Intrinsic value of HMS Holdings - HMSY

Previous Close

$17.30

  Intrinsic Value

$14.52

stock screener

  Rating & Target

hold

-16%

Previous close

$17.30

 
Intrinsic value

$14.52

 
Up/down potential

-16%

 
Rating

hold

We calculate the intrinsic value of HMSY 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  3.38
  2.40
  2.66
  2.89
  3.10
  3.29
  3.46
  3.62
  3.76
  3.88
  3.99
  4.09
  4.18
  4.27
  4.34
  4.41
  4.46
  4.52
  4.57
  4.61
  4.65
  4.68
  4.72
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
Revenue, $m
  490
  502
  515
  530
  546
  564
  584
  605
  628
  652
  678
  706
  736
  767
  800
  836
  873
  912
  954
  998
  1,044
  1,093
  1,145
  1,199
  1,256
  1,316
  1,380
  1,446
  1,517
  1,590
  1,668
Variable operating expenses, $m
 
  156
  159
  162
  166
  170
  175
  180
  185
  191
  197
  166
  172
  180
  188
  196
  205
  214
  224
  234
  245
  256
  268
  281
  295
  309
  323
  339
  356
  373
  391
Fixed operating expenses, $m
 
  293
  300
  308
  316
  324
  332
  340
  348
  357
  366
  375
  385
  394
  404
  414
  425
  435
  446
  457
  469
  480
  492
  505
  517
  530
  543
  557
  571
  585
  600
Total operating expenses, $m
  432
  449
  459
  470
  482
  494
  507
  520
  533
  548
  563
  541
  557
  574
  592
  610
  630
  649
  670
  691
  714
  736
  760
  786
  812
  839
  866
  896
  927
  958
  991
Operating income, $m
  58
  53
  56
  60
  65
  71
  77
  85
  94
  104
  115
  165
  179
  193
  209
  225
  244
  263
  284
  307
  331
  357
  384
  413
  444
  478
  513
  550
  590
  632
  677
EBITDA, $m
  103
  104
  107
  111
  116
  123
  130
  139
  148
  159
  170
  183
  197
  212
  229
  246
  266
  286
  308
  332
  357
  384
  413
  443
  476
  511
  548
  587
  628
  672
  719
Interest expense (income), $m
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  28
  29
  31
  33
Earnings before tax, $m
  49
  46
  49
  52
  57
  62
  69
  76
  85
  94
  104
  154
  167
  180
  195
  211
  229
  247
  267
  289
  312
  337
  363
  391
  421
  453
  487
  523
  561
  601
  644
Tax expense, $m
  11
  12
  13
  14
  15
  17
  19
  21
  23
  25
  28
  42
  45
  49
  53
  57
  62
  67
  72
  78
  84
  91
  98
  106
  114
  122
  131
  141
  151
  162
  174
Net income, $m
  38
  34
  36
  38
  41
  45
  50
  56
  62
  69
  76
  112
  122
  132
  142
  154
  167
  181
  195
  211
  228
  246
  265
  285
  307
  331
  355
  382
  409
  439
  470

