Intrinsic value of The Ensign Group, Inc. - ENSG

Previous Close

$49.13

  Intrinsic Value

$68.22

stock screener

  Rating & Target

buy

+39%

Previous close

$49.13

 
Intrinsic value

$68.22

 
Up/down potential

+39%

 
Rating

buy

We calculate the intrinsic value of ENSG 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 2.6

 

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, %
  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
  2,251
  2,471
  2,701
  2,940
  3,189
  3,449
  3,718
  3,998
  4,290
  4,592
  4,907
  5,234
  5,574
  5,927
  6,296
  6,679
  7,079
  7,495
  7,930
  8,383
  8,856
  9,350
  9,866
  10,406
  10,970
  11,561
  12,178
  12,825
  13,502
  14,210
Variable operating expenses, $m
  1,691
  1,855
  2,027
  2,205
  2,391
  2,584
  2,785
  2,994
  3,210
  3,436
  3,656
  3,900
  4,153
  4,417
  4,691
  4,977
  5,275
  5,585
  5,909
  6,247
  6,599
  6,968
  7,352
  7,755
  8,175
  8,615
  9,075
  9,557
  10,061
  10,589
Fixed operating expenses, $m
  393
  402
  411
  420
  429
  439
  448
  458
  468
  479
  489
  500
  511
  522
  534
  545
  557
  570
  582
  595
  608
  621
  635
  649
  663
  678
  693
  708
  724
  740
Total operating expenses, $m
  2,084
  2,257
  2,438
  2,625
  2,820
  3,023
  3,233
  3,452
  3,678
  3,915
  4,145
  4,400
  4,664
  4,939
  5,225
  5,522
  5,832
  6,155
  6,491
  6,842
  7,207
  7,589
  7,987
  8,404
  8,838
  9,293
  9,768
  10,265
  10,785
  11,329
Operating income, $m
  166
  214
  263
  315
  370
  426
  485
  547
  611
  678
  761
  834
  909
  988
  1,071
  1,157
  1,246
  1,340
  1,438
  1,541
  1,649
  1,761
  1,879
  2,003
  2,132
  2,268
  2,410
  2,560
  2,717
  2,881
EBITDA, $m
  227
  279
  334
  391
  450
  512
  577
  645
  715
  788
  864
  944
  1,026
  1,113
  1,203
  1,297
  1,395
  1,498
  1,605
  1,717
  1,834
  1,957
  2,086
  2,221
  2,362
  2,511
  2,666
  2,829
  3,000
  3,180
Interest expense (income), $m
  6
  13
  17
  20
  24
  28
  32
  36
  40
  45
  49
  54
  59
  64
  70
  75
  81
  87
  94
  100
  107
  114
  122
  130
  138
  147
  156
  165
  175
  185
  196
Earnings before tax, $m
  153
  197
  243
  291
  342
  395
  449
  507
  566
  628
  707
  775
  845
  919
  995
  1,075
  1,159
  1,247
  1,338
  1,434
  1,534
  1,639
  1,749
  1,865
  1,985
  2,112
  2,245
  2,385
  2,532
  2,685
Tax expense, $m
  41
  53
  66
  79
  92
  107
  121
  137
  153
  170
  191
  209
  228
  248
  269
  290
  313
  337
  361
  387
  414
  443
  472
  503
  536
  570
  606
  644
  684
  725
Net income, $m
  112
  144
  177
  213
  250
  288
  328
  370
  413
  459
  516
  566
  617
  671
  727
  785
  846
  910
  977
  1,047
  1,120
  1,197
  1,277
  1,361
  1,449
  1,542
  1,639
  1,741
  1,848
  1,960

