Intrinsic value of American Renal Associates Holdings, Inc - ARA

Previous Close

$7.08

  Intrinsic Value

$19.19

stock screener

  Rating & Target

str. buy

+171%

Previous close

$7.08

 
Intrinsic value

$19.19

 
Up/down potential

+171%

 
Rating

str. 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 0.2

 

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, %
  12.40
  11.66
  10.99
  10.39
  9.86
  9.37
  8.93
  8.54
  8.19
  7.87
  7.58
  7.32
  7.09
  6.88
  6.69
  6.52
  6.37
  6.23
  6.11
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
Revenue, $m
  837
  935
  1,038
  1,146
  1,259
  1,377
  1,499
  1,628
  1,761
  1,899
  2,043
  2,193
  2,348
  2,510
  2,678
  2,853
  3,034
  3,224
  3,420
  3,626
  3,840
  4,063
  4,295
  4,538
  4,792
  5,057
  5,334
  5,624
  5,927
  6,244
Variable operating expenses, $m
  688
  762
  839
  920
  1,005
  1,093
  1,185
  1,282
  1,382
  1,485
  1,534
  1,646
  1,763
  1,884
  2,010
  2,141
  2,278
  2,420
  2,567
  2,721
  2,882
  3,049
  3,224
  3,406
  3,597
  3,796
  4,004
  4,221
  4,449
  4,687
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
  688
  762
  839
  920
  1,005
  1,093
  1,185
  1,282
  1,382
  1,485
  1,534
  1,646
  1,763
  1,884
  2,010
  2,141
  2,278
  2,420
  2,567
  2,721
  2,882
  3,049
  3,224
  3,406
  3,597
  3,796
  4,004
  4,221
  4,449
  4,687
Operating income, $m
  149
  173
  199
  226
  254
  283
  314
  346
  379
  414
  510
  547
  586
  626
  668
  711
  757
  804
  853
  904
  958
  1,013
  1,071
  1,132
  1,195
  1,261
  1,330
  1,403
  1,478
  1,557
EBITDA, $m
  235
  262
  291
  321
  353
  386
  420
  456
  493
  532
  573
  615
  658
  703
  750
  799
  850
  903
  959
  1,016
  1,076
  1,139
  1,204
  1,272
  1,343
  1,417
  1,495
  1,576
  1,661
  1,750
Interest expense (income), $m
  33
  30
  28
  34
  40
  47
  54
  62
  69
  77
  86
  95
  104
  113
  123
  133
  143
  154
  166
  178
  190
  203
  217
  231
  245
  260
  276
  293
  310
  329
  348
Earnings before tax, $m
  119
  146
  165
  185
  207
  229
  252
  277
  302
  328
  415
  443
  473
  503
  535
  568
  602
  638
  675
  714
  755
  797
  841
  887
  935
  985
  1,037
  1,092
  1,149
  1,209
Tax expense, $m
  32
  39
  45
  50
  56
  62
  68
  75
  81
  89
  112
  120
  128
  136
  144
  153
  163
  172
  182
  193
  204
  215
  227
  239
  252
  266
  280
  295
  310
  327
Net income, $m
  87
  106
  120
  135
  151
  167
  184
  202
  220
  239
  303
  324
  345
  367
  391
  415
  440
  466
  493
  521
  551
  582
  614
  647
  682
  719
  757
  797
  839
  883

