Intrinsic value of Lannett Co Inc - LCI

Previous Close

$5.22

  Intrinsic Value

$12.98

stock screener

  Rating & Target

str. buy

+149%

Previous close

$5.22

 
Intrinsic value

$12.98

 
Up/down potential

+149%

 
Rating

str. buy

We calculate the intrinsic value of LCI 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 0.2

 

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, %
  5.10
  5.09
  5.08
  5.07
  5.07
  5.06
  5.05
  5.05
  5.04
  5.04
  5.03
  5.03
  5.03
  5.03
  5.02
  5.02
  5.02
  5.02
  5.02
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.00
Revenue, $m
  720
  757
  795
  835
  878
  922
  969
  1,018
  1,069
  1,123
  1,179
  1,239
  1,301
  1,366
  1,435
  1,507
  1,583
  1,662
  1,745
  1,833
  1,925
  2,021
  2,122
  2,229
  2,340
  2,457
  2,580
  2,710
  2,845
  2,988
Variable operating expenses, $m
  618
  646
  675
  705
  737
  770
  805
  842
  881
  921
  887
  932
  979
  1,028
  1,080
  1,134
  1,191
  1,251
  1,313
  1,379
  1,448
  1,521
  1,597
  1,677
  1,761
  1,849
  1,942
  2,039
  2,141
  2,248
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
  618
  646
  675
  705
  737
  770
  805
  842
  881
  921
  887
  932
  979
  1,028
  1,080
  1,134
  1,191
  1,251
  1,313
  1,379
  1,448
  1,521
  1,597
  1,677
  1,761
  1,849
  1,942
  2,039
  2,141
  2,248
Operating income, $m
  102
  111
  120
  130
  141
  152
  163
  175
  188
  202
  292
  307
  322
  338
  355
  373
  392
  411
  432
  454
  476
  500
  525
  552
  579
  608
  639
  671
  704
  740
EBITDA, $m
  214
  225
  236
  248
  261
  274
  288
  302
  318
  334
  350
  368
  386
  406
  426
  448
  470
  494
  518
  544
  572
  600
  630
  662
  695
  730
  767
  805
  845
  887
Interest expense (income), $m
  67
  82
  87
  92
  98
  103
  109
  115
  122
  129
  136
  143
  151
  160
  168
  177
  187
  197
  208
  219
  230
  243
  255
  269
  283
  298
  313
  330
  347
  365
  384
Earnings before tax, $m
  20
  24
  28
  33
  38
  43
  48
  54
  59
  66
  149
  155
  162
  170
  178
  186
  195
  204
  213
  223
  234
  245
  256
  269
  281
  295
  309
  324
  339
  356
Tax expense, $m
  5
  6
  8
  9
  10
  12
  13
  14
  16
  18
  40
  42
  44
  46
  48
  50
  53
  55
  58
  60
  63
  66
  69
  73
  76
  80
  83
  87
  92
  96
Net income, $m
  14
  17
  21
  24
  27
  31
  35
  39
  43
  48
  108
  113
  119
  124
  130
  136
  142
  149
  156
  163
  171
  179
  187
  196
  205
  215
  226
  236
  248
  260