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
  1,304
  1,431
  1,564
  1,702
  1,847
  1,997
  2,153
  2,315
  2,484
  2,659
  2,841
  3,030
  3,227
  3,432
  3,645
  3,867
  4,099
  4,340
  4,592
  4,854
  5,128
  5,414
  5,713
  6,026
  6,352
  6,694
  7,052
  7,426
  7,818
  8,228
Adjusted assets (=assets-cash), $m
  1,304
  1,431
  1,564
  1,702
  1,847
  1,997
  2,153
  2,315
  2,484
  2,659
  2,841
  3,030
  3,227
  3,432
  3,645
  3,867
  4,099
  4,340
  4,592
  4,854
  5,128
  5,414
  5,713
  6,026
  6,352
  6,694
  7,052
  7,426
  7,818
  8,228
Revenue / Adjusted assets
  1.726
  1.727
  1.727
  1.727
  1.727
  1.727
  1.727
  1.727
  1.727
  1.727
  1.727
  1.727
  1.727
  1.727
  1.727
  1.727
  1.727
  1.727
  1.727
  1.727
  1.727
  1.727
  1.727
  1.727
  1.727
  1.727
  1.727
  1.727
  1.727
  1.727
Average production assets, $m
  714
  783
  856
  932
  1,011
  1,093
  1,179
  1,268
  1,360
  1,456
  1,555
  1,659
  1,767
  1,879
  1,996
  2,117
  2,244
  2,376
  2,514
  2,657
  2,807
  2,964
  3,128
  3,299
  3,478
  3,665
  3,861
  4,065
  4,280
  4,505
Working capital, $m
  54
  59
  65
  71
  77
  83
  89
  96
  103
  110
  118
  126
  134
  142
  151
  160
  170
  180
  190
  201
  213
  224
  237
  250
  263
  277
  292
  308
  324
  341
Total debt, $m
  304
  368
  434
  503
  576
  651
  729
  810
  894
  982
  1,073
  1,167
  1,266
  1,368
  1,475
  1,586
  1,702
  1,822
  1,948
  2,079
  2,216
  2,359
  2,509
  2,665
  2,828
  2,999
  3,178
  3,365
  3,561
  3,766
Total liabilities, $m
  652
  715
  782
  851
  923
  998
  1,077
  1,158
  1,242
  1,330
  1,421
  1,515
  1,614
  1,716
  1,823
  1,934
  2,049
  2,170
  2,296
  2,427
  2,564
  2,707
  2,857
  3,013
  3,176
  3,347
  3,526
  3,713
  3,909
  4,114
Total equity, $m
  652
  715
  782
  851
  923
  998
  1,077
  1,158
  1,242
  1,330
  1,421
  1,515
  1,614
  1,716
  1,823
  1,934
  2,049
  2,170
  2,296
  2,427
  2,564
  2,707
  2,857
  3,013
  3,176
  3,347
  3,526
  3,713
  3,909
  4,114
Total liabilities and equity, $m
  1,304
  1,430
  1,564
  1,702
  1,846
  1,996
  2,154
  2,316
  2,484
  2,660
  2,842
  3,030
  3,228
  3,432
  3,646
  3,868
  4,098
  4,340
  4,592
  4,854
  5,128
  5,414
  5,714
  6,026
  6,352
  6,694
  7,052
  7,426
  7,818
  8,228
Debt-to-equity ratio
  0.470
  0.510
  0.560
  0.590
  0.620
  0.650
  0.680
  0.700
  0.720
  0.740
  0.760
  0.770
  0.780
  0.800
  0.810
  0.820
  0.830
  0.840
  0.850
  0.860
  0.860
  0.870
  0.880
  0.880
  0.890
  0.900
  0.900
  0.910
  0.910
  0.920
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

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  112
  144
  177
  213
  250
  288
  328
  370
  413
  459
  516
  566
  617
  671
  727
  785
  846
  910
  977
  1,047
  1,120
  1,197
  1,277
  1,361
  1,449
  1,542
  1,639
  1,741
  1,848
  1,960
Depreciation, amort., depletion, $m
  61
  66
  71
  76
  81
  86
  92
  98
  104
  110
  103
  110
  117
  124
  132
  140
  149
  157
  166
  176
  186
  196
  207
  218
  230
  243
  256
  269
  283
  298
Funds from operations, $m
  173
  210
  248
  288
  330
  374
  420
  468
  517
  569
  619
  675
  734
  795
  859
  925
  995
  1,067
  1,143
  1,223
  1,306
  1,393
  1,484
  1,580
  1,680
  1,785
  1,895
  2,010
  2,132
  2,259
Change in working capital, $m
  5
  5
  6
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
Cash from operations, $m
  168
  204
  243
  283
  324
  368
  414
  461
  510
  562
  612
  668
  726
  787
  850
  916
  985
  1,057
  1,133
  1,212
  1,295
  1,381
  1,472
  1,567
  1,666
  1,771
  1,880
  1,995
  2,115
  2,242
Maintenance CAPEX, $m
  -43
  -47
  -52
  -57
  -62
  -67
  -72
  -78
  -84
  -90
  -96
  -103
  -110
  -117
  -124
  -132
  -140
  -149
  -157
  -166
  -176
  -186
  -196
  -207
  -218
  -230
  -243
  -256
  -269
  -283
New CAPEX, $m
  -66
  -70
  -73
  -76
  -79
  -82
  -85
  -89
  -92
  -96
  -100
  -104
  -108
  -112
  -117
  -122
  -127
  -132
  -138
  -144
  -150
  -157
  -164
  -171
  -179
  -187
  -196
  -205
  -215
  -225
Cash from investing activities, $m
  -109
  -117
  -125
  -133
  -141
  -149
  -157
  -167
  -176
  -186
  -196
  -207
  -218
  -229
  -241
  -254
  -267
  -281
  -295
  -310
  -326
  -343
  -360
  -378
  -397
  -417
  -439
  -461
  -484
  -508
Free cash flow, $m
  59
  87
  118
  150
  184
  219
  256
  294
  334
  376
  416
  461
  508
  557
  609
  662
  718
  777
  838
  902
  969
  1,038
  1,112
  1,188
  1,269
  1,353
  1,441
  1,534
  1,631
  1,734
Issuance/(repayment) of debt, $m
  61
  64
  66
  69
  72
  75
  78
  81
  84
  88
  91
  95
  98
  102
  107
  111
  116
  121
  126
  131
  137
  143
  149
  156
  163
  171
  179
  187
  196
  205
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  
  61
  64
  66
  69
  72
  75
  78
  81
  84
  88
  91
  95
  98
  102
  107
  111
  116
  121
  126
  131
  137
  143
  149
  156
  163
  171
  179
  187
  196
  205
Total cash flow (excl. dividends), $m
  119
  151
  184
  219
  256
  294
  334
  375
  418
  463
  507
  556
  607
  660
  715
  773
  834
  897
  964
  1,033
  1,106
  1,182
  1,261
  1,345
  1,432
  1,524
  1,620
  1,721
  1,827
  1,939
Retained Cash Flow (-), $m
  -61
  -64
  -66
  -69
  -72
  -75
  -78
  -81
  -84
  -88
  -91
  -95
  -98
  -102
  -107
  -111
  -116
  -121
  -126
  -131
  -137
  -143
  -149
  -156
  -163
  -171
  -179
  -187
  -196
  -205
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
  59
  87
  118
  150
  184
  219
  256
  294
  334
  376
  416
  461
  508
  557
  609
  662
  718
  777
  838
  902
  969
  1,038
  1,112
  1,188
  1,269
  1,353
  1,441
  1,534
  1,631
  1,734
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
  56
  80
  103
  124
  142
  159
  173
  184
  192
  197
  197
  197
  193
  187
  179
  168
  156
  143
  129
  115
  100
  86
  73
  61
  49
  39
  31
  24
  18
  13
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

