Intrinsic value of Emergent Biosolutions - EBS

Previous Close

$49.83

  Intrinsic Value

$35.12

stock screener

  Rating & Target

sell

-30%

Previous close

$49.83

 
Intrinsic value

$35.12

 
Up/down potential

-30%

 
Rating

sell

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

We calculate the intrinsic value of EBS 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, %
  0.00
  4.20
  4.28
  4.35
  4.42
  4.48
  4.53
  4.57
  4.62
  4.66
  4.69
  4.72
  4.75
  4.77
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
  4.96
Revenue, $m
  489
  510
  531
  554
  579
  605
  632
  661
  692
  724
  758
  794
  831
  871
  913
  957
  1,003
  1,052
  1,103
  1,157
  1,213
  1,273
  1,335
  1,401
  1,470
  1,543
  1,619
  1,699
  1,783
  1,872
  1,964
Variable operating expenses, $m
 
  363
  378
  394
  411
  430
  449
  469
  491
  513
  537
  558
  585
  613
  642
  673
  706
  740
  776
  814
  854
  896
  940
  986
  1,034
  1,085
  1,139
  1,195
  1,255
  1,317
  1,382
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
  383
  363
  378
  394
  411
  430
  449
  469
  491
  513
  537
  558
  585
  613
  642
  673
  706
  740
  776
  814
  854
  896
  940
  986
  1,034
  1,085
  1,139
  1,195
  1,255
  1,317
  1,382
Operating income, $m
  106
  147
  153
  160
  167
  175
  183
  192
  201
  210
  221
  235
  246
  258
  271
  284
  297
  312
  327
  343
  360
  377
  396
  415
  436
  457
  480
  504
  528
  555
  582
EBITDA, $m
  144
  187
  195
  203
  212
  222
  232
  243
  254
  266
  278
  291
  305
  320
  335
  351
  368
  386
  405
  424
  445
  467
  490
  514
  539
  566
  594
  623
  654
  687
  721
Interest expense (income), $m
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  21
  22
  23
  24
  26
  27
  29
  30
  32
  34
  35
  37
  39
  41
  44
Earnings before tax, $m
  99
  138
  144
  150
  157
  164
  172
  180
  188
  197
  206
  220
  230
  241
  252
  264
  277
  290
  304
  319
  334
  350
  367
  385
  404
  424
  444
  466
  489
  513
  539
Tax expense, $m
  36
  37
  39
  41
  42
  44
  46
  48
  51
  53
  56
  59
  62
  65
  68
  71
  75
  78
  82
  86
  90
  95
  99
  104
  109
  114
  120
  126
  132
  139
  145
Net income, $m
  52
  101
  105
  110
  115
  120
  125
  131
  137
  144
  150
  160
  168
  176
  184
  193
  202
  212
  222
  233
  244
  256
  268
  281
  295
  309
  324
  340
  357
  375
  393

