Intrinsic value of K12 - LRN

Previous Close

$15.69

  Intrinsic Value

$5.48

stock screener

  Rating & Target

str. sell

-65%

Previous close

$15.69

 
Intrinsic value

$5.48

 
Up/down potential

-65%

 
Rating

str. sell

We calculate the intrinsic value of LRN 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 2017), $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 0.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  1.83
  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
  889
  907
  928
  951
  978
  1,008
  1,040
  1,076
  1,114
  1,156
  1,200
  1,247
  1,298
  1,352
  1,409
  1,470
  1,534
  1,603
  1,675
  1,751
  1,831
  1,916
  2,006
  2,100
  2,199
  2,304
  2,414
  2,530
  2,653
  2,781
  2,916
Variable operating expenses, $m
 
  892
  912
  936
  962
  991
  1,022
  1,057
  1,094
  1,134
  1,178
  1,215
  1,264
  1,317
  1,373
  1,432
  1,495
  1,561
  1,631
  1,706
  1,784
  1,867
  1,954
  2,046
  2,143
  2,245
  2,352
  2,465
  2,584
  2,709
  2,841
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
  885
  892
  912
  936
  962
  991
  1,022
  1,057
  1,094
  1,134
  1,178
  1,215
  1,264
  1,317
  1,373
  1,432
  1,495
  1,561
  1,631
  1,706
  1,784
  1,867
  1,954
  2,046
  2,143
  2,245
  2,352
  2,465
  2,584
  2,709
  2,841
Operating income, $m
  3
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  32
  33
  35
  36
  38
  40
  41
  43
  45
  47
  49
  52
  54
  57
  59
  62
  65
  68
  72
  75
EBITDA, $m
  77
  59
  61
  62
  64
  66
  68
  71
  73
  76
  79
  82
  85
  89
  92
  96
  101
  105
  110
  115
  120
  126
  132
  138
  144
  151
  158
  166
  174
  182
  191
Interest expense (income), $m
  1
  0
  1
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  12
  13
  13
  14
Earnings before tax, $m
  5
  14
  15
  15
  16
  16
  17
  17
  18
  19
  20
  29
  30
  31
  32
  34
  35
  36
  37
  39
  40
  42
  44
  45
  47
  49
  51
  54
  56
  58
  61
Tax expense, $m
  5
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
Net income, $m
  0
  10
  11
  11
  11
  12
  12
  13
  13
  14
  14
  21
  22
  23
  24
  25
  25
  26
  27
  28
  30
  31
  32
  33
  35
  36
  37
  39
  41
  43
  44

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  231
  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
  735
  514
  526
  539
  555
  571
  590
  610
  632
  655
  680
  707
  736
  766
  799
  833
  870
  908
  949
  993
  1,038
  1,086
  1,137
  1,191
  1,247
  1,306
  1,369
  1,435
  1,504
  1,577
  1,653
Adjusted assets (=assets-cash), $m
  504
  514
  526
  539
  555
  571
  590
  610
  632
  655
  680
  707
  736
  766
  799
  833
  870
  908
  949
  993
  1,038
  1,086
  1,137
  1,191
  1,247
  1,306
  1,369
  1,435
  1,504
  1,577
  1,653
Revenue / Adjusted assets
  1.764
  1.765
  1.764
  1.764
  1.762
  1.765
  1.763
  1.764
  1.763
  1.765
  1.765
  1.764
  1.764
  1.765
  1.763
  1.765
  1.763
  1.765
  1.765
  1.763
  1.764
  1.764
  1.764
  1.763
  1.763
  1.764
  1.763
  1.763
  1.764
  1.763
  1.764
Average production assets, $m
  177
  180
  185
  189
  195
  201
  207
  214
  222
  230
  239
  248
  258
  269
  280
  293
  305
  319
  333
  348
  364
  381
  399
  418
  438
  459
  480
  504
  528
  553
  580
Working capital, $m
  356
  140
  143
  147
  151
  155
  160
  166
  172
  178
  185
  192
  200
  208
  217
  226
  236
  247
  258
  270
  282
  295
  309
  323
  339
  355
  372
  390
  408
  428
  449
Total debt, $m
  22
  13
  17
  21
  25
  30
  36
  42
  48
  55
  62
  70
  79
  88
  97
  108
  118
  130
  142
  155
  168
  183
  198
  213
  230
  248
  266
  286
  306
  328
  350
Total liabilities, $m
  161
  152
  156
  160
  164
  169
  175
  181
  187
  194
  201
  209
  218
  227
  236
  247
  257
  269
  281
  294
  307
  322
  337
  352
  369
  387
  405
  425
  445
  467
  489
Total equity, $m
  574
  362
  370
  380
  390
  402
  415
  429
  445
  461
  479
  498
  518
  540
  562
  587
  612
  640
  668
  699
  731
  765
  800
  838
  878
  920
  964
  1,010
  1,059
  1,110
  1,164
Total liabilities and equity, $m
  735
  514
  526
  540
  554
  571
  590
  610
  632
  655
  680
  707
  736
  767
  798
  834
  869
  909
  949
  993
  1,038
  1,087
  1,137
  1,190
  1,247
  1,307
  1,369
  1,435
  1,504
  1,577
  1,653
Debt-to-equity ratio
  0.038
  0.040
  0.040
  0.050
  0.060
  0.070
  0.090
  0.100
  0.110
  0.120
  0.130
  0.140
  0.150
  0.160
  0.170
  0.180
  0.190
  0.200
  0.210
  0.220
  0.230
  0.240
  0.250
  0.250
  0.260
  0.270
  0.280
  0.280
  0.290
  0.300
  0.300
Adjusted equity ratio
  0.681
  0.704
  0.704
  0.704
  0.704
  0.704
  0.704
  0.704
  0.704
  0.704
  0.704
  0.704
  0.704
  0.704
  0.704
  0.704
  0.704
  0.704
  0.704
  0.704
  0.704
  0.704
  0.704
  0.704
  0.704
  0.704
  0.704
  0.704
  0.704
  0.704
  0.704

