Intrinsic value of Orthofix International - OFIX

Previous Close

$54.97

  Intrinsic Value

$59.47

stock screener

  Rating & Target

hold

+8%

Previous close

$54.97

 
Intrinsic value

$59.47

 
Up/down potential

+8%

 
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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.53
  5.47
  5.43
  5.38
  5.35
  5.31
  5.28
  5.25
  5.23
  5.20
  5.18
  5.17
  5.15
  5.13
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.06
  5.06
  5.05
Revenue, $m
  410
  435
  461
  488
  517
  546
  577
  609
  643
  678
  715
  753
  794
  836
  880
  926
  974
  1,025
  1,078
  1,134
  1,192
  1,254
  1,318
  1,385
  1,456
  1,530
  1,607
  1,689
  1,775
  1,864
  1,958
Variable operating expenses, $m
 
  84
  89
  94
  99
  105
  110
  116
  122
  129
  135
  137
  144
  152
  160
  168
  177
  186
  196
  206
  217
  228
  240
  252
  265
  278
  292
  307
  323
  339
  356
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
  423
  436
  450
  465
  479
  494
  509
  526
  542
  554
  572
  590
  609
  629
  649
  670
  692
  714
  738
  762
  787
  813
  840
  868
  896
  926
  958
  990
  1,023
Operating income, $m
  21
  25
  38
  52
  66
  82
  98
  115
  133
  152
  172
  199
  222
  245
  271
  297
  325
  355
  386
  419
  454
  492
  531
  572
  616
  662
  711
  762
  817
  875
  935
EBITDA, $m
  42
  41
  55
  70
  85
  101
  118
  136
  155
  175
  196
  219
  242
  267
  293
  321
  351
  382
  414
  449
  486
  524
  565
  608
  654
  702
  753
  806
  863
  923
  986
Interest expense (income), $m
  1
  0
  0
  0
  1
  1
  1
  2
  2
  2
  2
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  13
  14
Earnings before tax, $m
  19
  25
  38
  51
  65
  81
  97
  113
  131
  150
  170
  196
  218
  242
  267
  293
  320
  350
  381
  413
  448
  484
  523
  564
  607
  652
  700
  751
  805
  862
  922
Tax expense, $m
  15
  7
  10
  14
  18
  22
  26
  31
  35
  41
  46
  53
  59
  65
  72
  79
  87
  94
  103
  112
  121
  131
  141
  152
  164
  176
  189
  203
  217
  233
  249
Net income, $m
  3
  18
  27
  37
  48
  59
  71
  83
  96
  110
  124
  143
  159
  177
  195
  214
  234
  255
  278
  302
  327
  354
  382
  411
  443
  476
  511
  548
  588
  629
  673

