Intrinsic value of Akorn - AKRX

Previous Close

$13.22

  Intrinsic Value

$25.02

stock screener

  Rating & Target

str. buy

+89%

Previous close

$13.22

 
Intrinsic value

$25.02

 
Up/down potential

+89%

 
Rating

str. buy

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 1.7

 

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
  858
  878
  900
  925
  954
  984
  1,018
  1,054
  1,093
  1,135
  1,180
  1,228
  1,279
  1,333
  1,391
  1,452
  1,516
  1,584
  1,656
  1,733
  1,813
  1,898
  1,987
  2,081
  2,180
  2,284
  2,394
  2,509
  2,631
  2,759
Variable operating expenses, $m
  604
  616
  629
  645
  662
  680
  701
  723
  746
  772
  713
  742
  773
  806
  840
  877
  916
  958
  1,001
  1,047
  1,096
  1,147
  1,201
  1,258
  1,317
  1,380
  1,447
  1,517
  1,590
  1,667
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
  604
  616
  629
  645
  662
  680
  701
  723
  746
  772
  713
  742
  773
  806
  840
  877
  916
  958
  1,001
  1,047
  1,096
  1,147
  1,201
  1,258
  1,317
  1,380
  1,447
  1,517
  1,590
  1,667
Operating income, $m
  254
  262
  271
  281
  292
  304
  317
  332
  347
  364
  467
  486
  506
  527
  550
  574
  600
  627
  655
  685
  717
  751
  786
  823
  862
  904
  947
  993
  1,041
  1,092
EBITDA, $m
  393
  402
  412
  423
  436
  450
  466
  482
  500
  519
  540
  562
  585
  610
  636
  664
  694
  725
  758
  793
  830
  868
  909
  952
  997
  1,045
  1,095
  1,148
  1,204
  1,262
Interest expense (income), $m
  44
  44
  45
  47
  48
  50
  52
  54
  56
  59
  62
  64
  68
  71
  74
  78
  82
  86
  91
  96
  101
  106
  111
  117
  123
  130
  137
  144
  152
  160
  168
Earnings before tax, $m
  210
  216
  224
  233
  242
  252
  263
  275
  288
  302
  402
  418
  435
  453
  472
  492
  513
  536
  560
  585
  611
  639
  669
  700
  732
  767
  803
  841
  881
  923
Tax expense, $m
  57
  58
  60
  63
  65
  68
  71
  74
  78
  82
  109
  113
  117
  122
  127
  133
  139
  145
  151
  158
  165
  173
  181
  189
  198
  207
  217
  227
  238
  249
Net income, $m
  153
  158
  164
  170
  177
  184
  192
  201
  210
  221
  294
  305
  318
  331
  345
  359
  375
  391
  409
  427
  446
  467
  488
  511
  535
  560
  586
  614
  643
  674

