Intrinsic value of Surgery Partners - SGRY

Previous Close

$9.80

  Intrinsic Value

$13.38

stock screener

  Rating & Target

buy

+37%

Previous close

$9.80

 
Intrinsic value

$13.38

 
Up/down potential

+37%

 
Rating

buy

We calculate the intrinsic value of SGRY 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 0.5

 

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, %
  19.27
  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
  1,145
  1,168
  1,195
  1,225
  1,260
  1,298
  1,340
  1,386
  1,435
  1,488
  1,545
  1,607
  1,672
  1,741
  1,815
  1,893
  1,976
  2,064
  2,157
  2,255
  2,359
  2,468
  2,583
  2,705
  2,833
  2,968
  3,110
  3,259
  3,416
  3,582
  3,756
Variable operating expenses, $m
 
  837
  852
  870
  890
  913
  937
  964
  992
  1,023
  1,057
  937
  975
  1,015
  1,058
  1,104
  1,153
  1,204
  1,258
  1,315
  1,376
  1,439
  1,507
  1,577
  1,652
  1,731
  1,814
  1,901
  1,992
  2,089
  2,190
Fixed operating expenses, $m
 
  132
  136
  139
  142
  146
  150
  153
  157
  161
  165
  169
  173
  178
  182
  187
  192
  196
  201
  206
  211
  217
  222
  228
  233
  239
  245
  251
  258
  264
  271
Total operating expenses, $m
  949
  969
  988
  1,009
  1,032
  1,059
  1,087
  1,117
  1,149
  1,184
  1,222
  1,106
  1,148
  1,193
  1,240
  1,291
  1,345
  1,400
  1,459
  1,521
  1,587
  1,656
  1,729
  1,805
  1,885
  1,970
  2,059
  2,152
  2,250
  2,353
  2,461
Operating income, $m
  197
  199
  207
  216
  227
  240
  253
  269
  285
  304
  324
  500
  523
  548
  574
  602
  632
  664
  698
  734
  772
  812
  855
  900
  947
  998
  1,051
  1,107
  1,166
  1,229
  1,295
EBITDA, $m
  237
  363
  371
  381
  392
  404
  419
  434
  451
  470
  490
  512
  535
  560
  587
  616
  646
  679
  713
  750
  789
  830
  873
  919
  968
  1,019
  1,073
  1,131
  1,191
  1,255
  1,322
Interest expense (income), $m
  79
  82
  70
  73
  76
  79
  83
  87
  92
  96
  102
  107
  113
  120
  127
  134
  142
  150
  158
  168
  177
  187
  198
  209
  221
  234
  247
  261
  276
  292
  308
Earnings before tax, $m
  92
  117
  137
  144
  151
  160
  170
  182
  194
  207
  222
  393
  410
  428
  448
  468
  491
  514
  539
  566
  595
  625
  657
  690
  726
  764
  804
  846
  890
  937
  987
Tax expense, $m
  7
  32
  37
  39
  41
  43
  46
  49
  52
  56
  60
  106
  111
  116
  121
  126
  132
  139
  146
  153
  161
  169
  177
  186
  196
  206
  217
  228
  240
  253
  267
Net income, $m
  9
  85
  100
  105
  111
  117
  124
  133
  142
  151
  162
  287
  299
  313
  327
  342
  358
  375
  394
  413
  434
  456
  479
  504
  530
  558
  587
  617
  650
  684
  721

