Intrinsic value of Genomic Health - GHDX

Previous Close

$75.76

  Intrinsic Value

$51.74

stock screener

  Rating & Target

sell

-32%

Previous close

$75.76

 
Intrinsic value

$51.74

 
Up/down potential

-32%

 
Rating

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 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 2.7

 

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, %
  11.90
  11.21
  10.59
  10.03
  9.53
  9.07
  8.67
  8.30
  7.97
  7.67
  7.41
  7.17
  6.95
  6.75
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
  5.75
  5.68
  5.61
  5.55
  5.50
  5.45
  5.40
  5.36
  5.32
Revenue, $m
  381
  424
  469
  516
  565
  616
  670
  725
  783
  843
  906
  971
  1,038
  1,108
  1,181
  1,257
  1,336
  1,418
  1,504
  1,593
  1,686
  1,783
  1,884
  1,990
  2,100
  2,216
  2,337
  2,463
  2,595
  2,733
Variable operating expenses, $m
  113
  126
  139
  153
  167
  182
  198
  215
  232
  250
  268
  287
  307
  328
  350
  372
  395
  420
  445
  472
  499
  528
  558
  589
  622
  656
  692
  729
  768
  809
Fixed operating expenses, $m
  257
  262
  268
  274
  280
  286
  292
  299
  305
  312
  319
  326
  333
  340
  348
  356
  363
  371
  380
  388
  396
  405
  414
  423
  432
  442
  452
  462
  472
  482
Total operating expenses, $m
  370
  388
  407
  427
  447
  468
  490
  514
  537
  562
  587
  613
  640
  668
  698
  728
  758
  791
  825
  860
  895
  933
  972
  1,012
  1,054
  1,098
  1,144
  1,191
  1,240
  1,291
Operating income, $m
  12
  36
  62
  89
  118
  148
  179
  212
  246
  282
  319
  357
  398
  440
  484
  529
  577
  627
  679
  734
  791
  850
  912
  978
  1,046
  1,118
  1,193
  1,272
  1,355
  1,442
EBITDA, $m
  22
  48
  75
  103
  133
  165
  197
  232
  267
  304
  343
  384
  426
  470
  516
  563
  613
  665
  720
  777
  836
  898
  963
  1,032
  1,103
  1,178
  1,256
  1,339
  1,425
  1,516
Interest expense (income), $m
  0
  0
  0
  1
  1
  1
  2
  2
  2
  3
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  15
Earnings before tax, $m
  12
  36
  62
  89
  117
  146
  177
  210
  243
  279
  315
  354
  393
  435
  478
  524
  571
  620
  672
  726
  782
  841
  903
  967
  1,035
  1,106
  1,180
  1,258
  1,340
  1,426
Tax expense, $m
  3
  10
  17
  24
  32
  40
  48
  57
  66
  75
  85
  95
  106
  117
  129
  141
  154
  167
  181
  196
  211
  227
  244
  261
  279
  299
  319
  340
  362
  385
Net income, $m
  9
  26
  45
  65
  85
  107
  129
  153
  178
  203
  230
  258
  287
  318
  349
  382
  417
  453
  490
  530
  571
  614
  659
  706
  756
  807
  862
  919
  978
  1,041

