Intrinsic value of Orthofix International - OFIX

Previous Close

$48.19

  Intrinsic Value

$40.63

stock screener

  Rating & Target

hold

-16%

  Value-price divergence*

+763%

Previous close

$48.19

 
Intrinsic value

$40.63

 
Up/down potential

-16%

 
Rating

hold

 
Value-price divergence*

+763%

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

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 0.8

 

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
  4.00
  4.10
  4.19
  4.27
  4.34
  4.41
  4.47
  4.52
  4.57
  4.61
  4.65
  4.69
  4.72
  4.75
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
Revenue, $m
  410
  426
  444
  462
  482
  503
  525
  549
  574
  600
  628
  657
  688
  720
  754
  790
  828
  868
  910
  954
  1,000
  1,049
  1,100
  1,154
  1,211
  1,271
  1,333
  1,399
  1,468
  1,541
  1,617
Variable operating expenses, $m
 
  83
  86
  89
  93
  97
  101
  105
  110
  114
  120
  119
  125
  131
  137
  144
  151
  158
  165
  173
  182
  191
  200
  210
  220
  231
  242
  254
  267
  280
  294
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
  409
  420
  431
  444
  457
  470
  483
  497
  511
  527
  536
  553
  569
  586
  605
  623
  642
  661
  681
  703
  725
  747
  771
  795
  821
  846
  873
  902
  931
  961
Operating income, $m
  21
  18
  24
  31
  38
  47
  56
  66
  77
  88
  101
  120
  135
  151
  168
  186
  205
  226
  248
  272
  297
  324
  353
  383
  416
  450
  487
  525
  566
  610
  656
EBITDA, $m
  42
  29
  35
  42
  50
  59
  68
  79
  90
  102
  115
  129
  144
  161
  178
  197
  217
  238
  261
  285
  311
  339
  368
  399
  432
  468
  505
  545
  587
  631
  678
Interest expense (income), $m
  1
  0
  0
  0
  0
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
Earnings before tax, $m
  19
  18
  24
  30
  38
  46
  55
  65
  75
  87
  99
  118
  133
  148
  165
  183
  202
  222
  244
  267
  292
  319
  347
  377
  409
  443
  479
  517
  557
  600
  646
Tax expense, $m
  15
  5
  6
  8
  10
  12
  15
  17
  20
  23
  27
  32
  36
  40
  44
  49
  54
  60
  66
  72
  79
  86
  94
  102
  110
  120
  129
  140
  150
  162
  174
Net income, $m
  3
  13
  17
  22
  27
  33
  40
  47
  55
  63
  72
  86
  97
  108
  120
  133
  147
  162
  178
  195
  213
  233
  253
  275
  298
  323
  349
  377
  407
  438
  471

