Intrinsic value of American Renal Associates Holdings - ARA

Previous Close

$20.11

  Intrinsic Value

$24.26

stock screener

  Rating & Target

buy

+21%

Previous close

$20.11

 
Intrinsic value

$24.26

 
Up/down potential

+21%

 
Rating

buy

We calculate the intrinsic value of ARA 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 0.7

 

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, %
  16.80
  15.62
  14.56
  13.60
  12.74
  11.97
  11.27
  10.64
  10.08
  9.57
  9.11
  8.70
  8.33
  8.00
  7.70
  7.43
  7.19
  6.97
  6.77
  6.59
  6.43
  6.29
  6.16
  6.05
  5.94
  5.85
  5.76
  5.69
  5.62
  5.56
Revenue, $m
  870
  1,006
  1,153
  1,310
  1,476
  1,653
  1,839
  2,035
  2,240
  2,455
  2,678
  2,912
  3,154
  3,406
  3,669
  3,941
  4,225
  4,519
  4,825
  5,143
  5,474
  5,818
  6,177
  6,550
  6,940
  7,345
  7,769
  8,210
  8,671
  9,153
Variable operating expenses, $m
  713
  815
  925
  1,043
  1,168
  1,301
  1,441
  1,588
  1,742
  1,902
  2,011
  2,186
  2,368
  2,557
  2,754
  2,958
  3,171
  3,392
  3,622
  3,861
  4,109
  4,367
  4,637
  4,917
  5,209
  5,514
  5,831
  6,163
  6,509
  6,871
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
  713
  815
  925
  1,043
  1,168
  1,301
  1,441
  1,588
  1,742
  1,902
  2,011
  2,186
  2,368
  2,557
  2,754
  2,958
  3,171
  3,392
  3,622
  3,861
  4,109
  4,367
  4,637
  4,917
  5,209
  5,514
  5,831
  6,163
  6,509
  6,871
Operating income, $m
  157
  191
  228
  267
  308
  352
  399
  448
  499
  552
  668
  726
  787
  849
  915
  983
  1,053
  1,127
  1,203
  1,282
  1,365
  1,451
  1,540
  1,633
  1,730
  1,832
  1,937
  2,047
  2,162
  2,282
EBITDA, $m
  244
  282
  323
  367
  414
  463
  515
  570
  628
  688
  750
  816
  884
  954
  1,028
  1,104
  1,184
  1,266
  1,352
  1,441
  1,534
  1,630
  1,731
  1,835
  1,944
  2,058
  2,177
  2,300
  2,430
  2,565
Interest expense (income), $m
  33
  30
  30
  38
  48
  57
  68
  79
  91
  103
  116
  129
  144
  158
  173
  189
  206
  223
  241
  259
  278
  298
  319
  341
  363
  387
  411
  437
  464
  491
  520
Earnings before tax, $m
  127
  161
  189
  219
  251
  284
  320
  357
  396
  436
  538
  583
  628
  676
  726
  777
  831
  886
  944
  1,004
  1,067
  1,132
  1,199
  1,270
  1,344
  1,420
  1,500
  1,584
  1,671
  1,762
Tax expense, $m
  34
  44
  51
  59
  68
  77
  86
  96
  107
  118
  145
  157
  170
  183
  196
  210
  224
  239
  255
  271
  288
  306
  324
  343
  363
  383
  405
  428
  451
  476
Net income, $m
  93
  118
  138
  160
  183
  208
  233
  261
  289
  318
  393
  425
  459
  494
  530
  567
  606
  647
  689
  733
  779
  826
  876
  927
  981
  1,037
  1,095
  1,156
  1,220
  1,286

