Intrinsic value of U.S. Physical Therapy - USPH

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$65.85

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$65.85

 
Intrinsic value

$71.20

 
Up/down potential

+8%

 
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 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

Revenue (in 2015), $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 0.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2015(a)
   2016
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  8.52
  8.50
  8.15
  7.83
  7.55
  7.30
  7.07
  6.86
  6.67
  6.51
  6.36
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.53
  5.47
  5.43
  5.38
  5.34
  5.31
  5.28
  5.25
  5.23
  5.20
  5.18
  5.16
Revenue, $m
  331
  359
  388
  419
  450
  483
  517
  553
  590
  628
  668
  710
  753
  798
  845
  894
  945
  999
  1,055
  1,113
  1,174
  1,237
  1,304
  1,374
  1,447
  1,523
  1,603
  1,687
  1,774
  1,866
  1,963
Variable operating expenses, $m
 
  303
  327
  351
  376
  402
  430
  458
  487
  518
  550
  566
  600
  636
  674
  713
  753
  796
  840
  887
  935
  986
  1,039
  1,095
  1,153
  1,214
  1,278
  1,344
  1,414
  1,488
  1,564
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
  284
  303
  327
  351
  376
  402
  430
  458
  487
  518
  550
  566
  600
  636
  674
  713
  753
  796
  840
  887
  935
  986
  1,039
  1,095
  1,153
  1,214
  1,278
  1,344
  1,414
  1,488
  1,564
Operating income, $m
  47
  56
  62
  68
  74
  81
  88
  95
  103
  110
  118
  144
  153
  162
  172
  181
  192
  203
  214
  226
  238
  251
  265
  279
  294
  309
  325
  342
  360
  379
  398
EBITDA, $m
  55
  75
  81
  87
  94
  101
  108
  115
  123
  131
  139
  148
  157
  166
  176
  186
  197
  208
  220
  232
  244
  258
  271
  286
  301
  317
  334
  351
  369
  389
  409
Interest expense (income), $m
  1
  2
  2
  2
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  11
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
Earnings before tax, $m
  46
  54
  60
  65
  71
  78
  84
  91
  98
  105
  113
  138
  147
  155
  164
  174
  183
  194
  204
  215
  227
  239
  252
  265
  279
  294
  309
  325
  342
  359
  378
Tax expense, $m
  14
  15
  16
  18
  19
  21
  23
  25
  26
  28
  31
  37
  40
  42
  44
  47
  49
  52
  55
  58
  61
  65
  68
  72
  75
  79
  83
  88
  92
  97
  102
Net income, $m
  22
  39
  44
  48
  52
  57
  62
  66
  72
  77
  83
  101
  107
  113
  120
  127
  134
  141
  149
  157
  166
  175
  184
  194
  204
  214
  226
  237
  250
  262
  276

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  16
  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
  280
  286
  310
  334
  359
  385
  413
  441
  470
  501
  533
  566
  601
  636
  674
  713
  754
  796
  841
  887
  936
  987
  1,040
  1,095
  1,154
  1,214
  1,278
  1,345
  1,415
  1,488
  1,565
Adjusted assets (=assets-cash), $m
  264
  286
  310
  334
  359
  385
  413
  441
  470
  501
  533
  566
  601
  636
  674
  713
  754
  796
  841
  887
  936
  987
  1,040
  1,095
  1,154
  1,214
  1,278
  1,345
  1,415
  1,488
  1,565
Revenue / Adjusted assets
  1.254
  1.255
  1.252
  1.254
  1.253
  1.255
  1.252
  1.254
  1.255
  1.253
  1.253
  1.254
  1.253
  1.255
  1.254
  1.254
  1.253
  1.255
  1.254
  1.255
  1.254
  1.253
  1.254
  1.255
  1.254
  1.255
  1.254
  1.254
  1.254
  1.254
  1.254
Average production assets, $m
  44
  48
  52
  56
  60
  64
  69
  74
  78
  84
  89
  94
  100
  106
  112
  119
  126
  133
  140
  148
  156
  165
  173
  183
  192
  203
  213
  224
  236
  248
  261
Working capital, $m
  41
  28
  31
  33
  36
  38
  41
  44
  47
  50
  53
  56
  59
  63
  67
  71
  75
  79
  83
  88
  93
  98
  103
  109
  114
  120
  127
  133
  140
  147
  155
Total debt, $m
  49
  58
  68
  79
  90
  101
  113
  126
  139
  152
  166
  180
  196
  211
  228
  245
  263
  282
  301
  322
  343
  365
  388
  413
  438
  465
  493
  522
  553
  585
  619
Total liabilities, $m
  117
  126
  136
  147
  158
  169
  181
  194
  207
  220
  234
  248
  264
  279
  296
  313
  331
  350
  369
  390
  411
  433
  456
  481
  506
  533
  561
  590
  621
  653
  687
Total equity, $m
  163
  161
  174
  187
  202
  216
  232
  247
  264
  281
  299
  318
  337
  357
  378
  400
  423
  447
  472
  498
  525
  554
  583
  615
  647
  681
  717
  755
  794
  835
  878
Total liabilities and equity, $m
  280
  287
  310
  334
  360
  385
  413
  441
  471
  501
  533
  566
  601
  636
  674
  713
  754
  797
  841
  888
  936
  987
  1,039
  1,096
  1,153
  1,214
  1,278
  1,345
  1,415
  1,488
  1,565
Debt-to-equity ratio
  0.301
  0.360
  0.390
  0.420
  0.450
  0.470
  0.490
  0.510
  0.520
  0.540
  0.560
  0.570
  0.580
  0.590
  0.600
  0.610
  0.620
  0.630
  0.640
  0.650
  0.650
  0.660
  0.670
  0.670
  0.680
  0.680
  0.690
  0.690
  0.700
  0.700
  0.710
Adjusted equity ratio
  0.557
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561
  0.561

