Intrinsic value of Providence Service - PRSC

Previous Close

$51.86

  Intrinsic Value

$23.97

stock screener

  Rating & Target

str. sell

-54%

  Value-price divergence*

-70%

Previous close

$51.86

 
Intrinsic value

$23.97

 
Up/down potential

-54%

 
Rating

str. sell

 
Value-price divergence*

-70%

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

We calculate the intrinsic value of PRSC 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 0.7

 

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, %
  6.83
  2.50
  2.75
  2.97
  3.18
  3.36
  3.52
  3.67
  3.80
  3.92
  4.03
  4.13
  4.22
  4.29
  4.36
  4.43
  4.49
  4.54
  4.58
  4.62
  4.66
  4.70
  4.73
  4.75
  4.78
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
Revenue, $m
  1,579
  1,618
  1,663
  1,712
  1,767
  1,826
  1,891
  1,960
  2,035
  2,114
  2,200
  2,290
  2,387
  2,489
  2,598
  2,713
  2,835
  2,963
  3,099
  3,243
  3,394
  3,553
  3,721
  3,898
  4,084
  4,280
  4,487
  4,704
  4,932
  5,172
  5,425
Variable operating expenses, $m
 
  1,507
  1,548
  1,593
  1,644
  1,698
  1,758
  1,822
  1,891
  1,964
  2,043
  2,115
  2,204
  2,299
  2,399
  2,505
  2,618
  2,736
  2,862
  2,994
  3,134
  3,281
  3,436
  3,599
  3,771
  3,953
  4,143
  4,343
  4,554
  4,776
  5,009
Fixed operating expenses, $m
 
  106
  108
  111
  114
  117
  119
  122
  125
  129
  132
  135
  139
  142
  146
  149
  153
  157
  161
  165
  169
  173
  177
  182
  186
  191
  196
  201
  206
  211
  216
Total operating expenses, $m
  1,570
  1,613
  1,656
  1,704
  1,758
  1,815
  1,877
  1,944
  2,016
  2,093
  2,175
  2,250
  2,343
  2,441
  2,545
  2,654
  2,771
  2,893
  3,023
  3,159
  3,303
  3,454
  3,613
  3,781
  3,957
  4,144
  4,339
  4,544
  4,760
  4,987
  5,225
Operating income, $m
  9
  6
  7
  8
  10
  11
  13
  16
  18
  21
  25
  40
  44
  49
  53
  59
  64
  70
  77
  84
  91
  99
  108
  117
  127
  137
  148
  160
  172
  185
  199
EBITDA, $m
  57
  35
  36
  38
  40
  42
  45
  48
  52
  55
  60
  64
  69
  75
  81
  87
  94
  101
  109
  117
  126
  136
  146
  157
  169
  181
  195
  209
  223
  239
  256
Interest expense (income), $m
  10
  0
  1
  1
  2
  3
  3
  4
  5
  6
  7
  8
  9
  10
  12
  13
  15
  16
  18
  20
  21
  23
  25
  27
  30
  32
  35
  37
  40
  43
  46
Earnings before tax, $m
  -2
  6
  7
  7
  8
  9
  10
  12
  13
  15
  18
  32
  35
  38
  42
  46
  50
  54
  59
  64
  70
  76
  82
  89
  97
  105
  113
  122
  132
  142
  153
Tax expense, $m
  17
  2
  2
  2
  2
  2
  3
  3
  4
  4
  5
  9
  9
  10
  11
  12
  13
  15
  16
  17
  19
  20
  22
  24
  26
  28
  31
  33
  36
  38
  41
Net income, $m
  92
  5
  5
  5
  6
  6
  7
  8
  10
  11
  13
  24
  26
  28
  30
  33
  36
  39
  43
  47
  51
  55
  60
  65
  71
  77
  83
  89
  96
  104
  112