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
  1,126
  1,302
  1,491
  1,694
  1,910
  2,138
  2,380
  2,633
  2,898
  3,176
  3,465
  3,767
  4,080
  4,407
  4,746
  5,099
  5,465
  5,846
  6,242
  6,653
  7,081
  7,527
  7,991
  8,474
  8,977
  9,502
  10,050
  10,621
  11,218
  11,841
Adjusted assets (=assets-cash), $m
  1,126
  1,302
  1,491
  1,694
  1,910
  2,138
  2,380
  2,633
  2,898
  3,176
  3,465
  3,767
  4,080
  4,407
  4,746
  5,099
  5,465
  5,846
  6,242
  6,653
  7,081
  7,527
  7,991
  8,474
  8,977
  9,502
  10,050
  10,621
  11,218
  11,841
Revenue / Adjusted assets
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
Average production assets, $m
  547
  633
  725
  824
  929
  1,040
  1,157
  1,280
  1,409
  1,544
  1,685
  1,831
  1,984
  2,143
  2,308
  2,479
  2,657
  2,842
  3,035
  3,235
  3,443
  3,660
  3,885
  4,120
  4,365
  4,620
  4,886
  5,164
  5,454
  5,757
Working capital, $m
  4
  5
  6
  7
  7
  8
  9
  10
  11
  12
  13
  15
  16
  17
  18
  20
  21
  23
  24
  26
  27
  29
  31
  33
  35
  37
  39
  41
  43
  46
Total debt, $m
  552
  711
  881
  1,064
  1,258
  1,464
  1,681
  1,909
  2,147
  2,397
  2,658
  2,929
  3,211
  3,505
  3,811
  4,128
  4,458
  4,800
  5,157
  5,527
  5,912
  6,313
  6,731
  7,166
  7,619
  8,091
  8,584
  9,098
  9,635
  10,196
Total liabilities, $m
  1,013
  1,172
  1,342
  1,525
  1,719
  1,925
  2,142
  2,370
  2,608
  2,858
  3,118
  3,390
  3,672
  3,966
  4,271
  4,589
  4,919
  5,261
  5,618
  5,988
  6,373
  6,774
  7,192
  7,627
  8,080
  8,552
  9,045
  9,559
  10,096
  10,657
Total equity, $m
  113
  130
  149
  169
  191
  214
  238
  263
  290
  318
  346
  377
  408
  441
  475
  510
  547
  585
  624
  665
  708
  753
  799
  847
  898
  950
  1,005
  1,062
  1,122
  1,184
Total liabilities and equity, $m
  1,126
  1,302
  1,491
  1,694
  1,910
  2,139
  2,380
  2,633
  2,898
  3,176
  3,464
  3,767
  4,080
  4,407
  4,746
  5,099
  5,466
  5,846
  6,242
  6,653
  7,081
  7,527
  7,991
  8,474
  8,978
  9,502
  10,050
  10,621
  11,218
  11,841
Debt-to-equity ratio
  4.910
  5.460
  5.910
  6.280
  6.590
  6.840
  7.060
  7.250
  7.410
  7.550
  7.670
  7.780
  7.870
  7.950
  8.030
  8.100
  8.160
  8.210
  8.260
  8.310
  8.350
  8.390
  8.420
  8.460
  8.490
  8.510
  8.540
  8.570
  8.590
  8.610
Adjusted equity ratio
  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
  93
  118
  138
  160
  183
  208
  233
  261
  289
  318
  393
  425
  459
  494
  530
  567
  606
  647
  689
  733
  779
  826
  876
  927
  981
  1,037
  1,095
  1,156
  1,220
  1,286
Depreciation, amort., depletion, $m
  87
  91
  95
  100
  105
  111
  117
  123
  129
  136
  83
  90
  97
  105
  113
  122
  130
  139
  149
  159
  169
  179
  190
  202
  214
  226
  240
  253
  267
  282
Funds from operations, $m
  179
  209
  234
  260
  289
  318
  350
  383
  418
  454
  476
  515
  556
  599
  643
  689
  737
  786
  838
  892
  947
