Intrinsic value of Akorn, Inc. - AKRX

Previous Close

$4.27

  Intrinsic Value

$0.22

stock screener

  Rating & Target

str. sell

-95%

Previous close

$4.27

 
Intrinsic value

$0.22

 
Up/down potential

-95%

 
Rating

str. sell

We calculate the intrinsic value of AKRX 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 0001), $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 0.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  708
  724
  743
  764
  787
  812
  840
  870
  902
  937
  974
  1,013
  1,055
  1,100
  1,148
  1,198
  1,251
  1,307
  1,367
  1,430
  1,496
  1,566
  1,639
  1,717
  1,799
  1,885
  1,975
  2,071
  2,171
  2,277
Variable operating expenses, $m
  726
  742
  760
  781
  804
  828
  856
  885
  916
  950
  953
  992
  1,033
  1,077
  1,123
  1,172
  1,224
  1,280
  1,338
  1,399
  1,464
  1,532
  1,605
  1,681
  1,761
  1,845
  1,933
  2,027
  2,125
  2,228
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
  726
  742
  760
  781
  804
  828
  856
  885
  916
  950
  953
  992
  1,033
  1,077
  1,123
  1,172
  1,224
  1,280
  1,338
  1,399
  1,464
  1,532
  1,605
  1,681
  1,761
  1,845
  1,933
  2,027
  2,125
  2,228
Operating income, $m
  -18
  -18
  -18
  -17
  -17
  -16
  -16
  -15
  -14
  -14
  21
  22
  22
  23
  24
  25
  27
  28
  29
  30
  32
  33
  35
  37
  38
  40
  42
  44
  46
  48
EBITDA, $m
  71
  72
  74
  76
  78
  81
  84
  87
  90
  93
  97
  101
  105
  110
  114
  119
  125
  130
  136
  142
  149
  156
  163
  171
  179
  188
  197
  206
  216
  227
Interest expense (income), $m
  44
  46
  47
  48
  50
  52
  54
  56
  58
  61
  64
  67
  70
  73
  77
  80
  84
  89
  93
  98
  103
  108
  114
  120
  126
  133
  140
  147
  155
  163
  171
Earnings before tax, $m
  -64
  -65
  -66
  -67
  -69
  -70
  -72
  -73
  -75
  -77
  -46
  -48
  -51
  -53
  -56
  -59
  -62
  -65
  -69
  -73
  -76
  -81
  -85
  -90
  -94
  -100
  -105
  -111
  -117
  -123
Tax expense, $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
Net income, $m
  -64
  -65
  -66
  -67
  -69
  -70
  -72
  -73
  -75
  -77
  -46
  -48
  -51
  -53
  -56
  -59
  -62
  -65
  -69
  -73
  -76
  -81
  -85
  -90
  -94
  -100
  -105
  -111
  -117
  -123

