Intrinsic value of Globus Medical - GMED

Previous Close

$52.47

  Intrinsic Value

$21.51

stock screener

  Rating & Target

str. sell

-59%

Previous close

$52.47

 
Intrinsic value

$21.51

 
Up/down potential

-59%

 
Rating

str. sell

We calculate the intrinsic value of GMED 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 5.0

 

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, %
  12.80
  12.02
  11.32
  10.69
  10.12
  9.61
  9.15
  8.73
  8.36
  8.02
  7.72
  7.45
  7.20
  6.98
  6.78
  6.61
  6.45
  6.30
  6.17
  6.05
  5.95
  5.85
  5.77
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.37
Revenue, $m
  717
  804
  895
  990
  1,090
  1,195
  1,304
  1,418
  1,537
  1,660
  1,788
  1,921
  2,060
  2,204
  2,353
  2,509
  2,670
  2,839
  3,014
  3,196
  3,386
  3,585
  3,791
  4,007
  4,232
  4,468
  4,714
  4,971
  5,239
  5,521
Variable operating expenses, $m
  518
  578
  641
  708
  777
  850
  926
  1,005
  1,087
  1,173
  1,241
  1,334
  1,430
  1,530
  1,633
  1,741
  1,853
  1,970
  2,092
  2,218
  2,350
  2,488
  2,631
  2,781
  2,938
  3,101
  3,272
  3,450
  3,637
  3,832
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
  518
  578
  641
  708
  777
  850
  926
  1,005
  1,087
  1,173
  1,241
  1,334
  1,430
  1,530
  1,633
  1,741
  1,853
  1,970
  2,092
  2,218
  2,350
  2,488
  2,631
  2,781
  2,938
  3,101
  3,272
  3,450
  3,637
  3,832
Operating income, $m
  199
  226
  253
  283
  313
  345
  379
  414
  450
  488
  547
  588
  630
  674
  720
  767
  817
  868
  922
  978
  1,036
  1,097
  1,160
  1,226
  1,295
  1,367
  1,442
  1,521
  1,603
  1,689
EBITDA, $m
  255
  286
  318
  353
  388
  425
  464
  505
  547
  591
  637
  684
  733
  785
  838
  893
  951
  1,011
  1,073
  1,138
  1,206
  1,276
  1,350
  1,427
  1,507
  1,591
  1,678
  1,770
  1,865
  1,965
Interest expense (income), $m
  0
  0
  1
  2
  2
  3
  4
  5
  6
  7
  9
  10
  11
  12
  13
  15
  16
  18
  19
  21
  22
  24
  26
  28
  30
  32
  34
  36
  38
  41
  43
Earnings before tax, $m
  199
  225
  252
  280
  310
  341
  373
  407
  442
  479
  537
  577
  618
  661
  705
  751
  799
  849
  901
  955
  1,012
  1,071
  1,132
  1,196
  1,263
  1,333
  1,406
  1,482
  1,562
  1,646
Tax expense, $m
  54
  61
  68
  76
  84
  92
  101
  110
  119
  129
  145
  156
  167
  178
  190
  203
  216
  229
  243
  258
  273
  289
  306
  323
  341
  360
  380
  400
  422
  444
Net income, $m
  145
  164
  184
  205
  226
  249
  273
  297
  323
  350
  392
  421
  451
  482
  515
  548
  583
  620
  658
  697
  739
  782
  826
  873
  922
  973
  1,026
  1,082
  1,140
  1,201

