Intrinsic value of Cantel Medical - CMD

Previous Close

$98.32

  Intrinsic Value

$35.89

stock screener

  Rating & Target

str. sell

-64%

  Value-price divergence*

-39%

Previous close

$98.32

 
Intrinsic value

$35.89

 
Up/down potential

-64%

 
Rating

str. sell

 
Value-price divergence*

-39%

Our model is not good at valuating stocks of financial companies, such as CMD.

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

We calculate the intrinsic value of CMD 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 2016), $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 4.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  17.70
  10.30
  9.77
  9.29
  8.86
  8.48
  8.13
  7.82
  7.53
  7.28
  7.05
  6.85
  6.66
  6.50
  6.35
  6.21
  6.09
  5.98
  5.88
  5.80
  5.72
  5.64
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
  5.28
  5.25
Revenue, $m
  665
  733
  805
  880
  958
  1,039
  1,124
  1,212
  1,303
  1,398
  1,496
  1,599
  1,705
  1,816
  1,931
  2,051
  2,176
  2,306
  2,442
  2,584
  2,731
  2,885
  3,046
  3,215
  3,391
  3,574
  3,767
  3,968
  4,179
  4,399
  4,630
Variable operating expenses, $m
 
  599
  654
  713
  773
  836
  902
  970
  1,041
  1,115
  1,192
  1,244
  1,326
  1,413
  1,502
  1,596
  1,693
  1,794
  1,900
  2,010
  2,125
  2,245
  2,370
  2,501
  2,637
  2,780
  2,930
  3,087
  3,250
  3,422
  3,602
Fixed operating expenses, $m
 
  25
  25
  26
  26
  27
  28
  29
  29
  30
  31
  31
  32
  33
  34
  35
  36
  37
  37
  38
  39
  40
  41
  42
  43
  44
  46
  47
  48
  49
  50
Total operating expenses, $m
  568
  624
  679
  739
  799
  863
  930
  999
  1,070
  1,145
  1,223
  1,275
  1,358
  1,446
  1,536
  1,631
  1,729
  1,831
  1,937
  2,048
  2,164
  2,285
  2,411
  2,543
  2,680
  2,824
  2,976
  3,134
  3,298
  3,471
  3,652
Operating income, $m
  97
  110
  126
  142
  158
  176
  194
  213
  232
  252
  274
  324
  346
  370
  395
  421
  448
  476
  505
  535
  567
  601
  635
  672
  710
  749
  791
  835
  880
  928
  978
EBITDA, $m
  122
  149
  165
  183
  200
  219
  238
  258
  279
  301
  324
  347
  372
  397
  423
  451
  480
  510
  541
  574
  608
  643
  680
  719
  760
  802
  847
  893
  942
  993
  1,046
Interest expense (income), $m
  3
  4
  5
  6
  7
  8
  9
  10
  11
  12
  13
  15
  16
  17
  19
  20
  22
  23
  25
  27
  28
  30
  32
  34
  36
  39
  41
  43
  46
  49
  51
Earnings before tax, $m
  94
  106
  121
  136
  152
  168
  185
  203
  221
  240
  260
  309
  331
  353
  376
  401
  426
  453
  480
  509
  539
  570
  603
  637
  673
  711
  750
  791
  834
  879
  927
Tax expense, $m
  34
  29
  33
  37
  41
  45
  50
  55
  60
  65
  70
  83
  89
  95
  102
  108
  115
  122
  130
  137
  146
  154
  163
  172
  182
  192
  203
  214
  225
  237
  250
Net income, $m
  60
  78
  88
  99
  111
  123
  135
  148
  161
  175
  190
  226
  241
  258
  275
  293
  311
  330
  350
  371
  393
  416
  440
  465
  491
  519
  548
  578
  609
  642
  676

