Intrinsic value of Independence Holding - IHC

Previous Close

$27.75

  Intrinsic Value

$31.11

stock screener

  Rating & Target

hold

+12%

Previous close

$27.75

 
Intrinsic value

$31.11

 
Up/down potential

+12%

 
Rating

hold

Our model is not good at valuating stocks of financial companies, such as IHC.

We calculate the intrinsic value of IHC 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 0.4

 

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, %
  -40.12
  5.10
  5.09
  5.08
  5.07
  5.07
  5.06
  5.05
  5.05
  5.04
  5.04
  5.03
  5.03
  5.03
  5.03
  5.02
  5.02
  5.02
  5.02
  5.02
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.00
Revenue, $m
  0
  328
  345
  362
  380
  400
  420
  441
  463
  487
  511
  537
  564
  593
  622
  654
  686
  721
  757
  795
  835
  877
  921
  967
  1,015
  1,066
  1,119
  1,175
  1,234
  1,296
  1,361
Variable operating expenses, $m
 
  298
  313
  329
  345
  363
  381
  400
  420
  441
  463
  482
  506
  531
  558
  586
  615
  646
  679
  713
  748
  786
  825
  867
  910
  956
  1,003
  1,054
  1,106
  1,162
  1,220
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
  279
  298
  313
  329
  345
  363
  381
  400
  420
  441
  463
  482
  506
  531
  558
  586
  615
  646
  679
  713
  748
  786
  825
  867
  910
  956
  1,003
  1,054
  1,106
  1,162
  1,220
Operating income, $m
  34
  30
  31
  33
  35
  37
  39
  41
  44
  46
  49
  56
  58
  61
  64
  68
  71
  75
  78
  82
  86
  91
  95
  100
  105
  110
  116
  122
  128
  134
  141
EBITDA, $m
  36
  34
  36
  38
  40
  42
  44
  46
  48
  51
  53
  56
  59
  62
  65
  68
  72
  75
  79
  83
  87
  91
  96
  101
  106
  111
  117
  123
  129
  135
  142
Interest expense (income), $m
  2
  0
  3
  7
  10
  14
  18
  23
  27
  32
  36
  42
  47
  53
  58
  65
  71
  78
  85
  93
  101
  109
  118
  127
  136
  146
  157
  168
  180
  192
  205
Earnings before tax, $m
  32
  30
  28
  26
  25
  23
  21
  19
  17
  15
  12
  14
  11
  9
  6
  3
  0
  -3
  -7
  -10
  -14
  -18
  -22
  -27
  -31
  -36
  -41
  -46
  -52
  -58
  -64
Tax expense, $m
  9
  8
  8
  7
  7
  6
  6
  5
  5
  4
  3
  4
  3
  2
  2
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  123
  22
  20
  19
  18
  17
  15
  14
  12
  11
  9
  10
  8
  6
  4
  2
  0
  -3
  -7
  -10
  -14
  -18
  -22
  -27
  -31
  -36
  -41
  -46
  -52
  -58
  -64

