Intrinsic value of Healthcare Services Group, Inc. - HCSG

Previous Close

$30.31

  Intrinsic Value

$17.05

stock screener

  Rating & Target

sell

-44%

Previous close

$30.31

 
Intrinsic value

$17.05

 
Up/down potential

-44%

 
Rating

sell

We calculate the intrinsic value of HCSG 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 2.2

 

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, %
  3.20
  3.38
  3.54
  3.69
  3.82
  3.94
  4.04
  4.14
  4.23
  4.30
  4.37
  4.44
  4.49
  4.54
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.80
  4.82
  4.84
  4.86
  4.87
  4.88
  4.90
  4.91
  4.92
Revenue, $m
  1,926
  1,991
  2,061
  2,137
  2,219
  2,306
  2,400
  2,499
  2,604
  2,717
  2,835
  2,961
  3,094
  3,235
  3,383
  3,540
  3,705
  3,879
  4,062
  4,256
  4,459
  4,673
  4,899
  5,136
  5,385
  5,647
  5,923
  6,213
  6,518
  6,838
Variable operating expenses, $m
  1,779
  1,839
  1,905
  1,975
  2,050
  2,131
  2,217
  2,309
  2,406
  2,509
  2,618
  2,734
  2,857
  2,986
  3,123
  3,268
  3,420
  3,581
  3,751
  3,929
  4,117
  4,315
  4,523
  4,742
  4,972
  5,214
  5,469
  5,736
  6,018
  6,314
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
  1,779
  1,839
  1,905
  1,975
  2,050
  2,131
  2,217
  2,309
  2,406
  2,509
  2,618
  2,734
  2,857
  2,986
  3,123
  3,268
  3,420
  3,581
  3,751
  3,929
  4,117
  4,315
  4,523
  4,742
  4,972
  5,214
  5,469
  5,736
  6,018
  6,314
Operating income, $m
  146
  151
  157
  163
  169
  176
  183
  190
  198
  207
  218
  227
  237
  248
  260
  272
  284
  298
  312
  327
  342
  359
  376
  394
  413
  433
  455
  477
  500
  525
EBITDA, $m
  153
  158
  164
  170
  176
  183
  191
  199
  207
  216
  225
  235
  246
  257
  269
  281
  295
  308
  323
  338
  355
  372
  390
  408
  428
  449
  471
  494
  518
  544
Interest expense (income), $m
  1
  2
  2
  3
  3
  4
  5
  5
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  17
  18
  19
  21
  23
  24
  26
  28
  30
  32
  34
  37
  39
Earnings before tax, $m
  144
  149
  154
  159
  165
  171
  177
  184
  192
  199
  209
  218
  227
  237
  247
  258
  269
  281
  294
  307
  321
  336
  352
  368
  385
  403
  423
  443
  464
  486
Tax expense, $m
  39
  40
  42
  43
  45
  46
  48
  50
  52
  54
  56
  59
  61
  64
  67
  70
  73
  76
  79
  83
  87
  91
  95
  99
  104
  109
  114
  119
  125
  131
Net income, $m
  105
  109
  112
  116
  120
  125
  129
  134
  140
  145
  153
  159
  166
  173
  180
  188
  196
  205
  214
  224
  235
  245
  257
  269
  281
  295
  308
  323
  338
  355

