Intrinsic value of Healthcare Services Group - HCSG

Previous Close

$43.21

  Intrinsic Value

$20.28

stock screener

  Rating & Target

str. sell

-53%

Previous close

$43.21

 
Intrinsic value

$20.28

 
Up/down potential

-53%

 
Rating

str. 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 3.2

 

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, %
  7.00
  6.80
  6.62
  6.46
  6.31
  6.18
  6.06
  5.96
  5.86
  5.77
  5.70
  5.63
  5.56
  5.51
  5.46
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
  5.20
  5.18
  5.16
  5.14
  5.13
  5.12
  5.10
  5.09
Revenue, $m
  1,997
  2,133
  2,274
  2,421
  2,573
  2,732
  2,898
  3,071
  3,251
  3,438
  3,634
  3,839
  4,052
  4,276
  4,509
  4,753
  5,008
  5,275
  5,555
  5,848
  6,154
  6,476
  6,812
  7,165
  7,534
  7,922
  8,328
  8,754
  9,201
  9,670
Variable operating expenses, $m
  1,844
  1,969
  2,099
  2,234
  2,375
  2,521
  2,673
  2,832
  2,998
  3,170
  3,342
  3,530
  3,727
  3,932
  4,146
  4,371
  4,606
  4,851
  5,108
  5,378
  5,660
  5,955
  6,264
  6,589
  6,929
  7,285
  7,659
  8,051
  8,462
  8,893
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
  1,844
  1,969
  2,099
  2,234
  2,375
  2,521
  2,673
  2,832
  2,998
  3,170
  3,342
  3,530
  3,727
  3,932
  4,146
  4,371
  4,606
  4,851
  5,108
  5,378
  5,660
  5,955
  6,264
  6,589
  6,929
  7,285
  7,659
  8,051
  8,462
  8,893
Operating income, $m
  152
  163
  175
  186
  199
  211
  225
  239
  253
  268
  292
  309
  326
  344
  362
  382
  403
  424
  447
  470
  495
  521
  548
  576
  606
  637
  670
  704
  740
  777
EBITDA, $m
  166
  177
  189
  201
  214
  227
  241
  255
  270
  286
  302
  319
  337
  356
  375
  395
  416
  439
  462
  486
  512
  538
  566
  596
  627
  659
  693
  728
  765
  804
Interest expense (income), $m
  1
  2
  3
  4
  5
  6
  8
  9
  10
  12
  13
  14
  16
  18
  19
  21
  23
  25
  27
  29
  31
  34
  36
  39
  41
  44
  47
  50
  53
  57
  60
Earnings before tax, $m
  150
  160
  171
  181
  192
  204
  216
  229
  242
  255
  278
  293
  308
  324
  341
  359
  378
  397
  417
  439
  461
  484
  509
  535
  562
  590
  619
  650
  683
  717
Tax expense, $m
  41
  43
  46
  49
  52
  55
  58
  62
  65
  69
  75
  79
  83
  88
  92
  97
  102
  107
  113
  118
  124
  131
  137
  144
  152
  159
  167
  176
  184
  194
Net income, $m
  110
  117
  125
  132
  140
  149
  158
  167
  176
  186
  203
  214
  225
  237
  249
  262
  276
  290
  305
  320
  337
  354
  372
  390
  410
  430
  452
  475
  498
  523

