Intrinsic value of Orthofix International - OFIX

Previous Close

$49.50

  Intrinsic Value

$45.92

stock screener

  Rating & Target

hold

-7%

Previous close

$49.50

 
Intrinsic value

$45.92

 
Up/down potential

-7%

 
Rating

hold

We calculate the intrinsic value of OFIX 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 0.9

 

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, %
  3.54
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
  4.96
  4.97
  4.97
  4.97
  4.98
  4.98
  4.98
  4.98
  4.98
  4.99
  4.99
  4.99
  4.99
  4.99
Revenue, $m
  410
  430
  450
  472
  495
  519
  545
  571
  599
  629
  660
  692
  726
  762
  800
  840
  881
  925
  971
  1,019
  1,070
  1,123
  1,179
  1,238
  1,299
  1,364
  1,432
  1,503
  1,578
  1,657
  1,740
Variable operating expenses, $m
 
  84
  87
  91
  95
  100
  104
  109
  114
  120
  125
  126
  132
  139
  145
  153
  160
  168
  177
  185
  195
  204
  214
  225
  236
  248
  260
  273
  287
  301
  316
Fixed operating expenses, $m
 
  326
  334
  342
  351
  360
  369
  378
  387
  397
  407
  417
  428
  438
  449
  461
  472
  484
  496
  508
  521
  534
  547
  561
  575
  590
  604
  619
  635
  651
  667
Total operating expenses, $m
  389
  410
  421
  433
  446
  460
  473
  487
  501
  517
  532
  543
  560
  577
  594
  614
  632
  652
  673
  693
  716
  738
  761
  786
  811
  838
  864
  892
  922
  952
  983
Operating income, $m
  21
  20
  29
  38
  49
  60
  71
  84
  97
  112
  127
  149
  167
  185
  205
  226
  249
  273
  298
  325
  354
  385
  417
  451
  488
  526
  567
  611
  657
  705
  757
EBITDA, $m
  42
  37
  46
  56
  67
  79
  91
  104
  118
  134
  150
  167
  185
  205
  226
  248
  272
  297
  324
  352
  382
  414
  448
  484
  522
  562
  605
  650
  698
  748
  802
Interest expense (income), $m
  1
  0
  0
  0
  1
  1
  1
  1
  1
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  12
Earnings before tax, $m
  19
  20
  29
  38
  48
  59
  70
  83
  96
  110
  125
  147
  164
  182
  202
  223
  245
  268
  294
  320
  349
  379
  410
  444
  480
  518
  559
  601
  646
  694
  745
Tax expense, $m
  15
  5
  8
  10
  13
  16
  19
  22
  26
  30
  34
  40
  44
  49
  55
  60
  66
  72
  79
  86
  94
  102
  111
  120
  130
  140
  151
  162
  175
  187
  201
Net income, $m
  3
  15
  21
  28
  35
  43
  51
  60
  70
  80
  91
  107
  120
  133
  147
  163
  179
  196
  214
  234
  254
  276
  300
  324
  351
  378
  408
  439
  472
  507
  544

