Intrinsic value of Quality Care Properties - QCP

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$18.60

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$18.60

 
Intrinsic value

$13.48

 
Up/down potential

-28%

 
Rating

sell

 
Value-price divergence* premium content

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

We calculate the intrinsic value of QCP 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 2015), $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 1.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2015(a)
   2016
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  1.23
  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
  576
  588
  601
  616
  634
  653
  674
  697
  722
  749
  777
  808
  841
  876
  913
  952
  994
  1,038
  1,085
  1,134
  1,187
  1,242
  1,300
  1,361
  1,425
  1,493
  1,564
  1,640
  1,719
  1,802
  1,889
Variable operating expenses, $m
 
  280
  287
  294
  302
  311
  322
  333
  344
  357
  371
  386
  401
  418
  436
  454
  474
  495
  518
  541
  566
  592
  620
  649
  680
  712
  746
  782
  820
  860
  901
Fixed operating expenses, $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
Total operating expenses, $m
  500
  280
  287
  294
  302
  311
  322
  333
  344
  357
  371
  386
  401
  418
  436
  454
  474
  495
  518
  541
  566
  592
  620
  649
  680
  712
  746
  782
  820
  860
  901
Operating income, $m
  76
  307
  314
  322
  331
  342
  353
  365
  378
  392
  407
  423
  440
  458
  478
  498
  520
  543
  567
  593
  621
  649
  680
  712
  745
  781
  818
  857
  899
  942
  988
EBITDA, $m
  321
  557
  570
  585
  601
  619
  639
  661
  685
  710
  737
  766
  797
  831
  866
  903
  943
  985
  1,029
  1,076
  1,125
  1,177
  1,232
  1,290
  1,351
  1,416
  1,483
  1,555
  1,630
  1,709
  1,792
Interest expense (income), $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
  0
Earnings before tax, $m
  115
  307
  314
  322
  332
  342
  353
  365
  378
  392
  407
  423
  440
  458
  477
  498
  520
  543
  567
  593
  620
  649
  680
  711
  745
  781
  818
  857
  899
  942
  988
Tax expense, $m
  0
  83
  85
  87
  90
  92
  95
  98
  102
  106
  110
  114
  119
  124
  129
  134
  140
  147
  153
  160
  168
  175
  183
  192
  201
  211
  221
  231
  243
  254
  267
Net income, $m
  113
  224
  230
  235
  242
  249
  257
  266
  276
  286
  297
  309
  321
  334
  349
  364
  380
  396
  414
  433
  453
  474
  496
  519
  544
  570
  597
  626
  656
  688
  721

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  6
  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
  5,094
  5,199
  5,319
  5,456
  5,609
  5,779
  5,966
  6,169
  6,389
  6,626
  6,880
  7,152
  7,442
  7,751
  8,080
  8,428
  8,798
  9,189
  9,602
  10,039
  10,500
  10,987
  11,500
  12,041
  12,611
  13,212
  13,844
  14,509
  15,209
  15,946
  16,721
Adjusted assets (=assets-cash), $m
  5,088
  5,199
  5,319
  5,456
  5,609
  5,779
  5,966
  6,169
  6,389
  6,626
  6,880
  7,152
  7,442
  7,751
  8,080
  8,428
  8,798
  9,189
  9,602
  10,039
  10,500
  10,987
  11,500
  12,041
  12,611
  13,212
  13,844
  14,509
  15,209
  15,946
  16,721
Revenue / Adjusted assets
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
Average production assets, $m
  5,046
  5,147
  5,265
  5,400
  5,552
  5,721
  5,905
  6,106
  6,324
  6,559
  6,810
  7,080
  7,367
  7,673
  7,998
  8,343
  8,709
  9,096
  9,505
  9,937
  10,394
  10,876
  11,384
  11,919
  12,484
  13,078
  13,704
  14,362
  15,055
  15,785
  16,552
Working capital, $m
  0
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
Total debt, $m
  0
  -2
  -2
  -2
  -1
  -1
  -1
  -1
  -1
  0
  0
  0
  0
  1
  1
  1
  2
  2
  3
  3
  4
  4
  5
  5
  6
  6
  7
  8
  8
  9
  10
Total liabilities, $m
  6
  5
  5
  5
  6
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
Total equity, $m
  5,087
  5,194
  5,314
  5,450
  5,603
  5,773
  5,960
  6,163
  6,382
  6,619
  6,873
  7,145
  7,435
  7,744
  8,072
  8,420
  8,789
  9,179
  9,593
  10,029
  10,490
  10,976
  11,489
  12,029
  12,599
  13,199
  13,830
  14,495
  15,194
  15,930
  16,704
Total liabilities and equity, $m
  5,093
  5,199
  5,319
  5,455
  5,609
  5,779
  5,966
  6,169
  6,388
  6,626
  6,880
  7,152
  7,442
  7,752
  8,080
  8,428
  8,798
  9,188
  9,603
  10,039
  10,501
  10,987
  11,501
  12,041
  12,612
  13,212
  13,844
  14,510
  15,209
  15,946
  16,721
Debt-to-equity ratio
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
Adjusted equity ratio
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  113
  224
  230
  235
  242
  249
  257
  266
  276
  286
  297
  309
  321
  334
  349
  364
  380
  396
  414
  433
  453
  474
  496
  519
  544
  570
  597
  626
  656
  688
  721
Depreciation, amort., depletion, $m
  245
  250
  256
  262
  270
  278
  287
  296
  307
  318
  331
  344
  358
  372
  388
  405
  423
  442
  461
  482
  505
  528
  553
  579
  606
  635
  665
  697
  731
  766
  803
Funds from operations, $m
  667
  474
  485
  498
  512
  527
  544
  563
  583
  604
  627
  652
  679
  707
  737
  769
  802
  838
  876
  915
  957
  1,002
  1,049
  1,098
  1,150
  1,205
  1,262
  1,323
  1,387
  1,454
  1,525
Change in working capital, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Cash from operations, $m
  667
  284
  485
  498
  512
  527
  544
  563
  583
  605
  628
  653
  679
  707
  737
  769
  803
  838
  876
  916
  958
  1,002
  1,049
  1,099
  1,151
  1,205
  1,263
  1,324
  1,388
  1,455
  1,525
Maintenance CAPEX, $m
  0
  -245
  -250
  -256
  -262
  -270
  -278
  -287
  -296
  -307
  -318
  -331
  -344
  -358
  -372
  -388
  -405
  -423
  -442
  -461
  -482
  -505
  -528
  -553
  -579
  -606
  -635
  -665
  -697
  -731
  -766
New CAPEX, $m
  -183
  -101
  -118
  -135
  -152
  -168
  -185
  -201
  -218
  -235
  -252
  -269
  -287
  -306
  -325
  -345
  -366
  -387
  -409
  -432
  -457
  -482
  -508
  -536
  -564
  -594
  -626
  -659
  -693
  -729
  -767
Cash from investing activities, $m
  21
  -346
  -368
  -391
  -414
  -438
  -463
  -488
  -514
  -542
  -570
  -600
  -631
  -664
  -697
  -733
  -771
  -810
  -851
  -893
  -939
  -987
  -1,036
  -1,089
  -1,143
  -1,200
  -1,261
  -1,324
  -1,390
  -1,460
  -1,533
Free cash flow, $m
  688
  -62
  117
  107
  98
  89
  82
  75
  69
  63
  58
  53
  48
  44
  40
  36
  32
  29
  25
  22
  19
  16
  13
  10
  8
  5
  2
  0
  -3
  -5
  -8
Issuance/(repayment) of debt, $m
  0
  -2
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
Issuance/(repurchase) of shares, $m
  0
  171
  2
  30
  55
  80
  104
  128
  151
  173
  196
  219
  242
  265
  288
  312
  337
  362
  387
  414
  441
  470
  499
  530
  561
  594
  628
  664
  701
  740
  781
Cash from financing (excl. dividends), $m  
  -684
  169
  2
  30
  55
  80
  104
  128
  151
  173
  196
  219
  242
  265
  288
  312
  337
  362
  387
  414
  441
  470
  500
  531
  562
  595
  629
  665
  702
  741
  782
Total cash flow (excl. dividends), $m
  4
  -64
  117
  107
  98
  90
  82
  75
  69
  63
  58
  53
  48
  44
  40
  36
  32
  29
  26
  23
  19
  17
  14
  11
  8
  6
  3
  1
  -2
  -4
  -7
Retained Cash Flow (-), $m
  571
  -113
  -119
  -137
  -153
  -170
  -186
  -203
  -220
  -237
  -254
  -272
  -290
  -309
  -328
  -348
  -369
  -391
  -413
  -436
  -461
  -486
  -513
  -540
  -569
  -600
  -632
  -665
  -699
  -736
  -774
Prev. year cash balance distribution, $m
 
