Intrinsic value of Adtalem Global Education - ATGE

Previous Close

$35.85

  Intrinsic Value

$11.54

stock screener

  Rating & Target

str. sell

-68%

  Value-price divergence*

0%

Previous close

$35.85

 
Intrinsic value

$11.54

 
Up/down potential

-68%

 
Rating

str. sell

 
Value-price divergence*

0%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of ATGE 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 2.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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, %
  -1.84
  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
  1,810
  1,846
  1,889
  1,937
  1,992
  2,052
  2,118
  2,190
  2,269
  2,353
  2,443
  2,540
  2,643
  2,752
  2,869
  2,993
  3,124
  3,263
  3,410
  3,565
  3,729
  3,901
  4,084
  4,276
  4,478
  4,691
  4,916
  5,152
  5,401
  5,662
  5,937
Variable operating expenses, $m
 
  1,857
  1,898
  1,945
  1,997
  2,055
  2,119
  2,188
  2,263
  2,344
  2,430
  2,438
  2,537
  2,642
  2,754
  2,873
  2,999
  3,132
  3,273
  3,422
  3,579
  3,745
  3,920
  4,105
  4,299
  4,504
  4,719
  4,946
  5,185
  5,436
  5,700
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
  1,671
  1,857
  1,898
  1,945
  1,997
  2,055
  2,119
  2,188
  2,263
  2,344
  2,430
  2,438
  2,537
  2,642
  2,754
  2,873
  2,999
  3,132
  3,273
  3,422
  3,579
  3,745
  3,920
  4,105
  4,299
  4,504
  4,719
  4,946
  5,185
  5,436
  5,700
Operating income, $m
  139
  -11
  -10
  -8
  -5
  -3
  0
  3
  6
  9
  13
  102
  106
  110
  115
  120
  125
  131
  136
  143
  149
  156
  163
  171
  179
  188
  197
  206
  216
  227
  238
EBITDA, $m
  223
  121
  124
  127
  131
  134
  139
  144
  149
  154
  160
  166
  173
  180
  188
  196
  205
  214
  223
  234
  244
  256
  268
  280
  294
  307
  322
  338
  354
  371
  389
Interest expense (income), $m
  0
  4
  5
  5
  6
  7
  7
  8
  9
  10
  11
  12
  13
  15
  16
  18
  19
  21
  23
  24
  26
  28
  30
  33
  35
  38
  40
  43
  46
  49
  52
Earnings before tax, $m
  134
  -16
  -14
  -13
  -11
  -10
  -8
  -6
  -3
  -1
  1
  89
  92
  95
  99
  102
  106
  110
  114
  118
  123
  128
  133
  138
  144
  150
  156
  163
  170
  177
  185
Tax expense, $m
  10
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  24
  25
  26
  27
  28
  29
  30
  31
  32
  33
  35
  36
  37
  39
  41
  42
  44
  46
  48
  50
Net income, $m
  123
  -16
  -14
  -13
  -11
  -10
  -8
  -6
  -3
  -1
  1
  65
  67
  70
  72
  75
  77
  80
  83
  86
  90
  93
  97
  101
  105
  110
  114
  119
  124
  129
  135

