Intrinsic value of Bright Horizons Family Solutions Inc. - BFAM

Previous Close

$153.09

  Intrinsic Value

$56.94

stock screener

  Rating & Target

str. sell

-63%

Previous close

$153.09

 
Intrinsic value

$56.94

 
Up/down potential

-63%

 
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 8.9

 

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, %
  8.70
  8.33
  8.00
  7.70
  7.43
  7.18
  6.97
  6.77
  6.59
  6.43
  6.29
  6.16
  6.04
  5.94
  5.85
  5.76
  5.69
  5.62
  5.56
  5.50
  5.45
  5.40
  5.36
  5.33
  5.30
  5.27
  5.24
  5.22
  5.19
  5.17
Revenue, $m
  2,069
  2,241
  2,420
  2,606
  2,800
  3,001
  3,210
  3,428
  3,653
  3,889
  4,133
  4,388
  4,653
  4,929
  5,218
  5,518
  5,832
  6,160
  6,502
  6,859
  7,233
  7,624
  8,033
  8,461
  8,909
  9,378
  9,870
  10,384
  10,924
  11,489
Variable operating expenses, $m
  1,673
  1,799
  1,929
  2,065
  2,206
  2,352
  2,505
  2,663
  2,828
  2,999
  3,010
  3,195
  3,388
  3,590
  3,799
  4,018
  4,247
  4,485
  4,735
  4,995
  5,267
  5,552
  5,850
  6,161
  6,488
  6,829
  7,187
  7,562
  7,954
  8,366
Fixed operating expenses, $m
  115
  118
  121
  123
  126
  129
  132
  134
  137
  140
  144
  147
  150
  153
  157
  160
  164
  167
  171
  175
  178
  182
  186
  191
  195
  199
  203
  208
  212
  217
Total operating expenses, $m
  1,788
  1,917
  2,050
  2,188
  2,332
  2,481
  2,637
  2,797
  2,965
  3,139
  3,154
  3,342
  3,538
  3,743
  3,956
  4,178
  4,411
  4,652
  4,906
  5,170
  5,445
  5,734
  6,036
  6,352
  6,683
  7,028
  7,390
  7,770
  8,166
  8,583
Operating income, $m
  280
  324
  370
  418
  468
  520
  574
  630
  688
  749
  980
  1,046
  1,115
  1,187
  1,262
  1,340
  1,422
  1,507
  1,596
  1,690
  1,788
  1,890
  1,997
  2,109
  2,227
  2,350
  2,479
  2,615
  2,757
  2,906
EBITDA, $m
  516
  566
  618
  672
  729
  787
  848
  912
  978
  1,046
  1,118
  1,192
  1,270
  1,351
  1,436
  1,524
  1,616
  1,713
  1,814
  1,919
  2,029
  2,145
  2,265
  2,392
  2,525
  2,663
  2,809
  2,962
  3,122
  3,289
Interest expense (income), $m
  37
  63
  71
  80
  88
  98
  107
  117
  128
  138
  150
  161
  173
  186
  199
  213
  227
  242
  257
  274
  290
  308
  327
  346
  366
  387
  410
  433
  457
  483
  509
Earnings before tax, $m
  217
  253
  290
  330
  370
  413
  457
  502
  550
  600
  819
  873
  929
  988
  1,049
  1,113
  1,180
  1,250
  1,323
  1,399
  1,479
  1,563
  1,651
  1,743
  1,839
  1,940
  2,046
  2,158
  2,274
  2,396
Tax expense, $m
  59
  68
  78
  89
  100
  111
  123
  136
  149
  162
  221
  236
  251
  267
  283
  300
  319
  337
  357
  378
  399
  422
  446
  471
  497
  524
  553
  583
  614
  647
Net income, $m
  158
  185
  212
  241
  270
  301
  333
  367
  402
  438
  598
  637
  678
  721
  766
  812
  861
  912
  966
  1,021
  1,080
  1,141
  1,205
  1,272
  1,343
  1,417
  1,494
  1,575
  1,660
  1,749

