Intrinsic value of U.S. Physical Therapy - USPH

Previous Close

$59.30

  Intrinsic Value

$112.72

stock screener

  Rating & Target

str. buy

+90%

  Value-price divergence*

+70%

Previous close

$59.30

 
Intrinsic value

$112.72

 
Up/down potential

+90%

 
Rating

str. buy

 
Value-price divergence*

+70%

*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 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 0.7

 

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
  15.60
  14.54
  13.59
  12.73
  11.95
  11.26
  10.63
  10.07
  9.56
  9.11
  8.70
  8.33
  7.99
  7.69
  7.42
  7.18
  6.96
  6.77
  6.59
  6.43
  6.29
  6.16
  6.04
  5.94
  5.85
  5.76
  5.68
  5.62
  5.55
  5.50
Revenue, $m
  357
  413
  473
  537
  605
  678
  754
  834
  918
  1,006
  1,097
  1,193
  1,292
  1,396
  1,503
  1,614
  1,730
  1,851
  1,976
  2,106
  2,242
  2,383
  2,530
  2,683
  2,842
  3,008
  3,181
  3,362
  3,551
  3,748
  3,954
Variable operating expenses, $m
 
  350
  398
  449
  503
  560
  621
  684
  751
  821
  893
  946
  1,025
  1,107
  1,192
  1,281
  1,373
  1,469
  1,568
  1,671
  1,779
  1,891
  2,007
  2,128
  2,255
  2,387
  2,524
  2,668
  2,817
  2,974
  3,138
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
  350
  398
  449
  503
  560
  621
  684
  751
  821
  893
  946
  1,025
  1,107
  1,192
  1,281
  1,373
  1,469
  1,568
  1,671
  1,779
  1,891
  2,007
  2,128
  2,255
  2,387
  2,524
  2,668
  2,817
  2,974
  3,138
Operating income, $m
  50
  63
  75
  88
  102
  117
  133
  150
  167
  185
  204
  246
  267
  288
  310
  334
  357
  382
  408
  435
  463
  492
  523
  554
  587
  621
  657
  695
  734
  774
  817
EBITDA, $m
  59
  87
  100
  114
  128
  143
  160
  176
  194
  213
  232
  252
  273
  295
  318
  342
  366
  392
  418
  446
  474
  504
  535
  568
  601
  636
  673
  711
  751
  793
  837
Interest expense (income), $m
  1
  2
  3
  4
  5
  6
  7
  8
  9
  11
  12
  14
  15
  17
  18
  20
  22
  24
  25
  27
  30
  32
  34
  36
  39
  41
  44
  47
  49
  52
  56
Earnings before tax, $m
  38
  61
  72
  85
  98
  112
  126
  142
  158
  174
  192
  233
  252
  272
  292
  314
  336
  359
  383
  408
  434
  461
  489
  518
  548
  580
  613
  648
  684
  722
  761
Tax expense, $m
  12
  16
  20
  23
  26
  30
  34
  38
  43
  47
  52
  63
  68
  73
  79
  85
  91
  97
  103
  110
  117
  124
  132
  140
  148
  157
  166
  175
  185
  195
  206
Net income, $m
  21
  44
  53
  62
  71
  81
  92
  103
  115
  127
  140
  170
  184
  198
  213
  229
  245
  262
  279
  298
  317
  336
  357
  378
  400
  424
  448
  473
  499
  527
  556

