Intrinsic value of Surmodics - SRDX

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$24.25

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$24.25

 
Intrinsic value

$23.52

 
Up/down potential

-3%

 
Rating

hold

 
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 SRDX 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 0.3

 

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, %
  14.52
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.31
  5.28
  5.25
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.06
  5.06
  5.05
  5.05
  5.04
Revenue, $m
  71
  75
  80
  84
  89
  94
  99
  104
  110
  116
  122
  129
  136
  143
  150
  158
  166
  175
  184
  193
  203
  213
  224
  236
  248
  260
  273
  287
  302
  317
  333
Variable operating expenses, $m
 
  53
  56
  59
  62
  65
  69
  72
  76
  80
  84
  86
  90
  95
  100
  105
  111
  116
  122
  129
  135
  142
  149
  157
  165
  173
  182
  191
  201
  211
  222
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
  55
  53
  56
  59
  62
  65
  69
  72
  76
  80
  84
  86
  90
  95
  100
  105
  111
  116
  122
  129
  135
  142
  149
  157
  165
  173
  182
  191
  201
  211
  222
Operating income, $m
  17
  22
  24
  25
  27
  29
  30
  32
  34
  36
  38
  43
  45
  48
  50
  53
  56
  58
  61
  65
  68
  71
  75
  79
  83
  87
  91
  96
  101
  106
  111
EBITDA, $m
  22
  28
  30
  32
  34
  35
  37
  40
  42
  44
  46
  49
  51
  54
  57
  60
  63
  66
  69
  73
  77
  81
  85
  89
  94
  98
  103
  109
  114
  120
  126
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  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
  17
  22
  24
  25
  27
  28
  30
  32
  34
  36
  38
  42
  45
  47
  49
  52
  54
  57
  60
  63
  66
  70
  73
  77
  81
  85
  89
  93
  98
  103
  108
Tax expense, $m
  7
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
Net income, $m
  10
  16
  17
  18
  20
  21
  22
  23
  25
  26
  27
  31
  33
  34
  36
  38
  40
  42
  44
  46
  48
  51
  53
  56
  59
  62
  65
  68
  72
  75
  79

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  47
  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
  133
  91
  96
  102
  108
  114
  120
  126
  133
  141
  148
  156
  164
  173
  182
  191
  201
  212
  222
  234
  246
  258
  272
  285
  300
  315
  331
  348
  365
  384
  403
Adjusted assets (=assets-cash), $m
  86
  91
  96
  102
  108
  114
  120
  126
  133
  141
  148
  156
  164
  173
  182
  191
  201
  212
  222
  234
  246
  258
  272
  285
  300
  315
  331
  348
  365
  384
  403
Revenue / Adjusted assets
  0.826
  0.824
  0.833
  0.824
  0.824
  0.825
  0.825
  0.825
  0.827
  0.823
  0.824
  0.827
  0.829
  0.827
  0.824
  0.827
  0.826
  0.825
  0.829
  0.825
  0.825
  0.826
  0.824
  0.828
  0.827
  0.825
  0.825
  0.825
  0.827
  0.826
  0.826
Average production assets, $m
  30
  31
  33
  35
  37
  39
  41
  43
  46
  48
  51
  53
  56
  59
  62
  66
  69
  73
  76
  80
  84
  89
  93
  98
  103
  108
  113
  119
  125
  132
  138
Working capital, $m
  49
  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
  8
  8
  8
  9
  9
Total debt, $m
  0
  1
  3
  5
  6
  8
  10
  12
  14
  16
  19
  21
  24
  26
  29
  32
  35
  38
  41
  45
  48
  52
  56
  60
  65
  69
  74
  79
  84
  90
  96
Total liabilities, $m
  26
  27
  29
  31
  32
  34
  36
  38
  40
  42
  45
  47
  50
  52
  55
  58
  61
  64
  67
  71
  74
  78
  82
  86
  91
  95
  100
  105
  110
  116
  122
Total equity, $m
  107
  64
  67
  71
  75
  79
  84
  88
  93
  98
  103
  109
  115
  121
  127
  133
  140
  148
  155
  163
  172
  180
  190
  199
  209
  220
  231
  243
  255
  268
  281
Total liabilities and equity, $m
  133
  91
  96
  102
  107
  113
  120
  126
  133
  140
  148
  156
  165
  173
  182
  191
  201
  212
  222
  234
  246
  258
  272
  285
  300
  315
  331
  348
  365
  384
  403
Debt-to-equity ratio
  0.000
  0.020
  0.050
  0.070
  0.090
  0.100
  0.120
  0.140
  0.150
  0.170
  0.180
  0.190
  0.210
  0.220
  0.230
  0.240
  0.250
  0.260
  0.270
  0.270
  0.280
  0.290
  0.300
  0.300
  0.310
  0.310
  0.320
  0.330
  0.330
  0.340
  0.340
Adjusted equity ratio
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  10
  16
  17
  18
  20
  21
  22
  23
  25
  26
  27
  31
  33
  34
  36
  38
  40
  42
  44
  46
  48
  51
  53
  56
  59
  62
  65
  68
  72
  75
  79
Depreciation, amort., depletion, $m
  5
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
Funds from operations, $m
  30
  22
  24
  25
  26
  28
  29
  31
  32
  34
  36
  37
  39
  40
  43
  45
  47
  49
  52
  55
  57
  60
  63
  66
  70
  73
  77
  81
  85
  89
  94
Change in working capital, $m
  5
  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 operations, $m
  25
  36
  23
  25
  26
  27
  29
  30
  32
  34
  35
  36
  38
  40
  42
  45
  47
  49
  52
  54
  57
  60
  63
  66
  69
  73
  77
  80
  84
  89
  93
Maintenance CAPEX, $m
  0
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
New CAPEX, $m
  -8
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
Cash from investing activities, $m
  -55
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -16
  -18
  -19
  -19
  -21
Free cash flow, $m
  -30
  31
  18
  19
  20
  21
  23
  24
  25
  26
  28
  28
  30
  31
  33
  35
  36
  38
  40
  42
  44
  47
  49
  52
  54
  57
  60
  63
  66
  69
  73
Issuance/(repayment) of debt, $m
  0
  1
  2
  2
  2
  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
  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  
  0
  1
  2
  2
  2
  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
Total cash flow (excl. dividends), $m
  -31
  32
  20
  21
  22
  23
  24
  26
  27
  28
  30
  31
  32
  34
  36
  38
  39
  41
  44
  46
  48
  50
  53
  56
  58
  61
  64
  68
  71
  75
  78
Retained Cash Flow (-), $m
  -15
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
Prev. year cash balance distribution, $m
 