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  0
  10
  11
  11
  11
  12
  12
  13
  13
  14
  14
  21
  22
  23
  24
  25
  25
  26
  27
  28
  30
  31
  32
  33
  35
  36
  37
  39
  41
  43
  44
Depreciation, amort., depletion, $m
  74
  45
  46
  47
  48
  49
  50
  52
  53
  55
  56
  50
  52
  54
  56
  59
  61
  64
  67
  70
  73
  76
  80
  84
  88
  92
  96
  101
  106
  111
  116
Funds from operations, $m
  70
  55
  56
  58
  59
  61
  62
  64
  66
  69
  71
  71
  74
  77
  80
  83
  86
  90
  94
  98
  102
  107
  112
  117
  122
  128
  134
  140
  146
  153
  160
Change in working capital, $m
  -19
  3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
Cash from operations, $m
  89
  52
  53
  54
  55
  56
  57
  59
  60
  62
  64
  64
  66
  68
  71
  74
  77
  80
  83
  86
  90
  94
  98
  102
  107
  112
  117
  122
  128
  133
  140
Maintenance CAPEX, $m
  0
  -35
  -36
  -37
  -38
  -39
  -40
  -41
  -43
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -59
  -61
  -64
  -67
  -70
  -73
  -76
  -80
  -84
  -88
  -92
  -96
  -101
  -106
  -111
New CAPEX, $m
  -48
  -3
  -4
  -5
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
Cash from investing activities, $m
  -57
  -38
  -40
  -42
  -43
  -45
  -46
  -48
  -51
  -52
  -55
  -57
  -60
  -63
  -65
  -68
  -72
  -75
  -78
  -82
  -86
  -90
  -94
  -99
  -104
  -109
  -114
  -119
  -125
  -132
  -138
Free cash flow, $m
  32
  14
  13
  12
  12
  11
  11
  10
  10
  10
  9
  7
  6
  6
  6
  6
  5
  5
  5
  5
  4
  4
  4
  4
  3
  3
  3
  3
  3
  2
  2
Issuance/(repayment) of debt, $m
  -16
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  18
  18
  19
  20
  22
  23
Issuance/(repurchase) of shares, $m
  7
  0
  0
  0
  0
  0
  1
  1
  2
  3
  3
  0
  0
  0
  0
  0
  0
  1
  1
  2
  3
  3
  4
  4
  5
  6
  7
  7
  8
  9
  10
Cash from financing (excl. dividends), $m  
  -15
  3
  3
  4
  4
  5
  6
  7
  8
  10
  10
  8
  8
  9
  10
  10
  11
  12
  13
  15
  16
  17
  19
  20
  22
  24
  25
  26
  28
  31
  33
Total cash flow (excl. dividends), $m
  17
  17
  16
  16
  16
  16
  17
  18
  18
  19
  20
  15
  15
  15
  15
  16
  16
  17
  18
  19
  20
  22
  23
  24
  25
  27
  28
  29
  31
  33
  34
Retained Cash Flow (-), $m
  -15
  -7
  -8
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -18
  -19
  -20
  -22
  -23
  -24
  -26
  -27
  -29
  -30
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -49
  -51
  -54
Prev. year cash balance distribution, $m
 
  219
  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
 
  229
  8
  7
  6
  4
  4
  4
  3
  3
  2
  -4
  -5
  -6
  -7
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
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
 
