Intrinsic value of U.S. Physical Therapy - USPH

Previous Close

$77.90

  Intrinsic Value

$120.38

stock screener

  Rating & Target

str. buy

+55%

Previous close

$77.90

 
Intrinsic value

$120.38

 
Up/down potential

+55%

 
Rating

str. buy

We calculate the intrinsic value of USPH 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  7.85
  17.00
  15.80
  14.72
  13.75
  12.87
  12.09
  11.38
  10.74
  10.17
  9.65
  9.18
  8.77
  8.39
  8.05
  7.75
  7.47
  7.22
  7.00
  6.80
  6.62
  6.46
  6.31
  6.18
  6.06
  5.96
  5.86
  5.78
  5.70
  5.63
  5.57
Revenue, $m
  357
  418
  484
  555
  631
  712
  799
  889
  985
  1,085
  1,190
  1,299
  1,413
  1,531
  1,655
  1,783
  1,916
  2,054
  2,198
  2,348
  2,503
  2,665
  2,833
  3,008
  3,191
  3,381
  3,579
  3,786
  4,001
  4,226
  4,462
Variable operating expenses, $m
 
  354
  406
  463
  523
  588
  656
  728
  804
  884
  967
  1,031
  1,121
  1,215
  1,313
  1,414
  1,520
  1,630
  1,744
  1,863
  1,986
  2,114
  2,248
  2,387
  2,531
  2,682
  2,839
  3,003
  3,175
  3,353
  3,540
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
  307
  354
  406
  463
  523
  588
  656
  728
  804
  884
  967
  1,031
  1,121
  1,215
  1,313
  1,414
  1,520
  1,630
  1,744
  1,863
  1,986
  2,114
  2,248
  2,387
  2,531
  2,682
  2,839
  3,003
  3,175
  3,353
  3,540
Operating income, $m
  50
  64
  77
  92
  108
  124
  142
  161
  181
  201
  223
  268
  292
  316
  342
  368
  396
  424
  454
  485
  517
  551
  585
  621
  659
  698
  739
  782
  827
  873
  922
EBITDA, $m
  59
  88
  102
  117
  134
  151
  169
  188
  208
  230
  252
  275
  299
  324
  350
  377
  405
  435
  465
  497
  530
  564
  599
  636
  675
  715
  757
  801
  847
  894
  944
Interest expense (income), $m
  1
  2
  3
  4
  5
  6
  7
  9
  10
  12
  13
  15
  17
  19
  20
  22
  24
  27
  29
  31
  33
  36
  38
  41
  44
  47
  50
  53
  56
  60
  63
Earnings before tax, $m
  38
  62
  74
  88
  103
  118
  135
  152
  171
  190
  210
  253
  275
  298
  321
  346
  371
  398
  425
  454
  484
  515
  547
  580
  615
  652
  690
  729
  770
  814
  859
Tax expense, $m
  12
  17
  20
  24
  28
  32
  36
  41
  46
  51
  57
  68
  74
  80
  87
  93
  100
  107
  115
  123
  131
  139
  148
  157
  166
  176
  186
  197
  208
  220
  232
Net income, $m
  21
  45
  54
  64
  75
  86
  98
  111
  124
  138
  153
  185
  201
  217
  235
  253
  271
  290
  311
  331
  353
  376
  399
  424
  449
  476
  503
  532
  562
  594
  627