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
Total assets, $m
  1,134
  1,192
  1,253
  1,317
  1,384
  1,454
  1,527
  1,604
  1,685
  1,770
  1,860
  1,953
  2,051
  2,155
  2,263
  2,377
  2,496
  2,621
  2,753
  2,891
  3,036
  3,188
  3,347
  3,515
  3,691
  3,876
  4,070
  4,274
  4,488
  4,713
  4,948
Adjusted assets (=assets-cash), $m
  1,134
  1,192
  1,253
  1,317
  1,384
  1,454
  1,527
  1,604
  1,685
  1,770
  1,860
  1,953
  2,051
  2,155
  2,263
  2,377
  2,496
  2,621
  2,753
  2,891
  3,036
  3,188
  3,347
  3,515
  3,691
  3,876
  4,070
  4,274
  4,488
  4,713
  4,948
Revenue / Adjusted assets
  0.000
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
Average production assets, $m
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  18
  19
  20
  21
  22
  24
  25
  26
  27
  29
Working capital, $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
Total debt, $m
  0
  36
  74
  113
  154
  197
  242
  290
  339
  392
  447
  504
  565
  628
  695
  765
  838
  915
  996
  1,081
  1,170
  1,263
  1,362
  1,465
  1,573
  1,687
  1,806
  1,931
  2,063
  2,201
  2,346
Total liabilities, $m
  698
  733
  771
  810
  851
  894
  939
  987
  1,036
  1,089
  1,144
  1,201
  1,262
  1,325
  1,392
  1,462
  1,535
  1,612
  1,693
  1,778
  1,867
  1,960
  2,059
  2,162
  2,270
  2,384
  2,503
  2,628
  2,760
  2,898
  3,043
Total equity, $m
  437
  459
  482
  507
  533
  560
  588
  618
  649
  682
  716
  752
  790
  830
  871
  915
  961
  1,009
  1,060
  1,113
  1,169
  1,227
  1,289
  1,353
  1,421
  1,492
  1,567
  1,645
  1,728
  1,814
  1,905
Total liabilities and equity, $m
  1,135
  1,192
  1,253
  1,317
  1,384
  1,454
  1,527
  1,605
  1,685
  1,771
  1,860
  1,953
  2,052
  2,155
  2,263
  2,377
  2,496
  2,621
  2,753
  2,891
  3,036
  3,187
  3,348
  3,515
  3,691
  3,876
  4,070
  4,273
  4,488
  4,712
  4,948
Debt-to-equity ratio
  0.000
  0.080
  0.150
  0.220
  0.290
  0.350
  0.410
  0.470
  0.520
  0.570
  0.620
  0.670
  0.710
  0.760
  0.800
  0.840
  0.870
  0.910
  0.940
  0.970
  1.000
  1.030
  1.060
  1.080
  1.110
  1.130
  1.150
  1.170
  1.190
  1.210
  1.230
Adjusted equity ratio
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  123
  22
  20
  19
  18
  17
  15
  14
  12
  11
  9
  10
  8
  6
  4
  2
  0
  -3
  -7
  -10
  -14
  -18
  -22
  -27
  -31
  -36
  -41
  -46
  -52
  -58
  -64
Depreciation, amort., depletion, $m
  2
  4
  4
  4
  5
  5
  5
  5
  5
  5
  5
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
Funds from operations, $m
  -101
  26
  25
  24
  23
  21
  20
  18
  17
  15
  14
  11
  9
  7
  5
  3
  0
  -3
  -6
  -10
  -13
  -17
  -22
  -26
  -30
  -35
  -40
  -45
  -51
  -57
  -63
Change in working capital, $m
  -70
  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 operations, $m
  -31
  26
  25
  24
  23
  21
  20
  18
  17
  15
  14
  11
  9
  7
  5
  3
  0
  -3
  -6
  -10
  -13
  -17
  -22
  -26
  -30
  -35
  -40
  -45
  -51
  -57
  -63
Maintenance CAPEX, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
New CAPEX, $m
  0
  0
  0
  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
  -1
  -1
Cash from investing activities, $m
  99
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
Free cash flow, $m
  68
  26
  24
  23
  22
  20
  19
  18
  16
  14
  13
  10
  8
  6
  4
  2
  -1
  -4
  -8
  -11
  -15
  -19
  -23
  -28
  -32
  -37
  -42
  -48
  -53
  -59
  -65
Issuance/(repayment) of debt, $m
  -43
  36
  37
  39
  41
  43
  45
  47
  50
  52
  55
  58
  60
  63
  67
  70
  73
  77
  81
  85
  89
  94
  98
  103
  108
  114
  119
  125
  132
  138
  145
Issuance/(repurchase) of shares, $m
  -4
  0
  3
  5
  8
  10
  13
  16
  19
  22
  25
  26
  29
  33
  37
  42
  46
  52
  57
  64
  70
  77
  84
  91
  99
  107
  116
  125
  134
  144
  155
Cash from financing (excl. dividends), $m  
  -63
  36
  40
  44
  49
  53
  58
  63
  69
  74
  80
  84
  89
  96
  104
  112
  119
  129
  138
  149
  159
  171
  182
  194
  207
  221
  235
  250
  266
  282
  300
Total cash flow (excl. dividends), $m
  5
  62
  65
  68
  71
  74
  77
  81
  85
  89
  93
  93
  98
  103
  108
  113
  119
  125
  131
  137
  144
  151
  159
  167
  175
  184
  193
  203
  213
  223
  235
Retained Cash Flow (-), $m
  -114
  -22
  -23
  -25
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -52
  -57
  -64
  -70
  -77
  -84
  -91
  -99
  -107
  -116
  -125
  -134
  -144
  -155
Prev. year cash balance distribution, $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 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
 
  40
  41
  43
  45
  47
  49
  51
  54
  56
  59
  57
  60
  63
  66
  69
  73
  73
  73
  74
  74
  75
  75
  76
  76
  77
  77
  78
  78
  79
  80
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
 
