Intrinsic value of Capella Education - CPLA

Previous Close

$80.50

  Intrinsic Value

$77.85

stock screener

  Rating & Target

hold

-3%

Previous close

$80.50

 
Intrinsic value

$77.85

 
Up/down potential

-3%

 
Rating

hold

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

We calculate the intrinsic value of CPLA 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  2.88
  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
  429
  438
  448
  459
  472
  486
  502
  519
  538
  558
  579
  602
  626
  652
  680
  709
  740
  773
  808
  845
  884
  925
  968
  1,013
  1,061
  1,112
  1,165
  1,221
  1,280
  1,342
  1,407
Variable operating expenses, $m
 
  363
  371
  381
  392
  403
  416
  430
  446
  462
  480
  496
  517
  538
  561
  585
  611
  638
  666
  697
  729
  763
  798
  836
  875
  917
  961
  1,007
  1,056
  1,107
  1,160
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
  361
  363
  371
  381
  392
  403
  416
  430
  446
  462
  480
  496
  517
  538
  561
  585
  611
  638
  666
  697
  729
  763
  798
  836
  875
  917
  961
  1,007
  1,056
  1,107
  1,160
Operating income, $m
  68
  74
  76
  78
  80
  83
  86
  89
  92
  95
  99
  106
  110
  114
  119
  124
  130
  136
  142
  148
  155
  162
  170
  178
  186
  195
  204
  214
  224
  235
  247
EBITDA, $m
  89
  81
  83
  85
  88
  90
  93
  96
  100
  103
  107
  112
  116
  121
  126
  131
  137
  143
  150
  157
  164
  171
  179
  188
  197
  206
  216
  226
  237
  249
  261
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
Earnings before tax, $m
  68
  74
  76
  78
  80
  83
  85
  88
  91
  95
  99
  105
  109
  113
  118
  123
  128
  134
  140
  146
  153
  160
  167
  175
  183
  191
  200
  210
  220
  231
  242
Tax expense, $m
  26
  20
  21
  21
  22
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
  49
  52
  54
  57
  59
  62
  65
Net income, $m
  43
  54
  56
  57
  59
  60
  62
  64
  67
  69
  72
  76
  79
  83
  86
  90
  94
  98
  102
  107
  111
  117
  122
  128
  133
  140
  146
  153
  161
  168
  176