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
  698
  721
  747
  774
  804
  836
  869
  905
  944
  984
  1,027
  1,073
  1,121
  1,172
  1,226
  1,282
  1,342
  1,405
  1,472
  1,542
  1,616
  1,693
  1,775
  1,861
  1,951
  2,046
  2,146
  2,251
  2,362
  2,478
Adjusted assets (=assets-cash), $m
  698
  721
  747
  774
  804
  836
  869
  905
  944
  984
  1,027
  1,073
  1,121
  1,172
  1,226
  1,282
  1,342
  1,405
  1,472
  1,542
  1,616
  1,693
  1,775
  1,861
  1,951
  2,046
  2,146
  2,251
  2,362
  2,478
Revenue / Adjusted assets
  2.759
  2.761
  2.759
  2.761
  2.760
  2.758
  2.762
  2.761
  2.758
  2.761
  2.760
  2.760
  2.760
  2.760
  2.759
  2.761
  2.761
  2.761
  2.760
  2.760
  2.759
  2.760
  2.760
  2.760
  2.760
  2.760
  2.760
  2.760
  2.760
  2.759
Average production assets, $m
  50
  52
  54
  56
  58
  60
  62
  65
  68
  71
  74
  77
  80
  84
  88
  92
  96
  101
  106
  111
  116
  122
  127
  134
  140
  147
  154
  162
  169
  178
Working capital, $m
  306
  317
  328
  340
  353
  367
  382
  397
  414
  432
  451
  471
  492
  514
  538
  563
  589
  617
  646
  677
  709
  743
  779
  817
  856
  898
  942
  988
  1,036
  1,087
Total debt, $m
  44
  54
  64
  75
  87
  100
  114
  129
  144
  161
  178
  197
  217
  237
  259
  283
  307
  333
  360
  388
  419
  450
  483
  519
  555
  594
  635
  678
  723
  770
Total liabilities, $m
  285
  294
  305
  316
  328
  341
  355
  369
  385
  402
  419
  438
  457
  478
  500
  523
  548
  573
  601
  629
  659
  691
  724
  759
  796
  835
  876
  918
  964
  1,011
Total equity, $m
  413
  427
  442
  458
  476
  495
  515
  536
  559
  583
  608
  635
  664
  694
  726
  759
  795
  832
  871
  913
  956
  1,002
  1,051
  1,102
  1,155
  1,211
  1,271
  1,333
  1,398
  1,467
Total liabilities and equity, $m
  698
  721
  747
  774
  804
  836
  870
  905
  944
  985
  1,027
  1,073
  1,121
  1,172
  1,226
  1,282
  1,343
  1,405
  1,472
  1,542
  1,615
  1,693
  1,775
  1,861
  1,951
  2,046
  2,147
  2,251
  2,362
  2,478
Debt-to-equity ratio
  0.110
  0.130
  0.140
  0.160
  0.180
  0.200
  0.220
  0.240
  0.260
  0.280
  0.290
  0.310
  0.330
  0.340
  0.360
  0.370
  0.390
  0.400
  0.410
  0.430
  0.440
  0.450
  0.460
  0.470
  0.480
  0.490
  0.500
  0.510
  0.520
  0.530
Adjusted equity ratio
  0.592
  0.592
  0.592
  0.592
  0.592
  0.592
  0.592
  0.592
  0.592
  0.592
  0.592
  0.592
  0.592
  0.592
  0.592
  0.592
  0.592
  0.592
  0.592
  0.592
  0.592
  0.592
  0.592
  0.592
  0.592
  0.592
  0.592
  0.592
  0.592
  0.592