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
  0
Total assets, $m
  2,305
  2,281
  2,334
  2,393
  2,461
  2,535
  2,617
  2,706
  2,803
  2,907
  3,018
  3,138
  3,265
  3,401
  3,545
  3,698
  3,860
  4,031
  4,213
  4,404
  4,607
  4,820
  5,045
  5,283
  5,533
  5,796
  6,074
  6,366
  6,673
  6,996
  7,336
Adjusted assets (=assets-cash), $m
  2,235
  2,281
  2,334
  2,393
  2,461
  2,535
  2,617
  2,706
  2,803
  2,907
  3,018
  3,138
  3,265
  3,401
  3,545
  3,698
  3,860
  4,031
  4,213
  4,404
  4,607
  4,820
  5,045
  5,283
  5,533
  5,796
  6,074
  6,366
  6,673
  6,996
  7,336
Revenue / Adjusted assets
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
Average production assets, $m
  246
  251
  257
  263
  271
  279
  288
  298
  309
  320
  332
  345
  359
  374
  390
  407
  425
  444
  464
  485
  507
  531
  555
  582
  609
  638
  669
  701
  735
  770
  808
Working capital, $m
  175
  135
  139
  142
  146
  151
  155
  161
  166
  173
  179
  186
  194
  202
  211
  220
  229
  239
  250
  262
  274
  286
  300
  314
  329
  344
  361
  378
  396
  415
  436
Total debt, $m
  1,495
  1,253
  1,300
  1,354
  1,415
  1,482
  1,556
  1,636
  1,723
  1,816
  1,917
  2,024
  2,139
  2,261
  2,390
  2,528
  2,674
  2,828
  2,991
  3,164
  3,346
  3,538
  3,741
  3,955
  4,180
  4,417
  4,666
  4,929
  5,205
  5,496
  5,802
Total liabilities, $m
  2,295
  2,053
  2,100
  2,154
  2,215
  2,282
  2,356
  2,436
  2,523
  2,616
  2,717
  2,824
  2,939
  3,061
  3,190
  3,328
  3,474
  3,628
  3,791
  3,964
  4,146
  4,338
  4,541
  4,755
  4,980
  5,217
  5,466
  5,729
  6,005
  6,296
  6,602
Total equity, $m
  10
  228
  233
  239
  246
  254
  262
  271
  280
  291
  302
  314
  327
  340
  354
  370
  386
  403
  421
  440
  461
  482
  505
  528
  553
  580
  607
  637
  667
  700
  734
Total liabilities and equity, $m
  2,305
  2,281
  2,333
  2,393
  2,461
  2,536
  2,618
  2,707
  2,803
  2,907
  3,019
  3,138
  3,266
  3,401
  3,544
  3,698
  3,860
  4,031
  4,212
  4,404
  4,607
  4,820
  5,046
  5,283
  5,533
  5,797
  6,073
  6,366
  6,672
  6,996
  7,336
Debt-to-equity ratio
  149.500
  5.490
  5.570
  5.660
  5.750
  5.840
  5.940
  6.040
  6.150
  6.250
  6.350
  6.450
  6.550
  6.650
  6.740
  6.840
  6.930
  7.020
  7.100
  7.180
  7.260
  7.340
  7.410
  7.490
  7.550
  7.620
  7.680
  7.740
  7.800
  7.860
  7.910
Adjusted equity ratio
  -0.027
  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
  9
  85
  100
  105
  111
  117
  124
  133
  142
  151
  162
  287
  299
  313
  327
  342
  358
  375
  394
  413
  434
  456
  479
  504
  530
  558
  587
  617
  650
  684
  721
Depreciation, amort., depletion, $m
  40
  164
  164
  164
  165
  165
  165
  165
  166
  166
  167
  12
  12
  12
  13
  14
  14
  15
  15
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  26
  27
Funds from operations, $m
  82
  249
  264
  269
  275
  282
  290
  298
  307
  317
  328
  298
  311
  325
  340
  356
  372
  390
  409
  429
  451
  474
  498
  523
  550
  579
  609
  641
  674
  710
  748
Change in working capital, $m
  -43
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
Cash from operations, $m
  125
  247
  261
  266
  271
  277
  285
  293
  302
  311
  322
  291
  304
  317
  331
  346
  363
  380
  398
  418
  439
  461
  484
  509
  535
  563
  592
  624
  656
  691
  727
Maintenance CAPEX, $m
  0
  -8
  -8
  -9
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -12
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -26
New CAPEX, $m
  -39
  -5
  -6
  -7
  -7
  -8
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -36
  -37
Cash from investing activities, $m
  -185
  -13
  -14
  -16
  -16
  -17
  -18
  -20
  -21
  -21
  -23
  -24
  -26
  -27
  -28
  -30
  -32
  -33
  -35
  -36
  -38
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
  -60
  -63
Free cash flow, $m
  -60
  233
  247
  250
  255
  260
  266
  273
  281
  290
  299
  267
  278
  290
  303
  317
  331
  347
  364
  382
  400
  421
  442
  465
  488
  514
  541
  569
  599
  631
  664
Issuance/(repayment) of debt, $m
  171
  -214
  47
  54
  61
  67
  74
  80
  87
  94
  100
  107
  115
  122
  130
  138
  146
  154
  163
  172
  182
  192
  203
  214
  225
  237
  250
  263
  276
  291
  306
Issuance/(repurchase) of shares, $m
  0
  175
  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  
  71
  -39
  47
  54
  61
  67
  74
  80
  87
  94
  100
  107
  115
  122
  130
  138
  146
  154
  163
  172
  182
  192
  203
  214
  225
  237
  250
  263
  276
  291
  306
Total cash flow (excl. dividends), $m
  12
  194
  294
  304
  315
  327
  340
  354
  368
  383
  399
  375
  393
  412
  433
  454
  477
  501
  527
  554
  583
  613
  645
  678
  714
  751
  790
  832
  876
  922
  970
Retained Cash Flow (-), $m
  -14
  -260
  -5
  -6
  -7
  -7
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -34
Prev. year cash balance distribution, $m
 