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  20
  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
  351
  387
  448
  514
  585
  660
  740
  824
  913
  1,006
  1,103
  1,204
  1,309
  1,419
  1,533
  1,652
  1,776
  1,904
  2,037
  2,176
  2,320
  2,470
  2,626
  2,788
  2,957
  3,133
  3,317
  3,508
  3,708
  3,917
  4,135
Adjusted assets (=assets-cash), $m
  331
  387
  448
  514
  585
  660
  740
  824
  913
  1,006
  1,103
  1,204
  1,309
  1,419
  1,533
  1,652
  1,776
  1,904
  2,037
  2,176
  2,320
  2,470
  2,626
  2,788
  2,957
  3,133
  3,317
  3,508
  3,708
  3,917
  4,135
Revenue / Adjusted assets
  1.079
  1.080
  1.080
  1.080
  1.079
  1.079
  1.080
  1.079
  1.079
  1.079
  1.079
  1.079
  1.079
  1.079
  1.080
  1.079
  1.079
  1.079
  1.079
  1.079
  1.079
  1.079
  1.079
  1.079
  1.079
  1.079
  1.079
  1.079
  1.079
  1.079
  1.079
Average production assets, $m
  52
  61
  71
  81
  92
  104
  117
  130
  144
  158
  174
  190
  206
  224
  242
  260
  280
  300
  321
  343
  365
  389
  414
  439
  466
  494
  523
  553
  584
  617
  651
Working capital, $m
  41
  26
  30
  34
  39
  44
  50
  55
  61
  67
  74
  81
  88
  95
  103
  111
  119
  127
  136
  146
  155
  165
  176
  187
  198
  210
  222
  235
  248
  262
  277
Total debt, $m
  52
  78
  108
  140
  175
  212
  251
  292
  335
  381
  428
  478
  529
  583
  639
  697
  757
  820
  885
  953
  1,023
  1,097
  1,173
  1,252
  1,335
  1,421
  1,511
  1,605
  1,702
  1,804
  1,911
Total liabilities, $m
  164
  189
  219
  251
  286
  323
  362
  403
  446
  492
  539
  589
  640
  694
  750
  808
  868
  931
  996
  1,064
  1,134
  1,208
  1,284
  1,363
  1,446
  1,532
  1,622
  1,716
  1,813
  1,915
  2,022
Total equity, $m
  188
  198
  229
  263
  299
  337
  378
  421
  466
  514
  563
  615
  669
  725
  784
  844
  907
  973
  1,041
  1,112
  1,185
  1,262
  1,342
  1,425
  1,511
  1,601
  1,695
  1,793
  1,895
  2,002
  2,113
Total liabilities and equity, $m
  352
  387
  448
  514
  585
  660
  740
  824
  912
  1,006
  1,102
  1,204
  1,309
  1,419
  1,534
  1,652
  1,775
  1,904
  2,037
  2,176
  2,319
  2,470
  2,626
  2,788
  2,957
  3,133
  3,317
  3,509
  3,708
  3,917
  4,135
Debt-to-equity ratio
  0.277
  0.400
  0.470
  0.530
  0.590
  0.630
  0.660
  0.690
  0.720
  0.740
  0.760
  0.780
  0.790
  0.800
  0.820
  0.830
  0.830
  0.840
  0.850
  0.860
  0.860
  0.870
  0.870
  0.880
  0.880
  0.890
  0.890
  0.900
  0.900
  0.900
  0.900
Adjusted equity ratio
  0.508
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  21
  45
  54
  64
  75
  86
  98
  111
  124
  138
  153
  185
  201
  217
  235
  253
  271
  290
  311
  331
  353
  376
  399
  424
  449
  476
  503
  532
  562
  594
  627
Depreciation, amort., depletion, $m
  9
  25
  25
  25
  26
  26
  27
  27
  28
  28
  29
  6
  7
  8
  8
  9
  10
  10
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
Funds from operations, $m
  49
  70
  79
  90
  101
  113
  125
  138
  152
  167
  182
  191
  208
  225
  243
  261
  281
  301
  322
  343
  366
  389
  413
  439
  465
  493
  521
  551
  582
  615
  649
Change in working capital, $m
  -2
  4
  4
  4
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
Cash from operations, $m
  51
  66
  75
  85
  96
  108
  120
  133
  146
  160
  175
  185
  201
  218
  235
  254
  272
  292
  313
  334
  356
  379
  403
  428
  454
  481
  509
  538
  569
  601
  634
Maintenance CAPEX, $m
  0
  -2
  -2
  -2
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
New CAPEX, $m
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -33
  -34
Cash from investing activities, $m
  -32
  -11
  -12
  -12
  -14
  -15
  -17
  -17
  -18
  -20
  -20
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -31
  -33
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -53
  -55
Free cash flow, $m
  19
  55
  64
  73
  82
  93
  104
  115
  128
  141
  155
  163
  178
  193
  210
  227
  244
  262
  281
  301
  322
  343
  365
  388
  412
  437
  463
  490
  519
  548
  579
Issuance/(repayment) of debt, $m
  1
  27
  30
  32
  35
  37
  39
  41
  43
  45
  47
  50
  52
  54
  56
  58
  60
  63
  65
  68
  70
  73
  76
  79
  83
  86
  90
  94
  98
  102
  107
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  
  -5
  27
  30
  32
  35
  37
  39
  41
  43
  45
  47
  50
  52
  54
  56
  58
  60
  63
  65
  68
  70
  73
  76
  79
  83
  86
  90
  94
  98
  102
  107
Total cash flow (excl. dividends), $m
  13
  83
  94
  105
  117
  129
  143
  157
  171
  186
  202
  212
  229
  247
  265
  285
  304
  325
  347
  369
  392
  416
  441
  468
  495
  523
  553
  584
  616
  650
  686
Retained Cash Flow (-), $m
  -17
  -29
  -31
  -34
  -36
  -38
  -41
  -43
  -45
  -47
  -50
  -52
  -54
  -56
  -58
  -61
  -63
  -66
  -68
  -71
  -74
  -77
  -80
  -83
  -86
  -90
  -94
  -98
  -102
  -107
  -111
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
 