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  105
  109
  112
  116
  120
  125
  129
  134
  140
  145
  153
  159
  166
  173
  180
  188
  196
  205
  214
  224
  235
  245
  257
  269
  281
  295
  308
  323
  338
  355
Depreciation, amort., depletion, $m
  7
  7
  7
  7
  8
  8
  8
  8
  9
  9
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
  18
  19
Funds from operations, $m
  112
  116
  119
  124
  128
  133
  138
  143
  148
  154
  160
  167
  174
  182
  190
  198
  207
  216
  226
  236
  247
  258
  270
  283
  296
  310
  325
  340
  357
  374
Change in working capital, $m
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  28
  29
  31
  32
  34
  36
  38
  40
  42
  44
  46
  48
  51
Cash from operations, $m
  103
  105
  108
  111
  115
  119
  123
  127
  132
  137
  141
  147
  153
  159
  166
  173
  180
  188
  197
  205
  215
  224
  234
  245
  257
  268
  281
  294
  308
  323
Maintenance CAPEX, $m
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
New CAPEX, $m
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
Cash from investing activities, $m
  -6
  -7
  -8
  -8
  -8
  -8
  -8
  -10
  -10
  -10
  -11
  -11
  -11
  -13
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -20
  -22
  -23
  -24
  -25
  -26
Free cash flow, $m
  96
  98
  101
  104
  107
  110
  114
  118
  122
  126
  131
  136
  141
  147
  153
  160
  166
  173
  181
  189
  197
  206
  216
  225
  236
  247
  258
  270
  283
  296
Issuance/(repayment) of debt, $m
  9
  10
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  29
  30
  32
  33
  35
  37
  39
  41
  43
  45
  47
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  
  9
  10
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  29
  30
  32
  33
  35
  37
  39
  41
  43
  45
  47
Total cash flow (excl. dividends), $m
  105
  108
  111
  115
  119
  123
  128
  132
  138
  143
  148
  155
  161
  168
  175
  183
  191
  199
  208
  218
  228
  238
  249
  261
  273
  285
  299
  313
  328
  344
Retained Cash Flow (-), $m
  -13
  -14
  -15
  -16
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -27
  -29
  -30
  -32
  -34
  -35
  -37
  -39
  -41
  -44
  -46
  -48
  -51
  -53
  -56
  -59
  -62
  -65
  -69
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
  92
  94
  96
  99
  101
  104
  108
  111
  115
  119
  123
  128
  132
  138
  143
  149
  155
  162
  169
  176
  184
  192
  201
  210
  219
  229
  240
  251
  263
  275
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
  88
  86
  84
  81
  79
  76
  73
  69
  66
  62
  58
  54
  50
  46
  42
  38
  34
  30
  26
  22
  19
  16
  13
  11
  9
  7
  5
  4
  3
  2
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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Healthcare Services Group, Inc. provides management, administrative and operating services to the housekeeping, laundry, linen, facility maintenance and dietary service departments of the healthcare industry, including nursing homes, retirement complexes, rehabilitation centers and hospitals located throughout the United States. The Company operates through two segments: housekeeping, laundry, linen and other services (Housekeeping), and dietary department services (Dietary). Its housekeeping service involves the management of a client's housekeeping department, which is responsible for the cleaning, disinfecting and sanitizing resident rooms and common areas of a client's facility. Its dietary services consist of managing the client's dietary department, which is responsible for food purchasing, meal preparation and providing professional dietitian services, including the development of menus that meet the dietary needs of residents.

FINANCIAL RATIOS  of  Healthcare Services Group, Inc. (HCSG)

Valuation Ratios
P/E Ratio 28.6
Price to Sales 1.4
Price to Book 6.5
Price to Tangible Book
Price to Cash Flow 53.7
Price to Free Cash Flow 61.1
Growth Rates
Sales Growth Rate 8.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 4.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 121
Management Effectiveness
Return On Assets 15.4%
Ret/ On Assets - 3 Yr. Avg. 10.8%
Return On Total Capital 24.3%
Ret/ On T. Cap. - 3 Yr. Avg. 17.5%
Return On Equity 24.3%
Return On Equity - 3 Yr. Avg. 17.5%
Asset Turnover 3.1
Profitability Ratios
Gross Margin 14.3%
Gross Margin - 3 Yr. Avg. 13%
EBITDA Margin 8.3%
EBITDA Margin - 3 Yr. Avg. 6%
Operating Margin 7.5%
Oper. Margin - 3 Yr. Avg. 5.4%
Pre-Tax Margin 7.7%
Pre-Tax Margin - 3 Yr. Avg. 5.5%
Net Profit Margin 4.9%
Net Profit Margin - 3 Yr. Avg. 3.6%
Effective Tax Rate 35.8%
Eff/ Tax Rate - 3 Yr. Avg. 34.2%
Payout Ratio 68.8%

HCSG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HCSG stock intrinsic value calculation we used $1866 million for the last fiscal year's total revenue generated by Healthcare Services Group, Inc.. The default revenue input number comes from 0001 income statement of Healthcare Services 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 HCSG stock valuation model: a) initial revenue growth rate of 3.2% 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 HCSG is calculated based on our internal credit rating of Healthcare Services 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 Healthcare Services 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 HCSG stock the variable cost ratio is equal to 92.4%.

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 HCSG 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 Healthcare Services Group, Inc..

Corporate tax rate of 27% is the nominal tax rate for Healthcare Services 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 HCSG 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 HCSG are equal to 2.6%.

Life of production assets of 9.4 years is the average useful life of capital assets used in Healthcare Services 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 HCSG is equal to 15.9%. 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 - $399.952 million for Healthcare Services 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 73.763 million for Healthcare Services 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 Healthcare Services Group, Inc. at the current share price and the inputted number of shares is $2.2 billion.

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