  6
  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
 
  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
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
 
  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
Current shareholders' claim on cash, %
  100
  95.4
  95.3
  94.6
  93.2
  91.4
  89.1
  86.4
  83.5
  80.4
  77.1
  73.8
  70.4
  67.0
  63.6
  60.2
  57.0
  53.8
  50.8
  47.8
  45.0
  42.3
  39.7
  37.3
  34.9
  32.7
  30.6
  28.7
  26.8
  25.1
  23.4

Quality Care Properties, Inc. (NYSE:QCP.WI) operates independently of HCP, Inc. as of October 31, 2016.

FINANCIAL RATIOS  of  Quality Care Properties (QCP)

Valuation Ratios
P/E Ratio 15.4
Price to Sales 3
Price to Book 0.3
Price to Tangible Book
Price to Cash Flow 2.6
Price to Free Cash Flow 3.6
Growth Rates
Sales Growth Rate 1.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 454.5%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 2.1%
Ret/ On Assets - 3 Yr. Avg. 4.1%
Return On Total Capital 2.1%
Ret/ On T. Cap. - 3 Yr. Avg. 4.2%
Return On Equity 2.1%
Return On Equity - 3 Yr. Avg. 4.2%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 99.3%
Gross Margin - 3 Yr. Avg. 99.4%
EBITDA Margin 62.5%
EBITDA Margin - 3 Yr. Avg. 84.2%
Operating Margin 13.2%
Oper. Margin - 3 Yr. Avg. 38.7%
Pre-Tax Margin 20%
Pre-Tax Margin - 3 Yr. Avg. 40.9%
Net Profit Margin 19.6%
Net Profit Margin - 3 Yr. Avg. 43.3%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0.1%
Payout Ratio 0%

QCP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the QCP stock intrinsic value calculation we used $576 million for the last fiscal year's total revenue generated by Quality Care Properties. The default revenue input number comes from 2015 income statement of Quality Care Properties. 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 QCP 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 QCP is calculated based on our internal credit rating of Quality Care Properties, 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 Quality Care Properties.
    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 QCP stock the variable cost ratio is equal to 47.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for QCP 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 Quality Care Properties.

Corporate tax rate of 27% is the nominal tax rate for Quality Care Properties. 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 QCP 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 QCP are equal to 876%.

Life of production assets of 20.6 years is the average useful life of capital assets used in Quality Care Properties 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 QCP is equal to -1%. 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 - $5087 million for Quality Care Properties - 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 94.38 million for Quality Care Properties 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 Quality Care Properties at the current share price and the inputted number of shares is $1.8 billion.


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