Intrinsic value of Bright Horizons Family Solutions - BFAM

Previous Close

$117.81

  Intrinsic Value

$48.81

stock screener

  Rating & Target

str. sell

-59%

Previous close

$117.81

 
Intrinsic value

$48.81

 
Up/down potential

-59%

 
Rating

str. sell

We calculate the intrinsic value of BFAM 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 6.8

 

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, %
  9.90
  9.41
  8.97
  8.57
  8.21
  7.89
  7.60
  7.34
  7.11
  6.90
  6.71
  6.54
  6.38
  6.25
  6.12
  6.01
  5.91
  5.82
  5.74
  5.66
  5.60
  5.54
  5.48
  5.43
  5.39
  5.35
  5.32
  5.28
  5.26
  5.23
Revenue, $m
  1,913
  2,093
  2,281
  2,477
  2,680
  2,892
  3,111
  3,340
  3,577
  3,824
  4,081
  4,347
  4,625
  4,914
  5,215
  5,528
  5,855
  6,195
  6,550
  6,921
  7,309
  7,713
  8,136
  8,578
  9,041
  9,525
  10,031
  10,561
  11,116
  11,698
Variable operating expenses, $m
  1,656
  1,796
  1,942
  2,095
  2,253
  2,418
  2,589
  2,767
  2,952
  3,144
  3,179
  3,386
  3,603
  3,828
  4,062
  4,306
  4,560
  4,826
  5,102
  5,391
  5,693
  6,008
  6,337
  6,682
  7,042
  7,419
  7,813
  8,226
  8,659
  9,112
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
  1,656
  1,796
  1,942
  2,095
  2,253
  2,418
  2,589
  2,767
  2,952
  3,144
  3,179
  3,386
  3,603
  3,828
  4,062
  4,306
  4,560
  4,826
  5,102
  5,391
  5,693
  6,008
  6,337
  6,682
  7,042
  7,419
  7,813
  8,226
  8,659
  9,112
Operating income, $m
  257
  297
  339
  382
  427
  474
  522
  573
  625
  680
  902
  961
  1,023
  1,086
  1,153
  1,222
  1,294
  1,370
  1,448
  1,530
  1,616
  1,705
  1,799
  1,897
  1,999
  2,106
  2,218
  2,335
  2,458
  2,586
EBITDA, $m
  488
  534
  582
  632
  684
  738
  794
  852
  913
  976
  1,041
  1,109
  1,180
  1,254
  1,331
  1,411
  1,494
  1,581
  1,672
  1,766
  1,865
  1,968
  2,076
  2,189
  2,307
  2,430
  2,560
  2,695
  2,837
  2,985
Interest expense (income), $m
  37
  64
  73
  83
  93
  103
  114
  125
  137
  149
  162
  175
  189
  203
  218
  233
  249
  266
  284
  302
  321
  341
  361
  383
  405
  429
  454
  480
  507
  535
  565
Earnings before tax, $m
  194
  224
  256
  289
  324
  360
  397
  436
  476
  518
  727
  772
  819
  868
  919
  973
  1,028
  1,086
  1,146
  1,209
  1,275
  1,344
  1,416
  1,491
  1,570
  1,652
  1,738
  1,828
  1,923
  2,022
Tax expense, $m
  52
  60
  69
  78
  87
  97
  107
  118
  129
  140
  196
  209
  221
  234
  248
  263
  278
  293
  310
  327
  344
  363
  382
  403
  424
  446
  469
  494
  519
  546
Net income, $m
  141
  164
  187
  211
  236
  263
  290
  318
  347
  378
  531
  564
  598
  634
  671
  710
  751
  793
  837
  883
  931
  981
  1,034
  1,088
  1,146
  1,206
  1,269
  1,335
  1,404
  1,476