  219
  7
  6
  5
  3
  3
  2
  2
  2
  1
  -2
  -2
  -2
  -3
  -3
  -2
  -2
  -2
  -2
  -1
  -1
  -1
  -1
  -1
  -1
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  99.8
  99.5
  99.1
  98.6
  98.0
  98.0
  98.0
  98.0
  98.0
  98.0
  97.9
  97.8
  97.6
  97.4
  97.0
  96.7
  96.2
  95.7
  95.2
  94.7
  94.1
  93.4
  92.8
  92.1
  91.4

K12 Inc. (K12) is a technology-based education company. The Company offers curriculum, software systems and educational services designed to facilitate individualized learning for students in kindergarten through 12th grade (K-12). It provides a continuum of technology-based educational products and solutions to public school districts, public schools, virtual charter schools, private schools and families. The Company offers a set of products and services primarily to three lines of business, which include Managed Public School Programs, which consists of virtual and blended schools; Institutional business, which includes educational products and services sold to school districts, public schools and other educational institutions, and Private Pay Schools and Other, which includes private schools, including international, for which it charges student tuition and direct consumer sales. It sells individual online courses and supplemental educational products directly to families.

FINANCIAL RATIOS  of  K12 (LRN)

Valuation Ratios
P/E Ratio 0
Price to Sales 0.7
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow 7.2
Price to Free Cash Flow 15.6
Growth Rates
Sales Growth Rate 1.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -23.8%
Cap. Spend. - 3 Yr. Gr. Rate -0.4%
Financial Strength
Quick Ratio 19
Current Ratio 0.1
LT Debt to Equity 1.7%
Total Debt to Equity 3.8%
Interest Coverage 6
Management Effectiveness
Return On Assets 0%
Ret/ On Assets - 3 Yr. Avg. 1%
Return On Total Capital 0%
Ret/ On T. Cap. - 3 Yr. Avg. 1.2%
Return On Equity 0%
Return On Equity - 3 Yr. Avg. 1.2%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 37.2%
Gross Margin - 3 Yr. Avg. 36.8%
EBITDA Margin 9%
EBITDA Margin - 3 Yr. Avg. 9.5%
Operating Margin 0.4%
Oper. Margin - 3 Yr. Avg. 1.3%
Pre-Tax Margin 0.6%
Pre-Tax Margin - 3 Yr. Avg. 1.2%
Net Profit Margin 0%
Net Profit Margin - 3 Yr. Avg. 0.7%
Effective Tax Rate 100%
Eff/ Tax Rate - 3 Yr. Avg. 56.9%
Payout Ratio 0%

LRN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LRN stock intrinsic value calculation we used $889 million for the last fiscal year's total revenue generated by K12. The default revenue input number comes from 2017 income statement of K12. 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 LRN 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 LRN is calculated based on our internal credit rating of K12, 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 K12.
    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 LRN stock the variable cost ratio is equal to 98.4%.

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 LRN 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 4.4% for K12.

Corporate tax rate of 27% is the nominal tax rate for K12. 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 LRN 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 LRN are equal to 19.9%.

Life of production assets of 3.6 years is the average useful life of capital assets used in K12 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 LRN is equal to 15.4%. 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 - $574 million for K12 - 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 40.772 million for K12 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 K12 at the current share price and the inputted number of shares is $0.6 billion.

RELATED COMPANIES Price Int.Val. Rating
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COMPANY NEWS

▶ ETFs with exposure to K12, Inc. : November 17, 2017   [Nov-17-17 12:19PM  Capital Cube]
▶ ETFs with exposure to K12, Inc. : October 31, 2017   [Oct-31-17 11:44AM  Capital Cube]
▶ K12 reports 1Q loss   [Oct-26-17 07:32PM  Associated Press]
▶ K12 Inc. to Host Earnings Call   [12:05PM  ACCESSWIRE]
▶ K12 Inc. Releases 2017 Academic Report   [Oct-16-17 04:45PM  Business Wire]
▶ K12, Inc. Value Analysis (NYSE:LRN) : September 28, 2017   [Sep-28-17 10:28AM  Capital Cube]
▶ Insight School of Minnesota Kicks Off 2017-2018 School Year   [Sep-07-17 11:44AM  Business Wire]
▶ ETFs with exposure to K12, Inc. : August 29, 2017   [Aug-29-17 07:48PM  Capital Cube]
▶ Georgia Cyber Academy Kicks Off 2017-2018 School Year   [Aug-10-17 04:25PM  Business Wire]
▶ K12 reports 4Q loss   [Aug-09-17 10:45PM  Associated Press]
▶ Liza McFadden Joins K12 Inc. Board of Directors   [Aug-08-17 04:30PM  Business Wire]
Financial statements of LRN
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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