Intrinsic value of Quorum Health - QHC

Previous Close

$4.60

  Intrinsic Value

$14.19

stock screener

  Rating & Target

str. buy

+209%

Previous close

$4.60

 
Intrinsic value

$14.19

 
Up/down potential

+209%

 
Rating

str. buy

We calculate the intrinsic value of QHC 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, %
  -2.24
  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
  2,138
  2,181
  2,231
  2,288
  2,353
  2,424
  2,502
  2,587
  2,680
  2,779
  2,886
  3,000
  3,122
  3,251
  3,389
  3,535
  3,690
  3,854
  4,027
  4,211
  4,404
  4,608
  4,824
  5,051
  5,290
  5,541
  5,807
  6,086
  6,379
  6,688
  7,013
Variable operating expenses, $m
 
  2,073
  2,120
  2,173
  2,233
  2,300
  2,372
  2,452
  2,538
  2,630
  2,730
  2,794
  2,908
  3,028
  3,157
  3,293
  3,437
  3,590
  3,752
  3,922
  4,102
  4,293
  4,493
  4,705
  4,927
  5,162
  5,409
  5,669
  5,942
  6,230
  6,533
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
  2,424
  2,073
  2,120
  2,173
  2,233
  2,300
  2,372
  2,452
  2,538
  2,630
  2,730
  2,794
  2,908
  3,028
  3,157
  3,293
  3,437
  3,590
  3,752
  3,922
  4,102
  4,293
  4,493
  4,705
  4,927
  5,162
  5,409
  5,669
  5,942
  6,230
  6,533
Operating income, $m
  -286
  108
  111
  115
  119
  124
  130
  136
  142
  149
  156
  205
  214
  223
  232
  242
  253
  264
  276
  288
  302
  316
  330
  346
  362
  380
  398
  417
  437
  458
  480
EBITDA, $m
  -169
  228
  233
  239
  246
  253
  261
  270
  280
  290
  301
  313
  326
  340
  354
  369
  386
  403
  421
  440
  460
  481
  504
  528
  553
  579
  607
  636
  666
  699
  733
Interest expense (income), $m
  91
  73
  74
  77
  80
  83
  86
  90
  94
  99
  104
  109
  114
  120
  127
  133
  141
  148
  156
  165
  174
  183
  193
  204
  215
  226
  239
  252
  265
  280
  295
Earnings before tax, $m
  -399
  34
  37
  38
  40
  42
  43
  45
  48
  50
  52
  97
  99
  102
  105
  109
  112
  116
  120
  124
  128
  133
  137
  142
  148
  153
  159
  165
  172
  178
  186
Tax expense, $m
  -54
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  26
  27
  28
  28
  29
  30
  31
  32
  33
  35
  36
  37
  38
  40
  41
  43
  45
  46
  48
  50
Net income, $m
  -348
  25
  27
  28
  29
  30
  32
  33
  35
  36
  38
  71
  73
  75
  77
  79
  82
  85
  87
  90
  93
  97
  100
  104
  108
  112
  116
  121
  125
  130
  136

