Intrinsic value of SeaSpine Holdings - SPNE

Previous Close

$10.34

  Intrinsic Value

$2.21

stock screener

  Rating & Target

str. sell

-79%

  Value-price divergence*

-44%

Previous close

$10.34

 
Intrinsic value

$2.21

 
Up/down potential

-79%

 
Rating

str. sell

 
Value-price divergence*

-44%

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

We calculate the intrinsic value of SPNE 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, %
  -3.01
  3.00
  3.20
  3.38
  3.54
  3.69
  3.82
  3.94
  4.04
  4.14
  4.23
  4.30
  4.37
  4.44
  4.49
  4.54
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.80
  4.82
  4.84
  4.86
  4.87
  4.88
  4.90
  4.91
Revenue, $m
  129
  133
  137
  142
  147
  152
  158
  164
  171
  178
  185
  193
  202
  211
  220
  230
  241
  252
  264
  276
  289
  303
  318
  333
  349
  366
  383
  402
  422
  442
  464
Variable operating expenses, $m
 
  184
  190
  197
  204
  211
  219
  228
  237
  247
  257
  268
  280
  293
  306
  320
  334
  350
  366
  383
  402
  421
  441
  462
  484
  508
  532
  558
  585
  614
  644
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
  172
  184
  190
  197
  204
  211
  219
  228
  237
  247
  257
  268
  280
  293
  306
  320
  334
  350
  366
  383
  402
  421
  441
  462
  484
  508
  532
  558
  585
  614
  644
Operating income, $m
  -44
  -52
  -53
  -55
  -57
  -59
  -61
  -64
  -66
  -69
  -72
  -75
  -78
  -82
  -85
  -89
  -93
  -98
  -102
  -107
  -112
  -118
  -123
  -129
  -135
  -142
  -149
  -156
  -164
  -172
  -180
EBITDA, $m
  -32
  -39
  -41
  -42
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -60
  -62
  -65
  -68
  -71
  -75
  -78
  -82
  -86
  -90
  -94
  -98
  -103
  -108
  -113
  -119
  -125
  -131
  -137
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
Earnings before tax, $m
  -44
  -52
  -53
  -55
  -57
  -59
  -62
  -64
  -67
  -70
  -73
  -76
  -79
  -83
  -86
  -90
  -95
  -99
  -104
  -109
  -114
  -119
  -125
  -131
  -137
  -144
  -151
  -159
  -166
  -175
  -183
Tax expense, $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
Net income, $m
  -43
  -52
  -53
  -55
  -57
  -59
  -62
  -64
  -67
  -70
  -73
  -76
  -79
  -83
  -86
  -90
  -95
  -99
  -104
  -109
  -114
  -119
  -125
  -131
  -137
  -144
  -151
  -159
  -166
  -175
  -183

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  15
  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
  147
  136
  140
  145
  150
  156
  162
  168
  175
  182
  190
  198
  207
  216
  226
  236
  247
  258
  270
  283
  296
  310
  325
  341
  357
  374
  392
  412
  432
  453
  475
Adjusted assets (=assets-cash), $m
  132
  136
  140
  145
  150
  156
  162
  168
  175
  182
  190
  198
  207
  216
  226
  236
  247
  258
  270
  283
  296
  310
  325
  341
  357
  374
  392
  412
  432
  453
  475
Revenue / Adjusted assets
  0.977
  0.978
  0.979
  0.979
  0.980
  0.974
  0.975
  0.976
  0.977
  0.978
  0.974
  0.975
  0.976
  0.977
  0.973
  0.975
  0.976
  0.977
  0.978
  0.975
  0.976
  0.977
  0.978
  0.977
  0.978
  0.979
  0.977
  0.976
  0.977
  0.976
  0.977
Average production assets, $m
  63
  65
  67
  69
  72
  74
  77
  80
  83
  87
  91
  94
  99
  103
  108
  112
  118
  123
  129
  135
  141
  148
  155
  162
  170
  178
  187
  196
  206
  216
  226
Working capital, $m
  59
  45
  47
  48
  50
  52
  54
  56
  58
  61
  63
  66
  69
  72
  75
  79
  82
  86
  90
  94
  99
  103
  108
  113
  119
  125
  131
  137
  144
  151
  158
Total debt, $m
  4
  5
  6
  8
  9
  11
  12
  14
  16
  18
  20
  22
  24
  27
  30
  32
  35
  38
  42
  45
  49
  53
  57
  61
  65
  70
  75
  80
  86
  92
  98
Total liabilities, $m
  36
  37
  38
  40
  41
  43
  44
  46
  48
  50
  52
  54
  56
  59
  62
  64
  67
  70
  74
  77
  81
  85
  89
  93
  97
  102
  107
  112
  118
  124
  130
Total equity, $m
  111
  99
  102
  105
  109
  113
  118
  122
  127
  132
  138
  144
  150
  157
  164
  171
  179
  188
  196
  206
  215
  225
  236
  248
  260
  272
  285
  299
  314
  329
  345
Total liabilities and equity, $m
  147
  136
  140
  145
  150
  156
  162
  168
  175
  182
  190
  198
  206
  216
  226
  235
  246
  258
  270
  283
  296
  310
  325
  341
  357
  374
  392
  411
  432
  453
  475
Debt-to-equity ratio
  0.036
  0.050
  0.060
  0.070
  0.080
  0.090
  0.100
  0.110
  0.120
  0.130
  0.140
  0.150
  0.160
  0.170
  0.180
  0.190
  0.200
  0.200
  0.210
  0.220
  0.230
  0.230
  0.240
  0.250
  0.250
  0.260
  0.260
  0.270
  0.270
  0.280
  0.280
Adjusted equity ratio
  0.727
  0.727
  0.727
  0.727
  0.727
  0.727
  0.727
  0.727
  0.727
  0.727
  0.727
  0.727
  0.727
  0.727
  0.727
  0.727
  0.727
  0.727
  0.727
  0.727
  0.727
  0.727
  0.727
  0.727
  0.727
  0.727
  0.727
  0.727
  0.727
  0.727
  0.727

