Intrinsic value of Genomic Health - GHDX

Previous Close

$53.74

  Intrinsic Value

$11.90

stock screener

  Rating & Target

str. sell

-78%

Previous close

$53.74

 
Intrinsic value

$11.90

 
Up/down potential

-78%

 
Rating

str. sell

We calculate the intrinsic value of GHDX 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 2017), $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 1.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  3.90
  4.01
  4.11
  4.20
  4.28
  4.35
  4.42
  4.47
  4.53
  4.57
  4.62
  4.65
  4.69
  4.72
  4.75
  4.77
  4.80
  4.82
  4.83
  4.85
  4.87
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
Revenue, $m
  354
  369
  384
  400
  417
  435
  454
  475
  496
  519
  543
  568
  595
  623
  652
  683
  716
  751
  787
  825
  865
  907
  952
  998
  1,047
  1,099
  1,153
  1,210
  1,270
  1,333
Variable operating expenses, $m
  107
  111
  116
  121
  126
  131
  137
  143
  150
  157
  164
  172
  180
  188
  197
  206
  216
  227
  238
  249
  261
  274
  287
  302
  316
  332
  348
  365
  384
  402
Fixed operating expenses, $m
  254
  260
  266
  272
  278
  284
  290
  296
  303
  310
  316
  323
  330
  338
  345
  353
  360
  368
  377
  385
  393
  402
  411
  420
  429
  438
  448
  458
  468
  478
Total operating expenses, $m
  361
  371
  382
  393
  404
  415
  427
  439
  453
  467
  480
  495
  510
  526
  542
  559
  576
  595
  615
  634
  654
  676
  698
  722
  745
  770
  796
  823
  852
  880
Operating income, $m
  -7
  -3
  2
  7
  13
  20
  27
  35
  43
  53
  62
  73
  85
  97
  110
  124
  139
  155
  173
  191
  211
  231
  254
  277
  302
  329
  357
  387
  418
  452
EBITDA, $m
  -2
  2
  7
  13
  19
  26
  33
  41
  50
  60
  70
  81
  93
  105
  119
  133
  149
  166
  183
  202
  222
  244
  266
  291
  316
  343
  372
  403
  435
  470
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  6
  6
  6
Earnings before tax, $m
  -7
  -3
  2
  7
  13
  19
  26
  34
  42
  51
  61
  72
  83
  95
  108
  122
  137
  153
  170
  188
  207
  228
  250
  273
  298
  324
  352
  381
  412
  446
Tax expense, $m
  0
  0
  0
  2
  3
  5
  7
  9
  11
  14
  17
  19
  22
  26
  29
  33
  37
  41
  46
  51
  56
  62
  67
  74
  80
  87
  95
  103
  111
  120
Net income, $m
  -7
  -3
  1
  5
  9
  14
  19
  25
  31
  38
  45
  52
  61
  69
  79
  89
  100
  112
  124
  137
  151
  166
  182
  199
  217
  236
  257
  278
  301
  325