  1,005
  1,066
  1,129
  1,195
  1,263
  1,335
  1,409
  1,487
  1,569
Change in working capital, $m
  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
  2
  2
  2
Cash from operations, $m
  179
  208
  233
  259
  288
  318
  349
  382
  417
  453
  475
  514
  555
  597
  641
  687
  735
  785
  836
  890
  946
  1,004
  1,064
  1,127
  1,193
  1,261
  1,333
  1,407
  1,485
  1,566
Maintenance CAPEX, $m
  -23
  -27
  -31
  -36
  -40
  -46
  -51
  -57
  -63
  -69
  -76
  -83
  -90
  -97
  -105
  -113
  -122
  -130
  -139
  -149
  -159
  -169
  -179
  -190
  -202
  -214
  -226
  -240
  -253
  -267
New CAPEX, $m
  -79
  -86
  -92
  -99
  -105
  -111
  -117
  -123
  -129
  -135
  -141
  -147
  -153
  -159
  -165
  -171
  -178
  -185
  -192
  -200
  -208
  -217
  -226
  -235
  -245
  -255
  -266
  -278
  -290
  -303
Cash from investing activities, $m
  -102
  -113
  -123
  -135
  -145
  -157
  -168
  -180
  -192
  -204
  -217
  -230
  -243
  -256
  -270
  -284
  -300
  -315
  -331
  -349
  -367
  -386
  -405
  -425
  -447
  -469
  -492
  -518
  -543
  -570
Free cash flow, $m
  77
  96
  110
  125
  142
  161
  181
  202
  225
  249
  258
  285
  312
  341
  371
  403
  435
  469
  505
  541
  579
  618
  659
  702
  746
  792
  840
  890
  942
  996
Issuance/(repayment) of debt, $m
  -8
  158
  171
  183
  194
  206
  217
  228
  239
  250
  260
  271
  282
  294
  305
  317
  330
  343
  356
  370
  385
  401
  417
  435
  453
  472
  493
  514
  537
  561
Issuance/(repurchase) of shares, $m
  77
  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  
  69
  158
  171
  183
  194
  206
  217
  228
  239
  250
  260
  271
  282
  294
  305
  317
  330
  343
  356
  370
  385
  401
  417
  435
  453
  472
  493
  514
  537
  561
Total cash flow (excl. dividends), $m
  146
  254
  280
  308
  337
  367
  398
  430
  464
  499
  519
  556
  595
  635
  677
  720
  765
  812
  861
  911
  964
  1,019
  1,077
  1,137
  1,199
  1,264
  1,333
  1,404
  1,479
  1,557
Retained Cash Flow (-), $m
  -169
  -18
  -19
  -20
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -35
  -37
  -38
  -40
  -41
  -43
  -45
  -46
  -48
  -50
  -52
  -55
  -57
  -60
  -62
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
  -23
  236
  261
  288
  315
  344
  374
  405
  437
  471
  490
  526
  563
  602
  643
  685
  729
  774
  821
  870
  921
  975
  1,030
  1,088
  1,149
  1,212
  1,278
  1,347
  1,419
  1,494
Discount rate, %
  11.80
  12.39
  13.01
  13.66
  14.34
  15.06
  15.81
  16.60
  17.43
  18.31
  19.22
  20.18
  21.19
  22.25
  23.36
  24.53
  25.76
  27.05
  28.40
  29.82
  31.31
  32.87
  34.52
  36.24
  38.06
  39.96
  41.96
  44.05
  46.26
  48.57
PV of cash for distribution, $m
  -21
  187
  181
  172
  161
  148
  134
  118
  103
  88
  71
  58
  46
  36
  28
  20
  15
  10
  7
  5
  3
  2
  1
  1
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  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