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  139
  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
  277
  141
  144
  148
  152
  156
  161
  167
  173
  179
  186
  194
  201
  210
  219
  228
  238
  249
  260
  272
  284
  297
  311
  326
  341
  358
  375
  393
  412
  432
  453
Adjusted assets (=assets-cash), $m
  138
  141
  144
  148
  152
  156
  161
  167
  173
  179
  186
  194
  201
  210
  219
  228
  238
  249
  260
  272
  284
  297
  311
  326
  341
  358
  375
  393
  412
  432
  453
Revenue / Adjusted assets
  3.109
  3.106
  3.111
  3.101
  3.105
  3.115
  3.118
  3.108
  3.110
  3.117
  3.113
  3.103
  3.114
  3.105
  3.105
  3.110
  3.109
  3.104
  3.108
  3.107
  3.113
  3.114
  3.113
  3.107
  3.111
  3.106
  3.107
  3.107
  3.107
  3.106
  3.106
Average production assets, $m
  22
  22
  22
  23
  24
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  39
  40
  42
  44
  46
  48
  51
  53
  56
  58
  61
  64
  67
  70
Working capital, $m
  125
  -14
  -15
  -15
  -16
  -16
  -17
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -22
  -23
  -24
  -26
  -27
  -28
  -29
  -31
  -32
  -33
  -35
  -37
  -38
  -40
  -42
  -44
  -46
Total debt, $m
  0
  1
  3
  5
  7
  9
  12
  14
  17
  21
  24
  28
  32
  36
  40
  45
  50
  55
  61
  67
  73
  80
  87
  94
  102
  110
  118
  127
  137
  147
  157
Total liabilities, $m
  69
  70
  72
  74
  76
  78
  81
  83
  86
  90
  93
  97
  101
  105
  109
  114
  119
  124
  130
  136
  142
  149
  156
  163
  171
  179
  187
  196
  206
  216
  226
Total equity, $m
  208
  70
  72
  74
  76
  78
  81
  83
  86
  90
  93
  97
  101
  105
  109
  114
  119
  124
  130
  136
  142
  149
  156
  163
  171
  179
  187
  196
  206
  216
  226
Total liabilities and equity, $m
  277
  140
  144
  148
  152
  156
  162
  166
  172
  180
  186
  194
  202
  210
  218
  228
  238
  248
  260
  272
  284
  298
  312
  326
  342
  358
  374
  392
  412
  432
  452
Debt-to-equity ratio
  0.000
  0.020
  0.040
  0.070
  0.090
  0.120
  0.150
  0.170
  0.200
  0.230
  0.260
  0.290
  0.320
  0.340
  0.370
  0.400
  0.420
  0.450
  0.470
  0.490
  0.510
  0.540
  0.560
  0.580
  0.600
  0.610
  0.630
  0.650
  0.660
  0.680
  0.700
Adjusted equity ratio
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  43
  54
  56
  57
  59
  60
  62
  64
  67
  69
  72
  76
  79
  83
  86
  90
  94
  98
  102
  107
  111
  117
  122
  128
  133
  140
  146
  153
  161
  168
  176
Depreciation, amort., depletion, $m
  21
  7
  7
  7
  7
  7
  7
  7
  8
  8
  8
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
Funds from operations, $m
  89
  61
  62
  64
  66
  68
  70
  72
  74
  77
  80
  82
  86
  89
  93
  97
  101
  105
  110
  115
  120
  126
  132
  138
  144
  151
  158
  166
  173
  182
  190
Change in working capital, $m
  7
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
Cash from operations, $m
  82
  61
  63
  64
  66
  68
  70
  73
  75
  78
  81
  83
  87
  90
  94
  98
  102
  107
  111
  116
  122
  127
  133
  139
  146
  153
  160
  167
  175
  184
  193
Maintenance CAPEX, $m
  0
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
New CAPEX, $m
  -21
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
Cash from investing activities, $m
  -39
  -4
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -14
  -14
  -15
  -15
  -16
  -16
Free cash flow, $m
  43
  57
  58
  59
  61
  63
  65
  67
  69
  71
  74
  76
  79
  83
  86
  90
  93
  97
  102
  106
  111
  116
  122
  127
  133
  139
  146
  153
  160
  168
  176
Issuance/(repayment) of debt, $m
  0
  1
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
Issuance/(repurchase) of shares, $m
  -20
  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  
  -19
  1
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
Total cash flow (excl. dividends), $m
  24
  58
  59
  61
  63
  65
  67
  69
  72
  75
  78
  80
  83
  87
  90
  94
  98
  103
  107
  112
  117
  123
  129
  135
  141
  148
  155
  162
  170
  178
  186
Retained Cash Flow (-), $m
  -10
  -1
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
Prev. year cash balance distribution, $m
 
  139
  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
 
  196
  58
  59
  61
  63
  65
  67
  69
  71
  74
  76
  79
  83
  86
  90
  93
  97
  102
  106
  111
  116
  122
  127
  133
  139
  146
  153
  160
  168
  176
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
 
  188
  53
  52
  50
  49
  47
  45
  43
  41
  39
  36
  34
  31
  29
  26
  24
  21
  19
  16
  14
  12
  10
  8
  7
  5
  4
  3
  2
  2
  1
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
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Capella Education Company is an education services company. The Company provides direct path between learning and employment through its online postsecondary education offerings and through programs to develop job-ready skills for demand markets. The company's segments include post-secondary segment and job-ready skills segment. The post-secondary segment has Capella University (the University) and Sophia Learning, LLC (Sophia). The job-ready skills segment has Capella Learning Solutions, LLC (CLS), Hackbright Academy, Inc. (Hackbright) and DevMountain, LLC (DevMountain). The Company's program offers six markets, which include public service leadership; nursing and health sciences; social and behavioral sciences; business and technology; education and undergraduate studies. Capella University offers over 1,940 online courses and approximately 50 academic programs with approximately 150 specializations to approximately 38,000 learners.

