Intrinsic value of WebMD Health - WBMD

Previous Close

$66.48

  Intrinsic Value

$42.49

stock screener

  Rating & Target

sell

-36%

  Value-price divergence*

-93%

Previous close

$66.48

 
Intrinsic value

$42.49

 
Up/down potential

-36%

 
Rating

sell

 
Value-price divergence*

-93%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of WBMD 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 2.5

 

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, %
  10.85
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
  4.96
  4.97
  4.97
  4.97
  4.98
  4.98
  4.98
  4.98
  4.98
  4.99
  4.99
  4.99
  4.99
  4.99
Revenue, $m
  705
  739
  774
  812
  851
  893
  936
  982
  1,030
  1,081
  1,134
  1,190
  1,249
  1,311
  1,375
  1,444
  1,515
  1,590
  1,669
  1,752
  1,840
  1,931
  2,027
  2,128
  2,234
  2,346
  2,462
  2,585
  2,714
  2,850
  2,992
Variable operating expenses, $m
 
  235
  245
  256
  267
  279
  292
  305
  319
  334
  349
  345
  362
  380
  399
  419
  440
  462
  484
  509
  534
  560
  588
  618
  648
  681
  715
  750
  788
  827
  868
Fixed operating expenses, $m
 
  327
  335
  344
  352
  361
  370
  379
  389
  398
  408
  419
  429
  440
  451
  462
  474
  485
  498
  510
  523
  536
  549
  563
  577
  591
  606
  621
  637
  653
  669
Total operating expenses, $m
  536
  562
  580
  600
  619
  640
  662
  684
  708
  732
  757
  764
  791
  820
  850
  881
  914
  947
  982
  1,019
  1,057
  1,096
  1,137
  1,181
  1,225
  1,272
  1,321
  1,371
  1,425
  1,480
  1,537
Operating income, $m
  169
  177
  194
  212
  232
  252
  274
  298
  322
  349
  376
  426
  457
  491
  526
  563
  602
  643
  687
  734
  783
  835
  890
  948
  1,009
  1,073
  1,142
  1,214
  1,290
  1,370
  1,454
EBITDA, $m
  200
  204
  221
  240
  260
  281
  303
  327
  352
  378
  407
  437
  468
  502
  538
  575
  615
  657
  702
  749
  799
  852
  907
  966
  1,028
  1,094
  1,163
  1,236
  1,313
  1,395
  1,481
Interest expense (income), $m
  21
  37
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  24
  25
  27
  29
  31
  33
  35
  37
  39
  41
  44
  46
  49
  52
  54
  58
Earnings before tax, $m
  147
  141
  185
  202
  221
  240
  261
  284
  307
  333
  359
  408
  438
  469
  503
  539
  576
  616
  659
  703
  750
  800
  853
  909
  968
  1,030
  1,096
  1,165
  1,238
  1,315
  1,397
Tax expense, $m
  56
  38
  50
  55
  60
  65
  71
  77
  83
  90
  97
  110
  118
  127
  136
  145
  156
  166
  178
  190
  203
  216
  230
  245
  261
  278
  296
  315
  334
  355
  377
Net income, $m
  91
  103
  135
  148
  161
  176
  191
  207
  224
  243
  262
  298
  320
  343
  367
  393
  421
  450
  481
  513
  548
  584
  623
  663
  706
  752
  800
  850
  904
  960
  1,020

