Intrinsic value of Performant Financial - PFMT

Previous Close

$1.80

  Intrinsic Value

$0.16

stock screener

  Rating & Target

str. sell

-91%

Previous close

$1.80

 
Intrinsic value

$0.16

 
Up/down potential

-91%

 
Rating

str. sell

We calculate the intrinsic value of PFMT 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 0.1

 

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, %
  -11.32
  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
  141
  144
  147
  151
  155
  160
  165
  171
  177
  183
  190
  198
  206
  214
  223
  233
  243
  254
  266
  278
  290
  304
  318
  333
  349
  365
  383
  401
  421
  441
  463
Variable operating expenses, $m
 
  31
  32
  33
  33
  34
  35
  36
  37
  38
  39
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
  71
  75
Fixed operating expenses, $m
 
  124
  127
  130
  134
  137
  140
  144
  147
  151
  155
  159
  163
  167
  171
  175
  180
  184
  189
  193
  198
  203
  208
  214
  219
  224
  230
  236
  242
  248
  254
Total operating expenses, $m
  149
  155
  159
  163
  167
  171
  175
  180
  184
  189
  194
  191
  196
  202
  207
  213
  219
  225
  232
  238
  245
  252
  259
  268
  275
  283
  292
  301
  310
  319
  329
Operating income, $m
  -8
  -12
  -12
  -12
  -12
  -11
  -10
  -9
  -7
  -6
  -4
  7
  10
  13
  17
  20
  25
  29
  34
  40
  45
  52
  59
  66
  74
  82
  91
  101
  111
  122
  134
EBITDA, $m
  21
  5
  5
  5
  5
  6
  8
  9
  11
  13
  16
  19
  22
  25
  29
  34
  38
  44
  49
  55
  62
  69
  77
  85
  94
  103
  113
  124
  135
  148
  161
Interest expense (income), $m
  6
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  14
  14
  15
  16
  17
  18
  19
Earnings before tax, $m
  -16
  -15
  -16
  -16
  -16
  -15
  -15
  -14
  -13
  -11
  -9
  1
  3
  6
  9
  12
  16
  20
  25
  29
  35
  40
  46
  53
  60
  68
  76
  85
  94
  104
  115
Tax expense, $m
  -5
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  2
  2
  3
  4
  5
  7
  8
  9
  11
  13
  14
  16
  18
  21
  23
  25
  28
  31
Net income, $m
  -11
  -15
  -16
  -16
  -16
  -15
  -15
  -14
  -13
  -11
  -9
  1
  2
  4
  7
  9
  12
  15
  18
  21
  25
  29
  34
  39
  44
  50
  56
  62
  69
  76
  84

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  33
  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
  185
  155
  159
  163
  167
  172
  178
  184
  190
  197
  205
  213
  222
  231
  241
  251
  262
  274
  286
  299
  313
  327
  343
  359
  376
  394
  413
  432
  453
  475
  498
Adjusted assets (=assets-cash), $m
  152
  155
  159
  163
  167
  172
  178
  184
  190
  197
  205
  213
  222
  231
  241
  251
  262
  274
  286
  299
  313
  327
  343
  359
  376
  394
  413
  432
  453
  475
  498
Revenue / Adjusted assets
  0.928
  0.929
  0.925
  0.926
  0.928
  0.930
  0.927
  0.929
  0.932
  0.929
  0.927
  0.930
  0.928
  0.926
  0.925
  0.928
  0.927
  0.927
  0.930
  0.930
  0.927
  0.930
  0.927
  0.928
  0.928
  0.926
  0.927
  0.928
  0.929
  0.928
  0.930
Average production assets, $m
  41
  41
  42
  43
  45
  46
  47
  49
  51
  53
  55
  57
  59
  62
  64
  67
  70
  73
  76
  80
  83
  87
  91
  96
  100
  105
  110
  115
  121
  127
  133
Working capital, $m
  21
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
Total debt, $m
  54
  46
  48
  50
  53
  56
  59
  63
  67
  71
  75
  80
  85
  90
  96
  102
  109
  116
  123
  130
  138
  147
  156
  165
  175
  186
  197
  208
  221
  234
  247
Total liabilities, $m
  99
  91
  93
  95
  98
  101
  104
  108
  112
  116
  120
  125
  130
  135
  141
  147
  154
  161
  168
  175
  183
  192
  201
  210
  220
  231
  242
  253
  266
  279
  292
Total equity, $m
  86
  64
  66
  67
  69
  71
  74
  76
  79
  82
  85
  88
  92
  96
  100
  104
  109
  113
  118
  124
  130
  136
  142
  149
  156
  163
  171
  179
  188
  197
  206
Total liabilities and equity, $m
  185
  155
  159
  162
  167
  172
  178
  184
  191
  198
  205
  213
  222
  231
  241
  251
  263
  274
  286
  299
  313
  328
  343
  359
  376
  394
  413
  432
  454
  476
  498
Debt-to-equity ratio
  0.628
  0.710
  0.730
  0.750
  0.770
  0.780
  0.800
  0.820
  0.840
  0.870
  0.890
  0.910
  0.930
  0.950
  0.960
  0.980
  1.000
  1.020
  1.040
  1.050
  1.070
  1.080
  1.100
  1.110
  1.130
  1.140
  1.150
  1.160
  1.180
  1.190
  1.200
Adjusted equity ratio
  0.349
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414
  0.414