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
  158
  176
  195
  214
  235
  256
  278
  301
  325
  350
  376
  403
  431
  460
  490
  522
  555
  589
  624
  661
  700
  740
  782
  826
  872
  920
  970
  1,022
  1,077
  1,134
Adjusted assets (=assets-cash), $m
  158
  176
  195
  214
  235
  256
  278
  301
  325
  350
  376
  403
  431
  460
  490
  522
  555
  589
  624
  661
  700
  740
  782
  826
  872
  920
  970
  1,022
  1,077
  1,134
Revenue / Adjusted assets
  2.411
  2.409
  2.405
  2.411
  2.404
  2.406
  2.410
  2.409
  2.409
  2.409
  2.410
  2.409
  2.408
  2.409
  2.410
  2.408
  2.407
  2.407
  2.410
  2.410
  2.409
  2.409
  2.409
  2.409
  2.408
  2.409
  2.409
  2.410
  2.409
  2.410
Average production assets, $m
  51
  57
  63
  70
  76
  83
  90
  98
  106
  114
  122
  131
  140
  150
  159
  170
  180
  191
  203
  215
  228
  241
  254
  269
  284
  299
  315
  332
  350
  369
Working capital, $m
  6
  6
  7
  8
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  23
  24
  25
  27
  28
  30
  32
  33
  35
  37
  39
  41
Total debt, $m
  5
  11
  16
  22
  28
  35
  42
  49
  56
  64
  72
  80
  89
  97
  107
  116
  126
  137
  148
  159
  171
  183
  196
  209
  223
  238
  253
  269
  286
  304
Total liabilities, $m
  48
  54
  60
  66
  72
  78
  85
  92
  99
  107
  115
  123
  132
  141
  150
  160
  170
  180
  191
  202
  214
  226
  239
  253
  267
  281
  297
  313
  330
  347
Total equity, $m
  110
  122
  135
  149
  163
  178
  193
  209
  226
  243
  261
  280
  299
  319
  340
  362
  385
  409
  433
  459
  486
  514
  543
  573
  605
  638
  673
  709
  748
  787
Total liabilities and equity, $m
  158
  176
  195
  215
  235
  256
  278
  301
  325
  350
  376
  403
  431
  460
  490
  522
  555
  589
  624
  661
  700
  740
  782
  826
  872
  919
  970
  1,022
  1,078
  1,134
Debt-to-equity ratio
  0.050
  0.090
  0.120
  0.150
  0.170
  0.200
  0.220
  0.230
  0.250
  0.260
  0.270
  0.290
  0.300
  0.310
  0.310
  0.320
  0.330
  0.330
  0.340
  0.350
  0.350
  0.360
  0.360
  0.370
  0.370
  0.370
  0.380
  0.380
  0.380
  0.390
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
  9
  26
  45
  65
  85
  107
  129
  153
  178
  203
  230
  258
  287
  318
  349
  382
  417
  453
  490
  530
  571
  614
  659
  706
  756
  807
  862
  919
  978
  1,041
Depreciation, amort., depletion, $m
  10
  11
  13
  14
  15
  17
  18
  20
  21
  23
  24
  26
  28
  30
  32
  34
  36
  38
  41
  43
  46
  48
  51
  54
  57
  60
  63
  66
  70
  74
Funds from operations, $m
  19
  38
  58
  79
  101
  124
  148
  173
  199
  226
  255
  284
  315
  348
  381
  416
  453
  491
  531
  573
  616
  662
  710
  760
  812
  867
  925
  985
  1,049
  1,115
Change in working capital, $m
  1
  1
  1
  1
  1
  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
  18
  37
  57
  78
  100
  123
  147
  172
  198
  225
  254
  283
  314
  346
  380
  415
  452
  490
  530
  571
  615
  661
  708
  758
  811
  865
  923
  983
  1,047
  1,113
Maintenance CAPEX, $m
  -9
  -10
  -11
  -13
  -14
  -15
  -17
  -18
  -20
  -21
  -23
  -24
  -26
  -28
  -30
  -32
  -34
  -36
  -38
  -41
  -43
  -46
  -48
  -51
  -54
  -57
  -60
  -63
  -66
  -70
New CAPEX, $m
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
Cash from investing activities, $m
  -14
  -16
  -17
  -19
  -21
  -22
  -24
  -26
  -28
  -29
  -31
  -33
  -35
  -37
  -40
  -42
  -45
  -47
  -50
  -53
  -56
  -59
  -62
  -65
  -69
  -73
  -76
  -80
  -84
  -89
Free cash flow, $m
  4
  21
  39
  59
  79
  101
  123
  146
  171
  196
  223
  250
  279
  309
  340
  373
  407
  443
  480
  519
  559
  602
  646
  693
  742
  793
  847
  903
  962
  1,024
Issuance/(repayment) of debt, $m
  5
  5
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
Issuance/(repurchase) of shares, $m
  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
  0
  0
Cash from financing (excl. dividends), $m  
  8
  5
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
Total cash flow (excl. dividends), $m
  12
  27
  45
  65
  85
  107
  130
  153
  178
  204
  230
  258
  288
  318
  350
  383
  417
  453
  491
  530
  571
  614
  659
  706
  756
  808
  862
  919
  979
  1,042
Retained Cash Flow (-), $m
  -12
  -12
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -40
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
  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
  90
  14
  32
  51
  71
  92
  114
  137
  161
  186
  212
  240
  268
  298
  329
  361
  394
  429
  466
  504
  544
  586
  630
  676
  724
  775
  827
  883
  941
  1,002
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
  87
  13
  28
  42
  55
  67
  77
  86
  93
  98
  101
  102
  102
  100
  96
  92
  86
  79
  72
  64
  56
  49
  41
  34
  28
  23
  18
  14
  10
  8
Current shareholders' claim on cash, %
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7
  99.7

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 -183.1
Price to Sales 7.8
Price to Book 16.4
Price to Tangible Book
Price to Cash Flow 197.2
Price to Free Cash Flow -366.1
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 $340.75 million for the last fiscal year's total revenue generated by Genomic Health. The default revenue input number comes from 0001 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 11.9% 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 29.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $251 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 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 GHDX are equal to 13.5%.

Life of production assets of 3.9 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 1.5%. 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 - $188.291 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 35.381 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 $2.7 billion.

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COMPANY NEWS

▶ Genomic Health Starts Sprinting   [Nov-14-18 08:56AM  Motley Fool]
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▶ [$$] Epic Sciences Gets $52 Million for Cancer Blood Tests   [05:00AM  The Wall Street Journal]
▶ 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]

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