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
  382
  438
  498
  561
  628
  699
  773
  851
  932
  1,017
  1,106
  1,198
  1,293
  1,393
  1,496
  1,604
  1,715
  1,832
  1,952
  2,078
  2,208
  2,345
  2,486
  2,634
  2,788
  2,948
  3,116
  3,291
  3,474
  3,665
Adjusted assets (=assets-cash), $m
  331
  382
  438
  498
  561
  628
  699
  773
  851
  932
  1,017
  1,106
  1,198
  1,293
  1,393
  1,496
  1,604
  1,715
  1,832
  1,952
  2,078
  2,208
  2,345
  2,486
  2,634
  2,788
  2,948
  3,116
  3,291
  3,474
  3,665
Revenue / Adjusted assets
  1.079
  1.081
  1.080
  1.078
  1.078
  1.080
  1.079
  1.079
  1.079
  1.079
  1.079
  1.079
  1.078
  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
  1.079
Average production assets, $m
  52
  60
  69
  78
  88
  99
  110
  122
  134
  147
  160
  174
  189
  204
  219
  236
  253
  270
  289
  308
  327
  348
  369
  392
  415
  439
  464
  491
  518
  547
  577
Working capital, $m
  41
  26
  29
  33
  38
  42
  47
  52
  57
  62
  68
  74
  80
  87
  93
  100
  107
  115
  123
  131
  139
  148
  157
  166
  176
  187
  197
  208
  220
  232
  245
Total debt, $m
  52
  76
  103
  132
  163
  196
  231
  267
  305
  345
  386
  430
  475
  521
  570
  621
  673
  728
  785
  844
  905
  969
  1,035
  1,105
  1,177
  1,252
  1,331
  1,413
  1,498
  1,588
  1,681
Total liabilities, $m
  164
  187
  214
  243
  274
  307
  342
  378
  416
  456
  497
  541
  586
  632
  681
  732
  784
  839
  896
  955
  1,016
  1,080
  1,146
  1,216
  1,288
  1,363
  1,442
  1,524
  1,609
  1,699
  1,792
Total equity, $m
  188
  195
  224
  254
  287
  321
  357
  395
  435
  476
  520
  565
  612
  661
  712
  765
  820
  877
  936
  998
  1,062
  1,129
  1,198
  1,270
  1,346
  1,425
  1,507
  1,592
  1,682
  1,775
  1,873
Total liabilities and equity, $m
  352
  382
  438
  497
  561
  628
  699
  773
  851
  932
  1,017
  1,106
  1,198
  1,293
  1,393
  1,497
  1,604
  1,716
  1,832
  1,953
  2,078
  2,209
  2,344
  2,486
  2,634
  2,788
  2,949
  3,116
  3,291
  3,474
  3,665
Debt-to-equity ratio
  0.277
  0.390
  0.460
  0.520
  0.570
  0.610
  0.650
  0.680
  0.700
  0.720
  0.740
  0.760
  0.780
  0.790
  0.800
  0.810
  0.820
  0.830
  0.840
  0.850
  0.850
  0.860
  0.860
  0.870
  0.870
  0.880
  0.880
  0.890
  0.890
  0.890
  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
  44
  53
  62
  71
  81
  92
  103
  115
  127
  140
  170
  184
  198
  213
  229
  245
  262
  279
  298
  317
  336
  357
  378
  400
  424
  448
  473
  499
  527
  556
Depreciation, amort., depletion, $m
  9
  25
  25
  25
  26
  26
  26
  27
  27
  28
  28
  6
  6
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
Funds from operations, $m
  49
  69
  78
  87
  97
  108
  119
  130
  142
  155
  168
  176
  190
  205
  221
  237
  254
  271
  289
  308
  328
  348
  369
  392
  415
  439
  464
  490
  517
  546
  576
Change in working capital, $m
  -2
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
Cash from operations, $m
  51
  66
  74
  83
  93
  103
  114
  125
  137
  150
  163
  170
  184
  199
  214
  230
  247
  264
  282
  300
  319
  339
  360
  382
  405
  428
  453
  479
  505
  534
  563
Maintenance CAPEX, $m
  0
  -2
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
New CAPEX, $m
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
Cash from investing activities, $m
  -32
  -10
  -11
  -11
  -13
  -14
  -14
  -16
  -16
  -18
  -18
  -19
  -21
  -21
  -23
  -24
  -25
  -27
  -27
  -29
  -31
  -32
  -33
  -35
  -36
  -38
  -40
  -42
  -45
  -47
  -49
Free cash flow, $m
  19
  56
  63
  71
  80
  89
  99
  110
  121
  132
  144
  151
  164
  177
  192
  206
  222
  237
  254
  271
  289
  308
  327
  347
  368
  390
  413
  436
  461
  487
  514
Issuance/(repayment) of debt, $m
  1
  25
  27
  29
  31
  33
  35
  36
  38
  40
  42
  43
  45
  47
  49
  51
  53
  55
  57
  59
  61
  64
  67
  69
  72
  75
  79
  82
  86
  89
  93
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
  25
  27
  29
  31
  33
  35
  36
  38
  40
  42
  43
  45
  47
  49
  51
  53
  55
  57
  59
  61
  64
  67
  69
  72
  75
  79
  82
  86
  89
  93
Total cash flow (excl. dividends), $m
  13
  81
  90
  101
  111
  122
  134
  146
  159
  172
  186
  194
  209
  224
  240
  257
  274
  292
  311
  330
  350
  372
  393
  416
  440
  465
  491
  518
  547
  576
  607
Retained Cash Flow (-), $m
  -17
  -26
  -28
  -30
  -32
  -34
  -36
  -38
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -59
  -62
  -64
  -67
  -70
  -72
  -75
  -79
  -82
  -86
  -89
  -93
  -98
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
  70
  79
  88
  98
  108
  119
  130
  142
  149
  162
  175
  189
  204
  219
  235
  251
  269
  286
  305
  324
  344
  365
  386
  409
  433
  457
  483
  510
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
  61
  65
  68
  71
  73
  74
  75
  75
  71
  69
  67
  64
  60
  56
  51
  46
  41
  36
  32
  27
  23
  19
  15
  12
  9
  7
  5
  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 35.4
Price to Sales 2.1
Price to Book 3.9
Price to Tangible Book
Price to Cash Flow 14.6
Price to Free Cash Flow 17.3
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 15.6% 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 12.505 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 $0.7 billion.

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COMPANY NEWS

▶ 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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