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
  1,083
  1,210
  1,343
  1,482
  1,628
  1,781
  1,940
  2,105
  2,278
  2,457
  2,643
  2,837
  3,038
  3,247
  3,464
  3,690
  3,925
  4,170
  4,425
  4,690
  4,967
  5,256
  5,557
  5,871
  6,199
  6,542
  6,901
  7,275
  7,667
  8,077
Adjusted assets (=assets-cash), $m
  1,083
  1,210
  1,343
  1,482
  1,628
  1,781
  1,940
  2,105
  2,278
  2,457
  2,643
  2,837
  3,038
  3,247
  3,464
  3,690
  3,925
  4,170
  4,425
  4,690
  4,967
  5,256
  5,557
  5,871
  6,199
  6,542
  6,901
  7,275
  7,667
  8,077
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
  527
  588
  653
  721
  792
  866
  943
  1,024
  1,108
  1,195
  1,285
  1,379
  1,477
  1,579
  1,684
  1,794
  1,909
  2,028
  2,151
  2,281
  2,415
  2,555
  2,702
  2,855
  3,014
  3,181
  3,355
  3,537
  3,728
  3,927
Working capital, $m
  4
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  23
  24
  25
  27
  28
  30
  31
Total debt, $m
  514
  628
  747
  873
  1,004
  1,142
  1,285
  1,434
  1,589
  1,750
  1,918
  2,092
  2,273
  2,461
  2,657
  2,860
  3,072
  3,292
  3,522
  3,760
  4,010
  4,269
  4,540
  4,823
  5,118
  5,427
  5,750
  6,087
  6,440
  6,809
Total liabilities, $m
  975
  1,089
  1,208
  1,334
  1,465
  1,603
  1,746
  1,895
  2,050
  2,211
  2,379
  2,553
  2,734
  2,922
  3,118
  3,321
  3,533
  3,753
  3,982
  4,221
  4,470
  4,730
  5,001
  5,284
  5,579
  5,888
  6,211
  6,548
  6,901
  7,270
Total equity, $m
  108
  121
  134
  148
  163
  178
  194
  211
  228
  246
  264
  284
  304
  325
  346
  369
  393
  417
  442
  469
  497
  526
  556
  587
  620
  654
  690
  728
  767
  808
Total liabilities and equity, $m
  1,083
  1,210
  1,342
  1,482
  1,628
  1,781
  1,940
  2,106
  2,278
  2,457
  2,643
  2,837
  3,038
  3,247
  3,464
  3,690
  3,926
  4,170
  4,424
  4,690
  4,967
  5,256
  5,557
  5,871
  6,199
  6,542
  6,901
  7,276
  7,668
  8,078
Debt-to-equity ratio
  4.750
  5.190
  5.570
  5.890
  6.170
  6.410
  6.620
  6.810
  6.980
  7.120
  7.260
  7.380
  7.480
  7.580
  7.670
  7.750
  7.830
  7.890
  7.960
  8.020
  8.070
  8.120
  8.170
  8.210
  8.260
  8.300
  8.330
  8.370
  8.400
  8.430
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
  87
  106
  120
  135
  151
  167
  184
  202
  220
  239
  303
  324
  345
  367
  391
  415
  440
  466
  493
  521
  551
  582
  614
  647
  682
  719
  757
  797
  839
  883
Depreciation, amort., depletion, $m
  86
  89
  92
  95
  99
  102
  106
  110
  114
  118
  63
  68
  72
  77
  83
  88
  94
  99
  105
  112
  118
  125
  132
  140
  148
  156
  164
  173
  183
  193
Funds from operations, $m
  172
  195
  212
  231
  250
  270
  290
  312
  335
  358
  366
  391
  417
  445
  473
  503
  533
  565
  598
  633
  669
  707
  746
  787
  830
  875
  922
  971
  1,022
  1,075
Change in working capital, $m
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
Cash from operations, $m
  172
  194
  212
  230
  249
  269
  290
  311
  334
  357
  365
  390
  417
  444
  472
  502
  532
  564
  597
  632
  668
  706
  745
  786
  829
  874
  920
  969
  1,020
  1,074
Maintenance CAPEX, $m
  -23
  -26
  -29
  -32
  -35
  -39
  -42
  -46
  -50
  -54
  -59
  -63
  -68
  -72
  -77
  -83
  -88
  -94
  -99
  -105
  -112
  -118
  -125
  -132
  -140
  -148
  -156
  -164
  -173
  -183
New CAPEX, $m
  -58
  -61
  -65
  -68
  -71
  -74
  -77
  -81
  -84
  -87
  -91
  -94
  -98
  -102
  -106
  -110
  -114
  -119
  -124
  -129
  -135
  -140
  -146
  -153
  -160
  -167
  -174
  -182
  -191
  -199
Cash from investing activities, $m
  -81
  -87
  -94
  -100
  -106
  -113
  -119
  -127
  -134
  -141
  -150
  -157
  -166
  -174
  -183
  -193
  -202
  -213
  -223
  -234
  -247
  -258
  -271
  -285
  -300
  -315
  -330
  -346
  -364
  -382
Free cash flow, $m
  91
  107
  118
  130
  143
  156
  170
  185
  200
  216
  216
  233
  251
  270
  289
  309
  330
  352
  374
  398
  422
  447
  473
  501
  529
  559
  590
  623
  656
  692
Issuance/(repayment) of debt, $m
  -46
  114
  120
  126
  131
  137
  143
  149
  155
  161
  168
  174
  181
  188
  196
  203
  212
  220
  229
  239
  249
  260
  271
  283
  295
  309
  323
  337
  353
  369
Issuance/(repurchase) of shares, $m
  78
  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  
  32
  114
  120
  126
  131
  137
  143
  149
  155
  161
  168
  174
  181
  188
  196
  203
  212
  220
  229
  239
  249
  260
  271
  283
  295
  309
  323
  337
  353
  369
Total cash flow (excl. dividends), $m
  123
  221
  238
  256
  274
  293
  313
  334
  355
  377
  384
  408
  432
  458
  485
  513
  542
  572
  603
  636
  671
  707
  744
  784
  825
  868
  913
  960
  1,009
  1,061
Retained Cash Flow (-), $m
  -165
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -24
  -25
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -36
  -37
  -39
  -41
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
  -42
  208
  225
  242
  260
  278
  297
  317
  338
  359
  365
  388
  412
  437
  463
  490
  518
  547
  578
  610
  643
  678
  714
  752
  792
  833
  877
  922
  970
  1,020
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
  -37
  165
  156
  145
  133
  120
  106
  93
  80
  67
  53
  43
  34
  26
  20
  15
  11
  7
  5
  3
  2
  1
  1
  0
  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, Inc (ARA)

Valuation Ratios
P/E Ratio 0
Price to Sales 0.3
Price to Book -6.4
Price to Tangible Book
Price to Cash Flow 1.3
Price to Free Cash Flow 2
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 million for the last fiscal year's total revenue generated by American Renal Associates Holdings, Inc. The default revenue input number comes from 0001 income statement of American Renal Associates Holdings, 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 ARA stock valuation model: a) initial revenue growth rate of 12.4% 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, 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 American Renal Associates Holdings, 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 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, Inc.

Corporate tax rate of 27% is the nominal tax rate for American Renal Associates Holdings, 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 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, 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 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, 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 32.517 million for American Renal Associates Holdings, 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 American Renal Associates Holdings, Inc at the current share price and the inputted number of shares is $0.2 billion.

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