  47
  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
 
  76
  16
  17
  18
  19
  20
  21
  22
  23
  25
  25
  27
  28
  29
  31
  33
  34
  36
  38
  40
  42
  44
  46
  48
  51
  53
  56
  59
  62
  65
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
 
  73
  15
  15
  15
  15
  15
  14
  14
  13
  13
  12
  11
  11
  10
  9
  8
  7
  7
  6
  5
  4
  4
  3
  2
  2
  2
  1
  1
  1
  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
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Surmodics, Inc., together with its subsidiaries, provides surface modification and in vitro diagnostic technologies to the healthcare industry worldwide. It operates through two segments, Medical Device and In Vitro Diagnostics. The Medical Device segment offers surface modification coating technologies to enhance access, deliverability, and predictable deployment of medical devices, as well as drug delivery coating technologies to provide site-specific drug delivery from the surface of a medical device for the coronary, peripheral, neuro-vascular, urology, and other markets. This segment also engages in the contract research, development, and manufacture of percutaneous transluminal angioplasty balloon catheters for use in various interventional cardiology, peripheral, and other applications. The Vitro Diagnostics segment provides component products and technologies that include protein stabilization reagents, substrates, antigens, and surface coatings for diagnostic immunoassay and molecular tests, as well as to the diagnostic, biomedical research, and life science markets. SurModics, Inc. was founded in 1979 and is headquartered in Eden Prairie, Minnesota.

FINANCIAL RATIOS  of  Surmodics (SRDX)

Valuation Ratios
P/E Ratio 32
Price to Sales 4.5
Price to Book 3
Price to Tangible Book
Price to Cash Flow 12.8
Price to Free Cash Flow 18.8
Growth Rates
Sales Growth Rate 14.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 300%
Cap. Spend. - 3 Yr. Gr. Rate 32%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 8.6%
Ret/ On Assets - 3 Yr. Avg. 10.7%
Return On Total Capital 10.1%
Ret/ On T. Cap. - 3 Yr. Avg. 11.7%
Return On Equity 10.1%
Return On Equity - 3 Yr. Avg. 11.7%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 59.2%
Gross Margin - 3 Yr. Avg. 59.5%
EBITDA Margin 31%
EBITDA Margin - 3 Yr. Avg. 33.9%
Operating Margin 22.5%
Oper. Margin - 3 Yr. Avg. 27.1%
Pre-Tax Margin 23.9%
Pre-Tax Margin - 3 Yr. Avg. 28.2%
Net Profit Margin 14.1%
Net Profit Margin - 3 Yr. Avg. 18.2%
Effective Tax Rate 41.2%
Eff/ Tax Rate - 3 Yr. Avg. 35.9%
Payout Ratio 0%

SRDX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SRDX stock intrinsic value calculation we used $71 million for the last fiscal year's total revenue generated by Surmodics. The default revenue input number comes from 2016 income statement of Surmodics. 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 SRDX stock valuation model: a) initial revenue growth rate of 5.9% 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 SRDX is calculated based on our internal credit rating of Surmodics, 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 Surmodics.
    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 SRDX stock the variable cost ratio is equal to 70.4%.

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 SRDX 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 Surmodics.

Corporate tax rate of 27% is the nominal tax rate for Surmodics. 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 SRDX 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 SRDX are equal to 41.5%.

Life of production assets of 9.4 years is the average useful life of capital assets used in Surmodics 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 SRDX is equal to 2.8%. 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 - $107 million for Surmodics - 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 13.13 million for Surmodics 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 Surmodics at the current share price and the inputted number of shares is $0.3 billion.


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COMPANY NEWS

▶ Surmodics to Present at Oppenheimer Healthcare Conference   [Mar-14-17 09:39AM  Business Wire]
▶ SurModics posts 1Q profit   [07:52AM  Associated Press]
▶ Is SurModics, Inc. (SRDX) Worthy of Your Portfolio?   [Dec-10-16 06:34PM  at Insider Monkey]
▶ Surmodics to Attend Piper Jaffray Healthcare Conference   [Nov-22-16 08:05AM  Business Wire]
▶ SurModics to Present at Jefferies Healthcare Conference   [Jun-01-16 08:05AM  Business Wire]
Stock chart of SRDX Financial statements of SRDX
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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