Intrinsic value of AAC Holdings - AAC

Previous Close

$8.63

  Intrinsic Value

$6.76

stock screener

  Rating & Target

sell

-22%

Previous close

$8.63

 
Intrinsic value

$6.76

 
Up/down potential

-22%

 
Rating

sell

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

We calculate the intrinsic value of AAC 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 0.2

 

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, %
  32.08
  8.30
  7.97
  7.67
  7.41
  7.17
  6.95
  6.75
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
  5.75
  5.68
  5.61
  5.55
  5.50
  5.45
  5.40
  5.36
  5.32
  5.29
  5.26
  5.24
  5.21
  5.19
  5.17
  5.16
Revenue, $m
  280
  303
  327
  353
  379
  406
  434
  463
  494
  525
  558
  593
  629
  666
  705
  745
  788
  832
  878
  926
  977
  1,029
  1,085
  1,142
  1,203
  1,266
  1,332
  1,402
  1,475
  1,551
  1,631
Variable operating expenses, $m
 
  279
  301
  323
  346
  369
  394
  420
  446
  474
  503
  520
  551
  584
  618
  654
  691
  730
  770
  812
  857
  903
  951
  1,002
  1,055
  1,111
  1,169
  1,230
  1,294
  1,360
  1,431
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
  279
  279
  301
  323
  346
  369
  394
  420
  446
  474
  503
  520
  551
  584
  618
  654
  691
  730
  770
  812
  857
  903
  951
  1,002
  1,055
  1,111
  1,169
  1,230
  1,294
  1,360
  1,431
Operating income, $m
  1
  24
  27
  30
  33
  36
  40
  44
  47
  51
  55
  73
  77
  82
  87
  92
  97
  102
  108
  114
  120
  126
  133
  140
  148
  156
  164
  172
  181
  191
  200
EBITDA, $m
  19
  48
  51
  55
  59
  64
  68
  73
  77
  82
  87
  93
  98
  104
  110
  117
  123
  130
  138
  145
  153
  161
  170
  179
  188
  198
  209
  220
  231
  243
  256
Interest expense (income), $m
  5
  6
  7
  8
  8
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  23
  24
  25
  27
  28
  30
  31
  33
  35
  37
  39
  41
Earnings before tax, $m
  -7
  17
  20
  22
  25
  27
  30
  33
  36
  39
  42
  59
  62
  66
  70
  74
  78
  82
  87
  91
  96
  101
  107
  112
  118
  124
  131
  137
  145
  152
  160
Tax expense, $m
  -1
  5
  5
  6
  7
  7
  8
  9
  10
  11
  11
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  30
  32
  34
  35
  37
  39
  41
  43
Net income, $m
  -1
  13
  14
  16
  18
  20
  22
  24
  26
  28
  31
  43
  46
  48
  51
  54
  57
  60
  63
  67
  70
  74
  78
  82
  86
  91
  95
  100
  106
  111
  117

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  4
  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
  384
  411
  444
  478
  514
  551
  589
  629
  670
  713
  758
  804
  853
  903
  956
  1,011
  1,069
  1,129
  1,191
  1,257
  1,325
  1,397
  1,472
  1,550
  1,632
  1,718
  1,808
  1,902
  2,001
  2,104
  2,213
Adjusted assets (=assets-cash), $m
  380
  411
  444
  478
  514
  551
  589
  629
  670
  713
  758
  804
  853
  903
  956
  1,011
  1,069
  1,129
  1,191
  1,257
  1,325
  1,397
  1,472
  1,550
  1,632
  1,718
  1,808
  1,902
  2,001
  2,104
  2,213
Revenue / Adjusted assets
  0.737
  0.737
  0.736
  0.738
  0.737
  0.737
  0.737
  0.736
  0.737
  0.736
  0.736
  0.738
  0.737
  0.738
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
Average production assets, $m
  135
  146
  157
  169
  182
  195
  208
  222
  237
  252
  268
  285
  302
  320
  338
  358
  378
  399
  421
  445
  469
  494
  521
  548
  577
  608
  640
  673
  708
  744
  783
Working capital, $m
  51
  61
  65
  71
  76
  81
  87
  93
  99
  105
  112
  119
  126
  133
  141
  149
  158
  166
  176
  185
  195
  206
  217
  228
  241
  253
  266
  280
  295
  310
  326
Total debt, $m
  189
  203
  221
  241
  261
  282
  303
  326
  349
  374
  399
  425
  453
  481
  511
  542
  575
  609
  644
  681
  720
  761
  803
  847
  894
  942
  993
  1,047
  1,103
  1,161
  1,223
Total liabilities, $m
  219
  233
  251
  271
  291
  312
  333
  356
  379
  404
  429
  455
  483
  511
  541
  572
  605
  639
  674
  711
  750
  791
  833
  877
  924
  972
  1,023
  1,077
  1,133
  1,191
  1,253
Total equity, $m
  165
  179
  193
  208
  223
  239
  256
  273
  291
  309
  329
  349
  370
  392
  415
  439
  464
  490
  517
  545
  575
  606
  639
  673
  708
  746
  785
  826
  868
  913
  960
Total liabilities and equity, $m
  384
  412
  444
  479
  514
  551
  589
  629
  670
  713
  758
  804
  853
  903
  956
  1,011
  1,069
  1,129
  1,191
  1,256
  1,325
  1,397
  1,472
  1,550
  1,632
  1,718
  1,808
  1,903
  2,001
  2,104
  2,213
Debt-to-equity ratio
  1.145
  1.140
  1.150
  1.160
  1.170
  1.180
  1.190
  1.190
  1.200
  1.210
  1.210
  1.220
  1.220
  1.230
  1.230
  1.240
  1.240
  1.240
  1.250
  1.250
  1.250
  1.250
  1.260
  1.260
  1.260
  1.260
  1.270
  1.270
  1.270
  1.270
  1.270
Adjusted equity ratio
  0.424
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434
  0.434