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  72
  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
  685
  628
  646
  665
  686
  709
  734
  761
  790
  821
  854
  889
  927
  966
  1,009
  1,053
  1,100
  1,150
  1,203
  1,259
  1,317
  1,379
  1,445
  1,513
  1,586
  1,662
  1,742
  1,826
  1,915
  2,008
  2,106
Adjusted assets (=assets-cash), $m
  613
  628
  646
  665
  686
  709
  734
  761
  790
  821
  854
  889
  927
  966
  1,009
  1,053
  1,100
  1,150
  1,203
  1,259
  1,317
  1,379
  1,445
  1,513
  1,586
  1,662
  1,742
  1,826
  1,915
  2,008
  2,106
Revenue / Adjusted assets
  2.576
  2.576
  2.574
  2.574
  2.576
  2.575
  2.576
  2.576
  2.576
  2.575
  2.576
  2.576
  2.575
  2.577
  2.575
  2.576
  2.577
  2.577
  2.576
  2.576
  2.577
  2.577
  2.575
  2.576
  2.575
  2.575
  2.576
  2.576
  2.575
  2.576
  2.576
Average production assets, $m
  83
  84
  86
  89
  92
  95
  98
  102
  106
  110
  114
  119
  124
  129
  135
  141
  147
  154
  161
  169
  176
  185
  193
  203
  212
  223
  233
  245
  256
  269
  282
Working capital, $m
  60
  -10
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -28
  -30
  -31
  -33
Total debt, $m
  4
  10
  18
  28
  39
  50
  62
  76
  90
  106
  122
  140
  158
  178
  199
  222
  245
  270
  296
  324
  353
  384
  416
  451
  487
  524
  564
  606
  651
  697
  746
Total liabilities, $m
  308
  313
  321
  331
  342
  353
  365
  379
  393
  409
  425
  443
  461
  481
  502
  525
  548
  573
  599
  627
  656
  687
  719
  754
  790
  827
  867
  909
  954
  1,000
  1,049
Total equity, $m
  378
  315
  324
  334
  344
  356
  368
  382
  396
  412
  429
  446
  465
  485
  506
  529
  552
  578
  604
  632
  661
  692
  725
  760
  796
  834
  874
  917
  961
  1,008
  1,057
Total liabilities and equity, $m
  686
  628
  645
  665
  686
  709
  733
  761
  789
  821
  854
  889
  926
  966
  1,008
  1,054
  1,100
  1,151
  1,203
  1,259
  1,317
  1,379
  1,444
  1,514
  1,586
  1,661
  1,741
  1,826
  1,915
  2,008
  2,106
Debt-to-equity ratio
  0.011
  0.030
  0.060
  0.080
  0.110
  0.140
  0.170
  0.200
  0.230
  0.260
  0.290
  0.310
  0.340
  0.370
  0.390
  0.420
  0.440
  0.470
  0.490
  0.510
  0.530
  0.550
  0.570
  0.590
  0.610
  0.630
  0.650
  0.660
  0.680
  0.690
  0.710
Adjusted equity ratio
  0.499
  0.502
  0.502
  0.502
  0.502
  0.502
  0.502
  0.502
  0.502
  0.502
  0.502
  0.502
  0.502
  0.502
  0.502
  0.502
  0.502
  0.502
  0.502
  0.502
  0.502
  0.502
  0.502
  0.502
  0.502
  0.502
  0.502
  0.502
  0.502
  0.502
  0.502

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  92
  5
  5
  5
  6
  6
  7
  8
  10
  11
  13
  24
  26
  28
  30
  33
  36
  39
  43
  47
  51
  55
  60
  65
  71
  77
  83
  89
  96
  104
  112
Depreciation, amort., depletion, $m
  48
  29
  29
  30
  30
  31
  32
  32
  33
  34
  35
  24
  25
  26
  27
  28
  29
  31
  32
  34
  35
  37
  39
  41
  42
  45
  47
  49
  51
  54
  56
Funds from operations, $m
  26
  33
  34
  35
  36
  37
  39
  41
  43
  45
  48
  47
  50
  54
  57
  61
  66
  70
  75
  81
  86
  92
  99
  106
  113
  121
  129
  138
  148
  158
  168
Change in working capital, $m
  -15
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
Cash from operations, $m
  41
  34
  34
  35
  36
  38
  39
  41
  43
  46
  48
  48
  51
  54
  58
  62
  66
  71
  76
  81
  87
  93
  100
  107
  114
  122
  131
  140
  149
  159
  170
Maintenance CAPEX, $m
  0
  -17
  -17
  -17
  -18
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
  -42
  -45
  -47
  -49
  -51
  -54
New CAPEX, $m
  -41
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
Cash from investing activities, $m
  324
  -19
  -19
  -20
  -21
  -21
  -22
  -24
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -38
  -39
  -42
  -43
  -46
  -48
  -51
  -52
  -56
  -58
  -61
  -63
  -67
Free cash flow, $m
  365
  15
  15
  15
  16
  16
  17
  18
  19
  20
  22
  20
  22
  24
  27
  29
  32
  35
  38
  42
  46
  50
  54
  59
  64
  70
  75
  82
  88
  95
  103
Issuance/(repayment) of debt, $m
  -306
  8
  9
  10
  11
  11
  12
  13
  14
  15
  16
  18
  19
  20
  21
  22
  24
  25
  26
  28
  29
  31
  32
  34
  36
  38
  40
  42
  44
  46
  49
Issuance/(repurchase) of shares, $m
  -66
  3
  4
  5
  5
  5
  5
  5
  5
  4
  4
  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  
  -373
  11
  13
  15
  16
  16
  17
  18
  19
  19
  20
  18
  19
  20
  21
  22
  24
  25
  26
  28
  29
  31
  32
  34
  36
  38
  40
  42
  44
  46
  49
Total cash flow (excl. dividends), $m
  -9
  26
  28
  29
  31
  33
  35
  36
  38
  40
  42
  38
  41
  44
  48
  51
  55
  60
  64
  69
  75
  81
  87
  93
  100
  107
  115
  124
  132
  142
  152
Retained Cash Flow (-), $m
  -10
  -7
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -28
  -29
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -45
  -47
  -49
Prev. year cash balance distribution, $m
 
