Intrinsic value of Graham Holdings Company - GHC

Previous Close

$672.17

  Intrinsic Value

$371.99

stock screener

  Rating & Target

sell

-45%

Previous close

$672.17

 
Intrinsic value

$371.99

 
Up/down potential

-45%

 
Rating

sell

We calculate the intrinsic value of GHC 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 3.6

 

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, %
  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
  2,750
  2,813
  2,885
  2,967
  3,057
  3,155
  3,263
  3,379
  3,504
  3,639
  3,783
  3,936
  4,100
  4,273
  4,458
  4,653
  4,860
  5,079
  5,310
  5,554
  5,811
  6,083
  6,369
  6,670
  6,988
  7,322
  7,674
  8,044
  8,434
  8,844
Variable operating expenses, $m
  2,601
  2,657
  2,721
  2,793
  2,872
  2,960
  3,055
  3,158
  3,269
  3,388
  3,349
  3,485
  3,630
  3,784
  3,947
  4,120
  4,303
  4,497
  4,701
  4,917
  5,145
  5,386
  5,639
  5,906
  6,187
  6,483
  6,795
  7,123
  7,468
  7,830
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
  2,601
  2,657
  2,721
  2,793
  2,872
  2,960
  3,055
  3,158
  3,269
  3,388
  3,349
  3,485
  3,630
  3,784
  3,947
  4,120
  4,303
  4,497
  4,701
  4,917
  5,145
  5,386
  5,639
  5,906
  6,187
  6,483
  6,795
  7,123
  7,468
  7,830
Operating income, $m
  149
  156
  165
  174
  184
  196
  208
  221
  236
  251
  433
  451
  470
  490
  511
  533
  557
  582
  608
  636
  666
  697
  730
  764
  801
  839
  879
  922
  966
  1,013
EBITDA, $m
  380
  389
  399
  410
  423
  436
  451
  467
  485
  503
  523
  544
  567
  591
  616
  643
  672
  702
  734
  768
  804
  841
  881
  922
  966
  1,013
  1,061
  1,112
  1,166
  1,223
Interest expense (income), $m
  36
  37
  40
  44
  47
  52
  57
  62
  68
  74
  81
  88
  95
  104
  112
  122
  131
  142
  153
  165
  177
  190
  204
  218
  234
  250
  267
  285
  303
  323
  344
Earnings before tax, $m
  112
  116
  121
  126
  132
  139
  146
  154
  162
  170
  346
  356
  366
  377
  389
  402
  415
  429
  444
  459
  476
  493
  511
  531
  551
  572
  595
  618
  643
  669
Tax expense, $m
  30
  31
  33
  34
  36
  38
  39
  41
  44
  46
  93
  96
  99
  102
  105
  108
  112
  116
  120
  124
  128
  133
  138
  143
  149
  154
  161
  167
  174
  181
Net income, $m
  82
  85
  88
  92
  97
  101
  107
  112
  118
  124
  252
  260
  267
  275
  284
  293
  303
  313
  324
  335
  347
  360
  373
  387
  402
  418
  434
  451
  469
  488