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
  345
  359
  374
  390
  407
  425
  444
  465
  486
  508
  532
  557
  583
  611
  640
  670
  703
  737
  772
  810
  849
  891
  935
  981
  1,029
  1,080
  1,133
  1,189
  1,248
  1,309
Adjusted assets (=assets-cash), $m
  332
  345
  359
  374
  390
  407
  425
  444
  465
  486
  508
  532
  557
  583
  611
  640
  670
  703
  737
  772
  810
  849
  891
  935
  981
  1,029
  1,080
  1,133
  1,189
  1,248
  1,309
Revenue / Adjusted assets
  1.235
  1.235
  1.237
  1.235
  1.236
  1.236
  1.235
  1.236
  1.234
  1.235
  1.236
  1.235
  1.235
  1.235
  1.234
  1.234
  1.236
  1.235
  1.235
  1.236
  1.235
  1.236
  1.235
  1.234
  1.234
  1.235
  1.234
  1.235
  1.235
  1.235
  1.235
Average production assets, $m
  57
  59
  61
  64
  67
  69
  73
  76
  79
  83
  87
  91
  95
  99
  104
  109
  114
  120
  126
  132
  138
  145
  152
  159
  167
  175
  184
  193
  203
  213
  223
Working capital, $m
  111
  74
  77
  80
  83
  87
  91
  95
  99
  104
  109
  114
  119
  125
  130
  137
  143
  150
  157
  165
  173
  181
  190
  200
  210
  220
  231
  242
  254
  267
  280
Total debt, $m
  0
  4
  9
  14
  19
  25
  31
  37
  43
  50
  58
  65
  74
  82
  91
  101
  111
  121
  133
  144
  157
  170
  183
  198
  213
  228
  245
  263
  281
  300
  320
Total liabilities, $m
  109
  113
  118
  123
  128
  134
  140
  146
  152
  159
  167
  174
  183
  191
  200
  210
  220
  230
  242
  253
  266
  279
  292
  307
  322
  337
  354
  372
  390
  409
  429
Total equity, $m
  263
  232
  242
  252
  262
  274
  286
  299
  312
  326
  341
  357
  374
  392
  410
  430
  451
  472
  495
  519
  544
  571
  599
  628
  659
  691
  725
  761
  799
  838
  880
Total liabilities and equity, $m
  372
  345
  360
  375
  390
  408
  426
  445
  464
  485
  508
  531
  557
  583
  610
  640
  671
  702
  737
  772
  810
  850
  891
  935
  981
  1,028
  1,079
  1,133
  1,189
  1,247
  1,309
Debt-to-equity ratio
  0.000
  0.020
  0.040
  0.050
  0.070
  0.090
  0.110
  0.120
  0.140
  0.150
  0.170
  0.180
  0.200
  0.210
  0.220
  0.230
  0.250
  0.260
  0.270
  0.280
  0.290
  0.300
  0.310
  0.310
  0.320
  0.330
  0.340
  0.340
  0.350
  0.360
  0.360
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
  13
  17
  22
  27
  33
  40
  47
  55
  63
  72
  86
  97
  108
  120
  133
  147
  162
  178
  195
  213
  233
  253
  275
  298
  323
  349
  377
  407
  438
  471
Depreciation, amort., depletion, $m
  21
  11
  12
  12
  12
  12
  13
  13
  13
  14
  14
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  14
  15
  16
  17
  18
  18
  19
  20
  21
  22
Funds from operations, $m
  47
  24
  29
  34
  40
  46
  53
  60
  68
  77
  86
  95
  106
  118
  131
  144
  159
  174
  191
  208
  227
  247
  268
  291
  315
  341
  368
  396
  427
  459
  494
Change in working capital, $m
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
Cash from operations, $m
  45
  21
  26
  31
  36
  42
  49
  56
  64
  72
  82
  90
  101
  112
  125
  138
  152
  167
  184
  201
  219
  239
  260
  282
  305
  330
  357
  385
  415
  447
  480
Maintenance CAPEX, $m
  0
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
New CAPEX, $m
  -18
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
Cash from investing activities, $m
  -22
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -12
  -12
  -13
  -13
  -13
  -15
  -15
  -16
  -17
  -18
  -19
  -19
  -21
  -21
  -22
  -24
  -25
  -27
  -27
  -29
  -30
  -32
Free cash flow, $m
  23
  13
  17
  22
  27
  33
  39
  46
  53
  61
  70
  78
  88
  98
  110
  123
  136
  150
  166
  182
  200
  218
  238
  259
  282
  305
  331
  358
  386
  416
  449
Issuance/(repayment) of debt, $m
  0
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
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
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
Total cash flow (excl. dividends), $m
  -24
  17
  22
  27
  32
  38
  45
  52
  60
  68
  77
  85
  96
  107
  119
  132
  146
  161
  177
  194
  212
  231
  252
  273
  297
  321
  347
  375
  405
  436
  469
Retained Cash Flow (-), $m
  27
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
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
 
  48
  13
  17
  22
  27
  33
  39
  46
  54
  62
  69
  79
  89
  101
  113
  126
  139
  154
  170
  187
  205
  224
  244
  266
  289
  313
  339
  367
  396
  427
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
 
  46
  11
  15
  18
  21
  24
  26
  29
  31
  32
  33
  34
  34
  34
  33
  32
  30
  28
  26
  24
  21
  19
  16
  14
  11
  9
  7
  6
  4
  3
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
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Orthofix International N.V., a medical device company, provides reconstructive and regenerative orthopedic and spine solutions to physicians worldwide. It operates through four segments: BioStim, Biologics, Extremity Fixation, and Spine Fixation. The BioStim segment manufactures, distributes, and provides support services for bone growth stimulator devices that enhance bone fusion and are indicated as treatment to improve fusion success rates in cervical and lumbar spine, as well as a therapeutic treatment for non-spine fractures. The Biologics segment provides a portfolio of regenerative products and tissue forms that allow physicians to treat a range of spinal and orthopedic conditions. The Extremity Fixation segment designs, develops, and markets orthopedic products used in fracture repair, deformity correction, and bone reconstruction procedures. The Spine Fixation segment designs, develops, and markets a portfolio of implant products used in surgical procedures of the spine. The company markets and distributes its products directly, as well as through independent distributors and independent sales representatives to hospitals, doctors, and other healthcare providers. Orthofix International N.V. was founded in 1987 and is headquartered in Lewisville, Texas.

FINANCIAL RATIOS  of  Orthofix International (OFIX)

Valuation Ratios
P/E Ratio 286.4
Price to Sales 2.1
Price to Book 3.3
Price to Tangible Book
Price to Cash Flow 19.1
Price to Free Cash Flow 31.8
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% 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 10 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 16.695 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 $0.8 billion.

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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]
Stock chart of OFIX 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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