Intrinsic value of Lannett - LCI

Previous Close

$5.27

  Intrinsic Value

$30.69

stock screener

  Rating & Target

str. buy

+482%

Previous close

$5.27

 
Intrinsic value

$30.69

 
Up/down potential

+482%

 
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, %
  7.80
  7.52
  7.27
  7.04
  6.84
  6.65
  6.49
  6.34
  6.21
  6.08
  5.98
  5.88
  5.79
  5.71
  5.64
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
  5.28
  5.25
  5.22
  5.20
  5.18
  5.16
  5.15
  5.13
Revenue, $m
  683
  734
  787
  843
  901
  960
  1,023
  1,088
  1,155
  1,225
  1,299
  1,375
  1,455
  1,538
  1,624
  1,715
  1,810
  1,908
  2,012
  2,120
  2,233
  2,352
  2,476
  2,606
  2,742
  2,885
  3,034
  3,191
  3,355
  3,527
Variable operating expenses, $m
  511
  544
  578
  613
  649
  687
  726
  767
  810
  855
  822
  870
  920
  973
  1,028
  1,085
  1,145
  1,208
  1,273
  1,341
  1,413
  1,488
  1,567
  1,649
  1,735
  1,825
  1,920
  2,019
  2,123
  2,232
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
  511
  544
  578
  613
  649
  687
  726
  767
  810
  855
  822
  870
  920
  973
  1,028
  1,085
  1,145
  1,208
  1,273
  1,341
  1,413
  1,488
  1,567
  1,649
  1,735
  1,825
  1,920
  2,019
  2,123
  2,232
Operating income, $m
  171
  190
  210
  230
  251
  273
  296
  320
  345
  371
  477
  505
  534
  565
  597
  630
  665
  701
  739
  779
  820
  864
  909
  957
  1,007
  1,059
  1,114
  1,172
  1,232
  1,295
EBITDA, $m
  287
  309
  331
  354
  379
  404
  430
  457
  486
  515
  546
  578
  611
  646
  683
  721
  761
  802
  846
  891
  939
  989
  1,041
  1,096
  1,153
  1,213
  1,276
  1,341
  1,410
  1,483
Interest expense (income), $m
  67
  82
  90
  97
  105
  113
  122
  131
  140
  149
  159
  170
  181
  192
  204
  216
  229
  242
  256
  271
  286
  302
  319
  336
  355
  374
  394
  415
  437
  461
  485
Earnings before tax, $m
  89
  101
  113
  125
  138
  152
  166
  180
  195
  211
  307
  324
  342
  361
  381
  401
  422
  445
  468
  492
  518
  545
  573
  602
  633
  665
  699
  734
  772
  811
Tax expense, $m
  24
  27
  30
  34
  37
  41
  45
  49
  53
  57
  83
  88
  92
  97
  103
  108
  114
  120
  126
  133
  140
  147
  155
  163
  171
  180
  189
  198
  208
  219
Net income, $m
  65
  74
  82
  91
  101
  111
  121
  132
  143
  154
  224
  237
  250
  264
  278
  293
  308
  325
  342
  360
  378
  398
  418
  440
  462
  486
  510
  536
  563
  592

