Intrinsic value of Medifast - MED

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$41.57

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$41.57

 
Intrinsic value

$30.53

 
Up/down potential

-27%

 
Rating

sell

 
Value-price divergence* premium content

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

We calculate the intrinsic value of MED 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 0.5

 

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, %
  0.73
  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
  275
  281
  287
  294
  303
  312
  322
  333
  345
  357
  371
  386
  402
  418
  436
  455
  475
  496
  518
  542
  566
  593
  620
  650
  680
  713
  747
  783
  821
  860
  902
Variable operating expenses, $m
 
  251
  257
  263
  271
  279
  288
  298
  308
  320
  332
  345
  359
  374
  390
  407
  425
  444
  464
  485
  507
  531
  555
  581
  609
  638
  668
  701
  734
  770
  807
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
  248
  251
  257
  263
  271
  279
  288
  298
  308
  320
  332
  345
  359
  374
  390
  407
  425
  444
  464
  485
  507
  531
  555
  581
  609
  638
  668
  701
  734
  770
  807
Operating income, $m
  27
  29
  30
  31
  32
  33
  34
  35
  36
  38
  39
  41
  42
  44
  46
  48
  50
  52
  54
  57
  59
  62
  65
  68
  71
  75
  78
  82
  86
  90
  95
EBITDA, $m
  32
  34
  35
  36
  37
  38
  40
  41
  42
  44
  46
  47
  49
  51
  54
  56
  58
  61
  64
  67
  70
  73
  76
  80
  84
  88
  92
  96
  101
  106
  111
Interest expense (income), $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
  2
  2
  2
  2
Earnings before tax, $m
  27
  29
  30
  31
  32
  33
  34
  35
  36
  37
  39
  40
  42
  44
  45
  47
  49
  51
  54
  56
  59
  61
  64
  67
  70
  74
  77
  81
  85
  89
  93
Tax expense, $m
  9
  8
  8
  8
  9
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
Net income, $m
  18
  22
  22
  23
  23
  24
  25
  25
  26
  27
  28
  29
  31
  32
  33
  34
  36
  38
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  77
  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
  121
  45
  46
  47
  48
  50
  51
  53
  55
  57
  59
  62
  64
  67
  70
  73
  76
  79
  83
  87
  91
  95
  99
  104
  109
  114
  119
  125
  131
  138
  144
Adjusted assets (=assets-cash), $m
  44
  45
  46
  47
  48
  50
  51
  53
  55
  57
  59
  62
  64
  67
  70
  73
  76
  79
  83
  87
  91
  95
  99
  104
  109
  114
  119
  125
  131
  138
  144
Revenue / Adjusted assets
  6.250
  6.244
  6.239
  6.255
  6.313
  6.240
  6.314
  6.283
  6.273
  6.263
  6.288
  6.226
  6.281
  6.239
  6.229
  6.233
  6.250
  6.278
  6.241
  6.230
  6.220
  6.242
  6.263
  6.250
  6.239
  6.254
  6.277
  6.264
  6.267
  6.232
  6.264
Average production assets, $m
  25
  25
  26
  26
  27
  28
  29
  30
  31
  32
  33
  34
  36
  37
  39
  40
  42
  44
  46
  48
  50
  53
  55
  58
  61
  63
  66
  70
  73
  77
  80
Working capital, $m
  77
  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
  0
  1
  2
  3
  3
  4
  5
  6
  7
  9
  10
  11
  13
  15
  16
  18
  20
  22
  24
  26
  29
  31
  34
  37
  40
  43
  46
  50
  53
  57
Total liabilities, $m
  25
  25
  26
  27
  28
  28
  29
  30
  31
  32
  34
  35
  36
  38
  40
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
  71
  75
  78
  82
Total equity, $m
  96
  19
  20
  20
  21
  22
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  59
  62
Total liabilities and equity, $m
  121
  44
  46
  47
  49
  50
  51
  53
  55
  57
  60
  62
  64
  67
  70
  72
  76
  79
  83
  86
  90
  95
  99
  104
  109
  114
  120
  125
  132
  137
  144
Debt-to-equity ratio
  0.000
  0.030
  0.050
  0.090
  0.120
  0.150
  0.190
  0.230
  0.270
  0.300
  0.340
  0.380
  0.410
  0.450
  0.490
  0.520
  0.550
  0.590
  0.620
  0.650
  0.680
  0.700
  0.730
  0.760
  0.780
  0.810
  0.830
  0.850
  0.870
  0.890
  0.910
Adjusted equity ratio
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  18
  22
  22
  23
  23
  24
  25
  25
  26
  27
  28
  29
  31
  32
  33
  34
  36
  38
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
Depreciation, amort., depletion, $m
  5
  5
  5
  5
  5
  6
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
Funds from operations, $m
  21
  26
  27
  28
  29
  29
  30
  31
  32
  34
  35
  36
  38
  39
  41
  43
  44
  46
  48
  51
  53
  55
  58
  61
  63
  66
  70
  73
  76
  80
  84
Change in working capital, $m
  -4
  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
  25
  22
  27
  28
  29
  29
  30
  31
  32
  34
  35
  36
  38
  39
  41
  43
  44
  46
  48
  51
  53
  55
  58
  61
  63
  66
  70
  73
  76
  80
  84
Maintenance CAPEX, $m
  0
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
New CAPEX, $m
  -3
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
Cash from investing activities, $m
  -2
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -16
  -17
  -19
  -19
Free cash flow, $m
  23
  17
  22
  22
  23
  23
  24
  25
  25
  26
  27
  28
  29
  31
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
Issuance/(repayment) of debt, $m
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
Issuance/(repurchase) of shares, $m
  -1
  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  
  -1
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
Total cash flow (excl. dividends), $m
  22
  17
  22
  23
  23
  24
  25
  26
  27
  27
  29
  30
  31
  32
  33
  35
  36
  38
  40
  41
  43
  45
  47
  50
  52
  54
  57
  60
  62
  65
  69
Retained Cash Flow (-), $m
  -7
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
Prev. year cash balance distribution, $m
 