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -1
  13
  14
  16
  18
  20
  22
  24
  26
  28
  31
  43
  46
  48
  51
  54
  57
  60
  63
  67
  70
  74
  78
  82
  86
  91
  95
  100
  106
  111
  117
Depreciation, amort., depletion, $m
  18
  24
  24
  25
  26
  27
  28
  29
  30
  31
  32
  20
  21
  23
  24
  25
  27
  28
  30
  31
  33
  35
  37
  39
  41
  43
  45
  47
  50
  52
  55
Funds from operations, $m
  -40
  36
  39
  41
  44
  47
  50
  53
  56
  60
  63
  63
  67
  71
  75
  79
  83
  88
  93
  98
  103
  109
  115
  121
  127
  134
  140
  148
  155
  163
  172
Change in working capital, $m
  -40
  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
  13
  14
  15
  15
  16
Cash from operations, $m
  0
  32
  34
  36
  39
  42
  44
  47
  50
  53
  56
  56
  60
  63
  67
  71
  75
  79
  84
  88
  93
  98
  103
  109
  115
  121
  127
  134
  141
  148
  156
Maintenance CAPEX, $m
  0
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -50
  -52
New CAPEX, $m
  -37
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -35
  -37
  -38
Cash from investing activities, $m
  -56
  -20
  -22
  -23
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -42
  -43
  -45
  -48
  -50
  -53
  -55
  -58
  -61
  -65
  -68
  -71
  -75
  -78
  -82
  -87
  -90
Free cash flow, $m
  -56
  11
  12
  13
  15
  16
  17
  18
  20
  21
  23
  21
  22
  24
  26
  28
  29
  31
  33
  35
  38
  40
  42
  45
  47
  50
  53
  55
  58
  62
  65
Issuance/(repayment) of debt, $m
  42
  18
  19
  19
  20
  21
  22
  23
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
  35
  37
  39
  41
  42
  44
  46
  49
  51
  53
  56
  59
  61
Issuance/(repurchase) of shares, $m
  0
  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 from financing (excl. dividends), $m  
  42
  19
  19
  19
  20
  21
  22
  23
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
  35
  37
  39
  41
  42
  44
  46
  49
  51
  53
  56
  59
  61
Total cash flow (excl. dividends), $m
  -15
  30
  31
  33
  35
  37
  39
  41
  43
  46
  48
  47
  50
  53
  56
  59
  62
  65
  69
  72
  76
  80
  85
  89
  94
  98
  103
  109
  114
  120
  126
Retained Cash Flow (-), $m
  -23
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -32
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -47
Prev. year cash balance distribution, $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 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
 
  16
  17
  18
  19
  21
  22
  24
  25
  27
  29
  27
  29
  31
  33
  35
  37
  39
  42
  44
  47
  49
  52
  55
  58
  61
  64
  68
  72
  75
  79
Discount rate, %
 
  8.00
  8.40
  8.82
  9.26
  9.72
  10.21
  10.72
  11.26
  11.82
  12.41
  13.03
  13.68
  14.37
  15.09
  15.84
  16.63
  17.46
  18.34
  19.25
  20.22
  21.23
  22.29
  23.40
  24.57
  25.80
  27.09
  28.45
  29.87
  31.36
  32.93
PV of cash for distribution, $m
 
  15
  14
  14
  13
  13
  12
  12
  11
  10
  9
  7
  6
  5
  5
  4
  3
  3
  2
  2
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6

