Intrinsic value of Cotiviti Holdings - COTV

Previous Close

$44.74

  Intrinsic Value

$32.92

stock screener

  Rating & Target

sell

-26%

Previous close

$44.74

 
Intrinsic value

$32.92

 
Up/down potential

-26%

 
Rating

sell

We calculate the intrinsic value of COTV 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 4.2

 

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, %
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.31
  5.28
  5.25
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.06
  5.06
  5.05
  5.05
  5.04
Revenue, $m
  719
  760
  804
  850
  897
  947
  998
  1,053
  1,109
  1,169
  1,231
  1,296
  1,364
  1,435
  1,510
  1,588
  1,670
  1,756
  1,847
  1,941
  2,040
  2,144
  2,253
  2,368
  2,488
  2,614
  2,746
  2,885
  3,031
  3,183
Variable operating expenses, $m
  325
  334
  343
  353
  363
  373
  384
  396
  407
  420
  259
  272
  287
  302
  317
  334
  351
  369
  388
  408
  429
  451
  473
  498
  523
  549
  577
  606
  637
  669
Fixed operating expenses, $m
  207
  212
  217
  221
  226
  231
  236
  242
  247
  252
  258
  264
  269
  275
  281
  288
  294
  300
  307
  314
  321
  328
  335
  342
  350
  357
  365
  373
  382
  390
Total operating expenses, $m
  532
  546
  560
  574
  589
  604
  620
  638
  654
  672
  517
  536
  556
  577
  598
  622
  645
  669
  695
  722
  750
  779
  808
  840
  873
  906
  942
  979
  1,019
  1,059
Operating income, $m
  186
  214
  244
  275
  308
  342
  378
  416
  455
  496
  714
  760
  808
  858
  911
  967
  1,026
  1,087
  1,152
  1,220
  1,291
  1,366
  1,445
  1,528
  1,616
  1,707
  1,804
  1,905
  2,012
  2,125
EBITDA, $m
  407
  438
  471
  505
  541
  578
  618
  659
  702
  747
  795
  845
  897
  952
  1,010
  1,071
  1,135
  1,202
  1,272
  1,346
  1,424
  1,506
  1,592
  1,683
  1,778
  1,878
  1,983
  2,094
  2,210
  2,333
Interest expense (income), $m
  43
  41
  45
  48
  51
  55
  58
  62
  66
  71
  75
  80
  85
  90
  95
  100
  106
  112
  119
  125
  133
  140
  148
  156
  164
  173
  183
  192
  203
  213
  225
Earnings before tax, $m
  144
  170
  196
  224
  253
  284
  316
  349
  384
  421
  635
  676
  718
  764
  811
  861
  913
  968
  1,026
  1,087
  1,151
  1,219
  1,289
  1,364
  1,442
  1,525
  1,612
  1,703
  1,799
  1,900
Tax expense, $m
  39
  46
  53
  60
  68
  77
  85
  94
  104
  114
  171
  182
  194
  206
  219
  232
  247
  261
  277
  294
  311
  329
  348
  368
  389
  412
  435
  460
  486
  513
Net income, $m
  105
  124
  143
  164
  185
  207
  230
  255
  281
  308
  463
  493
  524
  557
  592
  628
  667
  707
  749
  794
  840
  890
  941
  996
  1,053
  1,113
  1,176
  1,243
  1,313
  1,387