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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 assets, $m
  1,469
  1,502
  1,541
  1,584
  1,632
  1,685
  1,742
  1,805
  1,872
  1,943
  2,020
  2,102
  2,189
  2,282
  2,381
  2,485
  2,595
  2,712
  2,836
  2,966
  3,103
  3,248
  3,401
  3,562
  3,732
  3,910
  4,098
  4,296
  4,504
  4,723
Adjusted assets (=assets-cash), $m
  1,469
  1,502
  1,541
  1,584
  1,632
  1,685
  1,742
  1,805
  1,872
  1,943
  2,020
  2,102
  2,189
  2,282
  2,381
  2,485
  2,595
  2,712
  2,836
  2,966
  3,103
  3,248
  3,401
  3,562
  3,732
  3,910
  4,098
  4,296
  4,504
  4,723
Revenue / Adjusted assets
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
  0.482
Average production assets, $m
  694
  710
  728
  748
  771
  796
  823
  852
  884
  918
  954
  993
  1,034
  1,078
  1,125
  1,174
  1,226
  1,281
  1,339
  1,401
  1,466
  1,534
  1,607
  1,683
  1,763
  1,847
  1,936
  2,029
  2,128
  2,231
Working capital, $m
  192
  196
  201
  207
  213
  220
  228
  236
  244
  254
  264
  275
  286
  298
  311
  325
  339
  354
  370
  387
  405
  424
  444
  465
  487
  511
  535
  561
  588
  617
Total debt, $m
  841
  866
  894
  926
  961
  999
  1,041
  1,086
  1,135
  1,188
  1,244
  1,304
  1,367
  1,435
  1,507
  1,583
  1,664
  1,749
  1,839
  1,934
  2,035
  2,140
  2,252
  2,369
  2,493
  2,624
  2,761
  2,905
  3,057
  3,217
Total liabilities, $m
  1,072
  1,097
  1,125
  1,157
  1,192
  1,230
  1,272
  1,317
  1,366
  1,419
  1,475
  1,535
  1,598
  1,666
  1,738
  1,814
  1,895
  1,980
  2,070
  2,165
  2,266
  2,371
  2,483
  2,600
  2,724
  2,855
  2,992
  3,136
  3,288
  3,448
Total equity, $m
  397
  406
  416
  428
  441
  455
  470
  487
  505
  525
  545
  568
  591
  616
  643
  671
  701
  732
  766
  801
  838
  877
  918
  962
  1,008
  1,056
  1,107
  1,160
  1,216
  1,275
Total liabilities and equity, $m
  1,469
  1,503
  1,541
  1,585
  1,633
  1,685
  1,742
  1,804
  1,871
  1,944
  2,020
  2,103
  2,189
  2,282
  2,381
  2,485
  2,596
  2,712
  2,836
  2,966
  3,104
  3,248
  3,401
  3,562
  3,732
  3,911
  4,099
  4,296
  4,504
  4,723
Debt-to-equity ratio
  2.120
  2.130
  2.150
  2.160
  2.180
  2.200
  2.210
  2.230
  2.250
  2.260
  2.280
  2.300
  2.310
  2.330
  2.340
  2.360
  2.370
  2.390
  2.400
  2.420
  2.430
  2.440
  2.450
  2.460
  2.470
  2.480
  2.490
  2.500
  2.510
  2.520
Adjusted equity ratio
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -64
  -65
  -66
  -67
  -69
  -70
  -72
  -73
  -75
  -77
  -46
  -48
  -51
  -53
  -56
  -59
  -62
  -65
  -69
  -73
  -76
  -81
  -85
  -90
  -94
  -100
  -105
  -111
  -117
  -123
Depreciation, amort., depletion, $m
  89
  90
  92
  93
  95
  97
  99
  102
  104
  107
  76
  79
  83
  86
  90
  94
  98
  102
  107
  112
  117
  123
  129
  135
  141
  148
  155
  162
  170
  178
Funds from operations, $m
  25
  25
  26
  26
  27
  27
  28
  28
  29
  30
  31
  31
  32
  33
  34
  35
  36
  37
  38
  40
  41
  42
  44
  45
  47
  48
  50
  52
  54
  56
Change in working capital, $m
  4
  4
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  11
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
Cash from operations, $m
  21
  21
  21
  20
  20
  20
  20
  20
  20
  20
  21
  21
  21
  21
  21
  21
  22
  22
  22
  22
  23
  23
  24
  24
  24
  25
  25
  26
  27
  27
Maintenance CAPEX, $m
  -54
  -55
  -57
  -58
  -60
  -62
  -64
  -66
  -68
  -71
  -73
  -76
  -79
  -83
  -86
  -90
  -94
  -98
  -102
  -107
  -112
  -117
  -123
  -129
  -135
  -141
  -148
  -155
  -162
  -170
New CAPEX, $m
  -14
  -16
  -18
  -20
  -23
  -25
  -27
  -29
  -32
  -34
  -36
  -39
  -41
  -44
  -47
  -49
  -52
  -55
  -58
  -62
  -65
  -68
  -72
  -76
  -80
  -84
  -89
  -93
  -98
  -103
Cash from investing activities, $m
  -68
  -71
  -75
  -78
  -83
  -87
  -91
  -95
  -100
  -105
  -109
  -115
  -120
  -127
  -133
  -139
  -146
  -153
  -160
  -169
  -177
  -185
  -195
  -205
  -215
  -225
  -237
  -248
  -260
  -273
Free cash flow, $m
  -47
  -51
  -55
  -58
  -62
  -66
  -71
  -75
  -79
  -84
  -89
  -94
  -100
  -106
  -112
  -118
  -124
  -131
  -139
  -146
  -154
  -163
  -171
  -181
  -190
  -200
  -211
  -222
  -234
  -246
Issuance/(repayment) of debt, $m
  21
  25
  28
  32
  35
  38
  42
  45
  49
  52
  56
  60
  64
  68
  72
  76
  81
  85
  90
  95
  100
  106
  112
  118
  124
  130
  137
  144
  152
  160
Issuance/(repurchase) of shares, $m
  71
  74
  77
  79
  82
  84
  87
  90
  93
  97
  67
  70
  74
  78
  83
  87
  92
  97
  102
  108
  114
  120
  126
  133
  140
  148
  156
  164
  173
  182
Cash from financing (excl. dividends), $m  
  92
  99
  105
  111
  117
  122
  129
  135
  142
  149
  123
  130
  138
  146
  155
  163
  173
  182
  192
  203
  214
  226
  238
  251
  264
  278
  293
  308
  325
  342
Total cash flow (excl. dividends), $m
  45
  48
  50
  52
  54
  56
  58
  61
  63
  65
  33
  36
  38
  40
  43
  45
  48
  51
  54
  57
  60
  63
  66
  70
  74
  78
  82
  86
  90
  95
Retained Cash Flow (-), $m
  -71
  -74
  -77
  -79
  -82
  -84
  -87
  -90
  -93
  -97
  -67
  -70
  -74
  -78
  -83
  -87
  -92
  -97
  -102
  -108
  -114
  -120
  -126
  -133
  -140
  -148
  -156
  -164
  -173
  -182
Prev. year cash balance distribution, $m
  54
  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
  28
  -26
  -26
  -27
  -27
  -28
  -29
  -30
  -31
  -32
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -46
  -49
  -51
  -54
  -57
  -60
  -63
  -66
  -70
  -74
  -78
  -82
  -87
Discount rate, %
  9.20
  9.66
  10.14
  10.65
  11.18
  11.74
  12.33
  12.95
  13.59
  14.27
  14.99
  15.74
  16.52
  17.35
  18.22
  19.13
  20.08
  21.09
  22.14
  23.25
  24.41
  25.63
  26.91
  28.26
  29.67
  31.15
  32.71
  34.35
  36.07
  37.87
PV of cash for distribution, $m
  25
  -22
  -20
  -18
  -16
  -14
  -13
  -11
  -10
  -8
  -7
  -6
  -5
  -4
  -3
  -3
  -2
  -1
  -1
  -1
  -1
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  86.9
  75.2
  65.0
  56.2
  48.5
  41.9
  36.2
  31.2
  27.0
  23.3
  21.1
  19.0
  17.2
  15.5
  13.9
  12.5
  11.3
  10.1
  9.1
  8.1
  7.3
  6.5
  5.8
  5.2
  4.6
  4.1
  3.7
  3.3
  2.9
  2.6