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
  1,747
  1,787
  1,833
  1,885
  1,942
  2,005
  2,073
  2,147
  2,227
  2,312
  2,403
  2,501
  2,605
  2,715
  2,832
  2,956
  3,088
  3,227
  3,374
  3,529
  3,692
  3,865
  4,046
  4,238
  4,440
  4,652
  4,876
  5,111
  5,359
  5,619
Adjusted assets (=assets-cash), $m
  1,747
  1,787
  1,833
  1,885
  1,942
  2,005
  2,073
  2,147
  2,227
  2,312
  2,403
  2,501
  2,605
  2,715
  2,832
  2,956
  3,088
  3,227
  3,374
  3,529
  3,692
  3,865
  4,046
  4,238
  4,440
  4,652
  4,876
  5,111
  5,359
  5,619
Revenue / Adjusted assets
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
  0.491
Average production assets, $m
  765
  783
  803
  826
  851
  878
  908
  940
  975
  1,013
  1,053
  1,095
  1,141
  1,189
  1,240
  1,295
  1,352
  1,413
  1,478
  1,545
  1,617
  1,693
  1,772
  1,856
  1,944
  2,037
  2,135
  2,238
  2,347
  2,461
Working capital, $m
  195
  199
  204
  210
  216
  223
  231
  239
  248
  258
  268
  279
  290
  303
  316
  330
  344
  360
  376
  393
  412
  431
  451
  472
  495
  519
  543
  570
  597
  626
Total debt, $m
  838
  863
  892
  924
  960
  1,000
  1,043
  1,089
  1,140
  1,193
  1,251
  1,313
  1,378
  1,447
  1,521
  1,599
  1,682
  1,770
  1,862
  1,960
  2,063
  2,172
  2,286
  2,407
  2,534
  2,668
  2,809
  2,957
  3,113
  3,277
Total liabilities, $m
  1,101
  1,126
  1,155
  1,187
  1,223
  1,263
  1,306
  1,353
  1,403
  1,457
  1,514
  1,576
  1,641
  1,711
  1,784
  1,863
  1,945
  2,033
  2,125
  2,223
  2,326
  2,435
  2,549
  2,670
  2,797
  2,931
  3,072
  3,220
  3,376
  3,540
Total equity, $m
  646
  661
  678
  697
  719
  742
  767
  794
  824
  855
  889
  925
  964
  1,005
  1,048
  1,094
  1,142
  1,194
  1,248
  1,306
  1,366
  1,430
  1,497
  1,568
  1,643
  1,721
  1,804
  1,891
  1,983
  2,079
Total liabilities and equity, $m
  1,747
  1,787
  1,833
  1,884
  1,942
  2,005
  2,073
  2,147
  2,227
  2,312
  2,403
  2,501
  2,605
  2,716
  2,832
  2,957
  3,087
  3,227
  3,373
  3,529
  3,692
  3,865
  4,046
  4,238
  4,440
  4,652
  4,876
  5,111
  5,359
  5,619
Debt-to-equity ratio
  1.300
  1.300
  1.310
  1.330
  1.340
  1.350
  1.360
  1.370
  1.380
  1.400
  1.410
  1.420
  1.430
  1.440
  1.450
  1.460
  1.470
  1.480
  1.490
  1.500
  1.510
  1.520
  1.530
  1.530
  1.540
  1.550
  1.560
  1.560
  1.570
  1.580
Adjusted equity ratio
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  153
  158
  164
  170
  177
  184
  192
  201
  210
  221
  294
  305
  318
  331
  345
  359
  375
  391
  409
  427
  446
  467
  488
  511
  535
  560
  586
  614
  643
  674
Depreciation, amort., depletion, $m
  139
  140
  141
  143
  145
  146
  149
  151
  153
  156
  73
  76
  79
  83
  86
  90
  94
  98
  103
  107
  112
  118
  123
  129
  135
  141
  148
  155
  163
  171
Funds from operations, $m
  292
  298
  305
  313
  321
  330
  341
  352
  364
  376
  367
  381
  397
  413
  431
  449
  469
  489
  511
  534
  559
  584
  611
  640
  670
  701
  735
  770
  806
  845
Change in working capital, $m
  4
  4
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  28
  29
Cash from operations, $m
  288
  293
  300
  307
  315
  323
  333
  343
  355
  367
  357
  371
  385
  401
  418
  435
  454
  474
  495
  517
  540
  565
  591
  618
  647
  678
  710
  743
  779
  816
Maintenance CAPEX, $m
  -52
  -53
  -54
  -56
  -57
  -59
  -61
  -63
  -65
  -68
  -70
  -73
  -76
  -79
  -83
  -86
  -90
  -94
  -98
  -103
  -107
  -112
  -118
  -123
  -129
  -135
  -141
  -148
  -155
  -163
New CAPEX, $m
  -15
  -18
  -20
  -23
  -25
  -27
  -30
  -32
  -35
  -37
  -40
  -43
  -45
  -48
  -51
  -54
  -58
  -61
  -64
  -68
  -72
  -76
  -80
  -84
  -88
  -93
  -98
  -103
  -108
  -114
Cash from investing activities, $m
  -67
  -71
  -74
  -79
  -82
  -86
  -91
  -95
  -100
  -105
  -110
  -116
  -121
  -127
  -134
  -140
  -148
  -155
  -162
  -171
  -179
  -188
  -198
  -207
  -217
  -228
  -239
  -251
  -263
  -277
Free cash flow, $m
  221
  223
  225
  228
  232
  237
  242
  248
  255
  262
  246
  255
  264
  273
  284
  295
  307
  319
  332
  347
  361
  377
  394
  411
  430
  450
  470
  492
  515
  539
Issuance/(repayment) of debt, $m
  22
  25
  29
  32
  36
  40
  43
  47
  50
  54
  58
  61
  65
  70
  74
  78
  83
  88
  92
  98
  103
  109
  115
  121
  127
  134
  141
  148
  156
  164
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
Cash from financing (excl. dividends), $m  
  22
  25
  29
  32
  36
  40
  43
  47
  50
  54
  58
  61
  65
  70
  74
  78
  83
  88
  92
  98
  103
  109
  115
  121
  127
  134
  141
  148
  156
  164
Total cash flow (excl. dividends), $m
  244
  248
  254
  261
  268
  276
  285
  295
  305
  315
  304
  316
  329
  343
  358
  373
  389
  407
  425
  444
  464
  486
  508
  532
  557
  583
  611
  640
  671
  703
Retained Cash Flow (-), $m
  -12
  -15
  -17
  -19
  -21
  -23
  -25
  -27
  -29
  -32
  -34
  -36
  -38
  -41
  -43
  -46
  -49
  -51
  -54
  -57
  -61
  -64
  -67
  -71
  -75
  -79
  -83
  -87
  -92
  -96
Prev. year cash balance distribution, $m
  197
  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
  428
  233
  237
  242
  247
  253
  260
  267
  275
  284
  270
  280
  291
  302
  314
  327
  341
  355
  371
  387
  404
  422
  441
  461
  482
  505
  528
  553
  579
  607
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
  411
  213
  206
  199
  192
  184
  176
  167
  158
  149
  128
  120
  111
  101
  92
  83
  74
  65
  57
  49
  42
  35
  29
  23
  19
  15
  11
  9
  6
  5
Current shareholders' claim on cash, %
  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

