Intrinsic value of Hill-Rom Holdings Inc - HRC

Previous Close

$104.43

  Intrinsic Value

$49.03

stock screener

  Rating & Target

str. sell

-53%

Previous close

$104.43

 
Intrinsic value

$49.03

 
Up/down potential

-53%

 
Rating

str. sell

We calculate the intrinsic value of HRC 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 7.0

 

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, %
  2.10
  2.39
  2.65
  2.89
  3.10
  3.29
  3.46
  3.61
  3.75
  3.88
  3.99
  4.09
  4.18
  4.26
  4.34
  4.40
  4.46
  4.52
  4.56
  4.61
  4.65
  4.68
  4.71
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
Revenue, $m
  2,908
  2,977
  3,056
  3,144
  3,242
  3,348
  3,464
  3,589
  3,724
  3,868
  4,023
  4,187
  4,362
  4,548
  4,745
  4,954
  5,176
  5,409
  5,656
  5,917
  6,192
  6,482
  6,787
  7,109
  7,448
  7,805
  8,181
  8,576
  8,992
  9,429
Variable operating expenses, $m
  2,454
  2,506
  2,565
  2,631
  2,704
  2,784
  2,871
  2,965
  3,065
  3,174
  3,013
  3,136
  3,267
  3,406
  3,554
  3,710
  3,876
  4,051
  4,236
  4,431
  4,637
  4,854
  5,083
  5,324
  5,578
  5,845
  6,126
  6,422
  6,734
  7,061
Fixed operating expenses, $m
  156
  160
  163
  167
  171
  174
  178
  182
  186
  190
  194
  199
  203
  207
  212
  217
  221
  226
  231
  236
  242
  247
  252
  258
  264
  269
  275
  281
  288
  294
Total operating expenses, $m
  2,610
  2,666
  2,728
  2,798
  2,875
  2,958
  3,049
  3,147
  3,251
  3,364
  3,207
  3,335
  3,470
  3,613
  3,766
  3,927
  4,097
  4,277
  4,467
  4,667
  4,879
  5,101
  5,335
  5,582
  5,842
  6,114
  6,401
  6,703
  7,022
  7,355
Operating income, $m
  297
  311
  328
  346
  367
  390
  415
  443
  472
  505
  816
  853
  892
  935
  980
  1,027
  1,078
  1,132
  1,189
  1,249
  1,313
  1,381
  1,452
  1,527
  1,607
  1,691
  1,779
  1,872
  1,970
  2,074
EBITDA, $m
  634
  649
  667
  687
  710
  735
  763
  793
  826
  861
  899
  939
  982
  1,028
  1,077
  1,129
  1,185
  1,243
  1,306
  1,371
  1,441
  1,514
  1,592
  1,674
  1,760
  1,851
  1,948
  2,049
  2,156
  2,268
Interest expense (income), $m
  81
  107
  110
  113
  117
  122
  127
  133
  139
  145
  152
  160
  168
  176
  185
  195
  205
  216
  228
  240
  253
  266
  280
  296
  311
  328
  346
  364
  384
  404
  426
Earnings before tax, $m
  191
  202
  214
  229
  245
  263
  283
  304
  327
  353
  656
  685
  716
  749
  785
  822
  862
  904
  949
  997
  1,047
  1,100
  1,157
  1,216
  1,279
  1,345
  1,415
  1,488
  1,566
  1,648
Tax expense, $m
  51
  54
  58
  62
  66
  71
  76
  82
  88
  95
  177
  185
  193
  202
  212
  222
  233
  244
  256
  269
  283
  297
  312
  328
  345
  363
  382
  402
  423
  445
Net income, $m
  139
  147
  156
  167
  179
  192
  206
  222
  239
  257
  479
  500
  523
  547
  573
  600
  629
  660
  693
  728
  764
  803
  844
  888
  933
  982
  1,033
  1,086
  1,143
  1,203