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  246
  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
  2,314
  2,110
  2,158
  2,214
  2,276
  2,345
  2,421
  2,503
  2,593
  2,689
  2,792
  2,902
  3,020
  3,146
  3,279
  3,420
  3,570
  3,729
  3,897
  4,074
  4,261
  4,459
  4,667
  4,887
  5,118
  5,361
  5,618
  5,888
  6,172
  6,471
  6,785
Adjusted assets (=assets-cash), $m
  2,068
  2,110
  2,158
  2,214
  2,276
  2,345
  2,421
  2,503
  2,593
  2,689
  2,792
  2,902
  3,020
  3,146
  3,279
  3,420
  3,570
  3,729
  3,897
  4,074
  4,261
  4,459
  4,667
  4,887
  5,118
  5,361
  5,618
  5,888
  6,172
  6,471
  6,785
Revenue / Adjusted assets
  0.875
  0.875
  0.875
  0.875
  0.875
  0.875
  0.875
  0.875
  0.875
  0.875
  0.875
  0.875
  0.875
  0.875
  0.875
  0.875
  0.875
  0.875
  0.875
  0.875
  0.875
  0.875
  0.875
  0.875
  0.875
  0.875
  0.875
  0.875
  0.875
  0.875
  0.875
Average production assets, $m
  878
  895
  916
  940
  966
  995
  1,027
  1,062
  1,100
  1,141
  1,185
  1,232
  1,282
  1,335
  1,391
  1,452
  1,515
  1,582
  1,654
  1,729
  1,808
  1,892
  1,981
  2,074
  2,172
  2,275
  2,384
  2,499
  2,619
  2,746
  2,880
Working capital, $m
  94
  -155
  -159
  -163
  -167
  -172
  -178
  -184
  -191
  -198
  -205
  -213
  -222
  -231
  -241
  -251
  -262
  -274
  -286
  -299
  -313
  -328
  -343
  -359
  -376
  -394
  -413
  -433
  -454
  -476
  -499
Total debt, $m
  125
  138
  153
  171
  190
  212
  235
  261
  289
  319
  351
  386
  422
  461
  503
  547
  594
  643
  696
  751
  809
  871
  936
  1,005
  1,077
  1,153
  1,233
  1,317
  1,406
  1,499
  1,597
Total liabilities, $m
  645
  658
  673
  691
  710
  732
  755
  781
  809
  839
  871
  906
  942
  981
  1,023
  1,067
  1,114
  1,163
  1,216
  1,271
  1,329
  1,391
  1,456
  1,525
  1,597
  1,673
  1,753
  1,837
  1,926
  2,019
  2,117
Total equity, $m
  1,669
  1,452
  1,485
  1,523
  1,566
  1,614
  1,666
  1,722
  1,784
  1,850
  1,921
  1,997
  2,078
  2,164
  2,256
  2,353
  2,456
  2,565
  2,681
  2,803
  2,932
  3,068
  3,211
  3,362
  3,521
  3,689
  3,865
  4,051
  4,246
  4,452
  4,668
Total liabilities and equity, $m
  2,314
  2,110
  2,158
  2,214
  2,276
  2,346
  2,421
  2,503
  2,593
  2,689
  2,792
  2,903
  3,020
  3,145
  3,279
  3,420
  3,570
  3,728
  3,897
  4,074
  4,261
  4,459
  4,667
  4,887
  5,118
  5,362
  5,618
  5,888
  6,172
  6,471
  6,785
Debt-to-equity ratio
  0.075
  0.100
  0.100
  0.110
  0.120
  0.130
  0.140
  0.150
  0.160
  0.170
  0.180
  0.190
  0.200
  0.210
  0.220
  0.230
  0.240
  0.250
  0.260
  0.270
  0.280
  0.280
  0.290
  0.300
  0.310
  0.310
  0.320
  0.330
  0.330
  0.340
  0.340
Adjusted equity ratio
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  123
  -16
  -14
  -13
  -11
  -10
  -8
  -6
  -3
  -1
  1
  65
  67
  70
  72
  75
  77
  80
  83
  86
  90
  93
  97
  101
  105
  110
  114
  119
  124
  129
  135
Depreciation, amort., depletion, $m
  84
  132
  133
  135
  136
  137
  139
  141
  143
  145
  147
  65
  67
  70
  73
  76
  80
  83
  87
  91
  95
  100
  104
  109
  114
  120
  125
  132
  138
  145
  152
Funds from operations, $m
  125
  117
  119
  122
  125
  128
  131
  135
  140
  144
  149
  130
  135
  140
  145
  151
  157
  163
  170
  177
  185
  193
  201
  210
  219
  229
  240
  251
  262
  274
  287
Change in working capital, $m
  -103
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
Cash from operations, $m
  228
  120
  123
  126
  129
  133
  137
  141
  146
  151
  156
  138
  143
  149
  155
  161
  168
  175
  183
  190
  199
  207
  217
  226
  236
  247
  258
  270
  283
  296
  310
Maintenance CAPEX, $m
  0
  -46
  -47
  -48
  -49
  -51
  -52
  -54
  -56
  -58
  -60
  -62
  -65
  -67
  -70
  -73
  -76
  -80
  -83
  -87
  -91
  -95
  -100
  -104
  -109
  -114
  -120
  -125
  -132
  -138
  -145
New CAPEX, $m
  -49
  -17
  -21
  -24
  -26
  -29
  -32
  -35
  -38
  -41
  -44
  -47
  -50
  -53
  -57
  -60
  -64
  -67
  -71
  -75
  -79
  -84
  -88
  -93
  -98
  -103
  -109
  -115
  -121
  -127
  -133
Cash from investing activities, $m
  -380
  -63
  -68
  -72
  -75
  -80
  -84
  -89
  -94
  -99
  -104
  -109
  -115
  -120
  -127
  -133
  -140
  -147
  -154
  -162
  -170
  -179
  -188
  -197
  -207
  -217
  -229
  -240
  -253
  -265
  -278
Free cash flow, $m
  -152
  56
  55
  54
  53
  53
  52
  52
  52
  52
  52
  29
  29
  28
  28
  28
  28
  28
  28
  28
  28
  28
  29
  29
  29
  29
  30
  30
  31
  31
  32
Issuance/(repayment) of debt, $m
  120
  13
  15
  17
  19
  22
  24
  26
  28
  30
  32
  34
  37
  39
  42
  44
  47
  50
  52
  55
  58
  62
  65
  69
  72
  76
  80
  84
  89
  93
  98
Issuance/(repurchase) of shares, $m
  -20
  44
  48
  51
  54
  57
  60
  62
  65
  67
  70
  11
  14
  17
  20
  23
  26
  29
  32
  36
  39
  43
  46
  50
  54
  58
  62
  67
  71
  76
  81
Cash from financing (excl. dividends), $m  
  100
  57
  63
  68
  73
  79
  84
  88
  93
  97
  102
  45
  51
  56
  62
  67
  73
  79
  84
  91
  97
  105
  111
  119
  126
  134
  142
  151
  160
  169
  179
Total cash flow (excl. dividends), $m
  -53
  114
  118
  122
  127
  131
  136
  140
  145
  150
  154
  74
  79
  84
  90
  95
  101
  107
  113
  119
  126
  133
  140
  147
  155
  164
  172
  181
  191
  201
  211
Retained Cash Flow (-), $m
  -87
  -44
  -48
  -51
  -54
  -57
  -60
  -62
  -65
  -67
  -71
  -76
  -81
  -86
  -92
  -97
  -103
  -109
  -115
  -122
  -129
  -136
  -143
  -151
  -159
  -168
  -176
  -186
  -195
  -206
  -216
Prev. year cash balance distribution, $m
 