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  176
  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
  883
  724
  743
  765
  789
  815
  843
  873
  906
  941
  979
  1,019
  1,061
  1,107
  1,155
  1,206
  1,259
  1,316
  1,377
  1,440
  1,507
  1,577
  1,652
  1,730
  1,813
  1,900
  1,991
  2,087
  2,188
  2,295
  2,407
Adjusted assets (=assets-cash), $m
  707
  724
  743
  765
  789
  815
  843
  873
  906
  941
  979
  1,019
  1,061
  1,107
  1,155
  1,206
  1,259
  1,316
  1,377
  1,440
  1,507
  1,577
  1,652
  1,730
  1,813
  1,900
  1,991
  2,087
  2,188
  2,295
  2,407
Revenue / Adjusted assets
  0.693
  0.693
  0.693
  0.693
  0.692
  0.692
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.694
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
Average production assets, $m
  141
  144
  148
  152
  157
  162
  168
  174
  180
  187
  195
  203
  211
  220
  230
  240
  251
  262
  274
  286
  300
  314
  329
  344
  361
  378
  396
  415
  435
  456
  479
Working capital, $m
  278
  104
  107
  110
  114
  117
  121
  126
  131
  136
  141
  147
  153
  160
  166
  174
  182
  190
  198
  208
  217
  227
  238
  249
  261
  274
  287
  301
  315
  331
  347
Total debt, $m
  198
  206
  215
  225
  236
  247
  261
  275
  290
  306
  323
  342
  361
  382
  404
  428
  453
  479
  507
  536
  567
  599
  634
  670
  708
  748
  790
  834
  881
  930
  982
Total liabilities, $m
  326
  334
  343
  353
  364
  375
  389
  403
  418
  434
  451
  470
  489
  510
  532
  556
  581
  607
  635
  664
  695
  727
  762
  798
  836
  876
  918
  962
  1,009
  1,058
  1,110
Total equity, $m
  557
  390
  401
  412
  425
  439
  454
  471
  488
  507
  528
  549
  572
  597
  622
  650
  679
  710
  742
  776
  812
  850
  890
  933
  977
  1,024
  1,073
  1,125
  1,180
  1,237
  1,297
Total liabilities and equity, $m
  883
  724
  744
  765
  789
  814
  843
  874
  906
  941
  979
  1,019
  1,061
  1,107
  1,154
  1,206
  1,260
  1,317
  1,377
  1,440
  1,507
  1,577
  1,652
  1,731
  1,813
  1,900
  1,991
  2,087
  2,189
  2,295
  2,407
Debt-to-equity ratio
  0.355
  0.530
  0.540
  0.540
  0.550
  0.560
  0.570
  0.580
  0.590
  0.600
  0.610
  0.620
  0.630
  0.640
  0.650
  0.660
  0.670
  0.670
  0.680
  0.690
  0.700
  0.700
  0.710
  0.720
  0.720
  0.730
  0.740
  0.740
  0.750
  0.750
  0.760
Adjusted equity ratio
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  38
  34
  36
  38
  41
  45
  50
  56
  62
  69
  76
  112
  122
  132
  142
  154
  167
  181
  195
  211
  228
  246
  265
  285
  307
  331
  355
  382
  409
  439
  470
Depreciation, amort., depletion, $m
  45
  51
  51
  51
  52
  52
  53
  53
  54
  54
  55
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  33
  35
  36
  38
  40
  42
Funds from operations, $m
  88
  84
  86
  89
  93
  98
  103
  109
  116
  123
  131
  130
  140
  151
  163
  175
  189
  204
  219
  236
  254
  273
  294
  316
  339
  364
  390
  418
  448
  479
  512
Change in working capital, $m
  -1
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
Cash from operations, $m
  89
  82
  84
  86
  90
  94
  99
  104
  111
  118
  126
  124
  134
  144
  156
  168
  181
  195
  211
  227
  244
  263
  283
  304
  327
  351
  377
  404
  433
  464
  496
Maintenance CAPEX, $m
  0
  -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
  -36
  -38
  -40
New CAPEX, $m
  -21
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
Cash from investing activities, $m
  -39
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -23
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -35
  -37
  -38
  -40
  -43
  -45
  -46
  -49
  -51
  -54
  -56
  -59
  -62
Free cash flow, $m
  50
  66
  67
  69
  72
  75
  79
  84
  89
  95
  102
  99
  108
  117
  127
  138
  149
  162
  176
  190
  206
  223
  241
  260
  280
  302
  325
  350
  376
  404
  434
Issuance/(repayment) of debt, $m
  0
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  23
  25
  26
  28
  29
  31
  33
  34
  36
  38
  40
  42
  44
  47
  49
  52
Issuance/(repurchase) of shares, $m
  -18
  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
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  23
  25
  26
  28
  29
  31
  33
  34
  36
  38
  40
  42
  44
  47
  49
  52
Total cash flow (excl. dividends), $m
  30
  74
  76
  79
  83
  87
  92
  98
  104
  111
  119
  118
  127
  138
  149
  161
  174
  188
  203
  220
  237
  255
  275
  296
  318
  342
  368
  395
  423
  453
  486
Retained Cash Flow (-), $m
  -32
  -9
  -10
  -12
  -13
  -14
  -15
  -16
  -18
  -19
  -20
  -22
  -23
  -24
  -26
  -27
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -47
  -49
  -52
  -55
  -57
  -60
Prev. year cash balance distribution, $m
 
  176
  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
 
  240
  66
  67
  70
  73
  77
  81
  87
  92
  99
  96
  104
  113
  123
  134
  145
  158
  171
  185
  201
  217
  235
  254
  274
  295
  318
  343
  369
  396
  425
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
 