The Ensign Group, Inc., through its operating subsidiaries, provides healthcare services across the post-acute care continuum, as well as other ancillary businesses located in Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, Oregon, South Carolina, Texas, Utah, Washington and Wisconsin. The Company's subsidiaries provide skilled nursing, assisted living, home health and hospice, and other ancillary services. Its segments include transitional and skilled services segment, which includes the operation of skilled nursing facilities; assisted and independent living services segment, which includes the operation of assisted and independent living facilities; home health and hospice services segment, which includes its home health, home care and hospice businesses, and all other segment, which includes mobile diagnostics and other ancillary operations. As of July10, 2017, it operated in 226 healthcare facilities.

FINANCIAL RATIOS  of  The Ensign Group, Inc. (ENSG)

Valuation Ratios
P/E Ratio 50.4
Price to Sales 1.5
Price to Book 5.5
Price to Tangible Book
Price to Cash Flow 34
Price to Free Cash Flow -22.3
Growth Rates
Sales Growth Rate 23.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 139.7%
Cap. Spend. - 3 Yr. Gr. Rate 44.2%
Financial Strength
Quick Ratio 9
Current Ratio 0
LT Debt to Equity 60.5%
Total Debt to Equity 62.3%
Interest Coverage 15
Management Effectiveness
Return On Assets 6.1%
Ret/ On Assets - 3 Yr. Avg. 7.4%
Return On Total Capital 7.9%
Ret/ On T. Cap. - 3 Yr. Avg. 9.5%
Return On Equity 11.3%
Return On Equity - 3 Yr. Avg. 13%
Asset Turnover 1.9
Profitability Ratios
Gross Margin 11.4%
Gross Margin - 3 Yr. Avg. 13.4%
EBITDA Margin 7.9%
EBITDA Margin - 3 Yr. Avg. 8.9%
Operating Margin 5.6%
Oper. Margin - 3 Yr. Avg. 6.5%
Pre-Tax Margin 5.2%
Pre-Tax Margin - 3 Yr. Avg. 6%
Net Profit Margin 3%
Net Profit Margin - 3 Yr. Avg. 3.5%
Effective Tax Rate 38.4%
Eff/ Tax Rate - 3 Yr. Avg. 40.4%
Payout Ratio 16%

ENSG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ENSG stock intrinsic value calculation we used $2041 million for the last fiscal year's total revenue generated by The Ensign Group, Inc.. The default revenue input number comes from 0001 income statement of The Ensign Group, 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 ENSG 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 ENSG is calculated based on our internal credit rating of The Ensign Group, 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 The Ensign Group, 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 ENSG stock the variable cost ratio is equal to 75.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $385 million in the base year in the intrinsic value calculation for ENSG 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 5.5% for The Ensign Group, Inc..

Corporate tax rate of 27% is the nominal tax rate for The Ensign Group, 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 ENSG 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 ENSG are equal to 31.7%.

Life of production assets of 15.1 years is the average useful life of capital assets used in The Ensign Group, 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 ENSG is equal to 2.4%. 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 - $590.935 million for The Ensign Group, 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 52.705 million for The Ensign Group, 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 The Ensign Group, Inc. at the current share price and the inputted number of shares is $2.6 billion.

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