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
  1,715
  1,844
  1,978
  2,118
  2,263
  2,413
  2,570
  2,733
  2,902
  3,079
  3,263
  3,455
  3,655
  3,863
  4,081
  4,309
  4,547
  4,795
  5,055
  5,327
  5,611
  5,909
  6,221
  6,547
  6,889
  7,248
  7,623
  8,017
  8,429
  8,862
Adjusted assets (=assets-cash), $m
  1,715
  1,844
  1,978
  2,118
  2,263
  2,413
  2,570
  2,733
  2,902
  3,079
  3,263
  3,455
  3,655
  3,863
  4,081
  4,309
  4,547
  4,795
  5,055
  5,327
  5,611
  5,909
  6,221
  6,547
  6,889
  7,248
  7,623
  8,017
  8,429
  8,862
Revenue / Adjusted assets
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
Average production assets, $m
  707
  761
  816
  873
  933
  995
  1,060
  1,127
  1,197
  1,269
  1,345
  1,424
  1,507
  1,593
  1,683
  1,777
  1,875
  1,977
  2,084
  2,196
  2,314
  2,437
  2,565
  2,700
  2,841
  2,988
  3,143
  3,306
  3,476
  3,654
Working capital, $m
  235
  253
  271
  290
  310
  330
  352
  374
  397
  422
  447
  473
  500
  529
  559
  590
  622
  657
  692
  729
  768
  809
  852
  896
  943
  992
  1,044
  1,098
  1,154
  1,213
Total debt, $m
  984
  1,068
  1,154
  1,244
  1,338
  1,435
  1,537
  1,642
  1,752
  1,866
  1,985
  2,109
  2,239
  2,374
  2,515
  2,662
  2,816
  2,977
  3,145
  3,321
  3,505
  3,697
  3,899
  4,110
  4,332
  4,564
  4,806
  5,061
  5,328
  5,608
Total liabilities, $m
  1,110
  1,193
  1,280
  1,370
  1,464
  1,561
  1,663
  1,768
  1,878
  1,992
  2,111
  2,235
  2,365
  2,500
  2,641
  2,788
  2,942
  3,102
  3,271
  3,447
  3,631
  3,823
  4,025
  4,236
  4,457
  4,689
  4,932
  5,187
  5,454
  5,734
Total equity, $m
  606
  651
  698
  748
  799
  852
  907
  965
  1,024
  1,087
  1,152
  1,219
  1,290
  1,364
  1,441
  1,521
  1,605
  1,693
  1,784
  1,880
  1,981
  2,086
  2,196
  2,311
  2,432
  2,558
  2,691
  2,830
  2,976
  3,128
Total liabilities and equity, $m
  1,716
  1,844
  1,978
  2,118
  2,263
  2,413
  2,570
  2,733
  2,902
  3,079
  3,263
  3,454
  3,655
  3,864
  4,082
  4,309
  4,547
  4,795
  5,055
  5,327
  5,612
  5,909
  6,221
  6,547
  6,889
  7,247
  7,623
  8,017
  8,430
  8,862
Debt-to-equity ratio
  1.630
  1.640
  1.650
  1.660
  1.680
  1.690
  1.690
  1.700
  1.710
  1.720
  1.720
  1.730
  1.740
  1.740
  1.750
  1.750
  1.750
  1.760
  1.760
  1.770
  1.770
  1.770
  1.780
  1.780
  1.780
  1.780
  1.790
  1.790
  1.790
  1.790
Adjusted equity ratio
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353
  0.353