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  25
  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
  1,994
  2,008
  2,054
  2,107
  2,166
  2,232
  2,304
  2,383
  2,467
  2,559
  2,657
  2,762
  2,874
  2,994
  3,121
  3,255
  3,398
  3,549
  3,709
  3,877
  4,055
  4,243
  4,442
  4,651
  4,871
  5,103
  5,347
  5,604
  5,874
  6,159
  6,458
Adjusted assets (=assets-cash), $m
  1,969
  2,008
  2,054
  2,107
  2,166
  2,232
  2,304
  2,383
  2,467
  2,559
  2,657
  2,762
  2,874
  2,994
  3,121
  3,255
  3,398
  3,549
  3,709
  3,877
  4,055
  4,243
  4,442
  4,651
  4,871
  5,103
  5,347
  5,604
  5,874
  6,159
  6,458
Revenue / Adjusted assets
  1.086
  1.086
  1.086
  1.086
  1.086
  1.086
  1.086
  1.086
  1.086
  1.086
  1.086
  1.086
  1.086
  1.086
  1.086
  1.086
  1.086
  1.086
  1.086
  1.086
  1.086
  1.086
  1.086
  1.086
  1.086
  1.086
  1.086
  1.086
  1.086
  1.086
  1.086
Average production assets, $m
  915
  933
  955
  979
  1,007
  1,037
  1,071
  1,107
  1,147
  1,189
  1,235
  1,284
  1,336
  1,392
  1,450
  1,513
  1,579
  1,650
  1,724
  1,802
  1,885
  1,972
  2,064
  2,162
  2,264
  2,372
  2,485
  2,605
  2,730
  2,863
  3,002
Working capital, $m
  273
  260
  265
  272
  280
  288
  298
  308
  319
  331
  343
  357
  371
  387
  403
  421
  439
  459
  479
  501
  524
  548
  574
  601
  629
  659
  691
  724
  759
  796
  835
Total debt, $m
  1,247
  1,261
  1,303
  1,350
  1,404
  1,463
  1,528
  1,598
  1,675
  1,757
  1,845
  1,940
  2,041
  2,148
  2,263
  2,384
  2,512
  2,648
  2,792
  2,944
  3,104
  3,273
  3,451
  3,640
  3,838
  4,046
  4,266
  4,497
  4,741
  4,997
  5,266
Total liabilities, $m
  1,793
  1,807
  1,849
  1,896
  1,950
  2,009
  2,074
  2,144
  2,221
  2,303
  2,391
  2,486
  2,587
  2,694
  2,809
  2,930
  3,058
  3,194
  3,338
  3,490
  3,650
  3,819
  3,997
  4,186
  4,384
  4,592
  4,812
  5,043
  5,287
  5,543
  5,812
Total equity, $m
  201
  201
  205
  211
  217
  223
  230
  238
  247
  256
  266
  276
  287
  299
  312
  326
  340
  355
  371
  388
  406
  424
  444
  465
  487
  510
  535
  560
  587
  616
  646
Total liabilities and equity, $m
  1,994
  2,008
  2,054
  2,107
  2,167
  2,232
  2,304
  2,382
  2,468
  2,559
  2,657
  2,762
  2,874
  2,993
  3,121
  3,256
  3,398
  3,549
  3,709
  3,878
  4,056
  4,243
  4,441
  4,651
  4,871
  5,102
  5,347
  5,603
  5,874
  6,159
  6,458
Debt-to-equity ratio
  6.204
  6.280
  6.340
  6.410
  6.480
  6.550
  6.630
  6.710
  6.790
  6.870
  6.950
  7.020
  7.100
  7.180
  7.250
  7.320
  7.390
  7.460
  7.530
  7.590
  7.650
  7.710
  7.770
  7.830
  7.880
  7.930
  7.980
  8.030
  8.070
  8.110
  8.150
Adjusted equity ratio
  0.089
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -348
  25
  27
  28
  29
  30
  32
  33
  35
  36
  38
  71
  73
  75
  77
  79
  82
  85
  87
  90
  93
  97
  100
  104
  108
  112
  116
  121
  125
  130
  136
Depreciation, amort., depletion, $m
  117
  120
  122
  124
  126
  129
  132
  135
  138
  142
  145
  108
  112
  117
  122
  127
  133
  139
  145
  151
  158
  166
  173
  182
  190
  199
  209
  219
  229
  241
  252
Funds from operations, $m
  111
  145
  149
  152
  155
  159
  163
  168
  173
  178
  184
  178
  185
  192
  199
  206
  215
  223
  232
  242
  252
  263
  274
  286
  298
  311
  325
  339
  355
  371
  388
Change in working capital, $m
  30
  5
  6
  7
  8
  8
  9
  10
  11
  12
  13
  14
  14
  15
  16
  17
  18
  20
  21
  22
  23
  24
  26
  27
  28
  30
  32
  33
  35
  37
  39
Cash from operations, $m
  81
  140
  143
  145
  148
  151
  154
  158
  162
  166
  171
  165
  170
  176
  182
  189
  196
  204
  212
  220
  229
  238
  248
  259
  270
  281
  293
  306
  320
  334
  349
Maintenance CAPEX, $m
  0
  -77
  -78
  -80
  -82
  -85
  -87
  -90
  -93
  -96
  -100
  -104
  -108
  -112
  -117
  -122
  -127
  -133
  -139
  -145
  -151
  -158
  -166
  -173
  -182
  -190
  -199
  -209
  -219
  -229
  -241
New CAPEX, $m
  -87
  -19
  -21
  -25
  -28
  -31
  -33
  -36
  -39
  -43
  -46
  -49
  -52
  -55
  -59
  -63
  -66
  -70
  -74
  -78
  -83
  -87
  -92
  -97
  -102
  -108
  -113
  -119
  -126
  -132
  -139
Cash from investing activities, $m
  -73
  -96
  -99
  -105
  -110
  -116
  -120
  -126
  -132
  -139
  -146
  -153
  -160
  -167
  -176
  -185
  -193
  -203
  -213
  -223
  -234
  -245
  -258
  -270
  -284
  -298
  -312
  -328
  -345
  -361
  -380
Free cash flow, $m
  8
  44
  43
  40
  38
  36
  33
  31
  29
  27
  25
  12
  10
  8
  7
  5
  3
  1
  -1
  -3
  -5
  -8
  -10
  -12
  -14
  -17
  -19
  -22
  -25
  -28
  -31
Issuance/(repayment) of debt, $m
  1,266
  20
  42
  48
  53
  59
  65
  71
  76
  82
  88
  95
  101
  107
  114
  121
  128
  136
  144
  152
  160
  169
  178
  188
  198
  209
  220
  231
  243
  256
  269
Issuance/(repurchase) of shares, $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
Cash from financing (excl. dividends), $m  
  16
  20
  42
  48
  53
  59
  65
  71
  76
  82
  88
  95
  101
  107
  114
  121
  128
  136
  144
  152
  160
  169
  178
  188
  198
  209
  220
  231
  243
  256
  269
Total cash flow (excl. dividends), $m
  24
  65
  84
  88
  91
  95
  98
  102
  106
  110
  114
  107
  111
  116
  121
  126
  131
  137
  142
  149
  155
  162
  169
  176
  184
  192
  200
  209
  219
  228
  239
Retained Cash Flow (-), $m
  -198
  -19
  -5
  -5
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -30
Prev. year cash balance distribution, $m
 