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
  2,714
  2,969
  3,236
  3,513
  3,801
  4,102
  4,413
  4,737
  5,074
  5,424
  5,788
  6,167
  6,560
  6,970
  7,397
  7,841
  8,304
  8,787
  9,291
  9,818
  10,367
  10,941
  11,541
  12,168
  12,824
  13,510
  14,228
  14,980
  15,768
  16,593
Adjusted assets (=assets-cash), $m
  2,714
  2,969
  3,236
  3,513
  3,801
  4,102
  4,413
  4,737
  5,074
  5,424
  5,788
  6,167
  6,560
  6,970
  7,397
  7,841
  8,304
  8,787
  9,291
  9,818
  10,367
  10,941
  11,541
  12,168
  12,824
  13,510
  14,228
  14,980
  15,768
  16,593
Revenue / Adjusted assets
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
  0.705
Average production assets, $m
  1,513
  1,656
  1,804
  1,959
  2,120
  2,287
  2,461
  2,642
  2,830
  3,025
  3,228
  3,439
  3,658
  3,887
  4,125
  4,373
  4,631
  4,900
  5,181
  5,475
  5,781
  6,101
  6,436
  6,785
  7,151
  7,534
  7,935
  8,354
  8,793
  9,253
Working capital, $m
  -168
  -184
  -201
  -218
  -236
  -254
  -274
  -294
  -315
  -337
  -359
  -383
  -407
  -432
  -459
  -486
  -515
  -545
  -576
  -609
  -643
  -679
  -716
  -755
  -796
  -838
  -883
  -929
  -978
  -1,029
Total debt, $m
  1,356
  1,534
  1,719
  1,913
  2,114
  2,323
  2,540
  2,766
  3,001
  3,245
  3,499
  3,762
  4,037
  4,322
  4,620
  4,930
  5,252
  5,589
  5,940
  6,307
  6,690
  7,090
  7,508
  7,945
  8,402
  8,881
  9,381
  9,906
  10,454
  11,029
Total liabilities, $m
  1,892
  2,070
  2,255
  2,448
  2,650
  2,859
  3,076
  3,302
  3,537
  3,781
  4,034
  4,298
  4,573
  4,858
  5,155
  5,465
  5,788
  6,125
  6,476
  6,843
  7,226
  7,626
  8,044
  8,481
  8,938
  9,417
  9,917
  10,441
  10,990
  11,565
Total equity, $m
  822
  900
  980
  1,064
  1,152
  1,243
  1,337
  1,435
  1,538
  1,644
  1,754
  1,868
  1,988
  2,112
  2,241
  2,376
  2,516
  2,663
  2,815
  2,975
  3,141
  3,315
  3,497
  3,687
  3,886
  4,094
  4,311
  4,539
  4,778
  5,028
Total liabilities and equity, $m
  2,714
  2,970
  3,235
  3,512
  3,802
  4,102
  4,413
  4,737
  5,075
  5,425
  5,788
  6,166
  6,561
  6,970
  7,396
  7,841
  8,304
  8,788
  9,291
  9,818
  10,367
  10,941
  11,541
  12,168
  12,824
  13,511
  14,228
  14,980
  15,768
  16,593
Debt-to-equity ratio
  1.650
  1.700
  1.750
  1.800
  1.840
  1.870
  1.900
  1.930
  1.950
  1.970
  1.990
  2.010
  2.030
  2.050
  2.060
  2.070
  2.090
  2.100
  2.110
  2.120
  2.130
  2.140
  2.150
  2.160
  2.160
  2.170
  2.180
  2.180
  2.190
  2.190
Adjusted equity ratio
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  141
  164
  187
  211
  236
  263
  290
  318
  347
  378
  531
  564
  598
  634
  671
  710
  751
  793
  837
  883
  931
  981
  1,034
  1,088
  1,146
  1,206
  1,269
  1,335
  1,404
  1,476
Depreciation, amort., depletion, $m
  231
  237
  243
  250
  257
  264
  272
  279
  288
  296
  139
  148
  158
  168
  178
  188
  200
  211
  223
  236
  249
  263
  277
  292
  308
  325
  342
  360
  379
  399
Funds from operations, $m
  372
  400
  430
  461
  493
  527
  561
  597
  635
  674
  670
  712