American Renal Associates Holdings, Inc. is a dialysis service provider in the United States focused on joint venture (JV) partnerships with physicians. As of December 31, 2016, the Company owned and operated 214 dialysis clinics in partnership with 379 nephrologist partners treating over 14,000 patients in 25 states and the District of Columbia. The Company operates its dialysis clinics exclusively through a JV model, in which it partners primarily with local nephrologists to develop, own and operate dialysis clinics, while the providers of the majority of dialysis services in the United States operate through a combination of subsidiaries and joint ventures. It provides patient care and clinical outcomes to patients suffering from end-stage renal disease (ESRD). Its clinics offer both in center and home dialysis options to meet the needs of patients. Its clinics primarily provide in center hemodialysis treatments and ancillary items and services.

FINANCIAL RATIOS  of  American Renal Associates Holdings (ARA)

Valuation Ratios
P/E Ratio 0
Price to Sales 0.8
Price to Book -18.3
Price to Tangible Book
Price to Cash Flow 3.6
Price to Free Cash Flow 5.6
Growth Rates
Sales Growth Rate 14.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 32.6%
Cap. Spend. - 3 Yr. Gr. Rate 9.9%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity -1535.3%
Total Debt to Equity -1676.5%
Interest Coverage 4
Management Effectiveness
Return On Assets 3.5%
Ret/ On Assets - 3 Yr. Avg. 5.2%
Return On Total Capital 0%
Ret/ On T. Cap. - 3 Yr. Avg. 2.2%
Return On Equity 0%
Return On Equity - 3 Yr. Avg. -8.6%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 39.6%
Gross Margin - 3 Yr. Avg. 40.3%
EBITDA Margin 20.5%
EBITDA Margin - 3 Yr. Avg. 25.8%
Operating Margin 16.3%
Oper. Margin - 3 Yr. Avg. 21.4%
Pre-Tax Margin 11.6%
Pre-Tax Margin - 3 Yr. Avg. 14.9%
Net Profit Margin 0%
Net Profit Margin - 3 Yr. Avg. 1.9%
Effective Tax Rate -1.1%
Eff/ Tax Rate - 3 Yr. Avg. 8%
Payout Ratio 0%

ARA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ARA stock intrinsic value calculation we used $745.106 million for the last fiscal year's total revenue generated by American Renal Associates Holdings. The default revenue input number comes from 0001 income statement of American Renal Associates 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 ARA stock valuation model: a) initial revenue growth rate of 16.8% 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 11.8%, whose default value for ARA is calculated based on our internal credit rating of American Renal Associates 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 American Renal Associates 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 ARA stock the variable cost ratio is equal to 83.1%.

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 ARA 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 American Renal Associates Holdings.

Corporate tax rate of 27% is the nominal tax rate for American Renal Associates 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 ARA 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 ARA are equal to 62.9%.

Life of production assets of 20.4 years is the average useful life of capital assets used in American Renal Associates 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 ARA is equal to 0.5%. 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 - $-56.778 million for American Renal Associates 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 32.467 million for American Renal Associates 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 American Renal Associates Holdings at the current share price and the inputted number of shares is $0.7 billion.

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COMPANY NEWS

▶ American Renal Associates: 2Q Earnings Snapshot   [05:58PM  Associated Press]
▶ Is It Time To Buy Aramus SA. (WSE:ARA) Based Off Its PE Ratio?   [May-22-18 01:03PM  Simply Wall St.]
▶ American Renal Associates: 1Q Earnings Snapshot   [May-08-18 05:41PM  Associated Press]
▶ Can Aramus SA. (WSE:ARA) Continue To Outperform Its Industry?   [Apr-03-18 04:27AM  Simply Wall St.]
▶ How Financially Strong Is Aramus SA. (WSE:ARA)?   [Mar-15-18 04:42AM  Simply Wall St.]
▶ American Renal Associates posts 4Q profit   [Mar-06-18 04:11PM  Associated Press]
▶ American Renal Associates posts 3Q profit   [Nov-16-17 05:14AM  Associated Press]
▶ [$$] Insurers Press Dialysis Claims   [Sep-02-17 12:14AM  Barrons.com]
▶ American Renal Associates posts 2Q loss   [Aug-08-17 11:54PM  Associated Press]
▶ American Renal Associates posts 1Q loss   [May-09-17 06:56PM  Associated Press]
▶ American Renal Associates posts 4Q loss   [Mar-07-17 05:34PM  Associated Press]

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