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  28
  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
  695
  736
  808
  883
  961
  1,042
  1,127
  1,215
  1,307
  1,402
  1,501
  1,604
  1,710
  1,821
  1,937
  2,057
  2,183
  2,313
  2,449
  2,591
  2,740
  2,894
  3,056
  3,224
  3,401
  3,585
  3,778
  3,980
  4,191
  4,412
  4,644
Adjusted assets (=assets-cash), $m
  667
  736
  808
  883
  961
  1,042
  1,127
  1,215
  1,307
  1,402
  1,501
  1,604
  1,710
  1,821
  1,937
  2,057
  2,183
  2,313
  2,449
  2,591
  2,740
  2,894
  3,056
  3,224
  3,401
  3,585
  3,778
  3,980
  4,191
  4,412
  4,644
Revenue / Adjusted assets
  0.997
  0.996
  0.996
  0.997
  0.997
  0.997
  0.997
  0.998
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
  0.997
Average production assets, $m
  168
  185
  203
  222
  241
  262
  283
  305
  328
  352
  377
  403
  430
  458
  487
  517
  548
  581
  615
  651
  688
  727
  768
  810
  854
  901
  949
  1,000
  1,053
  1,109
  1,167
Working capital, $m
  127
  109
  120
  131
  143
  155
  167
  181
  194
  208
  223
  238
  254
  271
  288
  306
  324
  344
  364
  385
  407
  430
  454
  479
  505
  533
  561
  591
  623
  655
  690
Total debt, $m
  116
  141
  167
  194
  222
  251
  282
  314
  347
  381
  417
  454
  492
  533
  574
  618
  663
  710
  759
  810
  864
  920
  978
  1,039
  1,103
  1,169
  1,239
  1,312
  1,388
  1,468
  1,551
Total liabilities, $m
  240
  266
  292
  319
  347
  376
  407
  439
  472
  506
  542
  579
  617
  658
  699
  743
  788
  835
  884
  935
  989
  1,045
  1,103
  1,164
  1,228
  1,294
  1,364
  1,437
  1,513
  1,593
  1,676
Total equity, $m
  454
  470
  516
  564
  614
  666
  720
  776
  835
  896
  959
  1,025
  1,093
  1,164
  1,238
  1,315
  1,395
  1,478
  1,565
  1,656
  1,751
  1,849
  1,953
  2,060
  2,173
  2,291
  2,414
  2,543
  2,678
  2,819
  2,967
Total liabilities and equity, $m
  694
  736
  808
  883
  961
  1,042
  1,127
  1,215
  1,307
  1,402
  1,501
  1,604
  1,710
  1,822
  1,937
  2,058
  2,183
  2,313
  2,449
  2,591
  2,740
  2,894
  3,056
  3,224
  3,401
  3,585
  3,778
  3,980
  4,191
  4,412
  4,643
Debt-to-equity ratio
  0.256
  0.300
  0.320
  0.340
  0.360
  0.380
  0.390
  0.400
  0.420
  0.430
  0.430
  0.440
  0.450
  0.460
  0.460
  0.470
  0.480
  0.480
  0.490
  0.490
  0.490
  0.500
  0.500
  0.500
  0.510
  0.510
  0.510
  0.520
  0.520
  0.520
  0.520
Adjusted equity ratio
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  60
  78
  88
  99
  111
  123
  135
  148
  161
  175
  190
  226
  241
  258
  275
  293
  311
  330
  350
  371
  393
  416
  440
  465
  491
  519
  548
  578
  609
  642
  676
Depreciation, amort., depletion, $m
  25
  39
  40
  41
  42
  43
  45
  46
  47
  49
  50
  24
  25
  27
  28
  30
  32
  34
  36
  38
  40
  43
  45
  47
  50
  53
  56
  58
  62
  65
  68
Funds from operations, $m
  69
  116
  128
  140
  153
  166
  180
  194
  209
  224
  240
  249
  266
  284
  303
  323
  343
  364
  386
  410
  434
  459
  485
  513
  541
  572
  603
  636
  671
  707
  745
Change in working capital, $m
  -11
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
Cash from operations, $m
  80
  106
  117
  129
  141
  154
  167
  181
  195
  210
  225
  234
  251
  268
  286
  305
  325
  345
  366
  388
  412
  436
  461
  488
  515
  544
  574
  606
  639
  674
  710
Maintenance CAPEX, $m
  0
  -10
  -11
  -12
  -13
  -14
  -15
  -17
  -18
  -19
  -21
  -22
  -24
  -25
  -27
  -28
  -30
  -32
  -34
  -36
  -38
  -40
  -43
  -45
  -47
  -50
  -53
  -56
  -58
  -62
  -65
New CAPEX, $m
  -19
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -36
  -37
  -39
  -41
  -42
  -44
  -46
  -48
  -51
  -53
  -56
  -58
Cash from investing activities, $m
  -113
  -27
  -29
  -31
  -33
  -34
  -36
  -39
  -41
  -43
  -46
  -48
  -51
  -53
  -56
  -58
  -61
  -65
  -68
  -72
  -75
  -79
  -84
  -87
  -91
  -96
  -101
  -107
  -111
  -118
  -123
Free cash flow, $m
  -33
  79
  88
  98
  108
  119
  130
  142
  154
  167
  180
  186
  200
  215
  230
  246
  263
  280
  298
  317
  336
  357
  378
  400
  424
  448
  473
  500
  528
  557
  587
Issuance/(repayment) of debt, $m
  38
  25
  26
  27
  28
  29
  31
  32
  33
  34
  36
  37
  39
  40
  42
  43
  45
  47
  49
  51
  53
  56
  58
  61
  64
  67
  70
  73
  76
  80
  84
Issuance/(repurchase) of shares, $m
  -4
  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  
  35
  25
  26
  27
  28
  29
  31
  32
  33
  34
  36
  37
  39
  40
  42
  43
  45
  47
  49
  51
  53
  56
  58
  61
  64
  67
  70
  73
  76
  80
  84
Total cash flow (excl. dividends), $m
  2
  104
  114
  125
  137
  149
  161
  174
  187
  201
  216
  223
  239
  255
  272
  290
  308
  327
  347
  368
  390
  413
  436
  461
  487
  514
  543
  573
  604
  637
  671
Retained Cash Flow (-), $m
  -47
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -59
  -61
  -63
  -66
  -68
  -71
  -74
  -77
  -80
  -83
  -87
  -91
  -95
  -99
  -103
  -108
  -113
  -118
  -123
  -129
  -135
  -141
  -148
Prev. year cash balance distribution, $m
 