  19
  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
 
  65
  80
  83
  85
  88
  91
  94
  97
  101
  104
  96
  100
  104
  108
  112
  117
  122
  126
  132
  137
  143
  149
  155
  162
  169
  176
  184
  192
  200
  209
Discount rate, %
 
  13.30
  13.97
  14.66
  15.40
  16.17
  16.97
  17.82
  18.71
  19.65
  20.63
  21.66
  22.75
  23.88
  25.08
  26.33
  27.65
  29.03
  30.48
  32.01
  33.61
  35.29
  37.05
  38.91
  40.85
  42.89
  45.04
  47.29
  49.65
  52.14
  54.74
PV of cash for distribution, $m
 
  57
  61
  55
  48
  42
  36
  30
  25
  20
  16
  11
  9
  6
  5
  3
  2
  2
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
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

Quorum Health Corporation is an operator and manager of general acute care hospitals and outpatient services in the United States. The Company operates in two segments: Hospital operations, which includes its general acute care hospitals and related healthcare entities that provide inpatient and outpatient healthcare services, and hospital management advisory and consulting services, which includes Quorum Health Resources, LLC (QHR). It operates QHR, which is a hospital management advisory and consulting services that provides services to non-affiliated general acute care hospitals. Its hospitals and its affiliated businesses offer services, such as general acute care, emergency room, general and specialty surgery and rehabilitation services. On April 1, 2016, Community Health Systems, Inc. announced that its board of directors has approved the distribution to its stockholders of 100% of the common stock of a new, independent publicly traded company, Quorum Health Corporation.

FINANCIAL RATIOS  of  Quorum Health (QHC)

Valuation Ratios
P/E Ratio -0.4
Price to Sales 0.1
Price to Book 0.7
Price to Tangible Book
Price to Cash Flow 1.7
Price to Free Cash Flow -22.6
Growth Rates
Sales Growth Rate -2.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 27.9%
Cap. Spend. - 3 Yr. Gr. Rate -7.3%
Financial Strength
Quick Ratio 4
Current Ratio 0.5
LT Debt to Equity 617.4%
Total Debt to Equity 620.4%
Interest Coverage -3
Management Effectiveness
Return On Assets -12.6%
Ret/ On Assets - 3 Yr. Avg. -2.4%
Return On Total Capital -21.3%
Ret/ On T. Cap. - 3 Yr. Avg. -6.9%
Return On Equity -341.2%
Return On Equity - 3 Yr. Avg. -13.7%
Asset Turnover 1
Profitability Ratios
Gross Margin 87.9%
Gross Margin - 3 Yr. Avg. 88.4%
EBITDA Margin -8.9%
EBITDA Margin - 3 Yr. Avg. 4.2%
Operating Margin -13.4%
Oper. Margin - 3 Yr. Avg. -1.2%
Pre-Tax Margin -18.7%
Pre-Tax Margin - 3 Yr. Avg. -5.9%
Net Profit Margin -16.3%
Net Profit Margin - 3 Yr. Avg. -5.3%
Effective Tax Rate 13.5%
Eff/ Tax Rate - 3 Yr. Avg. 32.4%
Payout Ratio 0%

QHC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the QHC stock intrinsic value calculation we used $2138 million for the last fiscal year's total revenue generated by Quorum Health. The default revenue input number comes from 2016 income statement of Quorum Health. 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 QHC 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 13.3%, whose default value for QHC is calculated based on our internal credit rating of Quorum Health, 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 Quorum Health.
    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 QHC stock the variable cost ratio is equal to 95.1%.

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 QHC 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 5.9% for Quorum Health.

Corporate tax rate of 27% is the nominal tax rate for Quorum Health. 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 QHC 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 QHC are equal to 42.8%.

Life of production assets of 11.9 years is the average useful life of capital assets used in Quorum Health 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 QHC is equal to 11.9%. 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 - $201 million for Quorum Health - 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 30.297 million for Quorum Health 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 Quorum Health at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ ETFs with exposure to Quorum Health Corp. : June 27, 2017   [Jun-27-17 03:35PM  Capital Cube]
▶ ETFs with exposure to Quorum Health Corp. : June 5, 2017   [Jun-05-17 02:41PM  Capital Cube]
▶ ETFs with exposure to Quorum Health Corp. : May 26, 2017   [May-26-17 01:23PM  Capital Cube]
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▶ ETFs with exposure to Quorum Health Corp. : May 15, 2017   [May-15-17 04:25PM  Capital Cube]
▶ ETFs with exposure to Quorum Health Corp. : May 3, 2017   [May-03-17 04:14PM  Capital Cube]
▶ Is Quorum Health Corp (QHC) A Good Stock To Buy?   [Dec-14-16 09:22AM  at Insider Monkey]
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Financial statements of QHC
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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