  231
  60
  59
  58
  57
  56
  55
  54
  53
  52
  46
  45
  43
  41
  39
  37
  34
  31
  29
  26
  22
  19
  17
  14
  11
  9
  7
  6
  4
  3
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
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HMS Holdings Corp. is a holding company. The Company, through its subsidiaries, operates in the United States healthcare insurance benefit cost containment marketplace. It provides coordination of benefits services to government, and private healthcare payers and sponsors. Its payment integrity services ensure that healthcare claims billed are accurate and appropriate. It offers services to state Medicaid agencies, government health agencies and health plans, including Medicaid managed care, Medicare Advantage and group and individual health lines of business; government and private employers; and other healthcare payers and sponsors, including child support agencies. It serves approximately 45 state Medicaid programs and the District of Columbia, and government health agencies, including Centers for Medicare & Medicaid Services (CMS) and the Veterans Health Administration (VHA). It also provides services to approximately 250 health plans and supports their multiple lines of business.

FINANCIAL RATIOS  of  HMS Holdings (HMSY)

Valuation Ratios
P/E Ratio 38
Price to Sales 2.9
Price to Book 2.6
Price to Tangible Book
Price to Cash Flow 16.2
Price to Free Cash Flow 21.3
Growth Rates
Sales Growth Rate 3.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 75%
Cap. Spend. - 3 Yr. Gr. Rate -4.2%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 35.5%
Total Debt to Equity 35.5%
Interest Coverage 9
Management Effectiveness
Return On Assets 4.9%
Ret/ On Assets - 3 Yr. Avg. 3.4%
Return On Total Capital 5.1%
Ret/ On T. Cap. - 3 Yr. Avg. 3.5%
Return On Equity 7%
Return On Equity - 3 Yr. Avg. 4.8%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 30%
Gross Margin - 3 Yr. Avg. 27.7%
EBITDA Margin 20.4%
EBITDA Margin - 3 Yr. Avg. 19.9%
Operating Margin 11.8%
Oper. Margin - 3 Yr. Avg. 9.8%
Pre-Tax Margin 10%
Pre-Tax Margin - 3 Yr. Avg. 8.1%
Net Profit Margin 7.8%
Net Profit Margin - 3 Yr. Avg. 5.4%
Effective Tax Rate 22.4%
Eff/ Tax Rate - 3 Yr. Avg. 35.4%
Payout Ratio 0%

HMSY stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HMSY stock intrinsic value calculation we used $490 million for the last fiscal year's total revenue generated by HMS Holdings. The default revenue input number comes from 2016 income statement of HMS Holdings. 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 HMSY stock valuation model: a) initial revenue growth rate of 2.4% 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 HMSY is calculated based on our internal credit rating of HMS Holdings, 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 HMS Holdings.
    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 HMSY stock the variable cost ratio is equal to 31.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $286 million in the base year in the intrinsic value calculation for HMSY 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 HMS Holdings.

Corporate tax rate of 27% is the nominal tax rate for HMS Holdings. 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 HMSY 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 HMSY are equal to 28.7%.

Life of production assets of 11.4 years is the average useful life of capital assets used in HMS Holdings 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 HMSY is equal to 20.8%. 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 - $557 million for HMS Holdings - 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 84.366 million for HMS Holdings 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 HMS Holdings at the current share price and the inputted number of shares is $1.5 billion.

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COMPANY NEWS

▶ HMS Shares Downgraded Following Q3 Report   [Nov-20-17 04:27PM  Benzinga]
▶ HMS Holdings misses Street 3Q forecasts   [Nov-06-17 05:38AM  Associated Press]
▶ Is It Too Late To Buy HMS Holdings Corp (HMSY)?   [Sep-20-17 09:21PM  Simply Wall St.]
▶ HMS Holdings misses Street 2Q forecasts   [Aug-04-17 09:08PM  Associated Press]
▶ ETFs with exposure to HMS Holdings Corp. : July 24, 2017   [Jul-24-17 04:28PM  Capital Cube]
▶ ETFs with exposure to HMS Holdings Corp. : July 14, 2017   [Jul-14-17 02:52PM  Capital Cube]
▶ ETFs with exposure to HMS Holdings Corp. : June 28, 2017   [Jun-28-17 02:52PM  Capital Cube]
▶ ETFs with exposure to HMS Holdings Corp. : June 13, 2017   [Jun-13-17 12:36PM  Capital Cube]
▶ HMS Releases New Version of Care Management Platform   [Jun-07-17 07:00AM  GlobeNewswire]
▶ HMS Holdings misses Street 1Q forecasts   [06:08AM  Associated Press]
Financial statements of HMSY
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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