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
  900
  1,008
  1,122
  1,242
  1,368
  1,500
  1,637
  1,780
  1,928
  2,083
  2,244
  2,411
  2,585
  2,765
  2,953
  3,148
  3,350
  3,562
  3,781
  4,010
  4,249
  4,498
  4,757
  5,028
  5,310
  5,606
  5,914
  6,237
  6,574
  6,927
Adjusted assets (=assets-cash), $m
  900
  1,008
  1,122
  1,242
  1,368
  1,500
  1,637
  1,780
  1,928
  2,083
  2,244
  2,411
  2,585
  2,765
  2,953
  3,148
  3,350
  3,562
  3,781
  4,010
  4,249
  4,498
  4,757
  5,028
  5,310
  5,606
  5,914
  6,237
  6,574
  6,927
Revenue / Adjusted assets
  0.797
  0.798
  0.798
  0.797
  0.797
  0.797
  0.797
  0.797
  0.797
  0.797
  0.797
  0.797
  0.797
  0.797
  0.797
  0.797
  0.797
  0.797
  0.797
  0.797
  0.797
  0.797
  0.797
  0.797
  0.797
  0.797
  0.797
  0.797
  0.797
  0.797
Average production assets, $m
  359
  403
  448
  496
  546
  599
  654
  711
  770
  832
  896
  963
  1,032
  1,104
  1,179
  1,257
  1,338
  1,422
  1,510
  1,601
  1,697
  1,796
  1,899
  2,008
  2,120
  2,238
  2,362
  2,490
  2,625
  2,766
Working capital, $m
  94
  105
  117
  130
  143
  157
  171
  186
  201
  217
  234
  252
  270
  289
  308
  329
  350
  372
  395
  419
  444
  470
  497
  525
  554
  585
  617
  651
  686
  723
Total debt, $m
  15
  30
  46
  62
  80
  98
  117
  137
  158
  179
  201
  225
  249
  274
  300
  327
  355
  385
  415
  447
  480
  515
  551
  588
  628
  669
  712
  756
  803
  852
Total liabilities, $m
  125
  140
  156
  173
  190
  208
  227
  247
  268
  290
  312
  335
  359
  384
  410
  438
  466
  495
  526
  557
  591
  625
  661
  699
  738
  779
  822
  867
  914
  963
Total equity, $m
  775
  868
  966
  1,070
  1,178
  1,291
  1,409
  1,532
  1,660
  1,793
  1,932
  2,076
  2,225
  2,381
  2,542
  2,710
  2,885
  3,067
  3,256
  3,453
  3,658
  3,872
  4,096
  4,329
  4,572
  4,826
  5,092
  5,370
  5,660
  5,964
Total liabilities and equity, $m
  900
  1,008
  1,122
  1,243
  1,368
  1,499
  1,636
  1,779
  1,928
  2,083
  2,244
  2,411
  2,584
  2,765
  2,952
  3,148
  3,351
  3,562
  3,782
  4,010
  4,249
  4,497
  4,757
  5,028
  5,310
  5,605
  5,914
  6,237
  6,574
  6,927
Debt-to-equity ratio
  0.020
  0.030
  0.050
  0.060
  0.070
  0.080
  0.080
  0.090
  0.090
  0.100
  0.100
  0.110
  0.110
  0.120
  0.120
  0.120
  0.120
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
Adjusted equity ratio
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  145
  164
  184
  205
  226
  249
  273
  297
  323
  350
  392
  421
  451
  482
  515
  548
  583
  620
  658
  697
  739
  782
  826
  873
  922
  973
  1,026
  1,082
  1,140
  1,201
Depreciation, amort., depletion, $m
  56
  61
  65
  70
  75
  80
  86
  91
  97
  103
  90
  96
  103
  110
  118
  126
  134
  142
  151
  160
  170
  180
  190
  201
  212
  224