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -43
  -52
  -53
  -55
  -57
  -59
  -62
  -64
  -67
  -70
  -73
  -76
  -79
  -83
  -86
  -90
  -95
  -99
  -104
  -109
  -114
  -119
  -125
  -131
  -137
  -144
  -151
  -159
  -166
  -175
  -183
Depreciation, amort., depletion, $m
  12
  12
  13
  13
  14
  14
  15
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
  34
  35
  37
  39
  41
  43
Funds from operations, $m
  -11
  -39
  -41
  -42
  -44
  -45
  -47
  -49
  -51
  -53
  -56
  -58
  -61
  -63
  -66
  -69
  -72
  -76
  -79
  -83
  -87
  -91
  -96
  -100
  -105
  -111
  -116
  -122
  -128
  -134
  -141
Change in working capital, $m
  3
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
Cash from operations, $m
  -14
  -41
  -42
  -44
  -45
  -47
  -49
  -51
  -53
  -56
  -58
  -61
  -63
  -66
  -69
  -73
  -76
  -80
  -83
  -87
  -92
  -96
  -101
  -106
  -111
  -116
  -122
  -128
  -134
  -141
  -148
Maintenance CAPEX, $m
  0
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
New CAPEX, $m
  -9
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
Cash from investing activities, $m
  -9
  -14
  -14
  -15
  -15
  -17
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -34
  -35
  -36
  -39
  -40
  -43
  -44
  -47
  -49
  -52
Free cash flow, $m
  -23
  -55
  -57
  -59
  -61
  -63
  -66
  -69
  -72
  -75
  -78
  -82
  -85
  -89
  -93
  -98
  -102
  -107
  -112
  -118
  -123
  -129
  -136
  -142
  -149
  -157
  -164
  -172
  -181
  -190
  -199
Issuance/(repayment) of debt, $m
  4
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
Issuance/(repurchase) of shares, $m
  1
  55
  57
  59
  61
  63
  66
  69
  72
  75
  78
  82
  85
  89
  93
  98
  102
  107
  112
  118
  124
  130
  136
  142
  149
  157
  164
  173
  181
  190
  199
Cash from financing (excl. dividends), $m  
  4
  56
  58
  60
  62
  65
  68
  71
  74
  77
  80
  84
  87
  92
  96
  101
  105
  110
  115
  121
  128
  134
  140
  146
  153
  162
  169
  178
  186
  196
  205
Total cash flow (excl. dividends), $m
  -19
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
Retained Cash Flow (-), $m
  36
  -55
  -57
  -59
  -61
  -63
  -66
  -69
  -72
  -75
  -78
  -82
  -85
  -89
  -93
  -98
  -102
  -107
  -112
  -118
  -124
  -130
  -136
  -142
  -149
  -157
  -164
  -173
  -181
  -190
  -199
Prev. year cash balance distribution, $m
 
