Intrinsic value of WageWorks - WAGE

Previous Close

$51.90

  Intrinsic Value

$38.51

stock screener

  Rating & Target

sell

-26%

Previous close

$51.90

 
Intrinsic value

$38.51

 
Up/down potential

-26%

 
Rating

sell

We calculate the intrinsic value of WAGE 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, %
  9.28
  9.10
  8.69
  8.32
  7.99
  7.69
  7.42
  7.18
  6.96
  6.76
  6.59
  6.43
  6.29
  6.16
  6.04
  5.94
  5.84
  5.76
  5.68
  5.62
  5.55
  5.50
  5.45
  5.40
  5.36
  5.33
  5.29
  5.26
  5.24
  5.21
  5.19
Revenue, $m
  365
  398
  433
  469
  506
  545
  586
  628
  671
  717
  764
  813
  864
  918
  973
  1,031
  1,091
  1,154
  1,219
  1,288
  1,359
  1,434
  1,512
  1,594
  1,680
  1,769
  1,863
  1,961
  2,063
  2,171
  2,284
Variable operating expenses, $m
 
  346
  372
  399
  427
  456
  487
  518
  551
  585
  621
  610
  648
  688
  730
  773
  818
  866
  915
  966
  1,020
  1,076
  1,134
  1,196
  1,260
  1,327
  1,397
  1,471
  1,548
  1,629
  1,713
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
  332
  346
  372
  399
  427
  456
  487
  518
  551
  585
  621
  610
  648
  688
  730
  773
  818
  866
  915
  966
  1,020
  1,076
  1,134
  1,196
  1,260
  1,327
  1,397
  1,471
  1,548
  1,629
  1,713
Operating income, $m
  33
  52
  61
  70
  79
  89
  99
  109
  120
  132
  144
  203
  216
  229
  243
  258
  273
  288
  305
  322
  340
  358
  378
  398
  420
  442
  465
  490
  516
  542
  571
EBITDA, $m
  41
  144
  157
  170
  183
  197
  212
  227
  243
  260
  277
  294
  313
  332
  352
  373
  395
  418
  442
  466
  492
  519
  548
  577
  608
  640
  674
  710
  747
  786
  827
Interest expense (income), $m
  2
  13
  18
  23
  28
  33
  38
  44
  50
  56
  62
  69
  75
  83
  90
  98
  106
  114
  123
  132
  141
  151
  161
  172
  184
  195
  208
  221
  234
  248
  263
Earnings before tax, $m
  32
  39
  43
  47
  51
  56
  61
  65
  71
  76
  81
  135
  141
  147
  153
  160
  167
  174
  182
  190
  199
  207
  216
  226
  236
  247
  258
  269
  281
  294
  307
Tax expense, $m
  12
  10
  12
  13
  14
  15
  16
  18
  19
  20
  22
  36
  38
  40
  41
  43
  45
  47
  49
  51
  54
  56
  58
  61
  64
  67
  70
  73
  76
  79
  83
Net income, $m
  20
  28
  31
  34
  37
  41
  44
  48
  52
  55
  59
  98
  103
  107
  112
  117
  122
  127
  133
  139
  145
  151
  158
  165
  172
  180
  188
  197
  205
  215
  224