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
  4,859
  4,970
  5,098
  5,241
  5,400
  5,575
  5,765
  5,970
  6,191
  6,429
  6,683
  6,954
  7,243
  7,550
  7,876
  8,221
  8,586
  8,973
  9,381
  9,812
  10,267
  10,746
  11,252
  11,785
  12,346
  12,936
  13,558
  14,213
  14,901
  15,625
Adjusted assets (=assets-cash), $m
  4,859
  4,970
  5,098
  5,241
  5,400
  5,575
  5,765
  5,970
  6,191
  6,429
  6,683
  6,954
  7,243
  7,550
  7,876
  8,221
  8,586
  8,973
  9,381
  9,812
  10,267
  10,746
  11,252
  11,785
  12,346
  12,936
  13,558
  14,213
  14,901
  15,625
Revenue / Adjusted assets
  0.566
  0.566
  0.566
  0.566
  0.566
  0.566
  0.566
  0.566
  0.566
  0.566
  0.566
  0.566
  0.566
  0.566
  0.566
  0.566
  0.566
  0.566
  0.566
  0.566
  0.566
  0.566
  0.566
  0.566
  0.566
  0.566
  0.566
  0.566
  0.566
  0.566
Average production assets, $m
  1,122
  1,148
  1,177
  1,210
  1,247
  1,287
  1,331
  1,379
  1,430
  1,485
  1,543
  1,606
  1,673
  1,744
  1,819
  1,898
  1,983
  2,072
  2,166
  2,266
  2,371
  2,482
  2,598
  2,721
  2,851
  2,987
  3,131
  3,282
  3,441
  3,608
Working capital, $m
  -52
  -53
  -55
  -56
  -58
  -60
  -62
  -64
  -67
  -69
  -72
  -75
  -78
  -81
  -85
  -88
  -92
  -96
  -101
  -106
  -110
  -116
  -121
  -127
  -133
  -139
  -146
  -153
  -160
  -168
Total debt, $m
  515
  558
  608
  664
  725
  793
  867
  946
  1,032
  1,124
  1,223
  1,328
  1,440
  1,559
  1,686
  1,820
  1,961
  2,111
  2,270
  2,437
  2,613
  2,800
  2,996
  3,202
  3,420
  3,649
  3,890
  4,144
  4,411
  4,692
Total liabilities, $m
  1,885
  1,928
  1,978
  2,034
  2,095
  2,163
  2,237
  2,316
  2,402
  2,494
  2,593
  2,698
  2,810
  2,929
  3,056
  3,190
  3,332
  3,481
  3,640
  3,807
  3,984
  4,170
  4,366
  4,572
  4,790
  5,019
  5,261
  5,514
  5,782
  6,062
Total equity, $m
  2,973
  3,042
  3,120
  3,208
  3,305
  3,412
  3,528
  3,654
  3,789
  3,935
  4,090
  4,256
  4,433
  4,621
  4,820
  5,031
  5,255
  5,491
  5,741
  6,005
  6,283
  6,577
  6,886
  7,212
  7,556
  7,917
  8,298
  8,698
  9,119
  9,562
Total liabilities and equity, $m
  4,858
  4,970
  5,098
  5,242
  5,400
  5,575
  5,765
  5,970
  6,191
  6,429
  6,683
  6,954
  7,243
  7,550
  7,876
  8,221
  8,587
  8,972
  9,381
  9,812
  10,267
  10,747
  11,252
  11,784
  12,346
  12,936
  13,559
  14,212
  14,901
  15,624
Debt-to-equity ratio
  0.170
  0.180
  0.190
  0.210
  0.220
  0.230
  0.250
  0.260
  0.270
  0.290
  0.300
  0.310
  0.320
  0.340
  0.350
  0.360
  0.370
  0.380
  0.400
  0.410
  0.420
  0.430
  0.440
  0.440
  0.450
  0.460
  0.470
  0.480
  0.480
  0.490
Adjusted equity ratio
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  82
  85
  88
  92
  97
  101
  107
  112
  118
  124
  252
  260
  267
  275
  284
  293
  303
  313
  324
  335
  347
  360
  373
  387
  402
  418
  434
  451
  469
  488
Depreciation, amort., depletion, $m
  231
  233
  234
  236
  239
  241
  243
  246
  249
  252
  90
  93
  97
  101
  106
  110
  115
  120
  126
  132
  138
  144
  151
  158
  166
  174
  182
  191
  200
  210
Funds from operations, $m
  313
  318
  323
  329
  335
  342
  350
  358
  367
  377
  342
  353
  365
  377
  390
  404
  418
  434
  450
  467
  485
  504
  524
  546
  568
  591
  616
  642
  669
  698
Change in working capital, $m
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
Cash from operations, $m
  314
  319
  324
  330
  337
  344
  352
  360
  370
  379
  345
  356
  368
  380
  393
  407
  422
  438
  454
  472
  490
  509
  530
  551
  574
  598
  623
  649
  677
  706
Maintenance CAPEX, $m
  -64
  -65
  -67
  -68
  -70
  -73
  -75
  -77
  -80
  -83
  -86
  -90
  -93
  -97
  -101
  -106
  -110
  -115
  -120
  -126
  -132
  -138
  -144
  -151
  -158
  -166
  -174
  -182
  -191
  -200
New CAPEX, $m
  -21
  -26
  -29
  -33
  -37
  -40
  -44
  -47
  -51
  -55
  -59
  -63
  -67
  -71
  -75
  -80
  -84
  -89
  -94
  -100
  -105
  -111
  -117
  -123
  -130
  -136
  -144
  -151
  -159
  -167
Cash from investing activities, $m
  -85
  -91
  -96
  -101
  -107
  -113
  -119
  -124
  -131
  -138
  -145
  -153
  -160
  -168
  -176
  -186
  -194
  -204
  -214
  -226
  -237
  -249
  -261
  -274
  -288
  -302
  -318
  -333
  -350
  -367
Free cash flow, $m
  229
  228
  228
  229
  230
  231
  233
  236
  238
  241
  200
  204
  208
  212
  217
  222
  227
  233
  239
  246
  253
  261
  269
  277
  286
  296
  306
  316
  327
  339
Issuance/(repayment) of debt, $m
  38
  43
  50
  56
  62
  68
  74
  80
  86
  92
  99
  105
  112
  119
  126
  134
  142
  150
  158
  167
  176
  186
  196
  207
  218
  229
  241
  254
  267
  281
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  1
  5
  10
  14
  17
  21
  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  
  38
  43
  50
  56
  63
  73
  84
  94
  103
  113
  99
  105
  112
  119
  126
  134
  142
  150
  158
  167
  176
  186
  196
  207
  218
  229
  241
  254
  267
  281
Total cash flow (excl. dividends), $m
  267
  271
  278
  284
  292
  304
  317
  329
  342
  354
  298
  309
  320
  331
  343
  356
  369
  383
  398
  413
  430
  447
  465
  484
  504
  525
  547
  570
  594
  620
Retained Cash Flow (-), $m
  -57
  -68
  -78
  -88
  -97
  -107
  -116
  -126
  -135
  -145
  -156
  -166
  -177
  -188
  -199
  -211
  -224
  -236
  -250
  -264
  -278
  -294
  -309
  -326
  -343
  -362
  -381
  -400
  -421
  -443
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
  210
  203
  199
  197
  195
  198
  200
  203
  206
  209
  143
  143
  143
  143
  144
  145
  145
  147
  148
  150
  151
  153
  155
  158
  160
  163
  166
  169
  173
  177
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
  202
  186
  173
  162
  151
  143
  135
  127
  118
  110
  68
  61
  54
  48
  42
  37
  32
  27
  23
  19
  16
  13
  10
  8
  6
  5
  4
  3
  2
  1
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  99.9
  99.6
  99.3
  98.9
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5