  756
  801
  849
  899
  950
  1,004
  1,060
  1,119
  1,180
  1,244
  1,311
  1,381
  1,454
  1,531
  1,611
  1,695
  1,783
  1,875
Change in working capital, $m
  -15
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -31
  -33
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -51
Cash from operations, $m
  387
  416
  447
  478
  511
  545
  581
  618
  656
  696
  692
  735
  780
  827
  875
  926
  979
  1,034
  1,091
  1,152
  1,214
  1,280
  1,348
  1,420
  1,495
  1,573
  1,655
  1,741
  1,831
  1,926
Maintenance CAPEX, $m
  -59
  -65
  -71
  -78
  -84
  -91
  -99
  -106
  -114
  -122
  -130
  -139
  -148
  -158
  -168
  -178
  -188
  -200
  -211
  -223
  -236
  -249
  -263
  -277
  -292
  -308
  -325
  -342
  -360
  -379
New CAPEX, $m
  -137
  -142
  -149
  -155
  -161
  -167
  -174
  -181
  -188
  -195
  -203
  -211
  -220
  -228
  -238
  -248
  -258
  -269
  -281
  -293
  -306
  -320
  -335
  -350
  -366
  -383
  -401
  -419
  -439
  -460
Cash from investing activities, $m
  -196
  -207
  -220
  -233
  -245
  -258
  -273
  -287
  -302
  -317
  -333
  -350
  -368
  -386
  -406
  -426
  -446
  -469
  -492
  -516
  -542
  -569
  -598
  -627
  -658
  -691
  -726
  -761
  -799
  -839
Free cash flow, $m
  191
  209
  227
  246
  266
  287
  308
  331
  354
  379
  359
  385
  412
  441
  470
  500
  532
  565
  599
  635
  672
  710
  751
  793
  837
  882
  930
  980
  1,032
  1,087
Issuance/(repayment) of debt, $m
  172
  178
  186
  193
  201
  209
  217
  226
  235
  244
  254
  264
  274
  286
  297
  310
  323
  337
  351
  367
  383
  400
  418
  437
  457
  478
  501
  524
  549
  575
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  
  172
  178
  186
  193
  201
  209
  217
  226
  235
  244
  254
  264
  274
  286
  297
  310
  323
  337
  351
  367
  383
  400
  418
  437
  457
  478
  501
  524
  549
  575
Total cash flow (excl. dividends), $m
  363
  387
  412
  439
  467
  496
  526
  557
  589
  622
  613
  649
  687
  726
  767
  810
  855
  902
  950
  1,001
  1,055
  1,111
  1,169
  1,230
  1,294
  1,361
  1,431
  1,504
  1,581
  1,662
Retained Cash Flow (-), $m
  -73
  -77
  -81
  -84
  -87
  -91
  -95
  -98
  -102
  -106
  -110
  -115
  -119
  -124
  -129
  -135
  -140
  -146
  -153
  -159
  -166
  -174
  -182
  -190
  -199
  -208
  -218
  -228
  -239
  -250
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
  290
  309
  332
  355
  379
  405
  431
  458
  487
  516
  502
  534
  568
  602
  638
  676
  715
  755
  798
  842
  888
  937
  987
  1,040
  1,095
  1,153
  1,213
  1,276
  1,343
  1,412
Discount rate, %
  8.50
  8.93
  9.37
  9.84
  10.33
  10.85
  11.39
  11.96
  12.56
  13.19
  13.85
  14.54
  15.26
  16.03
  16.83
  17.67
  18.55
  19.48
  20.46
  21.48
  22.55
  23.68
  24.86
  26.11
  27.41
  28.78
  30.22
  31.73
  33.32
  34.99
PV of cash for distribution, $m
  267
  261
  254
  244
  232
  218
  203
  186
  168
  150
  121
  105
  90
  75
  62
  50
  40
  31
  23
  17
  12
  9
  6
  4
  3
  2
  1
  1
  0
  0
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

