Intrinsic value of HMS Holdings - HMSY

Previous Close

$19.11

  Intrinsic Value

$32.28

stock screener

  Rating & Target

str. buy

+69%

  Value-price divergence*

+103%

Previous close

$19.11

 
Intrinsic value

$32.28

 
Up/down potential

+69%

 
Rating

str. buy

 
Value-price divergence*

+103%

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

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

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, %
  3.38
  9.00
  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
Revenue, $m
  490
  534
  580
  628
  678
  729
  783
  839
  897
  957
  1,020
  1,085
  1,153
  1,223
  1,297
  1,374
  1,454
  1,537
  1,624
  1,715
  1,810
  1,909
  2,013
  2,122
  2,235
  2,354
  2,479
  2,609
  2,746
  2,889
  3,039
Variable operating expenses, $m
 
  163
  174
  185
  197
  209
  222
  235
  248
  262
  277
  254
  270
  287
  304
  322
  341
  360
  381
  402
  424
  448
  472
  497
  524
  552
  581
  612
  644
  677
  712
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
  456
  474
  493
  513
  533
  554
  575
  596
  619
  643
  629
  655
  681
  708
  736
  766
  795
  827
  859
  893
  928
  964
  1,002
  1,041
  1,082
  1,124
  1,169
  1,215
  1,262
  1,312
Operating income, $m
  58
  78
  106
  135
  165
  197
  230
  264
  300
  337
  376
  455
  498
  542
  589
  637
  688
  741
  797
  856
  917
  981
  1,049
  1,120
  1,194
  1,272
  1,354
  1,440
  1,531
  1,626
  1,726
EBITDA, $m
  103
  129
  158
  188
  220
  253
  287
  323
  361
  399
  440
  483
  527
  573
  621
  672
  725
  780
  838
  899
  963
  1,029
  1,100
  1,173
  1,250
  1,331
  1,417
  1,506
  1,600
  1,699
  1,803
Interest expense (income), $m
  6
  7
  8
  9
  10
  11
  12
  14
  15
  16
  18
  19
  21
  22
  24
  26
  28
  29
  31
  33
  35
  38
  40
  42
  45
  48
  50
  53
  56
  59
  63
Earnings before tax, $m
  49
  71
  98
  126
  155
  185
  217
  250
  285
  321
  359
  436
  477
  520
  565
  612
  661
  712
  766
  822
  882
  944
  1,009
  1,077
  1,149
  1,225
  1,304
  1,387
  1,475
  1,567
  1,664
Tax expense, $m
  11
  19
  26
  34
  42
  50
  59
  68
  77
  87
  97
  118
  129
  140
  152
  165
  178
  192
  207
  222
  238
  255
  272
  291
  310
  331
  352
  375
  398
  423
  449
Net income, $m
  38
  52
  71
  92
  113
  135
  159
  183
  208
  234
  262
  318
  348
  380
  412
  446
  482
  520
  559
  600
  644
  689
  737
  786
  839
  894
  952
  1,013
  1,077
  1,144
  1,214