Graham Holdings Company is a diversified education and media company. The Company's operations include educational services; television broadcasting; online, print and local television (TV) news; social-media advertising services; home health and hospice care, and manufacturing. The Company's segments include Kaplan Higher Education (KHE), Kaplan Test Preparation (KTP), Kaplan International, television broadcasting and other businesses. KHE consists of Kaplan University. Kaplan University provides a range of certificate, diploma and degree programs. Kaplan's KHE division consists primarily of Kaplan University. KTP includes test preparation businesses in pre-college, graduate, health and bar review, as well as businesses in new economy skills training and in career advising. Kaplan International (KI) operates businesses in Europe and the Asia Pacific region. Its other businesses include operations of The Slate Group LLC, which publishes online magazine and additional Websites. _tck('aft');

FINANCIAL RATIOS  of  Graham Holdings Company (GHC)

Valuation Ratios
P/E Ratio 21
Price to Sales 1.4
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 15.1
Price to Free Cash Flow 47.8
Growth Rates
Sales Growth Rate 0.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 2.8%
Cap. Spend. - 3 Yr. Gr. Rate -1.7%
Financial Strength
Quick Ratio 364
Current Ratio 0.2
LT Debt to Equity 13.5%
Total Debt to Equity 13.6%
Interest Coverage 9
Management Effectiveness
Return On Assets 4.8%
Ret/ On Assets - 3 Yr. Avg. 3.5%
Return On Total Capital 6.7%
Ret/ On T. Cap. - 3 Yr. Avg. 4.8%
Return On Equity 8%
Return On Equity - 3 Yr. Avg. 5.8%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 55.1%
Gross Margin - 3 Yr. Avg. 55.2%
EBITDA Margin 17.3%
EBITDA Margin - 3 Yr. Avg. 15.8%
Operating Margin 9.9%
Oper. Margin - 3 Yr. Avg. 8.2%
Pre-Tax Margin 8.6%
Pre-Tax Margin - 3 Yr. Avg. 6.8%
Net Profit Margin 6.8%
Net Profit Margin - 3 Yr. Avg. 4.6%
Effective Tax Rate 36.5%
Eff/ Tax Rate - 3 Yr. Avg. 43.7%
Payout Ratio 0.4%

GHC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GHC stock intrinsic value calculation we used $2696 million for the last fiscal year's total revenue generated by Graham Holdings Company. The default revenue input number comes from 0001 income statement of Graham Holdings Company. 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 GHC 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 GHC is calculated based on our internal credit rating of Graham Holdings Company, 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 Graham Holdings Company.
    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 GHC stock the variable cost ratio is equal to 94.7%.

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 GHC 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 7.8% for Graham Holdings Company.

Corporate tax rate of 27% is the nominal tax rate for Graham Holdings Company. 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 GHC 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 GHC are equal to 40.8%.

Life of production assets of 17.2 years is the average useful life of capital assets used in Graham Holdings Company 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 GHC is equal to -1.9%. 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 - $2916.782 million for Graham Holdings Company - 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 5.311 million for Graham Holdings Company 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 Graham Holdings Company at the current share price and the inputted number of shares is $3.6 billion.

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