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
  723
  773
  824
  877
  932
  990
  1,050
  1,113
  1,178
  1,246
  1,317
  1,391
  1,468
  1,549
  1,634
  1,722
  1,815
  1,911
  2,013
  2,119
  2,230
  2,346
  2,468
  2,596
  2,730
  2,870
  3,017
  3,172
  3,334
  3,504
Adjusted assets (=assets-cash), $m
  723
  773
  824
  877
  932
  990
  1,050
  1,113
  1,178
  1,246
  1,317
  1,391
  1,468
  1,549
  1,634
  1,722
  1,815
  1,911
  2,013
  2,119
  2,230
  2,346
  2,468
  2,596
  2,730
  2,870
  3,017
  3,172
  3,334
  3,504
Revenue / Adjusted assets
  2.762
  2.759
  2.760
  2.761
  2.761
  2.760
  2.760
  2.759
  2.760
  2.759
  2.759
  2.760
  2.760
  2.760
  2.759
  2.760
  2.759
  2.760
  2.760
  2.760
  2.760
  2.760
  2.760
  2.760
  2.760
  2.760
  2.760
  2.760
  2.760
  2.760
Average production assets, $m
  52
  55
  59
  63
  67
  71
  75
  80
  85
  89
  94
  100
  105
  111
  117
  124
  130
  137
  144
  152
  160
  168
  177
  186
  196
  206
  217
  228
  239
  251
Working capital, $m
  317
  339
  362
  385
  409
  434
  461
  488
  517
  547
  578
  610
  644
  680
  717
  756
  796
  839
  883
  930
  979
  1,030
  1,083
  1,139
  1,198
  1,260
  1,324
  1,392
  1,463
  1,538
Total debt, $m
  55
  75
  95
  117
  140
  163
  188
  213
  240
  268
  297
  327
  358
  391
  426
  462
  500
  539
  581
  624
  669
  717
  766
  818
  873
  930
  990
  1,053
  1,120
  1,189
Total liabilities, $m
  295
  315
  336
  358
  380
  404
  428
  454
  481
  508
  537
  567
  599
  632
  667
  703
  740
  780
  821
  864
  910
  957
  1,007
  1,059
  1,114
  1,171
  1,231
  1,294
  1,360
  1,429
Total equity, $m
  428
  457
  488
  519
  552
  586
  622
  659
  697
  738
  780
  823
  869
  917
  967
  1,019
  1,074
  1,132
  1,192
  1,254
  1,320
  1,389
  1,461
  1,537
  1,616
  1,699
  1,786
  1,878
  1,974
  2,074
Total liabilities and equity, $m
  723
  772
  824
  877
  932
  990
  1,050
  1,113
  1,178
  1,246
  1,317
  1,390
  1,468
  1,549
  1,634
  1,722
  1,814
  1,912
  2,013
  2,118
  2,230
  2,346
  2,468
  2,596
  2,730
  2,870
  3,017
  3,172
  3,334
  3,503
Debt-to-equity ratio
  0.130
  0.160
  0.200
  0.230
  0.250
  0.280
  0.300
  0.320
  0.340
  0.360
  0.380
  0.400
  0.410
  0.430
  0.440
  0.450
  0.470
  0.480
  0.490
  0.500
  0.510
  0.520
  0.520
  0.530
  0.540
  0.550
  0.550
  0.560
  0.570
  0.570
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
  110
  117
  125
  132
  140
  149
  158
  167
  176
  186
  203
  214
  225
  237
  249
  262
  276
  290
  305
  320
  337
  354
  372
  390
  410
  430
  452
  475
  498
  523
Depreciation, amort., depletion, $m
  14
  14
  14
  15
  15
  16
  16
  17
  17
  18
  10
  11
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
Funds from operations, $m
  124
  131
  139
  147
  156
  165
  174
  184
  194
  204
  213
  224
  236
  249
  262
  275
  290
  304
  320
  336
  354
  372
  390
  410
  431
  452
  475
  499
  524
  550
Change in working capital, $m
  21
  22
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
  35
  37
  39
  41
  42
  44
  47
  49
  51
  54
  56
  59
  62
  65
  68
  71
  75
Cash from operations, $m
  103
  110
  117
  124
  131
  139
  148
  156
  165
  174
  182
  192
  202
  213
  225
  236
  249
  262
  276
  290
  305
  320
  337
  354
  372
  391
  411
  431
  453
  476
Maintenance CAPEX, $m
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
New CAPEX, $m
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
Cash from investing activities, $m
  -8
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -17
  -17
  -18
  -18
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -37
Free cash flow, $m
  94
  100
  107
  114
  121
  128
  136
  144
  152
  160
  167
  176
  186
  196
  207
  218
  229
  241
  254
  267
  281
  295
  310
  326
  343
  360
  378
  397
  417
  438
Issuance/(repayment) of debt, $m
  19
  20
  21
  22
  23
  24
  24
  26
  27
  28
  29
  30
  32
  33
  34
  36
  38
  39
  41
  43
  45
  47
  50
  52
  55
  57
  60
  63
  66
  69
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  
  19
  20
  21
  22
  23
  24
  24
  26
  27
  28
  29
  30
  32
  33
  34
  36
  38
  39
  41
  43
  45
  47
  50
  52
  55
  57
  60
  63
  66
  69
Total cash flow (excl. dividends), $m
  113
  121
  128
  135
  143
  152
  160
  169
  178
  188
  196
  207
  218
  229
  241
  254
  267
  281
  295
  310
  326
  343
  360
  378
  397
  417
  438
  460
  483
  507
Retained Cash Flow (-), $m
  -28
  -29
  -30
  -31
  -33
  -34
  -36
  -37
  -39
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -55
  -57
  -60
  -63
  -66
  -69
  -72
  -76
  -79
  -83
  -87
  -91
  -96
  -101
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
  85
  91
  98
  104
  111
  117
  125
  132
  140
  148
  154
  163
  172
  181
  191
  201
  212
  223
  235
  247
  260
  274
  288
  302
  318
  334
  351
  369
  387
  407
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
  82
  84
  85
  86
  86
  85
  84
  83
  80
  77
  73
  69
  65
  61
  56
  51
  46
  41
  36
  31
  27
  23
  19
  15
  12
  10
  8
  6
  4
  3
Current shareholders' claim on cash, %
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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 (HCSG)