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
  771
  837
  906
  978
  1,052
  1,130
  1,210
  1,294
  1,381
  1,471
  1,565
  1,663
  1,765
  1,871
  1,982
  2,098
  2,218
  2,344
  2,475
  2,612
  2,755
  2,905
  3,062
  3,226
  3,397
  3,577
  3,765
  3,962
  4,168
  4,385
Adjusted assets (=assets-cash), $m
  707
  771
  837
  906
  978
  1,052
  1,130
  1,210
  1,294
  1,381
  1,471
  1,565
  1,663
  1,765
  1,871
  1,982
  2,098
  2,218
  2,344
  2,475
  2,612
  2,755
  2,905
  3,062
  3,226
  3,397
  3,577
  3,765
  3,962
  4,168
  4,385
Revenue / Adjusted assets
  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
  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
  153
  166
  180
  194
  209
  225
  241
  257
  275
  293
  311
  331
  351
  372
  394
  417
  441
  466
  492
  520
  548
  578
  609
  642
  676
  711
  749
  788
  829
  872
Working capital, $m
  278
  111
  121
  131
  141
  152
  163
  174
  186
  199
  212
  226
  240
  254
  270
  286
  302
  320
  338
  357
  377
  397
  419
  441
  465
  490
  516
  543
  571
  601
  632
Total debt, $m
  198
  227
  258
  290
  323
  357
  393
  430
  468
  509
  550
  594
  639
  686
  735
  786
  839
  894
  952
  1,013
  1,076
  1,142
  1,211
  1,284
  1,359
  1,438
  1,521
  1,608
  1,699
  1,794
  1,893
Total liabilities, $m
  326
  355
  386
  418
  451
  485
  521
  558
  596
  637
  678
  722
  767
  814
  863
  914
  967
  1,022
  1,080
  1,141
  1,204
  1,270
  1,339
  1,412
  1,487
  1,566
  1,649
  1,736
  1,827
  1,922
  2,021
Total equity, $m
  557
  415
  451
  488
  527
  567
  609
  652
  697
  744
  793
  844
  896
  951
  1,009
  1,068
  1,131
  1,195
  1,263
  1,334
  1,408
  1,485
  1,566
  1,650
  1,739
  1,831
  1,928
  2,029
  2,136
  2,247
  2,363
Total liabilities and equity, $m
  883
  770
  837
  906
  978
  1,052
  1,130
  1,210
  1,293
  1,381
  1,471
  1,566
  1,663
  1,765
  1,872
  1,982
  2,098
  2,217
  2,343
  2,475
  2,612
  2,755
  2,905
  3,062
  3,226
  3,397
  3,577
  3,765
  3,963
  4,169
  4,384
Debt-to-equity ratio
  0.355
  0.550
  0.570
  0.590
  0.610
  0.630
  0.650
  0.660
  0.670
  0.680
  0.690
  0.700
  0.710
  0.720
  0.730
  0.740
  0.740
  0.750
  0.750
  0.760
  0.760
  0.770
  0.770
  0.780
  0.780
  0.790
  0.790
  0.790
  0.800
  0.800
  0.800
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
  52
  71
  92
  113
  135
  159
  183
  208
  234
  262
  318
  348
  380
  412
  446
  482
  520
  559
  600
  644
  689
  737
  786
  839
  894
  952
  1,013
  1,077
  1,144
  1,214
Depreciation, amort., depletion, $m
  45
  51
  53
  54
  55
  56
  58
  59
  61
  62
  64
  27
  29
  31
  33
  35
  37
  39
  41
  43
  46
  48
  51
  53
  56
  59
  62
  66
  69
  73
  76
Funds from operations, $m
  88
  103
  124
  146
  168
  192
  216
  242
  269
  296
  325
  346
  377
  410
  445
  481
  519
  559
  600
  644
  689
  737
  787
  840
  895
  953
  1,014
  1,078
  1,146
  1,216
  1,291
Change in working capital, $m
  -1
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
Cash from operations, $m
  89
  94
  114
  136
  158
  181
  205
  230
  256
  284
  312
  332
  363
  396
  430
  465
  502
  541
  582
  625
  669
  716
  766
  817
  872
  928
  988
  1,051
  1,117
  1,187
  1,260
Maintenance CAPEX, $m
  0
  -12
  -13
  -15
  -16
  -17
  -18
  -20
  -21
  -23
  -24
  -26
  -27
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -46
  -48
  -51
  -53
  -56
  -59
  -62
  -66
  -69
  -73
New CAPEX, $m
  -21
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -34
  -36
  -37
  -39
  -41
  -43
Cash from investing activities, $m
  -39
  -25
  -26
  -29
  -30
  -32
  -33
  -36
  -38
  -40
  -42
  -45
  -46
  -49
  -52
  -55
  -58
  -61
  -64
  -67
  -70
  -75
  -78
  -82
  -86
  -90
  -95
  -99
  -105
  -110
  -116
Free cash flow, $m
  50
  69
  88
  107
  128
  149
  171
  195
  219
  244
  270
  288
  316
  346
  378
  410
  445
  481
  518
  558
  599
  642
  688
  735
  785
  838
  893
  951
  1,012
  1,077
  1,144
Issuance/(repayment) of debt, $m
  0
  29
  31
  32
  33
  34
  36
  37
  39
  40
  42
  43
  45
  47
  49
  51
  53
  56
  58
  61
  63
  66
  69
  72
  76
  79
  83
  87
  91
  95
  100
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
  29
  31
  32
  33
  34
  36
  37
  39
  40
  42
  43
  45
  47
  49
  51
  53
  56
  58
  61
  63
  66
  69
  72
  76
  79
  83
  87
  91
  95
  100
Total cash flow (excl. dividends), $m
  30
  98
  118
  139
  161
  183
  207
  232
  257
  284
  312
  331
  361
  393
  427
  461
  498
  536
  576
  618
  662
  708
  757
  808
  861
  917
  976
  1,038
  1,103
  1,172
  1,244
Retained Cash Flow (-), $m
  -32
  -34
  -36
  -37
  -39
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -60
  -62
  -65
  -68
  -71
  -74
  -77
  -81
  -84
  -88
  -92
  -97
  -101
  -106
  -111
  -117
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
  83
  102
  122
  143
  165
  188
  212
  237
  263
  280
  309
  338
  369
  402
  436
  471
  508
  547
  588
  631
  676
  723
  773
  825
  879
  937
  997
  1,060
  1,127
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
 
  230
  76
  89
  101
  111
  120
  127
  133
  136
  138
  133
  132
  129
  124
  118
  111
  103
  94
  84
  75
  65
  56
  47
  39
  32
  26
  20
  15
  12
  8
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

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 42
Price to Sales 3.3
Price to Book 2.9
Price to Tangible Book
Price to Cash Flow 17.9
Price to Free Cash Flow 23.5
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 9% 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 83.665 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 $1.6 billion.

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COMPANY NEWS

▶ 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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