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  678
  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
  1,343
  1,464
  1,591
  1,724
  1,861
  2,004
  2,153
  2,308
  2,468
  2,635
  2,809
  2,990
  3,178
  3,373
  3,577
  3,790
  4,011
  4,242
  4,483
  4,735
  4,998
  5,273
  5,560
  5,860
  6,175
  6,504
  6,848
  7,209
  7,586
  7,982
  8,396
Adjusted assets (=assets-cash), $m
  665
  1,464
  1,591
  1,724
  1,861
  2,004
  2,153
  2,308
  2,468
  2,635
  2,809
  2,990
  3,178
  3,373
  3,577
  3,790
  4,011
  4,242
  4,483
  4,735
  4,998
  5,273
  5,560
  5,860
  6,175
  6,504
  6,848
  7,209
  7,586
  7,982
  8,396
Revenue / Adjusted assets
  0.549
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
Average production assets, $m
  182
  447
  486
  526
  568
  612
  657
  704
  753
  804
  857
  912
  970
  1,029
  1,092
  1,157
  1,224
  1,295
  1,368
  1,445
  1,525
  1,609
  1,697
  1,789
  1,884
  1,985
  2,090
  2,200
  2,315
  2,436
  2,562
Working capital, $m
  114
  -80
  -87
  -94
  -101
  -109
  -117
  -126
  -134
  -143
  -153
  -163
  -173
  -184
  -195
  -206
  -218
  -231
  -244
  -258
  -272
  -287
  -302
  -319
  -336
  -354
  -373
  -392
  -413
  -434
  -457
Total debt, $m
  249
  334
  423
  515
  611
  711
  814
  922
  1,034
  1,150
  1,271
  1,397
  1,528
  1,665
  1,807
  1,955
  2,109
  2,270
  2,438
  2,614
  2,797
  2,989
  3,189
  3,398
  3,617
  3,847
  4,087
  4,338
  4,601
  4,877
  5,166
Total liabilities, $m
  935
  1,020
  1,109
  1,201
  1,297
  1,397
  1,501
  1,609
  1,721
  1,837
  1,958
  2,084
  2,215
  2,351
  2,493
  2,641
  2,796
  2,957
  3,125
  3,300
  3,484
  3,675
  3,875
  4,085
  4,304
  4,533
  4,773
  5,024
  5,288
  5,563
  5,852
Total equity, $m
  408
  444
  482
  522
  564
  607
  652
  699
  748
  799
  851
  906
  963
  1,022
  1,084
  1,148
  1,215
  1,285
  1,358
  1,435
  1,514
  1,598
  1,685
  1,776
  1,871
  1,971
  2,075
  2,184
  2,299
  2,418
  2,544
Total liabilities and equity, $m
  1,343
  1,464
  1,591
  1,723
  1,861
  2,004
  2,153
  2,308
  2,469
  2,636
  2,809
  2,990
  3,178
  3,373
  3,577
  3,789
  4,011
  4,242
  4,483
  4,735
  4,998
  5,273
  5,560
  5,861
  6,175
  6,504
  6,848
  7,208
  7,587
  7,981
  8,396
Debt-to-equity ratio
  0.610
  0.750
  0.880
  0.990
  1.080
  1.170
  1.250
  1.320
  1.380
  1.440
  1.490
  1.540
  1.590
  1.630
  1.670
  1.700
  1.740
  1.770
  1.790
  1.820
  1.850
  1.870
  1.890
  1.910
  1.930
  1.950
  1.970
  1.990
  2.000
  2.020
  2.030
Adjusted equity ratio
  -0.406
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  20
  28
  31
  34
  37
  41
  44
  48
  52
  55
  59
  98
  103
  107
  112
  117
  122
  127
  133
  139
  145
  151
  158
  165
  172
  180
  188
  197
  205
  215
  224
Depreciation, amort., depletion, $m
  8
  92
  96
  100
  104
  109
  113
  118
  123
  128
  133
  91
  97
  103
  109
  116
  122
  129
  137
  145
  153
  161
  170
  179
  188
  198
  209
  220
  232
  244
  256
Funds from operations, $m
  460
  120
  127
  134
  142
  149
  157
  166
  174
  183
  193
  189
  200
  210
  221
  232
  244
  257
  270
  283
  297
  312
  328
  344
  361
  379
  397
  417
  437
  458
  481
Change in working capital, $m
  195
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
Cash from operations, $m
  265
  127
  134
  141
  149
  157
  165
  174
  183
  192
  202
  199
  210
  221
  232
  244
  256
  269
  283
  297
  312
  327
  343
  360
  378
  396
  416
  436
  457
  480
  503
Maintenance CAPEX, $m
  0
  -41
  -45
  -49
  -53
  -57
  -61
  -66
  -70
  -75
  -80
  -86
  -91
  -97
  -103
  -109
  -116
  -122
  -129
  -137
  -145
  -153
  -161
  -170
  -179
  -188
  -198
  -209
  -220
  -232
  -244
New CAPEX, $m
  -49
  -38
  -39
  -40
  -42
  -44
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -60
  -62
  -65
  -68
  -71
  -74
  -77
  -80
  -84
  -88
  -92
  -96
  -100
  -105
  -110
  -115
  -121
  -126
Cash from investing activities, $m
  -283
  -79
  -84
  -89
  -95
  -101
  -106
  -113
  -119
  -126
  -133
  -141
  -148
  -157
  -165
  -174
  -184
  -193
  -203
  -214
  -225
  -237
  -249
  -262
  -275
  -288
  -303
  -319
  -335
  -353
  -370
Free cash flow, $m
  -18
  48
  51
  52
  55
  57
  59
  61
  64
  66
  69
  58
  61
  64
  67
  70
  73
  76
  80
  83
  87
  91
  95
  99
  103
  108
  112
  117
  122
  127
  133
Issuance/(repayment) of debt, $m
  170
  85
  89
  92
  96
  100
  104
  108
  112
  116
  121
  126
  131
  136
  142
  148
  154
  161
  168
  175
  183
  192
  200
  209
  219
  229
  240
  251
  263
  276
  289
Issuance/(repurchase) of shares, $m
  27
  9
  7
  6
  4
  3
  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
Cash from financing (excl. dividends), $m  
  196
  94
  96
  98
  100
  103
  105
  108
  112
  116
  121
  126
  131
  136
  142
  148
  154
  161
  168
  175
  183
  192
  200
  209
  219
  229
  240
  251
  263
  276
  289
Total cash flow (excl. dividends), $m
  177
  143
  147
  151
  155
  159
  163
  169
  176
  182
  190
  184
  192
  200
  209
  218
  228
  237
  248
  259
  270
  282
  295
  308
  322
  337
  352
  368
  385
  403
  422
Retained Cash Flow (-), $m
  -71
  -37
  -39
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -59
  -62
  -64
  -67
  -70
  -73
  -76
  -80
  -83
  -87
  -91
  -95
  -100
  -104
  -109
  -114
  -120
  -126
Prev. year cash balance distribution, $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
Cash flow adjustment, $m
 