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  991
  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
  1,501
  535
  560
  587
  616
  646
  678
  711
  746
  782
  821
  861
  904
  948
  995
  1,045
  1,096
  1,151
  1,208
  1,268
  1,331
  1,397
  1,467
  1,540
  1,617
  1,697
  1,782
  1,871
  1,964
  2,062
  2,165
Adjusted assets (=assets-cash), $m
  510
  535
  560
  587
  616
  646
  678
  711
  746
  782
  821
  861
  904
  948
  995
  1,045
  1,096
  1,151
  1,208
  1,268
  1,331
  1,397
  1,467
  1,540
  1,617
  1,697
  1,782
  1,871
  1,964
  2,062
  2,165
Revenue / Adjusted assets
  1.382
  1.381
  1.382
  1.383
  1.381
  1.382
  1.381
  1.381
  1.381
  1.382
  1.381
  1.382
  1.382
  1.383
  1.382
  1.382
  1.382
  1.381
  1.382
  1.382
  1.382
  1.382
  1.382
  1.382
  1.382
  1.382
  1.382
  1.382
  1.382
  1.382
  1.382
Average production assets, $m
  51
  53
  56
  58
  61
  64
  67
  71
  74
  78
  82
  86
  90
  94
  99
  104
  109
  115
  120
  126
  132
  139
  146
  153
  161
  169
  177
  186
  195
  205
  215
Working capital, $m
  1,002
  12
  12
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
  34
  36
  38
  39
  41
  43
  46
  48
Total debt, $m
  1,045
  269
  292
  317
  342
  369
  398
  428
  459
  492
  527
  563
  601
  642
  684
  728
  775
  824
  875
  929
  986
  1,046
  1,108
  1,174
  1,243
  1,315
  1,392
  1,472
  1,556
  1,644
  1,736
Total liabilities, $m
  1,257
  481
  504
  529
  554
  581
  610
  640
  671
  704
  739
  775
  813
  854
  896
  940
  987
  1,036
  1,087
  1,141
  1,198
  1,258
  1,320
  1,386
  1,455
  1,527
  1,604
  1,684
  1,768
  1,856
  1,948
Total equity, $m
  244
  53
  56
  59
  62
  65
  68
  71
  75
  78
  82
  86
  90
  95
  100
  104
  110
  115
  121
  127
  133
  140
  147
  154
  162
  170
  178
  187
  196
  206
  216
Total liabilities and equity, $m
  1,501
  534
  560
  588
  616
  646
  678
  711
  746
  782
  821
  861
  903
  949
  996
  1,044
  1,097
  1,151
  1,208
  1,268
  1,331
  1,398
  1,467
  1,540
  1,617
  1,697
  1,782
  1,871
  1,964
  2,062
  2,164
Debt-to-equity ratio
  4.283
  5.030
  5.220
  5.390
  5.560
  5.720
  5.870
  6.020
  6.160
  6.290
  6.420
  6.540
  6.650
  6.760
  6.870
  6.970
  7.070
  7.160
  7.240
  7.330
  7.410
  7.480
  7.550
  7.620
  7.690
  7.750
  7.810
  7.870
  7.920
  7.970
  8.020
Adjusted equity ratio
  -1.465
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  91
  103
  135
  148
  161
  176
  191
  207
  224
  243
  262
  298
  320
  343
  367
  393
  421
  450
  481
  513
  548
  584
  623
  663
  706
  752
  800
  850
  904
  960
  1,020
Depreciation, amort., depletion, $m
  31
  27
  27
  27
  28
  28
  29
  29
  29
  30
  30
  10
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
Funds from operations, $m
  166
  129
  162
  175
  189
  204
  219
  236
  254
  273
  292
  308
  331
  354
  379
  406
  434
  464
  495
  529
  564
  601
  641
  682
  726
  772
  821
  873
  928
  985
  1,046
Change in working capital, $m
  5
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
Cash from operations, $m
  161
  129
  161
  174
  188
  203
  219
  235
  253
  272
  292
  307
  330
  353
  378
  405
  433
  463
  494
  527
  563
  600
  639
  681
  724
  771
  820
  871
  926
  983
  1,044
Maintenance CAPEX, $m
  0
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
New CAPEX, $m
  -30
  -2
  -3
  -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
  -10
  -10
Cash from investing activities, $m
  -526
  -8
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -14
  -15
  -17
  -17
  -18
  -18
  -20
  -21
  -21
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -32
  -34
  -35
Free cash flow, $m
  -365
  120
  152
  165
  178
  193
  208
  224
  241
  259
  278
  293
  315
  338
  362
  388
  415
  444
  475
  507
  541
  577
  615
  655
  698
  743
  791
  841
  894
  950
  1,009
Issuance/(repayment) of debt, $m
  248
  -776
  23
  24
  26
  27
  28
  30
  31
  33
  35
  36
  38
  40
  42
  44
  47
  49
  51
  54
  57
  60
  63
  66
  69
  73
  76
  80
  84
  88
  93
Issuance/(repurchase) of shares, $m
  -69
  698
  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  
  216
  -78
  23
  24
  26
  27
  28
  30
  31
  33
  35
  36
  38
  40
  42
  44
  47
  49
  51
  54
  57
  60
  63
  66
  69
  73
  76
  80
  84
  88
  93
Total cash flow (excl. dividends), $m
  -149
  42
  176
  189
  204
  220
  236
  254
  272
  292
  313
  330
  353
  378
  404
  432
  462
  493
  526
  561
  598
  637
  678
  721
  767
  816
  867
  921
  978
  1,038
  1,101
Retained Cash Flow (-), $m
  -88
  -800
  -3
  -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
  -10
  -10
Prev. year cash balance distribution, $m
 