  73
  62
  71
  81
  91
  102
  114
  126
  139
  152
  161
  175
  191
  207
  224
  241
  260
  278
  298
  318
  340
  362
  385
  408
  433
  459
  486
  514
  544
  574
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
 
  70
  57
  62
  66
  70
  74
  77
  79
  80
  80
  76
  75
  73
  70
  66
  61
  56
  51
  46
  40
  35
  30
  25
  21
  17
  13
  10
  8
  6
  4
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

U.S. Physical Therapy, Inc., through its subsidiaries, operates outpatient physical therapy clinics that provide pre-and post-operative care, and treatment for orthopedic-related disorders, sports-related injuries, preventative care, rehabilitation of injured workers and neurological-related injuries. The Company's segment is made up of various clinics within partnerships. The Company primarily operates through subsidiary clinic partnerships, in which it owns a general partnership interest and a limited partnership interest, and the managing therapists of the clinics owns the remaining limited partnership interest in the clinics. The Company operates 562 physical therapy clinics in 42 states. There are approximately 380 clinics operated under Clinic Partnerships and over 100 operated as Company-owned Facilities. In addition to its owned clinics, it also manages physical therapy facilities for third parties, primarily physicians, with over 29 third-party facilities under management.

FINANCIAL RATIOS  of  U.S. Physical Therapy (USPH)

Valuation Ratios
P/E Ratio 46.4
Price to Sales 2.7
Price to Book 5.2
Price to Tangible Book
Price to Cash Flow 19.1
Price to Free Cash Flow 22.7
Growth Rates
Sales Growth Rate 7.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 33.3%
Cap. Spend. - 3 Yr. Gr. Rate 9.9%
Financial Strength
Quick Ratio 20
Current Ratio 0.2
LT Debt to Equity 27.1%
Total Debt to Equity 27.7%
Interest Coverage 39
Management Effectiveness
Return On Assets 6.6%
Ret/ On Assets - 3 Yr. Avg. 7.6%
Return On Total Capital 9.1%
Ret/ On T. Cap. - 3 Yr. Avg. 10.1%
Return On Equity 11.7%
Return On Equity - 3 Yr. Avg. 12.9%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 23%
Gross Margin - 3 Yr. Avg. 23.9%
EBITDA Margin 13.4%
EBITDA Margin - 3 Yr. Avg. 14.4%
Operating Margin 14%
Oper. Margin - 3 Yr. Avg. 14.4%
Pre-Tax Margin 10.6%
Pre-Tax Margin - 3 Yr. Avg. 11.7%
Net Profit Margin 5.9%
Net Profit Margin - 3 Yr. Avg. 6.2%
Effective Tax Rate 31.6%
Eff/ Tax Rate - 3 Yr. Avg. 33.6%
Payout Ratio 42.9%

USPH stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the USPH stock intrinsic value calculation we used $357 million for the last fiscal year's total revenue generated by U.S. Physical Therapy. The default revenue input number comes from 2016 income statement of U.S. Physical Therapy. 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 USPH stock valuation model: a) initial revenue growth rate of 17% 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 USPH is calculated based on our internal credit rating of U.S. Physical Therapy, 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 U.S. Physical Therapy.
    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 USPH stock the variable cost ratio is equal to 85.7%.

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 USPH 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 U.S. Physical Therapy.

Corporate tax rate of 27% is the nominal tax rate for U.S. Physical Therapy. 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 USPH 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 USPH are equal to 14.6%.

Life of production assets of 29.2 years is the average useful life of capital assets used in U.S. Physical Therapy 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 USPH is equal to 6.2%. 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 - $188 million for U.S. Physical Therapy - 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 12.529 million for U.S. Physical Therapy 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 U.S. Physical Therapy at the current share price and the inputted number of shares is $1.0 billion.

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COMPANY NEWS

▶ U.S. Physical Therapy misses 3Q profit forecasts   [Nov-02-17 09:16AM  Associated Press]
▶ U.S. Physical Therapy posts 2Q profit   [Aug-03-17 09:55AM  Associated Press]
▶ U.S. Physical Therapy posts 1Q profit   [Jun-29-17 11:16PM  Associated Press]
▶ U.S. Physical Therapy posts 4Q profit   [08:26AM  Associated Press]
▶ U.S. Physical Therapy Reports 2016 Results   [08:00AM  Business Wire]
▶ U.S. Physical Therapy Announces Acquisition   [Jun-01-17 08:00AM  Business Wire]
Financial statements of USPH
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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