Bright Horizons Family Solutions Inc. is a provider of child care, early education and other services. The Company provides services under multi-year contracts with employers offering child care and other dependent care solutions as part of their employee benefits packages. Its segments include full service center-based care services, back-up dependent care services and other educational advisory services. Full service center-based care segment includes center-based child care, preschool and elementary education. Back-up dependent care segment includes center-based back-up child care, in-home well child care, in home mildly ill child care and adult/elder care. The Company's other educational advisory services segment includes its college preparation and admissions advisory services, as well as tuition reimbursement administration and educational advising services. The Company operates over 300 nurseries in the United Kingdom and approximately 1,000 across the world.

FINANCIAL RATIOS  of  Bright Horizons Family Solutions (BFAM)

Valuation Ratios
P/E Ratio 73.1
Price to Sales 4.4
Price to Book 10.1
Price to Tangible Book
Price to Cash Flow 32.6
Price to Free Cash Flow 50.3
Growth Rates
Sales Growth Rate 7.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -3.8%
Cap. Spend. - 3 Yr. Gr. Rate 1.4%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 153.2%
Total Debt to Equity 165.8%
Interest Coverage 5
Management Effectiveness
Return On Assets 5.3%
Ret/ On Assets - 3 Yr. Avg. 5.1%
Return On Total Capital 5.4%
Ret/ On T. Cap. - 3 Yr. Avg. 5.1%
Return On Equity 13.4%
Return On Equity - 3 Yr. Avg. 11.6%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 24.9%
Gross Margin - 3 Yr. Avg. 24.2%
EBITDA Margin 16.9%
EBITDA Margin - 3 Yr. Avg. 16.9%
Operating Margin 11.8%
Oper. Margin - 3 Yr. Avg. 11.7%
Pre-Tax Margin 9.1%
Pre-Tax Margin - 3 Yr. Avg. 9%
Net Profit Margin 6.1%
Net Profit Margin - 3 Yr. Avg. 5.9%
Effective Tax Rate 33.6%
Eff/ Tax Rate - 3 Yr. Avg. 34%
Payout Ratio 0%

BFAM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BFAM stock intrinsic value calculation we used $1740.905 million for the last fiscal year's total revenue generated by Bright Horizons Family Solutions. The default revenue input number comes from 0001 income statement of Bright Horizons Family Solutions. 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 BFAM stock valuation model: a) initial revenue growth rate of 9.9% 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 8.5%, whose default value for BFAM is calculated based on our internal credit rating of Bright Horizons Family Solutions, 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 Bright Horizons Family Solutions.
    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 BFAM stock the variable cost ratio is equal to 87.4%.

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 BFAM 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 Bright Horizons Family Solutions.

Corporate tax rate of 27% is the nominal tax rate for Bright Horizons Family Solutions. 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 BFAM 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 BFAM are equal to 79.1%.

Life of production assets of 23.2 years is the average useful life of capital assets used in Bright Horizons Family Solutions 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 BFAM is equal to -8.8%. 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 - $749.06 million for Bright Horizons Family Solutions - 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 58.012 million for Bright Horizons Family Solutions 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 Bright Horizons Family Solutions at the current share price and the inputted number of shares is $6.8 billion.

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COMPANY NEWS

▶ Bright Horizons: 3Q Earnings Snapshot   [05:01AM  Associated Press]
▶ Bright Horizons: 2Q Earnings Snapshot   [05:05AM  Associated Press]
▶ Bright Horizons: 1Q Earnings Snapshot   [05:17PM  Associated Press]
▶ Company Profile for Bright Horizons Family Solutions   [Mar-09-18 10:40AM  Business Wire]
▶ Bright Horizons beats 4Q profit forecasts   [Feb-08-18 07:21PM  Associated Press]
▶ New Study Shows the Lasting Impact of Tuition Assistance   [Jan-08-18 12:17PM  Business Wire]
▶ Bright Horizons tops Street 3Q forecasts   [05:47AM  Associated Press]
▶ Is Bright Horizons (BFAM) a Great Growth Stock?   [Aug-25-17 08:36AM  Zacks]
▶ Bright Horizons beats 2Q profit forecasts   [Aug-01-17 11:35PM  Associated Press]
▶ Bright Horizons beats 2Q profit forecasts   [06:35PM  Associated Press]

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