  12
  14
  15
  16
  17
  19
  20
  21
  23
  24
  26
  28
  29
  31
  33
  35
  37
  39
  41
  44
  46
  49
  51
  54
  57
  60
  63
  67
  70
  74
Cash available for distribution, $m
 
  107
  108
  111
  113
  116
  118
  122
  127
  132
  137
  130
  135
  141
  147
  154
  160
  167
  175
  183
  191
  199
  208
  217
  227
  237
  248
  259
  271
  283
  296
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
 
  102
  99
  96
  93
  90
  86
  82
  79
  76
  72
  62
  58
  54
  49
  45
  41
  36
  32
  28
  24
  21
  17
  14
  12
  9
  7
  6
  4
  3
  2
Current shareholders' claim on cash, %
  100
  99.5
  99.2
  98.9
  98.7
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6
  98.6

WageWorks, Inc. is engaged in administering Consumer-Directed Benefits (CDBs). The Company administers CBDs, including pre-tax spending accounts, such as Health Savings Accounts (HSAs), health and dependent care Flexible Spending Accounts (FSAs), and Health Reimbursement Arrangements (HRAs), as well as Commuter Benefit Services, including transit and parking programs, wellness programs, Consolidated Omnibus Budget Reconciliation Act (COBRA) and other employee benefits. Its CDB programs assist employees and their families in saving money by using pre-tax dollars to pay for certain of their healthcare, dependent care and commuter expenses. Employers financially benefit from its programs through reduced payroll taxes. It provides operational support services to its clients and its cross-functional teams, including customer support and claims processing. It administers HSAs for employers that allow employee participants to invest funds to be used for qualified healthcare expenses.

FINANCIAL RATIOS  of  WageWorks (WAGE)

Valuation Ratios
P/E Ratio 95.8
Price to Sales 5.2
Price to Book 4.7
Price to Tangible Book
Price to Cash Flow 7.2
Price to Free Cash Flow 8.9
Growth Rates
Sales Growth Rate 9.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 75%
Cap. Spend. - 3 Yr. Gr. Rate 28.5%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 61%
Total Debt to Equity 61%
Interest Coverage 17
Management Effectiveness
Return On Assets 1.9%
Ret/ On Assets - 3 Yr. Avg. 2.5%
Return On Total Capital 3.7%
Ret/ On T. Cap. - 3 Yr. Avg. 5.2%
Return On Equity 5.4%
Return On Equity - 3 Yr. Avg. 6.6%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 64.1%
Gross Margin - 3 Yr. Avg. 63.9%
EBITDA Margin 11.5%
EBITDA Margin - 3 Yr. Avg. 13%
Operating Margin 9%
Oper. Margin - 3 Yr. Avg. 10.9%
Pre-Tax Margin 8.8%
Pre-Tax Margin - 3 Yr. Avg. 10.4%
Net Profit Margin 5.5%
Net Profit Margin - 3 Yr. Avg. 6.4%
Effective Tax Rate 37.5%
Eff/ Tax Rate - 3 Yr. Avg. 39%
Payout Ratio 0%

WAGE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the WAGE stock intrinsic value calculation we used $365 million for the last fiscal year's total revenue generated by WageWorks. The default revenue input number comes from 2016 income statement of WageWorks. 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 WAGE stock valuation model: a) initial revenue growth rate of 9.1% 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 WAGE is calculated based on our internal credit rating of WageWorks, 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 WageWorks.
    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 WAGE stock the variable cost ratio is equal to 88%.

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 WAGE 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 5.4% for WageWorks.

Corporate tax rate of 27% is the nominal tax rate for WageWorks. 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 WAGE stock is equal to 3.4%.

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 WAGE are equal to 112.2%.

Life of production assets of 10 years is the average useful life of capital assets used in WageWorks 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 WAGE is equal to -20%. 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 - $408 million for WageWorks - 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 36 million for WageWorks 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 WageWorks at the current share price and the inputted number of shares is $1.9 billion.

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COMPANY NEWS

▶ WageWorks opens downtown office   [02:30PM  American City Business Journals]
▶ At US$051.1, Is WageWorks Inc (NYSE:WAGE) A Buy?   [Jun-25-18 07:04AM  Simply Wall St.]
▶ Does WageWorks Incs (NYSE:WAGE) Debt Level Pose A Problem?   [Jun-18-18 07:01PM  Simply Wall St.]
▶ G7 Meeting What you need to know in markets on Friday   [Jun-07-18 05:52PM  Yahoo Finance]
▶ WageWorks' Executive Team Goes to Pieces   [Apr-12-18 05:33PM  Motley Fool]
▶ [$$] WageWorks Hires Outside Firm for Finance Help   [Apr-09-18 06:06PM  The Wall Street Journal]
▶ Rough Ride for Wageworks   [Apr-08-18 04:15PM  The Wall Street Journal]
▶ [$$] WageWorks Shuffles Top Leaders   [Apr-05-18 06:45PM  The Wall Street Journal]
Financial statements of WAGE
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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