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
  4,453
  4,559
  4,680
  4,815
  4,965
  5,128
  5,305
  5,497
  5,703
  5,924
  6,160
  6,412
  6,680
  6,965
  7,267
  7,587
  7,926
  8,284
  8,662
  9,061
  9,482
  9,926
  10,394
  10,887
  11,406
  11,953
  12,528
  13,133
  13,770
  14,440
Adjusted assets (=assets-cash), $m
  4,453
  4,559
  4,680
  4,815
  4,965
  5,128
  5,305
  5,497
  5,703
  5,924
  6,160
  6,412
  6,680
  6,965
  7,267
  7,587
  7,926
  8,284
  8,662
  9,061
  9,482
  9,926
  10,394
  10,887
  11,406
  11,953
  12,528
  13,133
  13,770
  14,440
Revenue / Adjusted assets
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
Average production assets, $m
  1,797
  1,840
  1,889
  1,943
  2,003
  2,069
  2,141
  2,218
  2,301
  2,391
  2,486
  2,588
  2,696
  2,811
  2,933
  3,062
  3,198
  3,343
  3,496
  3,657
  3,827
  4,006
  4,195
  4,394
  4,603
  4,824
  5,056
  5,300
  5,557
  5,827
Working capital, $m
  503
  515
  529
  544
  561
  579
  599
  621
  644
  669
  696
  724
  755
  787
  821
  857
  895
  936
  979
  1,024
  1,071
  1,121
  1,174
  1,230
  1,289
  1,350
  1,415
  1,484
  1,556
  1,631
Total debt, $m
  2,030
  2,097
  2,173
  2,258
  2,352
  2,454
  2,566
  2,687
  2,816
  2,955
  3,104
  3,262
  3,431
  3,610
  3,800
  4,001
  4,214
  4,440
  4,677
  4,928
  5,193
  5,473
  5,767
  6,077
  6,404
  6,747
  7,109
  7,490
  7,890
  8,312
Total liabilities, $m
  2,801
  2,868
  2,944
  3,029
  3,123
  3,225
  3,337
  3,457
  3,587
  3,726
  3,875
  4,033
  4,202
  4,381
  4,571
  4,772
  4,985
  5,210
  5,448
  5,699
  5,964
  6,244
  6,538
  6,848
  7,175
  7,518
  7,880
  8,261
  8,661
  9,083
Total equity, $m
  1,652
  1,692
  1,736
  1,787
  1,842
  1,902
  1,968
  2,039
  2,116
  2,198
  2,285
  2,379
  2,478
  2,584
  2,696
  2,815
  2,940
  3,073
  3,214
  3,362
  3,518
  3,683
  3,856
  4,039
  4,232
  4,435
  4,648
  4,872
  5,109
  5,357
Total liabilities and equity, $m
  4,453
  4,560
  4,680
  4,816
  4,965
  5,127
  5,305
  5,496
  5,703
  5,924
  6,160
  6,412
  6,680
  6,965
  7,267
  7,587
  7,925
  8,283
  8,662
  9,061
  9,482
  9,927
  10,394
  10,887
  11,407
  11,953
  12,528
  13,133
  13,770
  14,440
Debt-to-equity ratio
  1.230
  1.240
  1.250
  1.260
  1.280
  1.290
  1.300
  1.320
  1.330
  1.340
  1.360
  1.370
  1.380
  1.400
  1.410
  1.420
  1.430
  1.440
  1.460
  1.470
  1.480
  1.490
  1.500
  1.500
  1.510
  1.520
  1.530
  1.540
  1.540
  1.550
Adjusted equity ratio
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  139
  147
  156
  167
  179
  192
  206
  222
  239
  257
  479
  500
  523
  547
  573
  600
  629
  660
  693
  728
  764
  803
  844
  888
  933
  982
  1,033
  1,086
  1,143
  1,203
Depreciation, amort., depletion, $m
  337
  338
  340
  341
  343
  346
  348
  351
  353
  356
  83
  86
  90
  94
  98
  102
  107
  111
  117
  122
  128
  134
  140
  146
  153
  161
  169
  177
  185
  194
Funds from operations, $m
  476
  485
  496
  508
  522
  538
  554
  573
  592
