results   [Aug-02-17 04:30PM  GlobeNewswire]
▶ ETFs with exposure to Globus Medical, Inc. : June 2, 2017   [Jun-02-17 02:09PM  Capital Cube]
▶ Globus Medical beats 1Q profit forecasts   [May-03-17 07:57PM  Associated Press]
▶ Globus Medical misses 4Q profit forecasts   [05:01PM  Associated Press]
▶ Globus Medical Announces CE Mark for Excelsius GPS   [Jan-05-17 04:15PM  GlobeNewswire]
▶ Globus Medical Launches QUARTEX OCT Stabilization System   [Oct-25-16 04:15PM  GlobeNewswire]
Financial statements of GMED
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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