  236
  249
  262
  277
Funds from operations, $m
  202
  225
  249
  274
  301
  329
  358
  389
  420
  453
  482
  517
  554
  593
  633
  674
  717
  762
  809
  858
  908
  961
  1,016
  1,074
  1,134
  1,197
  1,262
  1,331
  1,403
  1,478
Change in working capital, $m
  11
  11
  12
  13
  13
  14
  14
  15
  16
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
Cash from operations, $m
  191
  213
  237
  262
  288
  315
  344
  374
  405
  437
  465
  500
  536
  574
  613
  654
  696
  740
  786
  834
  883
  935
  989
  1,046
  1,105
  1,166
  1,230
  1,297
  1,368
  1,441
Maintenance CAPEX, $m
  -32
  -36
  -40
  -45
  -50
  -55
  -60
  -65
  -71
  -77
  -83
  -90
  -96
  -103
  -110
  -118
  -126
  -134
  -142
  -151
  -160
  -170
  -180
  -190
  -201
  -212
  -224
  -236
  -249
  -262
New CAPEX, $m
  -41
  -43
  -46
  -48
  -50
  -52
  -55
  -57
  -59
  -62
  -64
  -67
  -69
  -72
  -75
  -78
  -81
  -84
  -88
  -91
  -95
  -99
  -104
  -108
  -113
  -118
  -123
  -129
  -135
  -141
Cash from investing activities, $m
  -73
  -79
  -86
  -93
  -100
  -107
  -115
  -122
  -130
  -139
  -147
  -157
  -165
  -175
  -185
  -196
  -207
  -218
  -230
  -242
  -255
  -269
  -284
  -298
  -314
  -330
  -347
  -365
  -384
  -403
Free cash flow, $m
  118
  134
  151
  169
  188
  208
  229
  251
  274
  298
  318
  344
  371
  399
  428
  458
  489
  522
  556
  591
  628
  666
  706
  748
  791
  836
  883
  932
  984
  1,038
Issuance/(repayment) of debt, $m
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
  49
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  
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
  49
Total cash flow (excl. dividends), $m
  133
  149
  167
  186
  206
  227
  248
  271
  295
  320
  340
  367
  395
  424
  454
  485
  518
  551
  586
  623
  661
  701
  742
  785
  830
  877
  926
  977
  1,031
  1,087
Retained Cash Flow (-), $m
  -88
  -93
  -98
  -103
  -108
  -113
  -118
  -123
  -128
  -133
  -138
  -144
  -150
  -155
  -162
  -168
  -175
  -182
  -189
  -197
  -205
  -214
  -223
  -233
  -243
  -254
  -266
  -278
  -290
  -304
Prev. year cash balance distribution, $m
  281
  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
  15
  17
  18
  21
  23
  25
  27
  30
  33
  35
  38
  41
  44
  47
  51
  54
  58
  61
  65
  69
  74
  78
  82
  87
  92
  97
  103
  108
  114
  121
Cash available for distribution, $m
  326
  56
  69
  83
  97
  113
  130
  148
  167
  187
  202
  223
  245
  268
  292
  317
  343
  370
  397
  426
  456
  487
  519
  552
  587
  623
  660
  700
  740
  783
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
  313
  51
  60
  68
  76
  82
  88
  93
  96
  98
  96
  95
  93
  90
  86
  81
  75
  68
  61
  54
  47
  40
  34
  28
  23
  18
  14
  11
  8
  6
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