  15
  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
 
  -38
  -55
  -57
  -60
  -62
  -64
  -67
  -70
  -73
  -76
  -79
  -83
  -87
  -91
  -95
  -99
  -104
  -109
  -114
  -120
  -126
  -132
  -138
  -145
  -152
  -159
  -167
  -175
  -184
  -193
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
 
  -37
  -51
  -50
  -49
  -48
  -47
  -45
  -44
  -42
  -40
  -38
  -35
  -33
  -30
  -28
  -25
  -23
  -20
  -18
  -15
  -13
  -11
  -9
  -7
  -6
  -5
  -4
  -3
  -2
  -1
Current shareholders' claim on cash, %
  100
  67.3
  45.3
  30.4
  20.3
  13.6
  9.1
  6.1
  4.0
  2.7
  1.8
  1.2
  0.8
  0.5
  0.3
  0.2
  0.2
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

SeaSpine Holdings Corporation is a medical technology company. The Company is focused on the design, development and commercialization of surgical solutions for the treatment of patients suffering from spinal disorders. The Company operates through the development, manufacture and marketing of orthobiologics and spinal fusion hardware segment. It has a portfolio of orthobiologics and spinal fusion hardware solutions to meet the varying combinations of products that neurosurgeons and orthopedic spine surgeons need to perform fusion procedures in the lumbar, thoracic and cervical spine. It offers a portfolio of orthobiologics and spinal fusion hardware products for the treatment of patients suffering from spinal and other orthopedic disorders. Its orthobiologics products consist of a range of bone graft substitutes that are designed to improve bone fusion rates following a range of orthopedic surgeries, including spine, hip and extremities procedures.

FINANCIAL RATIOS  of  SeaSpine Holdings (SPNE)

Valuation Ratios
P/E Ratio -2.7
Price to Sales 0.9
Price to Book 1
Price to Tangible Book
Price to Cash Flow -8.3
Price to Free Cash Flow -5.1
Growth Rates
Sales Growth Rate -3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -25%
Cap. Spend. - 3 Yr. Gr. Rate 8.4%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 3.6%
Total Debt to Equity 3.6%
Interest Coverage 0
Management Effectiveness
Return On Assets -26.6%
Ret/ On Assets - 3 Yr. Avg. -26.4%
Return On Total Capital -32.8%
Ret/ On T. Cap. - 3 Yr. Avg. -34.8%
Return On Equity -33.3%
Return On Equity - 3 Yr. Avg. -35%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 56.6%
Gross Margin - 3 Yr. Avg. 56.6%
EBITDA Margin -24.8%
EBITDA Margin - 3 Yr. Avg. -20%
Operating Margin -33.3%
Oper. Margin - 3 Yr. Avg. -28.9%
Pre-Tax Margin -34.1%
Pre-Tax Margin - 3 Yr. Avg. -29.7%
Net Profit Margin -33.3%
Net Profit Margin - 3 Yr. Avg. -31.1%
Effective Tax Rate 2.3%
Eff/ Tax Rate - 3 Yr. Avg. -7.5%
Payout Ratio 0%

SPNE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SPNE stock intrinsic value calculation we used $129 million for the last fiscal year's total revenue generated by SeaSpine Holdings. The default revenue input number comes from 2016 income statement of SeaSpine Holdings. 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 SPNE stock valuation model: a) initial revenue growth rate of 3% 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 SPNE is calculated based on our internal credit rating of SeaSpine Holdings, 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 SeaSpine Holdings.
    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 SPNE stock the variable cost ratio is equal to 138.8%.

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 SPNE 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 SeaSpine Holdings.

Corporate tax rate of 27% is the nominal tax rate for SeaSpine Holdings. 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 SPNE 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 SPNE are equal to 48.8%.

Life of production assets of 5.3 years is the average useful life of capital assets used in SeaSpine Holdings 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 SPNE is equal to 34.1%. 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 - $111 million for SeaSpine Holdings - 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 12.584 million for SeaSpine Holdings 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 SeaSpine Holdings at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ SeaSpine Reports Second Quarter 2017 Financial Results   [Aug-03-17 04:05PM  GlobeNewswire]
▶ SeaSpine to Present at Upcoming Investor Conferences   [May-10-17 09:05AM  GlobeNewswire]
▶ SeaSpine Reports First Quarter 2017 Financial Results   [May-04-17 04:05PM  GlobeNewswire]
▶ SeaSpine to Present at Upcoming Investor Conferences   [Feb-28-17 04:15PM  GlobeNewswire]
▶ SeaSpine to Present at the Needham Healthcare Conference   [Mar-30-16 05:30PM  GlobeNewswire]
Financial statements of SPNE
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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