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  65
  74
  82
  91
  101
  111
  121
  132
  143
  154
  224
  237
  250
  264
  278
  293
  308
  325
  342
  360
  378
  398
  418
  440
  462
  486
  510
  536
  563
  592
Depreciation, amort., depletion, $m
  116
  118
  121
  124
  127
  130
  134
  137
  141
  144
  69
  73
  77
  82
  86
  91
  96
  101
  107
  113
  119
  125
  132
  138
  146
  153
  161
  170
  178
  187
Funds from operations, $m
  181
  192
  203
  216
  228
  241
  255
  269
  283
  299
  293
  310
  327
  345
  364
  384
  404
  426
  449
  472
  497
  523
  550
  578
  608
  639
  672
  706
  742
  779
Change in working capital, $m
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
Cash from operations, $m
  164
  174
  185
  196
  208
  220
  233
  246
  260
  274
  268
  284
  300
  317
  334
  353
  372
  392
  413
  435
  458
  482
  507
  533
  561
  590
  620
  652
  685
  720
Maintenance CAPEX, $m
  -34
  -36
  -39
  -42
  -45
  -48
  -51
  -54
  -58
  -61
  -65
  -69
  -73
  -77
  -82
  -86
  -91
  -96
  -101
  -107
  -113
  -119
  -125
  -132
  -138
  -146
  -153
  -161
  -170
  -178
New CAPEX, $m
  -52
  -53
  -55
  -57
  -60
  -62
  -65
  -67
  -70
  -73
  -76
  -79
  -82
  -86
  -90
  -94
  -98
  -102
  -107
  -112
  -117
  -123
  -129
  -135
  -141
  -148
  -155
  -162
  -170
  -178
Cash from investing activities, $m
  -86
  -89
  -94
  -99
  -105
  -110
  -116
  -121
  -128
  -134
  -141
  -148
  -155
  -163
  -172
  -180
  -189
  -198
  -208
  -219
  -230
  -242
  -254
  -267
  -279
  -294
  -308
  -323
  -340
  -356
Free cash flow, $m
  78
  85
  91
  97
  104
  111
  118
  125
  132
  140
  127
  135
  144
  153
  163
  173
  183
  193
  204
  216
  228
  240
  254
  267
  282
  296
  312
  328
  345
  363
Issuance/(repayment) of debt, $m
  80
  83
  87
  90
  94
  97
  101
  105
  110
  114
  119
  124
  129
  135
  141
  147
  154
  161
  168
  176
  184
  193
  202
  211
  221
  232
  243
  255
  267
  280
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  
  80
  83
  87
  90
  94
  97
  101
  105
  110
  114
  119
  124
  129
  135
  141
  147
  154
  161
  168
  176
  184
  193
  202
  211
  221
  232
  243
  255
  267
  280
Total cash flow (excl. dividends), $m
  159
  168
  178
  187
  197
  208
  219
  230
  242
  255
  246
  260
  274
  288
  304
  320
  337
  354
  373
  392
  412
  433
  455
  478
  503
  528
  555
  583
  612
  643
Retained Cash Flow (-), $m
  -44
  -46
  -47
  -49
  -51
  -53
  -55
  -58
  -60
  -62
  -65
  -68
  -71
  -74
  -77
  -80
  -84
  -88
  -92
  -96
  -100
  -105
  -110
  -115
  -121
  -126
  -133
  -139
  -146
  -153
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
  114
  123
  130
  138
  146
  155
  164
  173
  182
  192
  181
  192
  203
  215
  227
  239
  253
  266
  281
  296
  312
  328
  345
  363
  382
  402
  422
  444
  467
  490
Discount rate, %
  7.70
  8.09
  8.49
  8.91
  9.36
  9.83
  10.32
  10.83
  11.38
  11.95
  12.54
  13.17
  13.83
  14.52
  15.25
  16.01
  16.81
  17.65
  18.53
  19.46
  20.43
  21.45
  22.52
  23.65
  24.83
  26.07
  27.38
  28.75
  30.18
  31.69
PV of cash for distribution, $m
  106
  105
  102
  98
  94
  88
  82
  76
  69
  62
  49
  43
  38
  32
  27
  22
  18
  14
  11
  8
  6
  5
  3
  2
  1
  1
  1
  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

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 (LCI)

Valuation Ratios
P/E Ratio -194.6
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 $633.341 million for the last fiscal year's total revenue generated by Lannett. The default revenue input number comes from 0001 income statement of Lannett. 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 7.8% 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 7.7%, whose default value for LCI is calculated based on our internal credit rating of Lannett, 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.
    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 75.8%.

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 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 9.1% for Lannett.

Corporate tax rate of 27% is the nominal tax rate for Lannett. 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 103.6%.

Life of production assets of 19.5 years is the average useful life of capital assets used in Lannett 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 34.4%. 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 - $561.122 million for Lannett - 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 38.014 million for Lannett 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 at the current share price and the inputted number of shares is $0.2 billion.

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COMPANY NEWS

▶ Lannett Announces Amendment To Credit Agreement   [Dec-11-18 06:52AM  PR Newswire]
▶ Lannett signs $50M distribution deal; stock up 10 percent   [Nov-12-18 09:50AM  American City Business Journals]
▶ Here's Why Lannett Company Dropped Over 14% Today   [Nov-09-18 02:33PM  Motley Fool]
▶ Lannett enters into distribution deal for ADHD drug   [11:57AM  American City Business Journals]
▶ Lannett: A Small-Cap Hidden Gem   [01:13PM  GuruFocus.com]
▶ [$$] Drugmaker Lannett Taps Restructuring Help After Contract Loss   [Oct-08-18 06:45PM  The Wall Street Journal]
▶ Lannett: 5 product launches this quarter; up to 20 more expected over next 12 months   [Oct-01-18 11:42AM  American City Business Journals]

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