Globus Medical, Inc. is a medical device company. The Company is focused on developing products for patients with musculoskeletal disorders. It is focused on products to treat patients with spine disorders. The Company's products fall under categories, which include Innovative Fusion and Disruptive Technologies. The Innovative Fusion category products include fusion products to treat spinal disorders for the entire spine, and they can be used in various surgical approaches. The Disruptive Technologies category represents a shift in the treatment of spinal disorders by allowing for surgical procedures and the treatment of spinal disorders. QUARTEX is its Occipito-Cervico-Thoracic (OCT) stabilization system. QUARTEX features a threading locking cap to enable low-torque. The Company's portfolio of approved and pipeline Disruptive Technology products includes products that allow for minimally invasive surgical (MIS) techniques. _tck('aft');

FINANCIAL RATIOS  of  Globus Medical (GMED)

Valuation Ratios
P/E Ratio 71.1
Price to Sales 11.3
Price to Book 10.4
Price to Tangible Book
Price to Cash Flow 52.7
Price to Free Cash Flow 71.1
Growth Rates
Sales Growth Rate 12.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -4%
Cap. Spend. - 3 Yr. Gr. Rate 14.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0.5
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 13.6%
Ret/ On Assets - 3 Yr. Avg. 17.7%
Return On Total Capital 16.1%
Ret/ On T. Cap. - 3 Yr. Avg. 20.6%
Return On Equity 16.1%
Return On Equity - 3 Yr. Avg. 20.7%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 77.2%
Gross Margin - 3 Yr. Avg. 79.1%
EBITDA Margin 27.9%
EBITDA Margin - 3 Yr. Avg. 32.3%
Operating Margin 23.3%
Oper. Margin - 3 Yr. Avg. 27.5%
Pre-Tax Margin 23.5%
Pre-Tax Margin - 3 Yr. Avg. 27.5%
Net Profit Margin 15.9%
Net Profit Margin - 3 Yr. Avg. 17.8%
Effective Tax Rate 32.4%
Eff/ Tax Rate - 3 Yr. Avg. 35%
Payout Ratio 0%

GMED stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GMED stock intrinsic value calculation we used $636 million for the last fiscal year's total revenue generated by Globus Medical. The default revenue input number comes from 2017 income statement of Globus Medical. 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 GMED stock valuation model: a) initial revenue growth rate of 12.8% 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 GMED is calculated based on our internal credit rating of Globus Medical, 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 Globus Medical.
    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 GMED stock the variable cost ratio is equal to 72.6%.

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 GMED 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 Globus Medical.

Corporate tax rate of 27% is the nominal tax rate for Globus Medical. 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 GMED stock is equal to 2.3%.

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 GMED are equal to 50.1%.

Life of production assets of 10 years is the average useful life of capital assets used in Globus Medical 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 GMED is equal to 13.1%. 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 - $968 million for Globus Medical - 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 96 million for Globus Medical 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 Globus Medical at the current share price and the inputted number of shares is $5.0 billion.

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COMPANY NEWS

▶ Globus Medical: 2Q Earnings Snapshot   [06:10PM  Associated Press]
▶ 5 AI Biotech Stocks to Bet On Now   [Jun-14-18 01:41PM  InvestorPlace]
▶ Cantor Fitzgerald Taps Spinal Stocks: 4 Top Picks   [Jun-03-18 06:06PM  Benzinga]
▶ Globus Medical: 1Q Earnings Snapshot   [05:03AM  Associated Press]
▶ Globus Medical Reports First Quarter 2018 Results   [May-02-18 04:15PM  GlobeNewswire]
▶ Breakout Watch: This Medical Stock Is Outperforming 99% Of All Stocks   [Apr-27-18 04:09PM  Investor's Business Daily]
▶ Montco medical device maker plots big push into orthopedic trauma market   [Mar-07-18 11:40AM  American City Business Journals]
▶ Globus Medical Enters Trauma Market   [Mar-06-18 04:15PM  GlobeNewswire]
▶ Globus Medical tops Street 4Q forecasts   [05:03AM  Associated Press]
▶ Globus Medical Q4 Earnings Preview   [09:45AM  Benzinga]
▶ Why Globus Medical Should Be on Your Watch List   [Dec-29-17 10:00PM  Motley Fool]
▶ Stocks Showing Market Leadership: Globus Medical Earns 91 RS Rating   [Nov-13-17 03:00AM  Investor's Business Daily]
▶ Globus Medical meets 3Q profit forecasts   [04:47PM  Associated Press]
▶ Globus Medical Announces First Case in Orthopedic Trauma   [Sep-14-17 04:15PM  GlobeNewswire]
▶ Globus Medical Appoints David M. Demski as CEO   [Aug-29-17 04:15PM  GlobeNewswire]
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