  614
  562
  586
  613
  641
  671
  702
  736
  772
  810
  850
  892
  937
  984
  1,034
  1,087
  1,143
  1,201
  1,263
  1,328
  1,397
Change in working capital, $m
  10
  12
  14
  15
  17
  18
  20
  22
  23
  25
  27
  28
  30
  32
  34
  36
  38
  40
  43
  45
  48
  50
  53
  56
  59
  62
  65
  68
  72
  76
Cash from operations, $m
  465
  473
  482
  493
  505
  519
  534
  551
  569
  589
  535
  558
  582
  609
  636
  666
  698
  731
  767
  804
  844
  887
  931
  978
  1,028
  1,081
  1,136
  1,195
  1,256
  1,322
Maintenance CAPEX, $m
  -59
  -60
  -61
  -63
  -65
  -67
  -69
  -71
  -74
  -77
  -80
  -83
  -86
  -90
  -94
  -98
  -102
  -107
  -111
  -117
  -122
  -128
  -134
  -140
  -146
  -153
  -161
  -169
  -177
  -185
New CAPEX, $m
  -38
  -43
  -49
  -55
  -60
  -66
  -72
  -77
  -83
  -89
  -95
  -102
  -108
  -115
  -122
  -129
  -137
  -144
  -153
  -161
  -170
  -179
  -189
  -199
  -210
  -221
  -232
  -244
  -257
  -270
Cash from investing activities, $m
  -97
  -103
  -110
  -118
  -125
  -133
  -141
  -148
  -157
  -166
  -175
  -185
  -194
  -205
  -216
  -227
  -239
  -251
  -264
  -278
  -292
  -307
  -323
  -339
  -356
  -374
  -393
  -413
  -434
  -455
Free cash flow, $m
  369
  370
  372
  376
  380
  386
  394
  402
  412
  423
  360
  373
  388
  404
  421
  439
  459
  480
  503
  527
  553
  580
  609
  640
  672
  707
  743
  782
  823
  866
Issuance/(repayment) of debt, $m
  57
  67
  76
  85
  94
  103
  112
  121
  130
  139
  149
  158
  169
  179
  190
  201
  213
  225
  238
  251
  265
  279
  294
  310
  327
  344
  362
  381
  401
  421
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  
  57
  67
  76
  85
  94
  103
  112
  121
  130
  139
  149
  158
  169
  179
  190
  201
  213
  225
  238
  251
  265
  279
  294
  310
  327
  344
  362
  381
  401
  421
Total cash flow (excl. dividends), $m
  426
  437
  448
  461
  474
  489
  505
  523
  542
  562
  509
  532
  557
  583
  611
  641
  672
  705
  741
  778
  817
  859
  903
  950
  999
  1,051
  1,105
  1,163
  1,223
  1,287
Retained Cash Flow (-), $m
  -36
  -39
  -45
  -50
  -55
  -61
  -66
  -71
  -77
  -82
  -88
  -93
  -99
  -106
  -112
  -119
  -126
  -133
  -140
  -148
  -156
  -165
  -174
  -183
  -193
  -203
  -213
  -225
  -236
  -248
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
  390
  398
  403
  411
  419
  429
  439
  452
  465
  480
  421
  438
  457
  477
  499
  522
  546
  573
  600
  630
  661
  694
  730
  767
  806
  848
  892
  938
  987
  1,039
Discount rate, %
  7.50
  7.88
  8.27
  8.68
  9.12
  9.57
  10.05
  10.55
  11.08
  11.63
  12.22
  12.83
  13.47
  14.14
  14.85
  15.59
  16.37
  17.19
  18.05
  18.95
  19.90
  20.89
  21.94
  23.04
  24.19
  25.40
  26.67
  28.00
  29.40
  30.87
PV of cash for distribution, $m
  363
  342
  318
  294
  271
  248
  225
  202
  181
  160
  119
  103
  88
  75
  63
  51
  42
  33
  26
  20
  15
  11
  8
  5
  4
  2
  2
  1
  1
  0
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

