Intrinsic value of Heska Corporation - HSKA

Previous Close

$81.59

  Intrinsic Value

$16.79

stock screener

  Rating & Target

str. sell

-79%

Previous close

$81.59

 
Intrinsic value

$16.79

 
Up/down potential

-79%

 
Rating

str. sell

We calculate the intrinsic value of HSKA 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 0.6

 

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, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  130
  133
  136
  140
  144
  149
  154
  159
  165
  171
  178
  185
  193
  201
  210
  219
  229
  239
  250
  262
  274
  287
  300
  314
  329
  345
  361
  379
  397
  417
Variable operating expenses, $m
  111
  114
  117
  120
  123
  127
  132
  136
  141
  147
  151
  157
  163
  170
  178
  185
  194
  202
  211
  221
  231
  242
  254
  266
  278
  292
  306
  320
  336
  352
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
  111
  114
  117
  120
  123
  127
  132
  136
  141
  147
  151
  157
  163
  170
  178
  185
  194
  202
  211
  221
  231
  242
  254
  266
  278
  292
  306
  320
  336
  352
Operating income, $m
  18
  19
  19
  20
  21
  21
  22
  23
  24
  25
  28
  29
  30
  31
  32
  34
  35
  37
  39
  40
  42
  44
  46
  49
  51
  53
  56
  59
  61
  64
EBITDA, $m
  23
  24
  24
  25
  26
  27
  27
  28
  30
  31
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
  71
  74
Interest expense (income), $m
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
Earnings before tax, $m
  18
  19
  19
  20
  20
  21
  22
  22
  23
  24
  27
  28
  29
  30
  31
  32
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  52
  55
  57
  60
Tax expense, $m
  5
  5
  5
  5
  5
  6
  6
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
Net income, $m
  13
  14
  14
  14
  15
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
  37
  38
  40
  42
  44

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
  160
  163
  167
  172
  177
  183
  189
  196
  203
  211
  219
  228
  238
  248
  259
  270
  282
  295
  308
  322
  337
  353
  369
  387
  405
  425
  445
  467
  489
  513
Adjusted assets (=assets-cash), $m
  160
  163
  167
  172
  177
  183
  189
  196
  203
  211
  219
  228
  238
  248
  259
  270
  282
  295
  308
  322
  337
  353
  369
  387
  405
  425
  445
  467
  489
  513
Revenue / Adjusted assets
  0.813
  0.816
  0.814
  0.814
  0.814
  0.814
  0.815
  0.811
  0.813
  0.810
  0.813
  0.811
  0.811
  0.810
  0.811
  0.811
  0.812
  0.810
  0.812
  0.814
  0.813
  0.813
  0.813
  0.811
  0.812
  0.812
  0.811
  0.812
  0.812
  0.813
Average production assets, $m
  34
  34
  35
  36
  37
  38
  40
  41
  43
  44
  46
  48
  50
  52
  54
  57
  59
  62
  65
  68
  71
  74
  78
  81
  85
  89
  94
  98
  103
  108
Working capital, $m
  29
  30
  31
  32
  33
  34
  35
  36
  37
  39
  40
  42
  44
  45
  47
  50
  52
  54
  57
  59
  62
  65
  68
  71
  74
  78
  82
  86
  90
  94
Total debt, $m
  7
  8
  8
  10
  11
  12
  13
  15
  16
  18
  20
  22
  24
  26
  28
  31
  33
  36
  39
  42
  45
  49
  53
  56
  60
  65
  69
  74
  79
  84
Total liabilities, $m
  35
  36
  36
  38
  39
  40
  41
  43
  44
  46
  48
  50
  52
  54
  56
  59
  61
  64
  67
  70
  73
  77
  81
  84
  88
  93
  97
  102
  107
  112
Total equity, $m
  125
  128
  131
  135
  139
  143
  148
  153
  159
  165
  172
  179
  186
  194
  202
  211
  220
  230
  241
  252
  264
  276
  289
  303
  317
  332
  348
  365
  383
  401
Total liabilities and equity, $m
  160
  164
  167
  173
  178
  183
  189
  196
  203
  211
  220
  229
  238
  248
  258
  270
  281
  294
  308
  322
  337
  353
  370
  387
  405
  425
  445
  467
  490
  513
Debt-to-equity ratio
  0.050
  0.060
  0.060
  0.070
  0.080
  0.080
  0.090
  0.100
  0.100
  0.110
  0.120
  0.120
  0.130
  0.130
  0.140
  0.150
  0.150
  0.160
  0.160
  0.170
  0.170
  0.180
  0.180
  0.190
  0.190
  0.190
  0.200
  0.200
  0.210
  0.210
Adjusted equity ratio
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  13
  14
  14
  14
  15
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
  37
  38
  40
  42
  44
Depreciation, amort., depletion, $m
  5
  5
  5
  5
  5
  5
  5
  5
  6
  6
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
Funds from operations, $m
  18
  18
  19
  19
  20
  20
  21
  22
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  52
  54
Change in working capital, $m
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
Cash from operations, $m
  17
  18
  18
  18
  19
  19
  20
  20
  21
  22
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  35
  36
  38
  40
  41
  43
  45
  47
  50
Maintenance CAPEX, $m
  -3
  -3
  -3
  -3
  -3
  -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
New CAPEX, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
Cash from investing activities, $m
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -9
  -9
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -12
  -14
  -14
  -15
Free cash flow, $m
  14
  14
  14
  14
  14
  15
  15
  15
  16
  16
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
Issuance/(repayment) of debt, $m
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
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  
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
Total cash flow (excl. dividends), $m
  14
  15
  15
  15
  15
  16
  16
  17
  17
  18
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  34
  35
  37
  38
  40
Retained Cash Flow (-), $m
  -2
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
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
  12
  12
  12
  11
  11
  11
  11
  12
  12
  12
  12
  12
  12
  12
  13
  13
  13
  14
  14
  15
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
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
  12
  11
  10
  9
  9
  8
  8
  7
  7
  6
  5
  5
  5
  4
  4
  3
  3
  3
  2
  2
  2
  1
  1
  1
  1
  1
  0
  0
  0
  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