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
  1,655
  1,739
  1,828
  1,920
  2,018
  2,120
  2,227
  2,339
  2,457
  2,581
  2,711
  2,847
  2,991
  3,141
  3,299
  3,464
  3,638
  3,821
  4,012
  4,213
  4,424
  4,646
  4,879
  5,123
  5,380
  5,649
  5,932
  6,229
  6,541
  6,868
Adjusted assets (=assets-cash), $m
  1,655
  1,739
  1,828
  1,920
  2,018
  2,120
  2,227
  2,339
  2,457
  2,581
  2,711
  2,847
  2,991
  3,141
  3,299
  3,464
  3,638
  3,821
  4,012
  4,213
  4,424
  4,646
  4,879
  5,123
  5,380
  5,649
  5,932
  6,229
  6,541
  6,868
Revenue / Adjusted assets
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
Average production assets, $m
  659
  693
  728
  765
  804
  845
  887
  932
  979
  1,028
  1,080
  1,135
  1,192
  1,251
  1,314
  1,380
  1,450
  1,522
  1,599
  1,679
  1,763
  1,851
  1,944
  2,041
  2,144
  2,251
  2,364
  2,482
  2,606
  2,737
Working capital, $m
  310
  325
  342
  359
  377
  396
  417
  438
  460
  483
  507
  533
  559
  587
  617
  648
  680
  715
  750
  788
  828
  869
  913
  958
  1,006
  1,057
  1,110
  1,165
  1,223
  1,285
Total debt, $m
  889
  941
  996
  1,053
  1,114
  1,177
  1,244
  1,313
  1,386
  1,463
  1,544
  1,628
  1,717
  1,810
  1,908
  2,011
  2,118
  2,232
  2,350
  2,475
  2,606
  2,743
  2,888
  3,039
  3,198
  3,365
  3,541
  3,725
  3,918
  4,121
Total liabilities, $m
  1,026
  1,078
  1,133
  1,191
  1,251
  1,314
  1,381
  1,450
  1,523
  1,600
  1,681
  1,765
  1,854
  1,947
  2,045
  2,148
  2,256
  2,369
  2,488
  2,612
  2,743
  2,881
  3,025
  3,176
  3,336
  3,503
  3,678
  3,862
  4,055
  4,258
Total equity, $m
  629
  661
  695
  730
  767
  805
  846
  889
  934
  981
  1,030
  1,082
  1,136
  1,194
  1,253
  1,316
  1,382
  1,452
  1,525
  1,601
  1,681
  1,766
  1,854
  1,947
  2,044
  2,147
  2,254
  2,367
  2,486
  2,610
Total liabilities and equity, $m
  1,655
  1,739
  1,828
  1,921
  2,018
  2,119
  2,227
  2,339
  2,457
  2,581
  2,711
  2,847
  2,990
  3,141
  3,298
  3,464
  3,638
  3,821
  4,013
  4,213
  4,424
  4,647
  4,879
  5,123
  5,380
  5,650
  5,932
  6,229
  6,541
  6,868
Debt-to-equity ratio
  1.410
  1.420
  1.430
  1.440
  1.450
  1.460
  1.470
  1.480
  1.480
  1.490
  1.500
  1.500
  1.510
  1.520
  1.520
  1.530
  1.530
  1.540
  1.540
  1.550
  1.550
  1.550
  1.560
  1.560
  1.560
  1.570
  1.570
  1.570
  1.580
  1.580
Adjusted equity ratio
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380
  0.380

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  14
  17
  21
  24
  27
  31
  35
  39
  43
  48
  108
  113
  119
  124
  130
  136
  142
  149
  156
  163
  171
  179
  187
  196
  205
  215
  226
  236
  248
  260
Depreciation, amort., depletion, $m
  112
  114
  116
  118
  120
  122
  124
  127
  129
  132
  58
  61
  64
  68
  71
  75
  78
  82
  86
  91
  95
  100
  105
  110
  116
  122
  128
  134
  141
  148
Funds from operations, $m
  126
  131
  136
  142
  147
  153
  159
  166
  173
  180
  167
  175
  183
  192
  201
  210
  220
  231
  242
  254
  266
  279
  292
  306
  321
  337
  353
  370
  389
  407
Change in working capital, $m
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  30
  31
  33
  34
  36
  38
  40
  41
  44
  46
  48
  50
  53
  56
  58
  61
Cash from operations, $m
  111
  115
  120
  124
  129
  134
  139
  145
  151
  157
  143
  149
  156
  164
  171
  179
  188
  197
  206
  216
  227
  237
  249
  261
  273
  287
  300
  315
  330
  346
Maintenance CAPEX, $m
  -34
  -36
  -37
  -39
  -41
  -43
  -46
  -48
  -50
  -53
  -56
  -58
  -61
  -64
  -68
  -71
  -75
  -78
  -82
  -86
  -91
  -95
  -100
  -105
  -110
  -116
  -122
  -128
  -134
  -141
New CAPEX, $m
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
  -60
  -63
  -66
  -69
  -73
  -76
  -80
  -84
  -88
  -93
  -97
  -102
  -107
  -113
  -118
  -124
  -130
Cash from investing activities, $m
  -66
  -70
  -72
  -76
  -80
  -84
  -89
  -93
  -97
  -102
  -108
  -112
  -118
  -124
  -131
  -137
  -144
  -151
  -158
  -166
  -175
  -183
  -193
  -202
  -212
  -223
  -235
  -246
  -258
  -271
Free cash flow, $m
  45
  46
  47
  48
  49
  50
  51
  52
  53
  55
  35
  36
  38
  39
  41
  42
  44
  46
  48
  50
  52
  54
  56
  58
  61
  63
  66
  69
  72
  75
Issuance/(repayment) of debt, $m
  50
  52
  55
  57
  60
  63
  66
  70
  73
  77
  81
  85
  89
  93
  98
  103
  108
  113
  119
  125
  131
  137
  144
  152
  159
  167
  175
  184
  193
  203
Issuance/(repurchase) of shares, $m
  16
  15
  13
  11
  10
  8
  6
  4
  1
  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  
  66
  67
  68
  68
  70
  71
  72
  74
  74
  77
  81
  85
  89
  93
  98
  103
  108
  113
  119
  125
  131
  137
  144
  152
  159
  167
  175
  184
  193
  203
Total cash flow (excl. dividends), $m
  111
  113
  115
  117
  119
  121
  123
  125
  128
  131
  116
  121
  127
  132
  139
  145
  152
  159
  166
  174
  183
  191
  200
  210
  220
  230
  241
  253
  265
  278
Retained Cash Flow (-), $m
  -30
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
  -60
  -63
  -66
  -69
  -73
  -76
  -80
  -84
  -88
  -93
  -97
  -102
  -107
  -113
  -118
  -124
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
  81
  81
  81
  82
  82
  82
  82
  83
  83
  84
  66
  69
  72
  75
  79
  82
  86
  90
  94
  98
  102
  107
  112
  117
  122
  128
  134
  140
  147
  154
Discount rate, %
  8.20
  8.61
  9.04
  9.49
  9.97
  10.47
  10.99
  11.54
  12.12
  12.72
  13.36
  14.02
  14.73
  15.46
  16.24
  17.05
  17.90
  18.79
  19.73
  20.72
  21.76
  22.84
  23.99
  25.19
  26.45
  27.77
  29.16
  30.61
  32.15
  33.75
PV of cash for distribution, $m
  75
  69
  63
  57
  51
  45
  40
  35
  30
  25
  17
  14
  12
  10
  8
  7
  5
  4
  3
  2
  2
  1
  1
  1
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  96.4
  93.3
  90.7
  88.7
  87.0
  85.8
  85.0
  84.5
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3