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
  2,743
  2,972
  3,210
  3,457
  3,713
  3,980
  4,258
  4,546
  4,845
  5,157
  5,482
  5,819
  6,171
  6,538
  6,920
  7,319
  7,735
  8,169
  8,623
  9,097
  9,593
  10,112
  10,654
  11,222
  11,816
  12,438
  13,090
  13,772
  14,487
  15,237
Adjusted assets (=assets-cash), $m
  2,743
  2,972
  3,210
  3,457
  3,713
  3,980
  4,258
  4,546
  4,845
  5,157
  5,482
  5,819
  6,171
  6,538
  6,920
  7,319
  7,735
  8,169
  8,623
  9,097
  9,593
  10,112
  10,654
  11,222
  11,816
  12,438
  13,090
  13,772
  14,487
  15,237
Revenue / Adjusted assets
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
  0.754
Average production assets, $m
  1,541
  1,669
  1,803
  1,942
  2,086
  2,236
  2,392
  2,553
  2,722
  2,897
  3,079
  3,269
  3,466
  3,672
  3,887
  4,111
  4,345
  4,589
  4,844
  5,110
  5,389
  5,680
  5,985
  6,303
  6,637
  6,987
  7,353
  7,736
  8,138
  8,559
Working capital, $m
  -192
  -208
  -225
  -242
  -260
  -279
  -299
  -319
  -340
  -362
  -384
  -408
  -433
  -458
  -485
  -513
  -542
  -573
  -605
  -638
  -673
  -709
  -747
  -787
  -829
  -872
  -918
  -966
  -1,016
  -1,068
Total debt, $m
  1,317
  1,475
  1,639
  1,810
  1,987
  2,171
  2,363
  2,562
  2,769
  2,985
  3,209
  3,442
  3,685
  3,939
  4,203
  4,478
  4,766
  5,066
  5,379
  5,707
  6,050
  6,408
  6,783
  7,175
  7,586
  8,016
  8,466
  8,938
  9,432
  9,950
Total liabilities, $m
  1,896
  2,054
  2,218
  2,389
  2,566
  2,750
  2,942
  3,141
  3,348
  3,564
  3,788
  4,021
  4,264
  4,518
  4,782
  5,057
  5,345
  5,645
  5,958
  6,286
  6,629
  6,987
  7,362
  7,754
  8,165
  8,595
  9,045
  9,517
  10,011
  10,529
Total equity, $m
  848
  918
  992
  1,068
  1,147
  1,230
  1,316
  1,405
  1,497
  1,594
  1,694
  1,798
  1,907
  2,020
  2,138
  2,261
  2,390
  2,524
  2,665
  2,811
  2,964
  3,124
  3,292
  3,467
  3,651
  3,843
  4,045
  4,256
  4,477
  4,708
Total liabilities and equity, $m
  2,744
  2,972
  3,210
  3,457
  3,713
  3,980
  4,258
  4,546
  4,845
  5,158
  5,482
  5,819
  6,171
  6,538
  6,920
  7,318
  7,735
  8,169
  8,623
  9,097
  9,593
  10,111
  10,654
  11,221
  11,816
  12,438
  13,090
  13,773
  14,488
  15,237
Debt-to-equity ratio
  1.550
  1.610
  1.650
  1.690
  1.730
  1.770
  1.800
  1.820
  1.850
  1.870
  1.890
  1.910
  1.930
  1.950
  1.970
  1.980
  1.990
  2.010
  2.020
  2.030
  2.040
  2.050
  2.060
  2.070
  2.080
  2.090
  2.090
  2.100
  2.110
  2.110
Adjusted equity ratio
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  158
  185
  212
  241
  270
  301
  333
  367
  402
  438
  598
  637
  678
  721
  766
  812
  861
  912
  966
  1,021
  1,080
  1,141
  1,205
  1,272
  1,343
  1,417
  1,494
  1,575
  1,660
  1,749
Depreciation, amort., depletion, $m
  236
  242
  248
  254
  261
  267
  274
  282
  289
  297
  138
  147
  155
  165
  174
  184
  195
  206
  217
  229
  242
  255
  268
  283
  298
  313
  330
  347
  365
  384
Funds from operations, $m
  394
  427
  460
  495
  531
  569
  608
  648
  691
  735
  736
  784
  834
  886
  940
  997
  1,056
  1,118
  1,183
  1,251
  1,322
  1,396
  1,474
  1,555
  1,640
  1,730
  1,824
  1,922
  2,025
  2,133
Change in working capital, $m
  -15
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -53
Cash from operations, $m
  410
  443
  477
  512
  549
  587
  627
  669
  712
  757
  758
  807
  858
  911
  967
  1,025
  1,085
  1,149
  1,215
  1,284
  1,356
  1,432
  1,512
  1,595
  1,682
  1,773
  1,869
  1,970
  2,075
  2,186
Maintenance CAPEX, $m
  -64
  -69
  -75
  -81
  -87
  -94
  -100
  -107
  -115
  -122
  -130
  -138
  -147
  -155
  -165
  -174
  -184
  -195
  -206
  -217
  -229
  -242
  -255
  -268
  -283
  -298
  -313
  -330
  -347
  -365
New CAPEX, $m
  -123
  -128
  -134
  -139
  -144
  -150
  -156
  -162
  -168
  -175
  -182
  -190
  -198
  -206
  -215
  -224
  -234
  -244
  -255
  -266
  -278
  -291
  -305
  -319
  -334
  -349
  -366
  -383
  -402
  -421