Valuation Ratios
P/E Ratio 40.7
Price to Sales 2
Price to Book 9.3
Price to Tangible Book
Price to Cash Flow 76.5
Price to Free Cash Flow 87.1
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 $1866.131 million for the last fiscal year's total revenue generated by Healthcare Services Group. The default revenue input number comes from 0001 income statement of Healthcare Services Group. 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 7% 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, 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.
    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.

Corporate tax rate of 27% is the nominal tax rate for Healthcare Services Group. 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 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 - 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 73.712 million for Healthcare Services Group 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 at the current share price and the inputted number of shares is $3.2 billion.

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COMPANY NEWS

▶ Healthcare Services Group Boosts Its Dividend Yet Again   [Oct-19-18 09:27AM  Motley Fool]
▶ Healthcare Services: 3Q Earnings Snapshot   [05:31PM  Associated Press]
▶ Healthcare Services: 2Q Earnings Snapshot   [Jul-17-18 04:14PM  Associated Press]
▶ New Strong Sell Stocks for June 6th   [Jun-06-18 07:45AM  Zacks]
▶ The 3 Stocks on the MFM Team's Radar   [May-17-18 06:12PM  Motley Fool]
▶ 3 Top Healthcare Stocks to Buy Right Now   [May-01-18 03:00PM  Motley Fool]
▶ Top 3 Growth Stocks For The Month   [12:02PM  Simply Wall St.]
▶ Healthcare Services: 1Q Earnings Snapshot   [Apr-17-18 04:48PM  Associated Press]
▶ 3 Top Stocks Wall Street Is Overlooking   [Mar-27-18 07:00PM  Motley Fool]
▶ Healthcare Services misses 4Q profit forecasts   [Feb-06-18 07:13PM  Associated Press]
▶ Healthcare Services Earns Relative Strength Rating Upgrade   [Jan-08-18 03:00AM  Investor's Business Daily]
▶ Stocks With Rising Relative Strength: Healthcare Services   [Dec-08-17 03:00AM  Investor's Business Daily]
▶ Healthcare Services Getting Closer To Key Technical Benchmark   [03:00AM  Investor's Business Daily]
▶ Mariko Gordon Starts 5 New Positions in 3rd Quarter   [Nov-21-17 12:33PM  GuruFocus.com]
▶ Is It Too Late To Buy Healthcare Services Group Inc (HCSG)?   [Nov-06-17 05:12PM  Simply Wall St.]
▶ Healthcare Services misses Street 3Q forecasts   [Oct-17-17 04:15PM  Associated Press]
▶ New Strong Buy Stocks for August 11th   [Aug-11-17 06:51AM  Zacks]
▶ Healthcare Services tops Street 2Q forecasts   [Jul-11-17 09:25PM  Associated Press]

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