  42
  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
 
  -24
  289
  298
  309
  320
  332
  345
  358
  373
  388
  363
  380
  399
  418
  439
  461
  484
  509
  535
  562
  591
  622
  654
  689
  725
  763
  803
  845
  889
  936
Discount rate, %
 
  13.70
  14.39
  15.10
  15.86
  16.65
  17.49
  18.36
  19.28
  20.24
  21.25
  22.32
  23.43
  24.60
  25.83
  27.13
  28.48
  29.91
  31.40
  32.97
  34.62
  36.35
  38.17
  40.08
  42.08
  44.18
  46.39
  48.71
  51.15
  53.71
  56.39
PV of cash for distribution, $m
 
  -21
  221
  196
  171
  148
  126
  106
  87
  71
  57
  40
  30
  23
  17
  12
  8
  6
  4
  2
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

Surgery Partners, Inc. is a healthcare services company. The Company operates in three lines of business across the United States: Surgical Facility Services, Ancillary Services and Optical Services. The Company's Surgical Facility Services segment consists of the operation of ambulatory surgery centers (ASCs) and surgical hospitals, which include its anesthesia services. The Company's surgical facilities primarily provide non-emergency surgical procedures across a range of specialties, which include gastrointestinal (GI), general surgery, ophthalmology, orthopedics and pain management. The Company's Ancillary Services segment consists of a diagnostic laboratory, a specialty pharmacy and multi-specialty physician practices. The Company's physician practices include its owned and operated physician practices pursuant to long-term management service agreements. The Company's Optical Services segment consists of an optical laboratory, an optical products group purchasing organization.

FINANCIAL RATIOS  of  Surgery Partners (SGRY)

Valuation Ratios
P/E Ratio 52.8
Price to Sales 0.4
Price to Book 47.5
Price to Tangible Book
Price to Cash Flow 3.8
Price to Free Cash Flow 5.5
Growth Rates
Sales Growth Rate 19.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 18.2%
Cap. Spend. - 3 Yr. Gr. Rate 57.7%
Financial Strength
Quick Ratio 3
Current Ratio 0.1
LT Debt to Equity 14670%
Total Debt to Equity 14950%
Interest Coverage 2
Management Effectiveness
Return On Assets 3.7%
Ret/ On Assets - 3 Yr. Avg. 1.3%
Return On Total Capital 0.6%
Ret/ On T. Cap. - 3 Yr. Avg. -2.8%
Return On Equity 300%
Return On Equity - 3 Yr. Avg. 111.7%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 28.3%
Gross Margin - 3 Yr. Avg. 31.9%
EBITDA Margin 18.4%
EBITDA Margin - 3 Yr. Avg. 12.6%
Operating Margin 17.1%
Oper. Margin - 3 Yr. Avg. 14.9%
Pre-Tax Margin 8%
Pre-Tax Margin - 3 Yr. Avg. -0.9%
Net Profit Margin 0.8%
Net Profit Margin - 3 Yr. Avg. -5.2%
Effective Tax Rate 7.6%
Eff/ Tax Rate - 3 Yr. Avg. 19.4%
Payout Ratio 0%

SGRY stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SGRY stock intrinsic value calculation we used $1145 million for the last fiscal year's total revenue generated by Surgery Partners. The default revenue input number comes from 2016 income statement of Surgery Partners. 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 SGRY 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 13.7%, whose default value for SGRY is calculated based on our internal credit rating of Surgery Partners, 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 Surgery Partners.
    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 SGRY stock the variable cost ratio is equal to 71.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $129 million in the base year in the intrinsic value calculation for SGRY 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 5.6% for Surgery Partners.

Corporate tax rate of 27% is the nominal tax rate for Surgery Partners. 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 SGRY 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 SGRY are equal to 21.5%.

Life of production assets of 43.2 years is the average useful life of capital assets used in Surgery Partners 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 SGRY is equal to 11.6%. 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 - $10 million for Surgery Partners - 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 48.811 million for Surgery Partners 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 Surgery Partners at the current share price and the inputted number of shares is $0.5 billion.

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▶ Surgery Partners reports 1Q loss   [May-09-17 07:12PM  Associated Press]
▶ Surgery Partners misses 4Q profit forecasts   [Mar-09-17 05:11PM  Associated Press]
▶ Odds of Surgery Partners' Takeout Grow   [Jan-19-17 10:11AM  TheStreet.com]
Financial statements of SGRY
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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