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  40
  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
  372
  348
  365
  382
  401
  420
  441
  463
  485
  509
  534
  560
  588
  617
  648
  680
  714
  749
  786
  825
  866
  909
  955
  1,002
  1,052
  1,105
  1,160
  1,217
  1,278
  1,342
  1,409
Adjusted assets (=assets-cash), $m
  332
  348
  365
  382
  401
  420
  441
  463
  485
  509
  534
  560
  588
  617
  648
  680
  714
  749
  786
  825
  866
  909
  955
  1,002
  1,052
  1,105
  1,160
  1,217
  1,278
  1,342
  1,409
Revenue / Adjusted assets
  1.235
  1.236
  1.233
  1.236
  1.234
  1.236
  1.236
  1.233
  1.235
  1.236
  1.236
  1.236
  1.235
  1.235
  1.235
  1.235
  1.234
  1.235
  1.235
  1.235
  1.236
  1.235
  1.235
  1.236
  1.235
  1.234
  1.234
  1.235
  1.235
  1.235
  1.235
Average production assets, $m
  57
  59
  62
  65
  68
  72
  75
  79
  83
  87
  91
  96
  100
  105
  110
  116
  122
  128
  134
  141
  148
  155
  163
  171
  179
  188
  198
  207
  218
  229
  240
Working capital, $m
  111
  74
  78
  82
  86
  90
  94
  99
  104
  109
  114
  120
  126
  132
  138
  145
  152
  160
  168
  176
  185
  194
  204
  214
  225
  236
  248
  260
  273
  287
  301
Total debt, $m
  0
  5
  11
  16
  22
  29
  36
  43
  50
  58
  66
  75
  84
  93
  103
  114
  125
  137
  149
  162
  175
  189
  204
  220
  236
  253
  271
  290
  310
  331
  353
Total liabilities, $m
  109
  114
  120
  125
  131
  138
  145
  152
  159
  167
  175
  184
  193
  202
  212
  223
  234
  246
  258
  271
  284
  298
  313
  329
  345
  362
  380
  399
  419
  440
  462
Total equity, $m
  263
  234
  245
  257
  269
  283
  296
  311
  326
  342
  359
  377
  395
  415
  435
  457
  479
  503
  528
  555
  582
  611
  641
  673
  707
  742
  779
  818
  859
  902
  947
Total liabilities and equity, $m
  372
  348
  365
  382
  400
  421
  441
  463
  485
  509
  534
  561
  588
  617
  647
  680
  713
  749
  786
  826
  866
  909
  954
  1,002
  1,052
  1,104
  1,159
  1,217
  1,278
  1,342
  1,409
Debt-to-equity ratio
  0.000
  0.020
  0.040
  0.060
  0.080
  0.100
  0.120
  0.140
  0.150
  0.170
  0.180
  0.200
  0.210
  0.230
  0.240
  0.250
  0.260
  0.270
  0.280
  0.290
  0.300
  0.310
  0.320
  0.330
  0.330
  0.340
  0.350
  0.350
  0.360
  0.370
  0.370
Adjusted equity ratio
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672
  0.672

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  3
  15
  21
  28
  35
  43
  51
  60
  70
  80
  91
  107
  120
  133
  147
  163
  179
  196
  214
  234
  254
  276
  300
  324
  351
  378
  408
  439
  472
  507
  544
Depreciation, amort., depletion, $m
  21
  17
  17
  18
  18
  19
  20
  20
  21
  22
  23
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
  34
  36
  37
  39
  41
  43
  45
Funds from operations, $m
  47
  31
  38
  46
  53
  62
  71
  81
  91
  102
  114
  125
  139
  153
  168
  184
  202
  220
  240
  260
  282
  306
  330
  357
  384
  414
  445
  478
  513
  550
  589
Change in working capital, $m
  2
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
Cash from operations, $m
  45
  28
  35
  42
  49
  58
  67
  76
  86
  97
  109
  119
  133
  147
  162
  178
  195
  213
  232
  252
  274
  296
  321
  346
  374
  403
  433
  466
  500
  536
  575
Maintenance CAPEX, $m
  0
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -32
  -34
  -36
  -37
  -39
  -41
  -43
New CAPEX, $m
  -18
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
Cash from investing activities, $m
  -22
  -14
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -20
  -21
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -54
Free cash flow, $m
  23
  14
  21
  27
  34
  41
  50
  58
  67
  77
  88
  98
  110
  123
  137
  151
  167
  184
  201
  220
  240
  261
  284
  308
  333
  360
  388
  419
  451
  484
  520
Issuance/(repayment) of debt, $m
  0
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
Issuance/(repurchase) of shares, $m
  -44
  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  
  -46
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
Total cash flow (excl. dividends), $m
  -24
  20
  26
  33
  40
  48
  56
  65
  75
  85
  96
  106
  119
  132
  147
  162
  178
  195
  213
  233
  253
  275
  299
  323
  349
  377
  406
  438
  470
  505
  542
Retained Cash Flow (-), $m
  27
  -11
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
Prev. year cash balance distribution, $m
 
  40
  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
 
  49
  15
  21
  28
  35
  42
  51
  60
  69
  79
  89
  100
  113
  126
  140
  155
  171
  188
  207
  226
  246
  268
  291
  316
  342
  369
  399
  430
  462
  497
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
 
  47
  14
  18
  23
  27
  31
  34
  37
  40
  42
  42
  43
  43
  42
  41
  39
  37
  35
  32
  29
  25
  22
  19
  16
  13
  11
  9
  7
  5
  4
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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Orthofix International N.V. (Orthofix) is a global medical device company. The Company is focused on providing reconstructive and regenerative orthopedic and spine solutions to physicians. The company operates in four segments: BioStim, Biologics, Extremity Fixation and Spine Fixation. Its BioStim solutions products include Cervical-Stim, Spinal-Stim and Physio-Stim. The Biologics products include AlloQuent Structural Allografts, Trinity ELITE, Trinity Evolution and VersaShield. The Extremity Fixation products include Fixator, Eight-Plate Guided Growth System and Contours VPS Volar Plating System III. The Spine Fixation products include Hallmark Anterior Cervical Plate System, Ascent LE Posterior Occipital Cervico-Thoracic (POCT) System, Firebird Deformity Correction System, Phoenix Minimally Invasive Spinal Fixation System, Samba-Screw System, LONESTAR Cervical Stand Alone (CSA), SKYHAWK Lateral Interbody Fusion System & Lateral Plate System and CENTURION POCT System.