  39
  38
  37
  37
  36
  36
  35
  33
  32
  31
  27
  26
  24
  22
  20
  18
  16
  14
  11
  9
  8
  6
  5
  4
  3
  2
  2
  1
  1
  1
Current shareholders' claim on cash, %
  100
  99.9
  99.3
  98.1
  96.6
  94.7
  92.4
  89.8
  87.0
  84.0
  80.8
  77.9
  74.8
  71.6
  68.4
  65.1
  61.8
  58.5
  55.2
  51.9
  48.7
  45.5
  42.5
  39.5
  36.7
  34.0
  31.4
  29.0
  26.7
  24.5
  22.5

Independence Holding Company (IHC) is a holding company principally engaged in the life and health insurance business. The Company's segments include Medical Stop-Loss; Fully Insured Health; Group disability, life and DBL; Individual life, annuities and other, and Corporate. The Company is a writer across the nation of excess or stop-loss insurance for self-insured employer groups that desire to manage the risk of large medical claims (Medical Stop-Loss). The Fully Insured Health segment includes various categories, such as ancillary benefits, including dental, vision, short-term medical (STM), supplemental products (including fixed indemnity limited benefit, critical illness, and hospital indemnity); pet insurance, and non-subscriber occupational accident. The Group Disability segment comprises long term disability (LTD) and disability benefits law (DBL). It provides specialized disability, and health coverage and related services to commercial customers and individuals.

FINANCIAL RATIOS  of  Independence Holding (IHC)

Valuation Ratios
P/E Ratio 3.9
Price to Sales 1.5
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow -15.3
Price to Free Cash Flow -15.3
Growth Rates
Sales Growth Rate -40.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 17
Management Effectiveness
Return On Assets 10.7%
Ret/ On Assets - 3 Yr. Avg. 4.9%
Return On Total Capital 30.6%
Ret/ On T. Cap. - 3 Yr. Avg. 14.7%
Return On Equity 32.4%
Return On Equity - 3 Yr. Avg. 15.9%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 11.5%
EBITDA Margin - 3 Yr. Avg. 9.1%
Operating Margin 10.6%
Oper. Margin - 3 Yr. Avg. 7.9%
Pre-Tax Margin 10.3%
Pre-Tax Margin - 3 Yr. Avg. 7.6%
Net Profit Margin 39.4%
Net Profit Margin - 3 Yr. Avg. 16.1%
Effective Tax Rate 28.1%
Eff/ Tax Rate - 3 Yr. Avg. 31%
Payout Ratio 1.6%

IHC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the IHC stock intrinsic value calculation we used $312 million for the last fiscal year's total revenue generated by Independence Holding. The default revenue input number comes from 2016 income statement of Independence Holding. 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 IHC stock valuation model: a) initial revenue growth rate of 5.1% 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 IHC is calculated based on our internal credit rating of Independence Holding, 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 Independence Holding.
    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 IHC stock the variable cost ratio is equal to 91%.

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 IHC 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 9.3% for Independence Holding.

Corporate tax rate of 27% is the nominal tax rate for Independence Holding. 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 IHC 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 IHC are equal to 2.1%.

Life of production assets of 25.5 years is the average useful life of capital assets used in Independence Holding 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 IHC is equal to 0%. 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 - $437 million for Independence Holding - 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 14.934 million for Independence Holding 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 Independence Holding at the current share price and the inputted number of shares is $0.4 billion.

RELATED COMPANIES Price Int.Val. Rating
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ANTM Anthem 194.69 225.54  hold
LNC Lincoln Nation 75.55 232.88  str.buy
UNH UnitedHealth G 207.49 193.22  hold
PRU Prudential Fin 110.78 250.73  str.buy

COMPANY NEWS

▶ Stocks With Rising Relative Strength: Metlife   [Sep-26-17 03:00AM  Investor's Business Daily]
▶ Independence Holding posts 2Q profit   [Aug-09-17 10:32PM  Associated Press]
▶ Independence Holding posts 1Q profit   [Jun-16-17 04:20PM  Associated Press]
▶ Independence Holding posts 4Q profit   [May-22-17 05:51PM  Associated Press]
▶ Independence Holding Company Repurchases Shares   [Jan-30-17 08:00AM  GlobeNewswire]
▶ American Independence Corp. Receives NASDAQ Letter   [May-20-16 04:26PM  GlobeNewswire]
▶ American Independence Corp. Receives NASDAQ Letter   [Apr-15-16 05:52PM  GlobeNewswire]
▶ American Independence Corp. Files Form 12b-25   [Mar-15-16 08:24PM  GlobeNewswire]
Financial statements of IHC
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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