Cash from investing activities, $m
  -187
  -197
  -209
  -220
  -231
  -244
  -256
  -269
  -283
  -297
  -312
  -328
  -345
  -361
  -380
  -398
  -418
  -439
  -461
  -483
  -507
  -533
  -560
  -587
  -617
  -647
  -679
  -713
  -749
  -786
Free cash flow, $m
  223
  245
  268
  292
  318
  344
  371
  399
  429
  460
  446
  480
  514
  550
  587
  626
  667
  710
  754
  800
  849
  899
  952
  1,008
  1,066
  1,126
  1,190
  1,257
  1,326
  1,400
Issuance/(repayment) of debt, $m
  151
  158
  164
  171
  177
  184
  192
  199
  207
  215
  224
  233
  243
  253
  264
  276
  288
  300
  314
  328
  343
  358
  375
  392
  411
  430
  450
  472
  494
  518
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  
  151
  158
  164
  171
  177
  184
  192
  199
  207
  215
  224
  233
  243
  253
  264
  276
  288
  300
  314
  328
  343
  358
  375
  392
  411
  430
  450
  472
  494
  518
Total cash flow (excl. dividends), $m
  374
  403
  433
  463
  495
  528
  563
  599
  636
  675
  670
  713
  757
  803
  852
  902
  955
  1,010
  1,068
  1,128
  1,191
  1,258
  1,327
  1,400
  1,476
  1,556
  1,640
  1,728
  1,821
  1,918
Retained Cash Flow (-), $m
  -68
  -71
  -73
  -76
  -79
  -82
  -86
  -89
  -93
  -96
  -100
  -104
  -109
  -113
  -118
  -123
  -129
  -134
  -140
  -147
  -153
  -160
  -168
  -175
  -184
  -192
  -201
  -211
  -221
  -232
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
  305
  332
  359
  387
  416
  446
  477
  510
  543
  579
  570
  609
  648
  690
  733
  779
  826
  876
  927
  981
  1,038
  1,097
  1,159
  1,224
  1,293
  1,364
  1,439
  1,517
  1,600
  1,686
Discount rate, %
  8.00
  8.40
  8.82
  9.26
  9.72
  10.21
  10.72
  11.26
  11.82
  12.41
  13.03
  13.68
  14.37
  15.09
  15.84
  16.63
  17.46
  18.34
  19.25
  20.22
  21.23
  22.29
  23.40
  24.57
  25.80
  27.09
  28.45
  29.87
  31.36
  32.93
PV of cash for distribution, $m
  283
  283
  279
  271
  261
  249
  234
  217
  199
  180
  148
  131
  113
  97
  81
  66
  54
  42
  33
  25
  18
  13
  9
  6
  4
  3
  2
  1
  1
  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 Inc. (BFAM)

Valuation Ratios
P/E Ratio 94.9
Price to Sales 5.7
Price to Book 13.1
Price to Tangible Book
Price to Cash Flow 42.3
Price to Free Cash Flow 65.4
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 $1903 million for the last fiscal year's total revenue generated by Bright Horizons Family Solutions Inc.. The default revenue input number comes from 0001 income statement of Bright Horizons Family Solutions 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 BFAM stock valuation model: a) initial revenue growth rate of 8.7% 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%, whose default value for BFAM is calculated based on our internal credit rating of Bright Horizons Family Solutions 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 Bright Horizons Family Solutions 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 BFAM stock the variable cost ratio is equal to 81.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $113 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 Inc..

Corporate tax rate of 27% is the nominal tax rate for Bright Horizons Family Solutions 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 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 74.5%.

Life of production assets of 22.3 years is the average useful life of capital assets used in Bright Horizons Family Solutions 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 BFAM is equal to -9.3%. 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 - $779.477 million for Bright Horizons Family Solutions 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 57.985 million for Bright Horizons Family Solutions 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 Bright Horizons Family Solutions Inc. at the current share price and the inputted number of shares is $8.9 billion.

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