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  272
  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
  970
  727
  758
  791
  826
  863
  902
  943
  987
  1,033
  1,081
  1,132
  1,186
  1,243
  1,302
  1,365
  1,431
  1,500
  1,573
  1,650
  1,731
  1,816
  1,905
  1,999
  2,097
  2,201
  2,309
  2,424
  2,544
  2,670
  2,802
Adjusted assets (=assets-cash), $m
  698
  727
  758
  791
  826
  863
  902
  943
  987
  1,033
  1,081
  1,132
  1,186
  1,243
  1,302
  1,365
  1,431
  1,500
  1,573
  1,650
  1,731
  1,816
  1,905
  1,999
  2,097
  2,201
  2,309
  2,424
  2,544
  2,670
  2,802
Revenue / Adjusted assets
  0.701
  0.702
  0.701
  0.700
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
Average production assets, $m
  390
  406
  423
  442
  461
  482
  504
  527
  551
  577
  604
  633
  663
  694
  728
  763
  799
  838
  879
  922
  967
  1,014
  1,064
  1,117
  1,172
  1,229
  1,290
  1,354
  1,421
  1,492
  1,566
Working capital, $m
  404
  158
  165
  172
  180
  188
  197
  206
  215
  225
  236
  247
  259
  271
  284
  298
  312
  327
  343
  360
  377
  396
  415
  436
  457
  480
  503
  528
  555
  582
  611
Total debt, $m
  268
  263
  278
  295
  313
  331
  351
  372
  394
  418
  442
  468
  495
  524
  554
  586
  619
  655
  692
  731
  772
  815
  860
  907
  957
  1,010
  1,065
  1,123
  1,184
  1,248
  1,315
Total liabilities, $m
  374
  369
  384
  401
  419
  437
  457
  478
  500
  524
  548
  574
  601
  630
  660
  692
  725
  761
  798
  837
  878
  921
  966
  1,013
  1,063
  1,116
  1,171
  1,229
  1,290
  1,354
  1,421
Total equity, $m
  596
  358
  374
  390
  407
  425
  445
  465
  486
  509
  533
  558
  585
  613
  642
  673
  705
  740
  776
  813
  853
  895
  939
  985
  1,034
  1,085
  1,139
  1,195
  1,254
  1,316
  1,382
Total liabilities and equity, $m
  970
  727
  758
  791
  826
  862
  902
  943
  986
  1,033
  1,081
  1,132
  1,186
  1,243
  1,302
  1,365
  1,430
  1,501
  1,574
  1,650
  1,731
  1,816
  1,905
  1,998
  2,097
  2,201
  2,310
  2,424
  2,544
  2,670
  2,803
Debt-to-equity ratio
  0.450
  0.730
  0.740
  0.760
  0.770
  0.780
  0.790
  0.800
  0.810
  0.820
  0.830
  0.840
  0.850
  0.860
  0.860
  0.870
  0.880
  0.890
  0.890
  0.900
  0.900
  0.910
  0.920
  0.920
  0.930
  0.930
  0.940
  0.940
  0.940
  0.950
  0.950
Adjusted equity ratio
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  52
  101
  105
  110
  115
  120
  125
  131
  137
  144
  150
  160
  168
  176
  184
  193
  202
  212
  222
  233
  244
  256
  268
  281
  295
  309
  324
  340
  357
  375
  393
Depreciation, amort., depletion, $m
  38
  40
  42
  43
  45
  47
  49
  51
  53
  55
  58
  56
  59
  61
  64
  67
  71
  74
  78
  82
  86
  90
  94
  99
  104
  109
  114
  120
  126
  132
  139
Funds from operations, $m
  8
  141
  147
  153
  160
  167
  174
  182
  190
  199
  208
  216
  227
  237
  248
  260
  273
  286
  300
  314
  329
  345
  362
  380
  399
  418
  439
  460
  483
  507
  532
Change in working capital, $m
  -45
  6
  7
  7
  8
  8
  9
  9
  9
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  18
  19
  20
  21
  23
  24
  25
  26
  27
  29
Cash from operations, $m
  53
  135
  140
  146
  152
  159
  166
  173
  181
  189
  197
  205
  215
  225
  235
  247
  258
  271
  284
  297
  312
  327
  343
  360
  377
  396
  415
  435
  457
  479
  503
Maintenance CAPEX, $m
  0
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -53
  -56
  -59
  -61
  -64
  -67
  -71
  -74
  -78
  -82
  -86
  -90
  -94
  -99
  -104
  -109
  -114
  -120
  -126
  -132
New CAPEX, $m
  -76
  -17
  -17
  -18
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -50
  -52
  -55
  -58
  -61
  -64
  -67
  -70
  -74
Cash from investing activities, $m
  -76
  -51
  -53
  -55
  -59
  -62
  -65
  -68
  -71
  -75
  -78
  -82
  -86
  -91
  -94
  -99
  -104
  -110
  -115
  -121
  -127
  -133
  -140
  -146
  -154
  -162
  -170
  -178
  -187
  -196
  -206
Free cash flow, $m
  -23
  83
  87
  90
  93
  97
  101
  105
  110
  114
  119
  123
  129
  135
  141
  147
  154
  161
  169
  177
  185
  194
  203
  213
  223
  234
  245
  257
  270
  283
  297
Issuance/(repayment) of debt, $m
  0
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  30
  32
  33
  35
  37
  39
  41
  43
  45
  48
  50
  52
  55
  58
  61
  64
  67
Issuance/(repurchase) of shares, $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
  0
Cash from financing (excl. dividends), $m  
  -19
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  30
  32
  33
  35
  37
  39
  41
  43
  45
  48
  50
  52
  55
  58
  61
  64
  67
Total cash flow (excl. dividends), $m
  -41
  98
  103
  107
  111
  116
  121
  126
  132
  138
  144
  149
  156
  163
  171
  179
  188
  196
  206
  216
  226
  237
  248
  261
  273
  287
  301
  315
  331
  347
  364
Retained Cash Flow (-), $m
  64
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -49
  -51
  -54
  -56
  -59
  -62
  -65
Prev. year cash balance distribution, $m
 