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
  2,185
  2,311
  2,444
  2,582
  2,726
  2,877
  3,035
  3,200
  3,372
  3,552
  3,741
  3,939
  4,146
  4,363
  4,590
  4,828
  5,077
  5,339
  5,613
  5,900
  6,202
  6,518
  6,849
  7,197
  7,562
  7,945
  8,347
  8,769
  9,212
  9,676
Adjusted assets (=assets-cash), $m
  2,185
  2,311
  2,444
  2,582
  2,726
  2,877
  3,035
  3,200
  3,372
  3,552
  3,741
  3,939
  4,146
  4,363
  4,590
  4,828
  5,077
  5,339
  5,613
  5,900
  6,202
  6,518
  6,849
  7,197
  7,562
  7,945
  8,347
  8,769
  9,212
  9,676
Revenue / Adjusted assets
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
Average production assets, $m
  995
  1,053
  1,114
  1,177
  1,242
  1,311
  1,383
  1,458
  1,537
  1,619
  1,705
  1,795
  1,889
  1,988
  2,091
  2,200
  2,313
  2,433
  2,557
  2,688
  2,826
  2,970
  3,121
  3,280
  3,446
  3,620
  3,804
  3,996
  4,197
  4,409
Working capital, $m
  -45
  -48
  -51
  -54
  -57
  -60
  -63
  -66
  -70
  -74
  -78
  -82
  -86
  -90
  -95
  -100
  -105
  -111
  -116
  -122
  -129
  -135
  -142
  -149
  -157
  -165
  -173
  -182
  -191
  -201
Total debt, $m
  825
  886
  949
  1,014
  1,083
  1,155
  1,229
  1,308
  1,390
  1,475
  1,565
  1,659
  1,757
  1,860
  1,968
  2,081
  2,199
  2,324
  2,454
  2,590
  2,734
  2,884
  3,041
  3,207
  3,380
  3,562
  3,753
  3,953
  4,163
  4,384
Total liabilities, $m
  1,038
  1,098
  1,161
  1,226
  1,295
  1,367
  1,442
  1,520
  1,602
  1,687
  1,777
  1,871
  1,969
  2,072
  2,180
  2,293
  2,412
  2,536
  2,666
  2,803
  2,946
  3,096
  3,253
  3,419
  3,592
  3,774
  3,965
  4,165
  4,376
  4,596
Total equity, $m
  1,147
  1,213
  1,283
  1,356
  1,431
  1,511
  1,593
  1,680
  1,770
  1,865
  1,964
  2,068
  2,177
  2,290
  2,410
  2,534
  2,665
  2,803
  2,947
  3,098
  3,256
  3,422
  3,596
  3,779
  3,970
  4,171
  4,382
  4,604
  4,836
  5,080
Total liabilities and equity, $m
  2,185
  2,311
  2,444
  2,582
  2,726
  2,878
  3,035
  3,200
  3,372
  3,552
  3,741
  3,939
  4,146
  4,362
  4,590
  4,827
  5,077
  5,339
  5,613
  5,901
  6,202
  6,518
  6,849
  7,198
  7,562
  7,945
  8,347
  8,769
  9,212
  9,676
Debt-to-equity ratio
  0.720
  0.730
  0.740
  0.750
  0.760
  0.760
  0.770
  0.780
  0.780
  0.790
  0.800
  0.800
  0.810
  0.810
  0.820
  0.820
  0.830
  0.830
  0.830
  0.840
  0.840
  0.840
  0.850
  0.850
  0.850
  0.850
  0.860
  0.860
  0.860
  0.860
Adjusted equity ratio
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  105
  124
  143
  164
  185
  207
  230
  255
  281
  308
  463
  493
  524
  557
  592
  628
  667
  707
  749
  794
  840
  890
  941
  996
  1,053
  1,113
  1,176
  1,243
  1,313
  1,387
Depreciation, amort., depletion, $m
  221
  224
  227
  230
  233
  236
  240
  243
  247
  251
  80
  85
  89
  94
  99
  104
  109
  115
  121
  127
  133
  140
  147
  155
  163
  171
  179
  188
  198
  208
Funds from operations, $m
  327
  348
  370
  393
  418
  443
  470
  498
  527
  558
  544
  578
  614
  651
  691
  732
  776
  822
  870
  920
  974
  1,030
  1,088
  1,150
  1,215
  1,284
  1,356
  1,432
  1,511
  1,595
Change in working capital, $m
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
Cash from operations, $m
  329
  351
  373
  396
  421
  446
  473
  501
  531
  562
  548
  582
  618
  656
  695
  737
  781
  827
  875
  926
  980
  1,036
  1,095
  1,158
  1,223
  1,292
  1,364
  1,440
  1,520
  1,604
Maintenance CAPEX, $m
  -44
  -47
  -50
  -53
  -55
  -59
  -62
  -65
  -69
  -72
  -76
  -80
  -85
  -89
  -94
  -99
  -104
  -109
  -115
  -121
  -127
  -133
  -140
  -147
  -155
  -163
  -171
  -179
  -188
  -198
New CAPEX, $m
  -55
  -58
  -60
  -63
  -66
  -69
  -72
  -75
  -79
  -82
  -86
  -90
  -94
  -99
  -103
  -108
  -114
  -119
  -125
  -131
  -137
  -144
  -151
  -159
  -166
  -175
  -183
  -192
  -202
  -212
Cash from investing activities, $m
  -99
  -105
  -110
  -116
  -121
  -128
  -134
  -140
  -148
  -154
  -162
  -170
  -179
  -188
  -197
  -207
  -218
  -228
  -240
  -252
  -264
  -277
  -291
  -306
  -321
  -338
  -354
  -371
  -390
  -410
Free cash flow, $m
  230
  246
  263
  281
  299
  319
  340
  361
  384
  407
  385
  411
  439
  468
  498
  530
  563
  599
  636
  675
  716
  759
  804
  852
  902
  955
  1,010
  1,069
  1,130
  1,195
Issuance/(repayment) of debt, $m
  58
  60
  63
  66
  69
  72
  75
  78
  82
  86
  90
  94
  98
  103
  108
  113
  118
  124
  130
  137
  143
  150
  158
  165
  173
  182
  191
  200
  210
  221
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  
  58
  60
  63
  66
  69
  72
  75
  78
  82
  86
  90
  94
  98
  103
  108
  113
  118
  124
  130
  137
  143
  150
  158
  165
  173
  182
  191
  200
  210
  221
Total cash flow (excl. dividends), $m
  288
  306
  326
  346
  368
  391
  414
  439
  466
  493
  475
  505
  537
  571
  606
  643
  682
  723
  766
  811
  859
  909
  962
  1,017
  1,075
  1,137
  1,201
  1,269
  1,340
  1,415
Retained Cash Flow (-), $m
  -63
  -67
  -70
  -73
  -76
  -79
  -83
  -87
  -90
  -95
  -99
  -104
  -109
  -114
  -119
  -125
  -131
  -137
  -144
  -151
  -158
  -166
  -174
  -183
  -192
  -201
  -211
  -221
  -232
  -244
Prev. year cash balance distribution, $m
  17
  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
  243
  239
  256
  274
  292
  311
  332
  353
  375
  398
  376
  402
  429
  457
  487
  518
  551
  586
  622
  660
  701
  743
  788
  834
  884
  936
  990
  1,048
  1,108
  1,172
Discount rate, %
  5.70
  5.99
  6.28
  6.60
  6.93
  7.27
  7.64
  8.02
  8.42
  8.84
  9.28
  9.75
  10.24
  10.75
  11.29
  11.85
  12.44
  13.06
  13.72
  14.40
  15.12
  15.88
  16.67
  17.51
  18.38
  19.30
  20.27
  21.28
  22.34
  23.46
PV of cash for distribution, $m
  230
  213
  213
  212
  209
  204
  198
  190
  181
  171
  142
  131
  121
  109
  98
  86
  75
  64
  54
  45
  36
  29
  23
  17
  13
  10
  7
  5
  3
  2
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