  70
  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
 
  89
  19
  20
  21
  21
  22
  23
  24
  25
  25
  20
  22
  24
  26
  29
  32
  35
  38
  42
  45
  49
  54
  59
  64
  69
  75
  81
  88
  95
  103
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
 
  85
  17
  17
  17
  17
  16
  16
  15
  14
  13
  10
  9
  9
  9
  8
  8
  8
  7
  6
  6
  5
  4
  4
  3
  3
  2
  2
  1
  1
  1
Current shareholders' claim on cash, %
  100
  99.5
  98.8
  98.1
  97.3
  96.5
  95.8
  95.1
  94.4
  93.9
  93.4
  93.4
  93.4
  93.4
  93.4
  93.4
  93.4
  93.4
  93.4
  93.4
  93.4
  93.4
  93.4
  93.4
  93.4
  93.4
  93.4
  93.4
  93.4
  93.4
  93.4

The Providence Service Corporation (Providence) is a holding company. The Company, through its subsidiaries, is engaged in the provision of healthcare and workforce development services for public and private sector entities. The Company's segments include Non-Emergency Transportation Services (NET Services), Workforce Development Services (WD Services) and Matrix Investment. NET Services segment includes nationwide provider of non-emergency medical transportation programs for state governments and managed care organizations. WD Services segment is a global provider of employment preparation and placement and legal offender rehabilitation services to eligible participants of government sponsored programs. Matrix Investment segment includes minority interest in nationwide provider of in-home care optimization and management solutions, including comprehensive health assessments (CHAs), to members of managed care organizations, accounted for as an equity method investment.

FINANCIAL RATIOS  of  Providence Service (PRSC)

Valuation Ratios
P/E Ratio 7.8
Price to Sales 0.5
Price to Book 1.9
Price to Tangible Book
Price to Cash Flow 17.5
Price to Free Cash Flow 0
Growth Rates
Sales Growth Rate 6.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 17.1%
Cap. Spend. - 3 Yr. Gr. Rate 32.6%
Financial Strength
Quick Ratio 36
Current Ratio 0.1
LT Debt to Equity 0.5%
Total Debt to Equity 1.1%
Interest Coverage 1
Management Effectiveness
Return On Assets 21.6%
Ret/ On Assets - 3 Yr. Avg. 12.2%
Return On Total Capital 17.5%
Ret/ On T. Cap. - 3 Yr. Avg. 10.9%
Return On Equity 24.7%
Return On Equity - 3 Yr. Avg. 21.4%
Asset Turnover 1.8
Profitability Ratios
Gross Margin 8%
Gross Margin - 3 Yr. Avg. 8%
EBITDA Margin 3.5%
EBITDA Margin - 3 Yr. Avg. 4.9%
Operating Margin 0.6%
Oper. Margin - 3 Yr. Avg. 1.5%
Pre-Tax Margin -0.1%
Pre-Tax Margin - 3 Yr. Avg. 0.7%
Net Profit Margin 5.8%
Net Profit Margin - 3 Yr. Avg. 4.4%
Effective Tax Rate -850%
Eff/ Tax Rate - 3 Yr. Avg. -325.3%
Payout Ratio 4.3%

PRSC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PRSC stock intrinsic value calculation we used $1579 million for the last fiscal year's total revenue generated by Providence Service. The default revenue input number comes from 2016 income statement of Providence Service. 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 PRSC stock valuation model: a) initial revenue growth rate of 2.5% 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 PRSC is calculated based on our internal credit rating of Providence Service, 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 Providence Service.
    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 PRSC stock the variable cost ratio is equal to 93.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $103 million in the base year in the intrinsic value calculation for PRSC 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 6.6% for Providence Service.

Corporate tax rate of 27% is the nominal tax rate for Providence Service. 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 PRSC 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 PRSC are equal to 5.2%.

Life of production assets of 4.3 years is the average useful life of capital assets used in Providence Service 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 PRSC is equal to -0.6%. 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 - $378 million for Providence Service - 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 13.454 million for Providence Service 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 Providence Service at the current share price and the inputted number of shares is $0.7 billion.

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COMPANY NEWS

▶ Matrix Medical Network Achieves HITRUST CSF Certification   [Jun-19-17 10:39AM  GlobeNewswire]
▶ Providence Service reports 1Q loss   [May-09-17 06:54PM  Associated Press]
▶ Providence Service posts 4Q profit   [Mar-09-17 05:56PM  Associated Press]
▶ LogistiCare And Lyft Announce Nationwide Partnership   [Feb-07-17 01:00PM  PR Newswire]
▶ LogistiCare Announces CEO Transition   [05:00PM  GlobeNewswire]
▶ [$$] Deal Close Announcements: Oct. 17-21   [Oct-21-16 05:26PM  at The Wall Street Journal]
▶ [$$] Frazier to Buy Majority Stake in Providence Service Corp. Subsidiary   [Aug-29-16 01:36PM  at The Wall Street Journal]
Financial statements of PRSC
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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