  77
  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
 
  94
  22
  22
  23
  23
  24
  25
  26
  27
  28
  29
  30
  31
  32
  34
  35
  36
  38
  40
  42
  43
  45
  48
  50
  52
  55
  57
  60
  63
  66
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
 
  90
  20
  19
  19
  18
  17
  17
  16
  15
  14
  14
  13
  12
  11
  10
  9
  8
  7
  6
  5
  4
  4
  3
  3
  2
  2
  1
  1
  1
  0
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
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Medifast, Inc., through its subsidiaries, produces, distributes, and sells weight loss, weight management, healthy living products, and other consumable health and diet products. The company offers bars, bites, pretzels, puffs, oatmeal and cereal crunch products, drinks, eggs, hearty choices, pancakes, puddings, soft serves, shakes, smoothies, soft bakes, and soups under the Medifast, Thrive by Medifast, Optimal Health by Take Shape For Life, and Essential 1 brands, as well as Dual Fuel sports nutrition products for private label customers. It also provides meal replacements comprising vitamins and minerals; and hydration products, as well as other nutrients for health purposes. As of December 31, 2015, Medifast, Inc. operated weight control centers in 61 franchise locations in Arizona, California, Louisiana, Minnesota, Maryland, Pennsylvania, Texas, and Wisconsin. The company sells its products through various channels of distribution, including the Internet, call centers, independent health advisors, medical professionals, franchise weight loss clinics, and direct consumer marketing. Medifast, Inc. was founded in 1980 and is headquartered in Owings Mills, Maryland.

FINANCIAL RATIOS  of  Medifast (MED)

Valuation Ratios
P/E Ratio 27.4
Price to Sales 1.8
Price to Book 5.1
Price to Tangible Book
Price to Cash Flow 19.7
Price to Free Cash Flow 22.4
Growth Rates
Sales Growth Rate 0.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate -22.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 15.2%
Ret/ On Assets - 3 Yr. Avg. 14.3%
Return On Total Capital 19.5%
Ret/ On T. Cap. - 3 Yr. Avg. 19.2%
Return On Equity 19.5%
Return On Equity - 3 Yr. Avg. 19.2%
Asset Turnover 2.3
Profitability Ratios
Gross Margin 74.9%
Gross Margin - 3 Yr. Avg. 74%
EBITDA Margin 11.6%
EBITDA Margin - 3 Yr. Avg. 13.1%
Operating Margin 9.8%
Oper. Margin - 3 Yr. Avg. 10.3%
Pre-Tax Margin 9.8%
Pre-Tax Margin - 3 Yr. Avg. 10.7%
Net Profit Margin 6.5%
Net Profit Margin - 3 Yr. Avg. 6.1%
Effective Tax Rate 33.3%
Eff/ Tax Rate - 3 Yr. Avg. 33.7%
Payout Ratio 66.7%

MED stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MED stock intrinsic value calculation we used $275 million for the last fiscal year's total revenue generated by Medifast. The default revenue input number comes from 2016 income statement of Medifast. 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 MED 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 MED is calculated based on our internal credit rating of Medifast, 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 Medifast.
    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 MED stock the variable cost ratio is equal to 89.5%.

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 MED 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 Medifast.

Corporate tax rate of 27% is the nominal tax rate for Medifast. 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 MED 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 MED are equal to 8.9%.

Life of production assets of 4.9 years is the average useful life of capital assets used in Medifast 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 MED 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 - $96 million for Medifast - 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 11.848 million for Medifast 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 Medifast at the current share price and the inputted number of shares is $0.5 billion.


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COMPANY NEWS

▶ 5 Must See Earnings Charts   [May-23-17 05:55PM  Zacks]
▶ Medifast posts 1Q profit   [May-04-17 06:14PM  Associated Press]
▶ Medifast, Inc. Value Analysis (NYSE:MED) : April 19, 2017   [Apr-19-17 03:09PM  Capital Cube]
▶ Medifast CEO receives nearly $3 million in 2016   [Apr-10-17 12:25PM  American City Business Journals]
▶ Top Ranked Income Stocks to Buy for April 5th   [Apr-05-17 09:06AM  Zacks]
▶ Medifast posts 4Q profit   [06:28PM  Associated Press]
▶ Medifast, Inc. Announces Quarterly Dividend   [Mar-07-17 04:05PM  PR Newswire]
▶ Medifast Inc (MED): Are Hedge Funds Right About This Stock?   [Dec-06-16 11:30AM  at Insider Monkey]
▶ 5 Medical Tech Stocks You Should Be Investing In   [Dec-01-16 11:47AM  at Insider Monkey]
▶ Medifast's MacDonald out as CEO   [Oct-03-16 05:56PM  at bizjournals.com]
▶ Medifast, Inc. Announces Quarterly Dividend   [Sep-08-16 05:00PM  PR Newswire]
▶ Medifast profit drops 45 percent in 2Q   [06:55PM  at bizjournals.com]
▶ Medifast unveils a new product line for its biggest division   [Jul-28-16 09:07AM  at bizjournals.com]
▶ Medifast Direct® Launches 7-Day Summer Shake Up Kit   [May-17-16 08:00AM  PR Newswire]
Stock chart of MED Financial statements of MED Annual reports of MED
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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