Intrinsic value of Akorn - AKRX

Previous Close

$16.84

  Intrinsic Value

$23.40

stock screener

  Rating & Target

buy

+39%

Previous close

$16.84

 
Intrinsic value

$23.40

 
Up/down potential

+39%

 
Rating

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 2017), $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 2.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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
   2047

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
  953
  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
  1,732
  1,813
  1,897
  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
  771
  713
  742
  773
  806
  840
  877
  916
  957
  1,001
  1,047
  1,095
  1,147
  1,201
  1,257
  1,317
  1,380
  1,447
  1,516
  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
  771
  713
  742
  773
  806
  840
  877
  916
  957
  1,001
  1,047
  1,095
  1,147
  1,201
  1,257
  1,317
  1,380
  1,447
  1,516
  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
  464
  475
  487
  501
  516
  533
  551
  571
  592
  614
  639
  665
  692
  722
  753
  786
  821
  857
  897
  938
  981
  1,027
  1,075
  1,126
  1,180
  1,236
  1,296
  1,358
  1,424
  1,493
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
  733
  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
  2,226
  2,312
  2,403
  2,501
  2,605
  2,715
  2,832
  2,956
  3,088
  3,227
  3,373
  3,528
  3,692
  3,864
  4,046
  4,238
  4,439
  4,652
  4,875
  5,111
  5,358
  5,619
Adjusted assets (=assets-cash), $m
  1,747
  1,787
  1,833
  1,885
  1,942
  2,005
  2,073
  2,147
  2,226
  2,312
  2,403
  2,501
  2,605
  2,715
  2,832
  2,956
  3,088
  3,227
  3,373
  3,528
  3,692
  3,864
  4,046
  4,238
  4,439
  4,652
  4,875
  5,111
  5,358
  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
  1,249
  1,278
  1,311
  1,347
  1,388
  1,433
  1,482
  1,535
  1,592
  1,653
  1,718
  1,788
  1,862
  1,941
  2,025
  2,113
  2,207
  2,307
  2,412
  2,522
  2,639
  2,763
  2,893
  3,030
  3,174
  3,326
  3,485
  3,654
  3,831
  4,017
Working capital, $m
  134
  137
  140
  144
  149
  154
  159
  164
  171
  177
  184
  192
  200
  208
  217
  226
  236
  247
  258
  270
  283
  296
  310
  325
  340
  356
  373
  391
  410
  430
Total debt, $m
  837
  863
  892
  924
  960
  1,000
  1,043
  1,089
  1,139
  1,193
  1,251
  1,312
  1,378
  1,447
  1,521
  1,599
  1,682
  1,769
  1,862
  1,960
  2,063
  2,171
  2,286
  2,406
  2,534
  2,667
  2,808
  2,956
  3,112
  3,276
Total liabilities, $m
  1,101
  1,126
  1,155
  1,187
  1,223
  1,263
  1,306
  1,352
  1,403
  1,456
  1,514
  1,575
  1,641
  1,710
  1,784
  1,862
  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
  1,305
  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
  2,146
  2,227
  2,311
  2,403
  2,500
  2,605
  2,715
  2,832
  2,956
  3,087
  3,227
  3,373
  3,528
  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
  1.390
  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
  210
  213
  217
  220
  224
  229
  234
  239
  245
  251
  172
  179
  186
  194
  202
  211
  221
  231
  241
  252
  264
  276
  289
  303
  317
  333
  349
  365
  383
  402
Funds from operations, $m
  364
  371
  380
  390
  401
  413
  426
  440
  455
  471
  466
  484
  504
  525
  547
  571
  596
  622
  650
  679
  710
  743
  777
  814
  852
  892
  935
  979
  1,026
  1,076
Change in working capital, $m
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
Cash from operations, $m
  361
  368
  377
  386
  397
  408
  421
  434
  449
  465
  459
  477
  496
  516
  538
  561
  586
  611
  639
  667
  698
  730
  764
  799
  837
  876
  918
  961
  1,007
  1,056
Maintenance CAPEX, $m
  -122
  -125
  -128
  -131
  -135
  -139
  -143
  -148
  -153
  -159
  -165
  -172
  -179
  -186
  -194
  -202
  -211
  -221
  -231
  -241
  -252
  -264
  -276
  -289
  -303
  -317
  -333
  -349
  -365
  -383
New CAPEX, $m
  -24
  -29
  -33
  -37
  -41
  -45
  -49
  -53
  -57
  -61
  -65
  -70
  -74
  -79
  -84
  -89
  -94
  -99
  -105
  -111
  -117
  -123
  -130
  -137
  -144
  -152
  -160
  -168
  -177
  -186
Cash from investing activities, $m
  -146
  -154
  -161
  -168
  -176
  -184
  -192
  -201
  -210
  -220
  -230
  -242
  -253
  -265
  -278
  -291
  -305
  -320
  -336
  -352
  -369
  -387
  -406
  -426
  -447
  -469
  -493
  -517
  -542
  -569
Free cash flow, $m
  214
  215
  216
  218
  221
  224
  228
  233
  239
  245
  228
  235
  243
  251
  260
  270
  280
  291
  303
  315
  329
  343
  357
  373
  389
  407
  425
  445
  465
  487
Issuance/(repayment) of debt, $m
  22
  25
  29
  32
  36
  39
  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
  39
  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
  237
  240
  245
  251
  257
  264
  272
  280
  289
  298
  286
  297
  308
  321
  334
  348
  363
  379
  395
  413
  432
  451
  472
  494
  517
  541
  566
  593
  621
  651
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
  21
  21
  22
  23
  23
  24
  25
  25
  26
  27
  28
  29
  31
  32
  33
  35
  36
  38
  40
  41
  43
  45
  47
  50
  52
  54
  57
  60
  63
  66
Cash available for distribution, $m
  421
  225
  228
  232
  236
  241
  246
  252
  259
  267
  252
  260
  270
  280
  291
  302
  314
  327
  341
  356
  371
  387
  405
  423
  442
  462
  483
  506
  529
  554
Discount rate, %
  4.40
  4.62
  4.85
  5.09
  5.35
  5.62
  5.90
  6.19
  6.50
  6.83
  7.17
  7.53
  7.90
  8.30
  8.71
  9.15
  9.60
  10.08
  10.59
  11.12
  11.67
  12.26
  12.87
  13.51
  14.19
  14.90
  15.64
  16.43
  17.25
  18.11
PV of cash for distribution, $m
  403
  206
  198
  190
  182
  173
  165
  156
  147
  138
  118
  109
  100
  92
  83
  74
  66
  58
  50
  43
  37
  30
  25
  20
  16
  12
  10
  7
  5
  4
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 11.4
Price to Sales 1.9
Price to Book 2.6
Price to Tangible Book
Price to Cash Flow 12.5
Price to Free Cash Flow 23.5
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 million for the last fiscal year's total revenue generated by Akorn. The default revenue input number comes from 2017 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 4.4%, 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 2.5%.

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 145.6%.

Life of production assets of 10 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 15.6%. 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 - $831 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 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 $2.1 billion.

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COMPANY NEWS

▶ 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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