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -11
  -15
  -16
  -16
  -16
  -15
  -15
  -14
  -13
  -11
  -9
  1
  2
  4
  7
  9
  12
  15
  18
  21
  25
  29
  34
  39
  44
  50
  56
  62
  69
  76
  84
Depreciation, amort., depletion, $m
  29
  17
  17
  17
  17
  17
  18
  18
  18
  19
  19
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
Funds from operations, $m
  19
  1
  1
  1
  1
  2
  3
  4
  6
  8
  10
  12
  14
  17
  19
  22
  26
  29
  33
  37
  42
  47
  52
  58
  64
  71
  78
  85
  93
  101
  111
Change in working capital, $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 operations, $m
  18
  1
  1
  1
  1
  2
  3
  4
  6
  8
  10
  12
  14
  17
  20
  23
  26
  29
  33
  38
  42
  47
  52
  58
  64
  71
  78
  85
  93
  102
  111
Maintenance CAPEX, $m
  0
  -8
  -8
  -8
  -9
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
New CAPEX, $m
  -8
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
Cash from investing activities, $m
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -12
  -12
  -13
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -18
  -20
  -21
  -21
  -22
  -24
  -25
  -26
  -27
  -29
  -30
  -31
Free cash flow, $m
  10
  -8
  -8
  -8
  -8
  -8
  -8
  -7
  -6
  -4
  -3
  -1
  1
  3
  5
  7
  10
  12
  16
  19
  23
  27
  31
  36
  41
  46
  52
  58
  65
  72
  79
Issuance/(repayment) of debt, $m
  -39
  2
  2
  2
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  12
  12
  13
  14
Issuance/(repurchase) of shares, $m
  0
  16
  17
  18
  18
  18
  17
  16
  15
  14
  12
  3
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -48
  18
  19
  20
  21
  21
  20
  20
  19
  18
  16
  8
  6
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  12
  12
  13
  14
Total cash flow (excl. dividends), $m
  -38
  11
  11
  12
  12
  12
  13
  13
  14
  14
  14
  6
  7
  8
  10
  13
  16
  19
  23
  27
  31
  35
  40
  45
  51
  56
  63
  70
  77
  85
  93
Retained Cash Flow (-), $m
  8
  -16
  -17
  -18
  -18
  -18
  -17
  -16
  -15
  -14
  -12
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
Prev. year cash balance distribution, $m
 
  23
  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
 
  17
  -6
  -6
  -6
  -5
  -4
  -3
  -2
  0
  2
  3
  3
  4
  6
  9
  11
  14
  18
  21
  25
  29
  34
  38
  43
  49
  55
  61
  68
  76
  83
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
 