Akorn Inc. (Akorn), together with its subsidiaries, is a specialty generic pharmaceutical company that develops, manufactures and markets generic and branded prescription pharmaceuticals, as well as private-label over-the-counter (OTC) consumer health products and animal health pharmaceuticals. The Company operates through two segments: Prescription Pharmaceuticals and the Consumer Health. The Prescription Pharmaceuticals segment consists of generic and branded prescription pharmaceuticals in a range of dosage forms, including sterile ophthalmics, injectables and inhalants and non-sterile oral liquids, topicals and nasal sprays and otics. The Consumer Health segment consists of branded and private-label OTC products and animal health products dispensed by veterinary professionals. Its branded and private-label OTC products are focused on ophthalmics, including a dry eye treatment TheraTears Therapy for Your Eyes.

FINANCIAL RATIOS  of  Akorn, Inc. (AKRX)

Valuation Ratios
P/E Ratio 2.9
Price to Sales 0.5
Price to Book 0.6
Price to Tangible Book
Price to Cash Flow 3.2
Price to Free Cash Flow 6
Growth Rates
Sales Growth Rate 13.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 146.9%
Cap. Spend. - 3 Yr. Gr. Rate 45.8%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 98.9%
Total Debt to Equity 98.9%
Interest Coverage 7
Management Effectiveness
Return On Assets 10.6%
Ret/ On Assets - 3 Yr. Avg. 7.6%
Return On Total Capital 11.2%
Ret/ On T. Cap. - 3 Yr. Avg. 7.4%
Return On Equity 25.5%
Return On Equity - 3 Yr. Avg. 20.3%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 60.3%
Gross Margin - 3 Yr. Avg. 56%
EBITDA Margin 36.1%
EBITDA Margin - 3 Yr. Avg. 31.5%
Operating Margin 29.4%
Oper. Margin - 3 Yr. Avg. 24%
Pre-Tax Margin 24.3%
Pre-Tax Margin - 3 Yr. Avg. 17.4%
Net Profit Margin 16.5%
Net Profit Margin - 3 Yr. Avg. 11.4%
Effective Tax Rate 32.1%
Eff/ Tax Rate - 3 Yr. Avg. 37%
Payout Ratio 0%

AKRX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AKRX stock intrinsic value calculation we used $694 million for the last fiscal year's total revenue generated by Akorn, Inc.. The default revenue input number comes from 0001 income statement of Akorn, Inc.. 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 AKRX stock valuation model: a) initial revenue growth rate of 2% 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 9.2%, whose default value for AKRX is calculated based on our internal credit rating of Akorn, Inc., 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 Akorn, Inc..
    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 AKRX stock the variable cost ratio is equal to 102.7%.

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 AKRX 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 5.6% for Akorn, Inc..

Corporate tax rate of 27% is the nominal tax rate for Akorn, Inc.. 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 AKRX 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 AKRX are equal to 98%.

Life of production assets of 12.5 years is the average useful life of capital assets used in Akorn, Inc. 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 AKRX is equal to 27.1%. 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 - $443.866 million for Akorn, Inc. - 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 125.577 million for Akorn, Inc. 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 Akorn, Inc. at the current share price and the inputted number of shares is $0.5 billion.

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