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
  147
  153
  159
  166
  173
  181
  189
  197
  206
  215
  225
  236
  247
  259
  271
  284
  297
  312
  327
  343
  359
  377
  395
  415
  435
  457
  479
  503
  528
  554
Adjusted assets (=assets-cash), $m
  147
  153
  159
  166
  173
  181
  189
  197
  206
  215
  225
  236
  247
  259
  271
  284
  297
  312
  327
  343
  359
  377
  395
  415
  435
  457
  479
  503
  528
  554
Revenue / Adjusted assets
  2.408
  2.412
  2.415
  2.410
  2.410
  2.403
  2.402
  2.411
  2.408
  2.414
  2.413
  2.407
  2.409
  2.405
  2.406
  2.405
  2.411
  2.407
  2.407
  2.405
  2.409
  2.406
  2.410
  2.405
  2.407
  2.405
  2.407
  2.406
  2.405
  2.406
Average production assets, $m
  48
  50
  52
  54
  56
  59
  61
  64
  67
  70
  73
  77
  80
  84
  88
  92
  97
  101
  106
  111
  117
  122
  128
  135
  141
  148
  156
  163
  171
  180
Working capital, $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 debt, $m
  1
  3
  5
  7
  9
  12
  14
  17
  19
  22
  25
  29
  32
  36
  39
  43
  47
  52
  56
  61
  66
  72
  77
  83
  90
  96
  103
  110
  118
  126
Total liabilities, $m
  45
  47
  49
  51
  53
  55
  58
  60
  63
  66
  69
  72
  76
  79
  83
  87
  91
  95
  100
  105
  110
  115
  121
  127
  133
  140
  147
  154
  161
  169
Total equity, $m
  102
  106
  111
  115
  120
  125
  131
  137
  143
  150
  156
  164
  171
  180
  188
  197
  206
  216
  227
  238
  249
  262
  274
  288
  302
  317
  332
  349
  366
  384
Total liabilities and equity, $m
  147
  153
  160
  166
  173
  180
  189
  197
  206
  216
  225
  236
  247
  259
  271
  284
  297
  311
  327
  343
  359
  377
  395
  415
  435
  457
  479
  503
  527
  553
Debt-to-equity ratio
  0.010
  0.030
  0.050
  0.060
  0.080
  0.090
  0.110
  0.120
  0.140
  0.150
  0.160
  0.170
  0.190
  0.200
  0.210
  0.220
  0.230
  0.240
  0.250
  0.260
  0.270
  0.270
  0.280
  0.290
  0.300
  0.300
  0.310
  0.320
  0.320
  0.330
Adjusted equity ratio
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -7
  -3
  1
  5
  9
  14
  19
  25
  31
  38
  45
  52
  61
  69
  79
  89
  100
  112
  124
  137
  151
  166
  182
  199
  217
  236
  257
  278
  301
  325
Depreciation, amort., depletion, $m
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  16
  16
  17
  18
Funds from operations, $m
  -2
  2
  7
  11
  15
  20
  25
  31
  38
  45
  52
  60
  69
  78
  88
  98
  110
  122
  135
  148
  163
  179
  195
  213
  231
  251
  272
  295
  318
  343
Change in working capital, $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 operations, $m
  -2
  2
  7
  11
  15
  20
  25
  31
  38
  45
  52
  60
  69
  78
  88
  98
  110
  122
  135
  148
  163
  179
  195
  213
  231
  251
  272
  295
  318
  343
Maintenance CAPEX, $m
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
New CAPEX, $m
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
Cash from investing activities, $m
  -7
  -7
  -7
  -7
  -7
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -12
  -12
  -12
  -13
  -13
  -15
  -15
  -16
  -16
  -18
  -18
  -19
  -20
  -21
  -22
  -24
  -24
  -25
Free cash flow, $m
  -9
  -5
  -1
  3
  7
  12
  17
  22
  28
  35
  42
  49
  57
  66
  75
  85
  96
  107
  120
  133
  146
  161
  177
  194
  211
  230
  250
  271
  294
  318
Issuance/(repayment) of debt, $m
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
Issuance/(repurchase) of shares, $m
  11
  7
  3
  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  
  12
  9
  5
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
Total cash flow (excl. dividends), $m
  4
  4
  4
  5
  10
  14
  19
  25
  31
  38
  45
  52
  61
  70
  79
  89
  100
  112
  124
  137
  152
  167
  183
  199
  218
  237
  257
  279
  301
  326
Retained Cash Flow (-), $m
  -11
  -7
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
Prev. year cash balance distribution, $m
  90
  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
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
  63
  66
  69
  73
  76
Cash available for distribution, $m
  83
  -3
  0
  1
  5
  9
  14
  19
  25
  31
  38
  45
  53
  62
  71
  80
  91
  102
  114
  126
  140
  154
  170
  186
  203
  222
  241
  262
  284
  307
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
  79
  -3
  0
  1
  4
  7
  9
  12
  14
  16
  18
  19
  20
  21
  21
  20
  20
  19
  18
  16
  14
  13
  11
  9
  8
  6
  5
  4
  3
  2
Current shareholders' claim on cash, %
  98.8
  98.1
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8