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  22
  39
  44
  48
  52
  57
  62
  66
  72
  77
  83
  101
  107
  113
  120
  127
  134
  141
  149
  157
  166
  175
  184
  194
  204
  214
  226
  237
  250
  262
  276
Depreciation, amort., depletion, $m
  8
  19
  19
  19
  20
  20
  20
  20
  20
  20
  21
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
Funds from operations, $m
  28
  59
  63
  67
  72
  76
  81
  87
  92
  97
  103
  105
  111
  117
  124
  131
  139
  146
  155
  163
  172
  181
  191
  201
  211
  222
  234
  246
  259
  272
  286
Change in working capital, $m
  -13
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
Cash from operations, $m
  41
  59
  60
  65
  69
  74
  79
  84
  89
  94
  100
  101
  107
  114
  121
  127
  135
  142
  150
  158
  167
  176
  185
  195
  206
  216
  228
  239
  252
  265
  278
Maintenance CAPEX, $m
  0
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
New CAPEX, $m
  -6
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
Cash from investing activities, $m
  -32
  -6
  -6
  -6
  -6
  -6
  -8
  -8
  -8
  -8
  -8
  -9
  -10
  -10
  -10
  -11
  -12
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -19
  -21
  -21
  -23
Free cash flow, $m
  9
  54
  55
  59
  63
  67
  72
  76
  81
  86
  92
  92
  98
  104
  110
  117
  123
  130
  138
  145
  153
  161
  170
  179
  189
  199
  209
  220
  231
  243
  256
Issuance/(repayment) of debt, $m
  9
  10
  10
  11
  11
  12
  12
  12
  13
  13
  14
  15
  15
  16
  16
  17
  18
  19
  20
  20
  21
  22
  23
  24
  26
  27
  28
  29
  31
  32
  34
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  
  -1
  10
  10
  11
  11
  12
  12
  12
  13
  13
  14
  15
  15
  16
  16
  17
  18
  19
  20
  20
  21
  22
  23
  24
  26
  27
  28
  29
  31
  32
  34
Total cash flow (excl. dividends), $m
  9
  64
  65
  69
  74
  79
  84
  89
  94
  100
  105
  107
  113
  120
  127
  134
  141
  149
  157
  166
  174
  184
  193
  204
  214
  225
  237
  249
  262
  276
  290
Retained Cash Flow (-), $m
  -17
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -37
  -39
  -41
  -43
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
 
  66
  52
  56
  60
  64
  68
  73
  78
  83
  88
  88
  94
  100
  106
  112
  118
  125
  132
  139
  147
  155
  164
  172
  182
  191
  201
  212
  223
  234
  247
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
 
  63
  47
  48
  49
  50
  50
  49
  49
  47
  46
  42
  40
  38
  35
  33
  30
  27
  24
  21
  19
  16
  14
  11
  9
  7
  6
  5
  3
  3
  2
Current shareholders' claim on cash, %
  100
  100.0
  100.0
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U.S. Physical Therapy, Inc., through its subsidiaries, operates outpatient physical therapy clinics in the United States. Its clinics 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. As of March 3, 2016, the company owned and operated 514 outpatient physical therapy clinics in 42 states; and managed 21 physical therapy facilities for unaffiliated third parties, including hospitals and physician groups. U.S. Physical Therapy, Inc. was founded in 1990 and is based in Houston, Texas.

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

Valuation Ratios
P/E Ratio 37.2
Price to Sales 2.5
Price to Book 5
Price to Tangible Book
Price to Cash Flow 19.9
Price to Free Cash Flow 23.4
Growth Rates
Sales Growth Rate 8.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 20%
Cap. Spend. - 3 Yr. Gr. Rate 8.4%
Financial Strength
Quick Ratio 16
Current Ratio 0.3
LT Debt to Equity 29.4%
Total Debt to Equity 30.1%
Interest Coverage 47
Management Effectiveness
Return On Assets 8.6%
Ret/ On Assets - 3 Yr. Avg. 8.2%
Return On Total Capital 11.2%
Ret/ On T. Cap. - 3 Yr. Avg. 10.6%
Return On Equity 14.2%
Return On Equity - 3 Yr. Avg. 13.4%
Asset Turnover 1.3
Profitability Ratios
Gross Margin 23.9%
Gross Margin - 3 Yr. Avg. 24.5%
EBITDA Margin 16.6%
EBITDA Margin - 3 Yr. Avg. 16.9%
Operating Margin 14.2%
Oper. Margin - 3 Yr. Avg. 14.7%
Pre-Tax Margin 13.9%
Pre-Tax Margin - 3 Yr. Avg. 14.3%
Net Profit Margin 6.6%
Net Profit Margin - 3 Yr. Avg. 6.2%
Effective Tax Rate 30.4%
Eff/ Tax Rate - 3 Yr. Avg. 31.8%
Payout Ratio 31.8%

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 $331 million for the last fiscal year's total revenue generated by U.S. Physical Therapy. The default revenue input number comes from 2015 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 8.5% 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 84.9%.

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 13.3%.

Life of production assets of 25.5 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 7.9%. 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 - $163 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 12.474 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 $0.8 billion.


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