AAC Holdings, Inc. is a provider of inpatient and outpatient substance abuse treatment services for individuals with drug and alcohol addiction. The Company performs drug testing and diagnostics laboratory services and provides physician services to its clients. As of June 30, 2016, the Company operated 12 residential substance abuse treatment facilities located throughout the United States, focused on delivering clinical care and treatment solutions across 1,139 beds, which includes 636 licensed detoxification beds, and 18 standalone outpatient centers. In addition, the Company focuses on expanding The Oxford Centre facility. As of June 30, 2016, the Company's capacity at its Forterus treatment facility was 14 beds. The Company is engaged in deploying research-based treatment programs with structured curricula for detoxification, residential treatment, partial hospitalization and intensive outpatient care. The Company is also an Internet marketer in the addiction treatment industry.

FINANCIAL RATIOS  of  AAC Holdings (AAC)

Valuation Ratios
P/E Ratio -196.9
Price to Sales 0.7
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 0
Price to Free Cash Flow -5.3
Growth Rates
Sales Growth Rate 32.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -28.8%
Cap. Spend. - 3 Yr. Gr. Rate 23.3%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 109.1%
Total Debt to Equity 114.5%
Interest Coverage 0
Management Effectiveness
Return On Assets 0.9%
Ret/ On Assets - 3 Yr. Avg. 4.9%
Return On Total Capital -0.3%
Ret/ On T. Cap. - 3 Yr. Avg. 4.7%
Return On Equity -0.7%
Return On Equity - 3 Yr. Avg. 7.9%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 5.7%
EBITDA Margin - 3 Yr. Avg. 9.7%
Operating Margin 0.4%
Oper. Margin - 3 Yr. Avg. 5.4%
Pre-Tax Margin -2.5%
Pre-Tax Margin - 3 Yr. Avg. 3.5%
Net Profit Margin -0.4%
Net Profit Margin - 3 Yr. Avg. 3.6%
Effective Tax Rate 14.3%
Eff/ Tax Rate - 3 Yr. Avg. 28.7%
Payout Ratio 0%

AAC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AAC stock intrinsic value calculation we used $280 million for the last fiscal year's total revenue generated by AAC Holdings. The default revenue input number comes from 2016 income statement of AAC Holdings. 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 AAC stock valuation model: a) initial revenue growth rate of 8.3% 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 8%, whose default value for AAC is calculated based on our internal credit rating of AAC Holdings, 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 AAC Holdings.
    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 AAC stock the variable cost ratio is equal to 92.5%.

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 AAC 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 AAC Holdings.

Corporate tax rate of 27% is the nominal tax rate for AAC Holdings. 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 AAC 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 AAC are equal to 48%.

Life of production assets of 14.2 years is the average useful life of capital assets used in AAC Holdings 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 AAC 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 - $165 million for AAC Holdings - 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 24.061 million for AAC Holdings 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 AAC Holdings at the current share price and the inputted number of shares is $0.2 billion.

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COMPANY NEWS

▶ AAC Holdings reports 2Q loss   [Aug-03-17 12:58AM  Associated Press]
▶ AAC Holdings, Inc. Reports Second Quarter 2017 Results   [Aug-02-17 04:15PM  PR Newswire]
▶ ETFs with exposure to AAC Holdings, Inc. : June 2, 2017   [Jun-02-17 01:48PM  Capital Cube]
▶ [$$] Labor Dispute Shuts 110-Bed N.J. Addiction Center   [12:08AM  The Wall Street Journal]
▶ ETFs with exposure to AAC Holdings, Inc. : May 22, 2017   [May-22-17 01:17PM  Capital Cube]
▶ ETFs with exposure to AAC Holdings, Inc. : May 9, 2017   [May-09-17 04:13PM  Capital Cube]
▶ AAC Holdings reports 1Q loss   [May-03-17 07:01PM  Associated Press]
▶ ETFs with exposure to AAC Holdings, Inc. : April 20, 2017   [Apr-20-17 02:09PM  Capital Cube]
▶ ETFs with exposure to AAC Holdings, Inc. : April 5, 2017   [Apr-05-17 04:13PM  Capital Cube]
▶ AAC Holdings beats 4Q profit forecasts   [Feb-27-17 07:30PM  Associated Press]
▶ Is AAC Holdings Inc (AAC) A Good Stock to Buy?   [Dec-15-16 12:16AM  at Insider Monkey]
▶ Here's Why AAC Holdings Lost Over Half Its Value Today   [Nov-03-16 05:27PM  at Motley Fool]
▶ AAC shares climb on legal resolution   [Oct-24-16 04:15PM  at bizjournals.com]
▶ AAC Holdings Increases Credit Facility   [Jul-14-16 06:30AM  Business Wire]
Financial statements of AAC
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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