Genomic Health, Inc. is a healthcare company that provides genomic-based diagnostic tests to personalize cancer treatment. The Company develops and commercializes genomic-based clinical laboratory services. The Company's Oncotype IQ Genomic Intelligence Platform is consisted of its flagship line of Oncotype DX gene expression tests, as well as its Oncotype SEQ Liquid Select test. Its research and development activities are focused on developing a pipeline of tests to optimize the treatment of various cancers including breast, colon, prostate and other cancers. It offers its Oncotype DX tests as a clinical laboratory service, where it analyzes the expression levels of genes in tumor tissue samples and provides physicians with a quantitative gene expression profile expressed as a single quantitative score, which it calls a Recurrence Score for invasive breast cancer and colon cancer, a DCIS Score for ductal carcinoma in situ (DCIS), and a Genomic Prostate Score, for prostate cancer.

FINANCIAL RATIOS  of  Genomic Health (GHDX)

Valuation Ratios
P/E Ratio -129.9
Price to Sales 5.5
Price to Book 11.7
Price to Tangible Book
Price to Cash Flow 139.8
Price to Free Cash Flow -259.7
Growth Rates
Sales Growth Rate 14.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -13%
Cap. Spend. - 3 Yr. Gr. Rate 12.7%
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 -7.3%
Ret/ On Assets - 3 Yr. Avg. -12.9%
Return On Total Capital -9.5%
Ret/ On T. Cap. - 3 Yr. Avg. -16.6%
Return On Equity -9.5%
Return On Equity - 3 Yr. Avg. -16.6%
Asset Turnover 1.7
Profitability Ratios
Gross Margin 82.6%
Gross Margin - 3 Yr. Avg. 82.1%
EBITDA Margin -1.2%
EBITDA Margin - 3 Yr. Avg. -5.6%
Operating Margin -4.6%
Oper. Margin - 3 Yr. Avg. -8.3%
Pre-Tax Margin -4%
Pre-Tax Margin - 3 Yr. Avg. -8.2%
Net Profit Margin -4.3%
Net Profit Margin - 3 Yr. Avg. -8.3%
Effective Tax Rate -7.7%
Eff/ Tax Rate - 3 Yr. Avg. -3%
Payout Ratio 0%

GHDX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GHDX stock intrinsic value calculation we used $341 million for the last fiscal year's total revenue generated by Genomic Health. The default revenue input number comes from 2017 income statement of Genomic Health. 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 GHDX stock valuation model: a) initial revenue growth rate of 3.9% 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 4.3%, whose default value for GHDX is calculated based on our internal credit rating of Genomic Health, 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 Genomic Health.
    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 GHDX stock the variable cost ratio is equal to 30.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $249 million in the base year in the intrinsic value calculation for GHDX 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 Genomic Health.

Corporate tax rate of 27% is the nominal tax rate for Genomic Health. 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 GHDX stock is equal to 6%.

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 GHDX are equal to 13.5%.

Life of production assets of 10 years is the average useful life of capital assets used in Genomic Health 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 GHDX is equal to 0%. 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 - $188 million for Genomic Health - 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 34 million for Genomic Health 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 Genomic Health at the current share price and the inputted number of shares is $1.8 billion.

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COMPANY NEWS

▶ Genomic Health Starts Its Marathon   [Aug-08-18 04:23PM  Motley Fool]
▶ Genomic Health: 2Q Earnings Snapshot   [06:43PM  Associated Press]
▶ Top Stock Picks for the Week of July 9th   [Jul-10-18 01:16PM  Zacks]
▶ Company News For Jun 5, 2018   [Jun-05-18 09:46AM  Zacks]
▶ [$$] Breast cancer study set to free women from chemotherapy   [Jun-03-18 07:56AM  Financial Times]
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