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
  352
  373
  395
  418
  442
  467
  493
  521
  549
  579
  610
  643
  677
  712
  750
  789
  830
  873
  918
  965
  1,015
  1,067
  1,122
  1,179
  1,239
  1,302
  1,368
  1,437
  1,510
  1,586
Adjusted assets (=assets-cash), $m
  332
  352
  373
  395
  418
  442
  467
  493
  521
  549
  579
  610
  643
  677
  712
  750
  789
  830
  873
  918
  965
  1,015
  1,067
  1,122
  1,179
  1,239
  1,302
  1,368
  1,437
  1,510
  1,586
Revenue / Adjusted assets
  1.235
  1.236
  1.236
  1.235
  1.237
  1.235
  1.236
  1.235
  1.234
  1.235
  1.235
  1.234
  1.235
  1.235
  1.236
  1.235
  1.234
  1.235
  1.235
  1.235
  1.235
  1.235
  1.235
  1.234
  1.235
  1.235
  1.234
  1.235
  1.235
  1.234
  1.235
Average production assets, $m
  57
  60
  64
  67
  71
  75
  80
  84
  89
  94
  99
  104
  110
  115
  121
  128
  134
  141
  149
  156
  165
  173
  182
  191
  201
  211
  222
  233
  245
  257
  270
Working capital, $m
  111
  75
  80
  84
  89
  94
  100
  105
  111
  117
  124
  130
  137
  145
  152
  160
  169
  177
  187
  196
  206
  217
  228
  240
  252
  265
  278
  292
  307
  323
  339
Total debt, $m
  0
  7
  13
  21
  28
  36
  44
  53
  62
  71
  81
  91
  102
  113
  125
  137
  150
  163
  177
  192
  208
  224
  241
  259
  278
  297
  318
  340
  362
  386
  411
Total liabilities, $m
  109
  116
  122
  130
  137
  145
  153
  162
  171
  180
  190
  200
  211
  222
  234
  246
  259
  272
  286
  301
  317
  333
  350
  368
  387
  406
  427
  449
  471
  495
  520
Total equity, $m
  263
  237
  251
  266
  281
  297
  314
  331
  350
  369
  389
  410
  432
  455
  479
  504
  530
  558
  587
  617
  649
  682
  717
  754
  792
  832
  875
  919
  966
  1,014
  1,066
Total liabilities and equity, $m
  372
  353
  373
  396
  418
  442
  467
  493
  521
  549
  579
  610
  643
  677
  713
  750
  789
  830
  873
  918
  966
  1,015
  1,067
  1,122
  1,179
  1,238
  1,302
  1,368
  1,437
  1,509
  1,586
Debt-to-equity ratio
  0.000
  0.030
  0.050
  0.080
  0.100
  0.120
  0.140
  0.160
  0.180
  0.190
  0.210
  0.220
  0.240
  0.250
  0.260
  0.270
  0.280
  0.290
  0.300
  0.310
  0.320
  0.330
  0.340
  0.340
  0.350
  0.360
  0.360
  0.370
  0.380
  0.380
  0.390
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
  18
  27
  37
  48
  59
  71
  83
  96
  110
  124
  143
  159
  177
  195
  214
  234
  255
  278
  302
  327
  354
  382
  411
  443
  476
  511
  548
  588
  629
  673
Depreciation, amort., depletion, $m
  21
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  20
  21
  22
  23
  24
  25
  27
  28
  30
  31
  33
  34
  36
  38
  40
  42
  44
  46
  49
  51
Funds from operations, $m
  47
  35
  45
  55
  67
  78
  91
  104
  118
  133
  148
  163
  180
  198
  218
  238
  259
  282
  306
  331
  358
  386
  416
  448
  481
  516
  553
  592
  634
  678
  724
Change in working capital, $m
  2
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  16
  16
Cash from operations, $m
  45
  30
  40
  51
  62
  73
  86
  99
  112
  127
  142
  156
  173
  191
  210
  230
  251
  273
  297
  322
  348
  376
  405
  436
  469
  503
  540
  578
  619
  662
  708
Maintenance CAPEX, $m
  0
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -49
New CAPEX, $m
  -18
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
Cash from investing activities, $m
  -22
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -39
  -42
  -43
  -46
  -48
  -51
  -53
  -56
  -58
  -62
Free cash flow, $m
  23
  16
  25
  35
  45
  56
  67
  79
  92
  105
  119
  132
  148
  165
  182
  201
  220
  241
  263
  286
  310
  336
  363
  392
  423
  455
  489
  525
  563
  604
  646
Issuance/(repayment) of debt, $m
  0
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
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
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
Total cash flow (excl. dividends), $m
  -24
  23
  32
  42
  53
  64
  75
  88
  101
  114
  129
  143
  159
  176
  194
  213
  233
  254
  277
  301
  326
  352
  380
  410
  442
  475
  510
  547
  586
  627
  671
Retained Cash Flow (-), $m
  27
  -14
  -14
  -15
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -35
  -37
  -38
  -40
  -42
  -44
  -47
  -49
  -51
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
  18
  27
  37
  48
  59
  70
  82
  95
  109
  122
  137
  153
  170
  188
  207
  227
  248
  270
  294
  319
  346
  374
  403
  434
  468
  503
  540
  579
  620
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
  17
  24
  31
  37
  42
  47
  51
  55
  57
  58
  58
  58
  57
  55
  53
  49
  46
  42
  37
  33
  29
  24
  21
  17
  14
  11
  8
  6
  5
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
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

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 326.7
Price to Sales 2.4
Price to Book 3.7
Price to Tangible Book
Price to Cash Flow 21.8
Price to Free Cash Flow 36.3
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 6.1% 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 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 18.464 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 $1.0 billion.

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COMPANY NEWS

▶ Orthofix to Present at J.P. Morgan Healthcare Conference   [Jan-02-18 04:30PM  Business Wire]
▶ Orthofix beats 3Q profit forecasts   [Oct-30-17 04:11PM  Associated Press]
▶ 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]
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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