Cotiviti Holdings, Inc. is a provider of analytics-driven payment accuracy solutions. The Company focuses primarily on the healthcare sector. The Company operates through two segments: Healthcare, and Global Retail and Other. Through its Healthcare segment, the Company offers prospective and retrospective claims accuracy solutions to healthcare payers in the United States. The Company also provides analytics-based solutions unrelated to its healthcare payment accuracy solutions in the United States. Through its Global Retail and Other segment, the Company provides retrospective claims accuracy solutions to retailers primarily in the United States, Canada and the United Kingdom, as well as solutions that manage payment networks for a range of clients. The Company leverages its technology platform, configurable analytics, information assets and expertise in healthcare reimbursement to help its clients develop their claims payment accuracy.

FINANCIAL RATIOS  of  Cotiviti Holdings (COTV)

Valuation Ratios
P/E Ratio 82.9
Price to Sales 6.5
Price to Book 4.3
Price to Tangible Book
Price to Cash Flow 21.5
Price to Free Cash Flow 26.4
Growth Rates
Sales Growth Rate 15.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 52.2%
Cap. Spend. - 3 Yr. Gr. Rate 26%
Financial Strength
Quick Ratio 6
Current Ratio 0.1
LT Debt to Equity 81.2%
Total Debt to Equity 83.1%
Interest Coverage 3
Management Effectiveness
Return On Assets 3.8%
Ret/ On Assets - 3 Yr. Avg. 2%
Return On Total Capital 2.8%
Ret/ On T. Cap. - 3 Yr. Avg. 0.5%
Return On Equity 5.7%
Return On Equity - 3 Yr. Avg. 1%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 59.7%
Gross Margin - 3 Yr. Avg. 60.5%
EBITDA Margin 31%
EBITDA Margin - 3 Yr. Avg. 25.2%
Operating Margin 18.7%
Oper. Margin - 3 Yr. Avg. 12.5%
Pre-Tax Margin 11.2%
Pre-Tax Margin - 3 Yr. Avg. 2.2%
Net Profit Margin 7.8%
Net Profit Margin - 3 Yr. Avg. 1.5%
Effective Tax Rate 30%
Eff/ Tax Rate - 3 Yr. Avg. 41%
Payout Ratio 306.1%

COTV stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the COTV stock intrinsic value calculation we used $678.661 million for the last fiscal year's total revenue generated by Cotiviti Holdings. The default revenue input number comes from 0001 income statement of Cotiviti Holdings. 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 COTV stock valuation model: a) initial revenue growth rate of 5.9% 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 5.7%, whose default value for COTV is calculated based on our internal credit rating of Cotiviti Holdings, 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 Cotiviti Holdings.
    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 COTV stock the variable cost ratio is equal to 46.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $203 million in the base year in the intrinsic value calculation for COTV 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 Cotiviti Holdings.

Corporate tax rate of 27% is the nominal tax rate for Cotiviti Holdings. 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 COTV 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 COTV are equal to 138.5%.

Life of production assets of 21.2 years is the average useful life of capital assets used in Cotiviti Holdings 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 COTV is equal to -6.3%. 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 - $1101.468 million for Cotiviti Holdings - 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 94.038 million for Cotiviti Holdings 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 Cotiviti Holdings at the current share price and the inputted number of shares is $4.2 billion.

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