Hill-Rom Holdings, Inc. is a global medical technology company. The Company operates through four segments: North America Patient Support Systems, International Patient Support Systems, Front Line Care and Surgical Solutions. The Company's products and services include Patient Support Systems, Front Line Care and Surgical Solutions. The Company sells and rents its specialty frames and surfaces, and mobility solutions, as well as its clinical workflow solutions, in the United States and Canada through its North America Patient Support Systems segment, and in regions outside of the United States and Canada through its International Patient Support Systems segment. Its Front Line Care segment globally sells and rents respiratory care products, and sells medical diagnostic equipment and a diversified portfolio of devices that assess, diagnose, treat and manage a range of illnesses and diseases. Under its Surgical Solutions segment, the Company sells its surgical products globally.

FINANCIAL RATIOS  of  Hill-Rom Holdings Inc (HRC)

Valuation Ratios
P/E Ratio 51.3
Price to Sales 2.5
Price to Book 5.1
Price to Tangible Book
Price to Cash Flow 22.1
Price to Free Cash Flow 32.3
Growth Rates
Sales Growth Rate 3.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 18.1%
Cap. Spend. - 3 Yr. Gr. Rate 9.2%
Financial Strength
Quick Ratio 1
Current Ratio 0.1
LT Debt to Equity 156.1%
Total Debt to Equity 170%
Interest Coverage 3
Management Effectiveness
Return On Assets 4.4%
Ret/ On Assets - 3 Yr. Avg. 3.5%
Return On Total Capital 3.8%
Ret/ On T. Cap. - 3 Yr. Avg. 3.2%
Return On Equity 10.4%
Return On Equity - 3 Yr. Avg. 8.6%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 48.1%
Gross Margin - 3 Yr. Avg. 46.6%
EBITDA Margin 17.3%
EBITDA Margin - 3 Yr. Avg. 14.3%
Operating Margin 10%
Oper. Margin - 3 Yr. Avg. 7.5%
Pre-Tax Margin 6.7%
Pre-Tax Margin - 3 Yr. Avg. 5%
Net Profit Margin 4.9%
Net Profit Margin - 3 Yr. Avg. 4%
Effective Tax Rate 27.9%
Eff/ Tax Rate - 3 Yr. Avg. 22.1%
Payout Ratio 35.1%

HRC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HRC stock intrinsic value calculation we used $2848 million for the last fiscal year's total revenue generated by Hill-Rom Holdings Inc. The default revenue input number comes from 0001 income statement of Hill-Rom Holdings 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 HRC stock valuation model: a) initial revenue growth rate of 2.1% 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 7.5%, whose default value for HRC is calculated based on our internal credit rating of Hill-Rom Holdings 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 Hill-Rom Holdings 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 HRC stock the variable cost ratio is equal to 84.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $153 million in the base year in the intrinsic value calculation for HRC 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 Hill-Rom Holdings Inc.

Corporate tax rate of 27% is the nominal tax rate for Hill-Rom Holdings 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 HRC 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 HRC are equal to 61.8%.

Life of production assets of 35.5 years is the average useful life of capital assets used in Hill-Rom Holdings 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 HRC is equal to 17.3%. 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 - $1616.2 million for Hill-Rom Holdings 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 66.673 million for Hill-Rom Holdings 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 Hill-Rom Holdings Inc at the current share price and the inputted number of shares is $7.0 billion.

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