FINANCIAL RATIOS  of  Orthofix International (OFIX)

Valuation Ratios
P/E Ratio 294.2
Price to Sales 2.2
Price to Book 3.4
Price to Tangible Book
Price to Cash Flow 19.6
Price to Free Cash Flow 32.7
Growth Rates
Sales Growth Rate 3.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -35.7%
Cap. Spend. - 3 Yr. Gr. Rate -9.7%
Financial Strength
Quick Ratio NaN
Current Ratio 0.2
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 20
Management Effectiveness
Return On Assets 0.8%
Ret/ On Assets - 3 Yr. Avg. -0.8%
Return On Total Capital 1.1%
Ret/ On T. Cap. - 3 Yr. Avg. -1%
Return On Equity 1.1%
Return On Equity - 3 Yr. Avg. -1%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 78.5%
Gross Margin - 3 Yr. Avg. 77.4%
EBITDA Margin 10%
EBITDA Margin - 3 Yr. Avg. 8.9%
Operating Margin 5.1%
Oper. Margin - 3 Yr. Avg. 3.9%
Pre-Tax Margin 4.6%
Pre-Tax Margin - 3 Yr. Avg. 3.3%
Net Profit Margin 0.7%
Net Profit Margin - 3 Yr. Avg. -0.8%
Effective Tax Rate 78.9%
Eff/ Tax Rate - 3 Yr. Avg. 111.5%
Payout Ratio 0%

OFIX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the OFIX stock intrinsic value calculation we used $410 million for the last fiscal year's total revenue generated by Orthofix International. The default revenue input number comes from 2016 income statement of Orthofix International. 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 OFIX stock valuation model: a) initial revenue growth rate of 4.8% 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 OFIX is calculated based on our internal credit rating of Orthofix International, 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 Orthofix International.
    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 OFIX stock the variable cost ratio is equal to 19.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $318 million in the base year in the intrinsic value calculation for OFIX 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 Orthofix International.

Corporate tax rate of 27% is the nominal tax rate for Orthofix International. 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 OFIX 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 OFIX are equal to 13.8%.

Life of production assets of 5.3 years is the average useful life of capital assets used in Orthofix International 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 OFIX is equal to 17.3%. 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 - $263 million for Orthofix International - 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 18.171 million for Orthofix International 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 Orthofix International at the current share price and the inputted number of shares is $0.9 billion.

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KTWO K2M Group Hold 19.98 0.81  str.sell
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JNJ Johnson&Johnso 142.40 147.16  hold

COMPANY NEWS

▶ Orthofix posts 2Q profit   [12:00AM  Associated Press]
▶ Orthofix to Present at Healthcare Conferences in June 2017   [May-31-17 05:15PM  Business Wire]
▶ Orthofix reports 1Q loss   [May-04-17 05:31PM  Associated Press]
▶ 6 Stocks Trading Up With Unusual Volume   [Mar-16-17 01:15PM  TheStreet.com]
▶ 6 Stocks Trending Up With Major Volume   [07:30AM  TheStreet.com]
▶ Orthofix reports 4Q loss   [Feb-27-17 04:36PM  Associated Press]
▶ Orthofix Settles Bribery, Accounting Probes   [Jan-18-17 05:43PM  at The Wall Street Journal]
▶ Orthofix to Present at J.P. Morgan Healthcare Conference   [Dec-20-16 04:22PM  Business Wire]
▶ Is LGI Homes Inc (LGIH) A Good Stock To Buy?   [Dec-12-16 04:05PM  at Insider Monkey]
▶ Is Iridium Communications Inc (IRDM) A Good Stock To Buy?   [Dec-09-16 07:28PM  at Insider Monkey]
▶ Xencor Inc (XNCR): What Smart Money Thinks about This Stock?   [Dec-04-16 03:53PM  at Insider Monkey]
▶ Should You Buy Orthofix International NV (OFIX)?   [Nov-29-16 06:15AM  at Insider Monkey]
▶ Orthofix to Present at Piper Jaffray Healthcare Conference   [Nov-17-16 04:04PM  Business Wire]
Financial statements of OFIX
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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