Lannett Company, Inc. develops, manufactures, markets and distributes generic versions of brand pharmaceutical products. The Company manufactures and/or distributes prescription products with the exception of a small portfolio of over-the-counter products manufactured by its subsidiary, Silarx Pharmaceuticals, Inc. As of June 30, 2016, the Company's products included Acetazolamide Tablets; Butalbital, Acetaminophen and Caffeine Tablets; Butalbital, Aspirin and Caffeine Capsules; C-Topical Solution; Digoxin Tablets; Glycolax Rx; Isosorbide Mononitrate CR; Levothyroxine Sodium Tablets; Methylphenidate HCL CD; Methylphenidate ER; Nifedipine CR; Omeprazole DR; Oxbutynin ER; Pantoprazole DR; Pilocarpine HCl Tablets; Triamterene w/Hydrochlorothiazide Capsules, and Ursodiol Capsules. The Company has additional products under development, which are orally administered solid oral-dosage products (tablet/capsule) or oral solutions, nasal, topicals or parentarels, as well as other dosage forms.

FINANCIAL RATIOS  of  Lannett Co Inc (LCI)

Valuation Ratios
P/E Ratio -192.7
Price to Sales 0.3
Price to Book 0.3
Price to Tangible Book
Price to Cash Flow 1.2
Price to Free Cash Flow 1.7
Growth Rates
Sales Growth Rate 12.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 104.2%
Cap. Spend. - 3 Yr. Gr. Rate 13.5%
Financial Strength
Quick Ratio 2
Current Ratio 0.2
LT Debt to Equity 150.4%
Total Debt to Equity 161.1%
Interest Coverage 1
Management Effectiveness
Return On Assets -4%
Ret/ On Assets - 3 Yr. Avg. 12.8%
Return On Total Capital -0.1%
Ret/ On T. Cap. - 3 Yr. Avg. 14.6%
Return On Equity -0.2%
Return On Equity - 3 Yr. Avg. 16.1%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 47.9%
Gross Margin - 3 Yr. Avg. 59.3%
EBITDA Margin 19.3%
EBITDA Margin - 3 Yr. Avg. 34.2%
Operating Margin 13.5%
Oper. Margin - 3 Yr. Avg. 30.6%
Pre-Tax Margin 0.2%
Pre-Tax Margin - 3 Yr. Avg. 22.3%
Net Profit Margin -0.2%
Net Profit Margin - 3 Yr. Avg. 14.9%
Effective Tax Rate 200%
Eff/ Tax Rate - 3 Yr. Avg. 87.1%
Payout Ratio 0%

LCI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LCI stock intrinsic value calculation we used $685 million for the last fiscal year's total revenue generated by Lannett Co Inc. The default revenue input number comes from 0001 income statement of Lannett Co 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 LCI stock valuation model: a) initial revenue growth rate of 5.1% 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 8.2%, whose default value for LCI is calculated based on our internal credit rating of Lannett Co 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 Lannett Co 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 LCI stock the variable cost ratio is equal to 86.4%.

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 LCI 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 9.8% for Lannett Co Inc.

Corporate tax rate of 27% is the nominal tax rate for Lannett Co 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 LCI 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 LCI are equal to 91.6%.

Life of production assets of 18.5 years is the average useful life of capital assets used in Lannett Co 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 LCI is equal to 43%. 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 - $598.915 million for Lannett Co 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 39.287 million for Lannett Co 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 Lannett Co Inc at the current share price and the inputted number of shares is $0.2 billion.

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