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 (AKRX)

Valuation Ratios
P/E Ratio 8.9
Price to Sales 1.5
Price to Book 2
Price to Tangible Book
Price to Cash Flow 9.8
Price to Free Cash Flow 18.5
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 $841.045 million for the last fiscal year's total revenue generated by Akorn. The default revenue input number comes from 0001 income statement of Akorn. 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 4.3%, whose default value for AKRX is calculated based on our internal credit rating of Akorn, 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.
    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 70.6%.

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 5.4% for Akorn.

Corporate tax rate of 27% is the nominal tax rate for Akorn. 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 89.2%.

Life of production assets of 14.4 years is the average useful life of capital assets used in Akorn 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 22.7%. 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 - $831.245 million for Akorn - 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 125.451 million for Akorn 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 at the current share price and the inputted number of shares is $1.7 billion.

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COMPANY NEWS

▶ Akorn Enters Oversold Territory   [Aug-28-18 06:50AM  Zacks]
▶ Here's Why Akorn, Inc. Fell as Much as 24.1% Today   [Aug-23-18 04:33PM  Motley Fool]
▶ Oversold Biotechnology Companies   [Jul-24-18 09:30AM  ACCESSWIRE]
▶ Execution blocked after company objects to use of its drug   [Jul-11-18 09:27PM  Associated Press]
▶ Fresenius CEO defends cancelled Akorn deal   [May-18-18 04:57AM  Reuters]
▶ Top 3 Companies Owned by Valeant   [May-08-18 10:57AM  Investopedia]
▶ Why Akorn, Inc.'s Stock Is Up Big Today   [Apr-27-18 04:07PM  Motley Fool]
▶ Akorn Shares Crash After Fresenius Walks Away From Merger Deal   [04:20PM  Investor's Business Daily]
▶ [$$] Fresenius Ends Deal to Buy Akorn, Which Pledges a Fight   [Apr-22-18 05:38PM  The Wall Street Journal]
▶ Akorn Issues Statement   [04:16PM  Business Wire]

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