  991
  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
 
  233
  173
  187
  201
  217
  233
  250
  269
  288
  309
  326
  349
  374
  400
  427
  457
  488
  520
  555
  591
  630
  671
  714
  759
  807
  858
  912
  968
  1,028
  1,091
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
 
  223
  158
  162
  166
  168
  169
  169
  168
  166
  162
  155
  149
  142
  134
  125
  116
  106
  96
  85
  75
  65
  56
  47
  39
  31
  25
  20
  15
  11
  8
Current shareholders' claim on cash, %
  100
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

WebMD Health Corp. is a provider of health information services. The Company provides its services to consumers, physicians and other healthcare professionals through its Websites, mobile applications and health-focused publications. Advertisers and sponsors use The WebMD Health Network to reach and engage healthcare professionals and consumers who are interested in healthy living, wellness, diseases and conditions, and other health-related topics. It also markets services under the WebMD Health Services brand that help employers and health plans improve the health and wellness of their employee and plan participant populations. The WebMD Health Network includes www.WebMD.com, its primary Website for consumers and related mobile applications; www.Medscape.com, its primary Website for physicians and other healthcare professionals and related mobile applications; and other Websites through which it provides its branded health and wellness content, tools and services.

FINANCIAL RATIOS  of  WebMD Health (WBMD)

Valuation Ratios
P/E Ratio 26.8
Price to Sales 3.5
Price to Book 10
Price to Tangible Book
Price to Cash Flow 15.2
Price to Free Cash Flow 18.6
Growth Rates
Sales Growth Rate 10.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -37.5%
Cap. Spend. - 3 Yr. Gr. Rate 6.4%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 428.3%
Total Debt to Equity 428.3%
Interest Coverage 8
Management Effectiveness
Return On Assets 7.8%
Ret/ On Assets - 3 Yr. Avg. 6.2%
Return On Total Capital 8.1%
Ret/ On T. Cap. - 3 Yr. Avg. 6.2%
Return On Equity 45.5%
Return On Equity - 3 Yr. Avg. 45.8%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 62.1%
Gross Margin - 3 Yr. Avg. 61.6%
EBITDA Margin 28.2%
EBITDA Margin - 3 Yr. Avg. 24.3%
Operating Margin 24%
Oper. Margin - 3 Yr. Avg. 19.9%
Pre-Tax Margin 20.9%
Pre-Tax Margin - 3 Yr. Avg. 16.3%
Net Profit Margin 12.9%
Net Profit Margin - 3 Yr. Avg. 10.1%
Effective Tax Rate 38.1%
Eff/ Tax Rate - 3 Yr. Avg. 39.1%
Payout Ratio 0%

WBMD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the WBMD stock intrinsic value calculation we used $705 million for the last fiscal year's total revenue generated by WebMD Health. The default revenue input number comes from 2016 income statement of WebMD Health. 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 WBMD stock valuation model: a) initial revenue growth rate of 4.8% 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 WBMD is calculated based on our internal credit rating of WebMD Health, 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 WebMD Health.
    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 WBMD stock the variable cost ratio is equal to 31.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $319 million in the base year in the intrinsic value calculation for WBMD 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 WebMD Health.

Corporate tax rate of 27% is the nominal tax rate for WebMD Health. 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 WBMD 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 WBMD are equal to 7.2%.

Life of production assets of 8.2 years is the average useful life of capital assets used in WebMD Health 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 WBMD is equal to 1.6%. 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 - $244 million for WebMD Health - 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 37.998 million for WebMD Health 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 WebMD Health at the current share price and the inputted number of shares is $2.5 billion.

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Financial statements of WBMD
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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