FINANCIAL RATIOS  of  Capella Education (CPLA)

Valuation Ratios
P/E Ratio 21.6
Price to Sales 2.2
Price to Book 4.5
Price to Tangible Book
Price to Cash Flow 11.3
Price to Free Cash Flow 15.2
Growth Rates
Sales Growth Rate 2.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 2%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 16.3%
Ret/ On Assets - 3 Yr. Avg. 15.8%
Return On Total Capital 21.2%
Ret/ On T. Cap. - 3 Yr. Avg. 20.6%
Return On Equity 21.2%
Return On Equity - 3 Yr. Avg. 20.6%
Asset Turnover 1.6
Profitability Ratios
Gross Margin 56.6%
Gross Margin - 3 Yr. Avg. 56.4%
EBITDA Margin 20.7%
EBITDA Margin - 3 Yr. Avg. 21.8%
Operating Margin 15.9%
Oper. Margin - 3 Yr. Avg. 16.4%
Pre-Tax Margin 15.9%
Pre-Tax Margin - 3 Yr. Avg. 16.4%
Net Profit Margin 10%
Net Profit Margin - 3 Yr. Avg. 9.6%
Effective Tax Rate 38.2%
Eff/ Tax Rate - 3 Yr. Avg. 37.6%
Payout Ratio 41.9%

CPLA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CPLA stock intrinsic value calculation we used $429 million for the last fiscal year's total revenue generated by Capella Education. The default revenue input number comes from 2016 income statement of Capella 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 CPLA 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 CPLA is calculated based on our internal credit rating of Capella 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 Capella 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 CPLA stock the variable cost ratio is equal to 83%.

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 CPLA 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 Capella Education.

Corporate tax rate of 27% is the nominal tax rate for Capella 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 CPLA 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 CPLA are equal to 5%.

Life of production assets of 1.6 years is the average useful life of capital assets used in Capella 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 CPLA is equal to -3.3%. 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 - $208 million for Capella 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 11.752 million for Capella 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 Capella Education at the current share price and the inputted number of shares is $0.9 billion.

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COMPANY NEWS

▶ [$$] Strayer Education and Capella Education to Merge   [12:31AM  The Wall Street Journal]
▶ Strayer Education buys Capella   [04:03PM  American City Business Journals]
▶ [$$] Strayer Education and Capella Education to Merge   [09:28AM  The Wall Street Journal]
▶ Strayer strikes $1.9B merger deal with Minneapolis online university   [09:23AM  American City Business Journals]
▶ Capella beats 3Q profit forecasts   [06:16AM  Associated Press]
▶ [$$] Strayer Education, Capella Education Near Merger Deal   [Oct-29-17 11:20PM  The Wall Street Journal]
▶ [$$] Strayer Education, Capella Education Near Merger Deal   [09:37PM  The Wall Street Journal]
▶ Capella Education Company Announces Quarterly Cash Dividend   [Aug-03-17 04:10PM  Business Wire]
▶ Capella beats 2Q profit forecasts   [Jul-25-17 04:48PM  Associated Press]
▶ Alice Hill Takes Helm at Hackbright Academy as New CEO   [Jul-07-17 12:00PM  Business Wire]
▶ Capella Education Company Announces Quarterly Cash Dividend   [May-02-17 04:18PM  Business Wire]
▶ Capella beats 1Q profit forecasts   [Apr-25-17 06:50AM  Associated Press]
▶ Company Profile for Capella University   [Feb-17-17 10:40AM  Business Wire]
Financial statements of CPLA
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