Heska Corporation sells veterinary diagnostic and specialty products. The Company operates through two segments: Core Companion Animal Health (CCA) and Other Vaccines, Pharmaceuticals and Products (OVP). The CCA segment includes, primarily for canine and feline use, blood testing instruments and supplies, digital imaging products, software and services, local and cloud-based data services, allergy testing and immunotherapy, and single use offerings, such as in-clinic diagnostic tests and heartworm preventive products. Its OVP segment includes private label vaccine and pharmaceutical production for cattle but also for other species, including equine, porcine, avian, feline and canine. All OVP products are sold by third parties under third-party labels. It focuses on supporting veterinarians in canine and feline healthcare space. It offers a line of veterinary blood testing and other instruments. It manufactures biological and pharmaceutical products for other animal health companies.

FINANCIAL RATIOS  of  Heska Corporation (HSKA)

Valuation Ratios
P/E Ratio 52.1
Price to Sales 4.4
Price to Book 6.6
Price to Tangible Book
Price to Cash Flow 95.6
Price to Free Cash Flow 191.2
Growth Rates
Sales Growth Rate 23.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -25%
Cap. Spend. - 3 Yr. Gr. Rate 8.4%
Financial Strength
Quick Ratio 11
Current Ratio 0.1
LT Debt to Equity 0%
Total Debt to Equity 1.1%
Interest Coverage 0
Management Effectiveness
Return On Assets 9.1%
Ret/ On Assets - 3 Yr. Avg. 5.7%
Return On Total Capital 14.5%
Ret/ On T. Cap. - 3 Yr. Avg. 9.6%
Return On Equity 14.6%
Return On Equity - 3 Yr. Avg. 9.7%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 41.5%
Gross Margin - 3 Yr. Avg. 41.1%
EBITDA Margin 16.9%
EBITDA Margin - 3 Yr. Avg. 12%
Operating Margin 12.3%
Oper. Margin - 3 Yr. Avg. 8.1%
Pre-Tax Margin 13.1%
Pre-Tax Margin - 3 Yr. Avg. 8%
Net Profit Margin 8.5%
Net Profit Margin - 3 Yr. Avg. 5.5%
Effective Tax Rate 29.4%
Eff/ Tax Rate - 3 Yr. Avg. 29.2%
Payout Ratio 0%

HSKA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HSKA stock intrinsic value calculation we used $127 million for the last fiscal year's total revenue generated by Heska Corporation. The default revenue input number comes from 0001 income statement of Heska Corporation. 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 HSKA stock valuation model: a) initial revenue growth rate of 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 HSKA is calculated based on our internal credit rating of Heska Corporation, 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 Heska Corporation.
    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 HSKA stock the variable cost ratio is equal to 85.8%.

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 HSKA 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 Heska Corporation.

Corporate tax rate of 27% is the nominal tax rate for Heska Corporation. 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 HSKA 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 HSKA are equal to 25.9%.

Life of production assets of 10.7 years is the average useful life of capital assets used in Heska Corporation 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 HSKA is equal to 22.6%. 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 - $122.409 million for Heska Corporation - 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 7.742 million for Heska Corporation 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 Heska Corporation at the current share price and the inputted number of shares is $0.6 billion.

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