  17
  -6
  -5
  -5
  -4
  -3
  -2
  -1
  0
  1
  1
  1
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  3
  2
  2
  2
  1
  1
  1
  1
Current shareholders' claim on cash, %
  100
  80.3
  64.1
  51.2
  41.0
  33.1
  27.0
  22.4
  18.8
  16.1
  14.1
  13.7
  13.5
  13.5
  13.5
  13.5
  13.5
  13.5
  13.5
  13.5
  13.5
  13.5
  13.5
  13.5
  13.5
  13.5
  13.5
  13.5
  13.5
  13.5
  13.5

Performant Financial Corporation (Performant) provides technology-enabled recovery and related analytics services in the United States. The Company's services identify and recover delinquent or defaulted assets and improper payments for both government and private clients in a range of markets. The Company provides its services on an outsourced basis where the Company handles many or all aspects of its clients' recovery processes. The Company uses its technology-enabled services platform to provide recovery and analytics services in a range of markets for the identification and recovery of student loans, improper healthcare payments and delinquent state tax and federal treasury receivables. It provides recovery services to the government-supported student loan industry and its clients include the Department of Education and Guaranty Agencies, as well as private financial institutions. The Company provides recovery services related to improper payments in the healthcare market.

FINANCIAL RATIOS  of  Performant Financial (PFMT)

Valuation Ratios
P/E Ratio -8.2
Price to Sales 0.6
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow 5
Price to Free Cash Flow 9
Growth Rates
Sales Growth Rate -11.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate -9.3%
Financial Strength
Quick Ratio 3
Current Ratio 0.3
LT Debt to Equity 51.2%
Total Debt to Equity 62.8%
Interest Coverage -2
Management Effectiveness
Return On Assets -3.2%
Ret/ On Assets - 3 Yr. Avg. 1.5%
Return On Total Capital -6.7%
Ret/ On T. Cap. - 3 Yr. Avg. -1.1%
Return On Equity -12.2%
Return On Equity - 3 Yr. Avg. -1.2%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 13.5%
EBITDA Margin - 3 Yr. Avg. 15%
Operating Margin -5.7%
Oper. Margin - 3 Yr. Avg. 4%
Pre-Tax Margin -11.3%
Pre-Tax Margin - 3 Yr. Avg. -1.3%
Net Profit Margin -7.8%
Net Profit Margin - 3 Yr. Avg. -1.5%
Effective Tax Rate 31.3%
Eff/ Tax Rate - 3 Yr. Avg. 26.1%
Payout Ratio 0%

PFMT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PFMT stock intrinsic value calculation we used $141 million for the last fiscal year's total revenue generated by Performant Financial. The default revenue input number comes from 2016 income statement of Performant Financial. 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 PFMT 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 PFMT is calculated based on our internal credit rating of Performant Financial, 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 Performant Financial.
    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 PFMT stock the variable cost ratio is equal to 22%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $121 million in the base year in the intrinsic value calculation for PFMT 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 8.2% for Performant Financial.

Corporate tax rate of 27% is the nominal tax rate for Performant Financial. 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 PFMT 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 PFMT are equal to 28.7%.

Life of production assets of 4.3 years is the average useful life of capital assets used in Performant Financial 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 PFMT is equal to -1.4%. 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 - $86 million for Performant Financial - 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 50.797 million for Performant Financial 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 Performant Financial at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ Performant Financial reports 3Q loss   [Nov-07-17 05:01PM  Associated Press]
▶ Performant Financial reports 2Q loss   [12:09AM  Associated Press]
▶ Performant Announces Passing of its Chief Financial Officer   [Jul-21-17 04:01PM  GlobeNewswire]
▶ Performant Financial reports 1Q loss   [May-09-17 05:48PM  Associated Press]
▶ Performant Financial reports 4Q loss   [05:01PM  Associated Press]
▶ Getting Out Of The Blue Calls From IRS? Just Hang Up   [Jan-21-17 11:04AM  at Forbes]
▶ Performant Announces Senior Leadership Changes   [Apr-15-16 04:01PM  GlobeNewswire]
▶ Miteks James DeBello Appointed Chairman   [Mar-09-16 07:00AM  GlobeNewswire]
Financial statements of PFMT
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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