  246
  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
 
  315
  70
  71
  73
  74
  76
  78
  80
  82
  83
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
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
 
  302
  64
  62
  60
  58
  55
  53
  50
  47
  44
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  97.7
  95.4
  93.0
  90.5
  88.1
  85.8
  83.4
  81.1
  78.9
  76.7
  76.4
  76.0
  75.5
  75.0
  74.5
  73.9
  73.2
  72.5
  71.8
  71.1
  70.3
  69.5
  68.7
  67.9
  67.1
  66.2
  65.4
  64.5
  63.7
  62.8

Adtalem Global Education Inc., formerly DeVry Education Group Inc. (DeVry Group) is a global provider of educational services. DeVry Group's focuses on empowering its students to achieve their educational and career goals. DeVry Group's institutions offer a range of programs in healthcare, technology, business, accounting, finance and law. The Company operates in three segments: Medical and Healthcare; International and Professional Education, and Business, Technology and Management. Medical and Healthcare includes DeVry Medical International, Chamberlain College of Nursing (Chamberlain) and Carrington College. International and Professional Education consists of DeVry Brasil and Becker Professional Education. Business, Technology and Management consists of DeVry University. As of June 30, 2016, DMI operated three institutions: American University of the Caribbean School of Medicine (AUC), Ross University School of Medicine (RUSM) and Ross University School of Veterinary Medicine.

FINANCIAL RATIOS  of  Adtalem Global Education (ATGE)

Valuation Ratios
P/E Ratio 18.2
Price to Sales 1.2
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 9.8
Price to Free Cash Flow 12.5
Growth Rates
Sales Growth Rate -1.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -29%
Cap. Spend. - 3 Yr. Gr. Rate -9.1%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 7.5%
Total Debt to Equity 7.5%
Interest Coverage 0
Management Effectiveness
Return On Assets 5.6%
Ret/ On Assets - 3 Yr. Avg. 4.2%
Return On Total Capital 7.3%
Ret/ On T. Cap. - 3 Yr. Avg. 5.4%
Return On Equity 7.6%
Return On Equity - 3 Yr. Avg. 5.5%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 46.9%
Gross Margin - 3 Yr. Avg. 47%
EBITDA Margin 12%
EBITDA Margin - 3 Yr. Avg. 9.6%
Operating Margin 7.7%
Oper. Margin - 3 Yr. Avg. 5.1%
Pre-Tax Margin 7.4%
Pre-Tax Margin - 3 Yr. Avg. 4.8%
Net Profit Margin 6.8%
Net Profit Margin - 3 Yr. Avg. 4.7%
Effective Tax Rate 7.5%
Eff/ Tax Rate - 3 Yr. Avg. 34.1%
Payout Ratio 8.9%

ATGE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ATGE stock intrinsic value calculation we used $1810 million for the last fiscal year's total revenue generated by Adtalem Global Education. The default revenue input number comes from 2017 income statement of Adtalem Global Education. 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 ATGE 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 ATGE is calculated based on our internal credit rating of Adtalem Global Education, 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 Adtalem Global Education.
    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 ATGE stock the variable cost ratio is equal to 100.7%.

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 ATGE 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 3.5% for Adtalem Global Education.

Corporate tax rate of 27% is the nominal tax rate for Adtalem Global Education. 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 ATGE 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 ATGE are equal to 48.5%.

Life of production assets of 19 years is the average useful life of capital assets used in Adtalem Global Education 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 ATGE is equal to -8.4%. 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 - $1669 million for Adtalem Global Education - 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 62.059 million for Adtalem Global Education 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 Adtalem Global Education at the current share price and the inputted number of shares is $2.2 billion.

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COMPANY NEWS

▶ Devry Education Earns RS Rating Upgrade   [03:00AM  Investor's Business Daily]
▶ Former DeVry Administrator to Lead Education Enforcement Unit   [Aug-30-17 05:37PM  The Wall Street Journal]
▶ DeVryWORKS Names 2017 TEACH Partner Award Recipients   [Aug-07-17 12:26PM  Business Wire]
▶ New Career Ready Program to Aid Military Job Seekers   [Jul-31-17 04:00PM  Business Wire]
▶ [$$] Trump Eases Grading of For-Profit Schools   [Jun-17-17 12:01AM  Barrons.com]
Financial statements of ATGE
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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