  28
  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
 
  88
  68
  77
  87
  97
  107
  118
  129
  140
  152
  157
  170
  184
  198
  213
  228
  244
  260
  277
  295
  314
  333
  353
  375
  397
  420
  444
  469
  495
  523
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
 
  84
  63
  67
  71
  75
  78
  79
  80
  81
  80
  75
  73
  70
  67
  62
  58
  53
  48
  43
  38
  32
  28
  23
  19
  15
  12
  10
  7
  5
  4
Current shareholders' claim on cash, %
  100
  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

Cantel Medical Corp. is a provider of infection prevention products and services in the healthcare market. The Company's operating segments include Endoscopy; Water Purification and Filtration; Healthcare Disposables, and Dialysis. Its Endoscopy segment includes medical device reprocessing systems, disinfectants, detergents and other supplies. The Company's Water Purification and Filtration segment includes water purification equipment and services, filtration and separation products, and disinfectant, sterilization and decontamination products and services. Its Healthcare Disposables segment includes single-use, infection prevention and control healthcare products. The Company's Dialysis segment includes medical device reprocessing systems, sterilants/disinfectants, dialysate concentrates and other supplies for renal dialysis. The Company offers a range of filters utilizing hollow fiber membrane technology.

FINANCIAL RATIOS  of  Cantel Medical (CMD)

Valuation Ratios
P/E Ratio 68.3
Price to Sales 6.2
Price to Book 9
Price to Tangible Book
Price to Cash Flow 51.3
Price to Free Cash Flow 67.2
Growth Rates
Sales Growth Rate 17.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 46.2%
Cap. Spend. - 3 Yr. Gr. Rate 22.1%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 25.6%
Total Debt to Equity 25.6%
Interest Coverage 32
Management Effectiveness
Return On Assets 9.7%
Ret/ On Assets - 3 Yr. Avg. 9%
Return On Total Capital 11.4%
Ret/ On T. Cap. - 3 Yr. Avg. 10.5%
Return On Equity 13.9%
Return On Equity - 3 Yr. Avg. 13%
Asset Turnover 1
Profitability Ratios
Gross Margin 46.6%
Gross Margin - 3 Yr. Avg. 45.1%
EBITDA Margin 18.3%
EBITDA Margin - 3 Yr. Avg. 18.3%
Operating Margin 14.6%
Oper. Margin - 3 Yr. Avg. 14.4%
Pre-Tax Margin 14.1%
Pre-Tax Margin - 3 Yr. Avg. 13.9%
Net Profit Margin 9%
Net Profit Margin - 3 Yr. Avg. 8.8%
Effective Tax Rate 36.2%
Eff/ Tax Rate - 3 Yr. Avg. 36.9%
Payout Ratio 8.3%

CMD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CMD stock intrinsic value calculation we used $665 million for the last fiscal year's total revenue generated by Cantel Medical. The default revenue input number comes from 2016 income statement of Cantel Medical. 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 CMD stock valuation model: a) initial revenue growth rate of 10.3% 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 CMD is calculated based on our internal credit rating of Cantel Medical, 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 Cantel Medical.
    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 CMD stock the variable cost ratio is equal to 82%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $24 million in the base year in the intrinsic value calculation for CMD 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 Cantel Medical.

Corporate tax rate of 27% is the nominal tax rate for Cantel Medical. 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 CMD 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 CMD are equal to 25.2%.

Life of production assets of 17.1 years is the average useful life of capital assets used in Cantel Medical 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 CMD is equal to 14.9%. 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 - $454 million for Cantel Medical - 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 42.021 million for Cantel Medical 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 Cantel Medical at the current share price and the inputted number of shares is $4.1 billion.

COMPANY NEWS

▶ Cantel posts 4Q profit   [Sep-28-17 09:41PM  Associated Press]
▶ Stocks Showing Improved Relative Strength: Cantel Medical   [03:00AM  Investor's Business Daily]
▶ Stocks With Rising Relative Strength: Cantel Medical   [Sep-20-17 03:00AM  Investor's Business Daily]
▶ This Medical Device Maker Is Now Outperforming 96% Of All Stocks   [Sep-18-17 10:49AM  Investor's Business Daily]
▶ Cantel Medical to Acquire BHT Group in Germany   [Jul-31-17 08:00AM  PR Newswire]
▶ ETFs with exposure to Cantel Medical Corp. : June 9, 2017   [Jun-09-17 01:22PM  Capital Cube]
▶ Cantel Medical Corp. Gives the Bottom Line a Boost   [Jun-08-17 04:21PM  Motley Fool]
▶ Cantel posts 3Q profit   [08:28AM  Associated Press]
▶ Cantel posts 2Q profit   [08:16AM  Associated Press]
▶ Cantel Medical Corp. Takes Its First Step Towards Doubling   [Dec-13-16 04:18PM  at Motley Fool]
▶ Cantel Medical Changes Ticker Symbol (CMD)   [Dec-05-16 10:56AM  at Investopedia]
Financial statements of CMD
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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