  252
  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
 
  336
  87
  90
  94
  98
  102
  106
  110
  115
  120
  124
  130
  135
  142
  148
  155
  162
  170
  178
  186
  195
  204
  214
  225
  235
  247
  259
  271
  285
  299
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
 
  322
  80
  79
  77
  76
  74
  71
  69
  66
  63
  59
  55
  51
  48
  43
  39
  35
  31
  27
  24
  20
  17
  14
  11
  9
  7
  6
  4
  3
  2
Current shareholders' claim on cash, %
  100
  100.0
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Emergent BioSolutions Inc. is a life sciences company. The Company focuses on protecting and enhancing life by providing specialty products for civilian and military populations that address accidental, intentional and naturally emerging public health threats. It focuses on developing, manufacturing and commercializing medical countermeasures that address public health threats (PHTs). The PHTs operates through two categories: Chemical, Biological, Radiological and Nuclear, as well as explosive-related threats and emerging infectious diseases. It operates through four business units: Vaccines and Anti-infectives; Antibody Therapeutics; Devices, and Contract Manufacturing. Vaccines and Anti-infectives business unit consists of BioThrax, which is for the general use prophylaxis and post-exposure prophylaxis of anthrax disease. Devices business unit consists of marketed products, such as Reactive Skin Decontamination Lotion Kit (RSDL) and Trobigard (atropine sulfate, obidoxime chloride).

FINANCIAL RATIOS  of  Emergent Biosolutions (EBS)

Valuation Ratios
P/E Ratio 38.9
Price to Sales 4.1
Price to Book 3.4
Price to Tangible Book
Price to Cash Flow 38.1
Price to Free Cash Flow -87.9
Growth Rates
Sales Growth Rate 0%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 68.9%
Cap. Spend. - 3 Yr. Gr. Rate 12.6%
Financial Strength
Quick Ratio 14
Current Ratio 0
LT Debt to Equity 41.6%
Total Debt to Equity 45%
Interest Coverage 13
Management Effectiveness
Return On Assets 5.7%
Ret/ On Assets - 3 Yr. Avg. 5.9%
Return On Total Capital 5.9%
Ret/ On T. Cap. - 3 Yr. Avg. 6.2%
Return On Equity 8.3%
Return On Equity - 3 Yr. Avg. 8.6%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 73.2%
Gross Margin - 3 Yr. Avg. 75.4%
EBITDA Margin 29.7%
EBITDA Margin - 3 Yr. Avg. 32%
Operating Margin 21.7%
Oper. Margin - 3 Yr. Avg. 24.2%
Pre-Tax Margin 20.2%
Pre-Tax Margin - 3 Yr. Avg. 22.9%
Net Profit Margin 10.6%
Net Profit Margin - 3 Yr. Avg. 10.9%
Effective Tax Rate 36.4%
Eff/ Tax Rate - 3 Yr. Avg. 35.1%
Payout Ratio 0%

EBS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the EBS stock intrinsic value calculation we used $489 million for the last fiscal year's total revenue generated by Emergent Biosolutions. The default revenue input number comes from 2016 income statement of Emergent Biosolutions. 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 EBS stock valuation model: a) initial revenue growth rate of 4.2% 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 EBS is calculated based on our internal credit rating of Emergent Biosolutions, 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 Emergent Biosolutions.
    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 EBS stock the variable cost ratio is equal to 71.2%.

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 EBS 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 Emergent Biosolutions.

Corporate tax rate of 27% is the nominal tax rate for Emergent Biosolutions. 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 EBS 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 EBS are equal to 79.7%.

Life of production assets of 11.3 years is the average useful life of capital assets used in Emergent Biosolutions 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 EBS is equal to 31.1%. 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 - $596 million for Emergent Biosolutions - 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 42.393 million for Emergent Biosolutions 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 Emergent Biosolutions at the current share price and the inputted number of shares is $2.1 billion.

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Financial statements of EBS
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