Intrinsic value of LHC Group - LHCG

Previous Close

$63.62

  Intrinsic Value

$77.42

stock screener

  Rating & Target

buy

+22%

Previous close

$63.62

 
Intrinsic value

$77.42

 
Up/down potential

+22%

 
Rating

buy

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of LHCG 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  12.13
  18.20
  16.88
  15.69
  14.62
  13.66
  12.79
  12.02
  11.31
  10.68
  10.11
  9.60
  9.14
  8.73
  8.36
  8.02
  7.72
  7.45
  7.20
  6.98
  6.78
  6.60
  6.44
  6.30
  6.17
  6.05
  5.95
  5.85
  5.77
  5.69
  5.62
Revenue, $m
  915
  1,082
  1,264
  1,462
  1,676
  1,905
  2,149
  2,407
  2,680
  2,966
  3,266
  3,579
  3,907
  4,248
  4,603
  4,972
  5,355
  5,754
  6,169
  6,599
  7,047
  7,512
  7,996
  8,500
  9,025
  9,571
  10,140
  10,734
  11,353
  11,999
  12,673
Variable operating expenses, $m
 
  988
  1,150
  1,326
  1,515
  1,718
  1,934
  2,162
  2,403
  2,657
  2,922
  3,169
  3,459
  3,761
  4,075
  4,402
  4,742
  5,095
  5,462
  5,843
  6,240
  6,652
  7,080
  7,526
  7,991
  8,474
  8,978
  9,504
  10,052
  10,624
  11,221
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
  844
  988
  1,150
  1,326
  1,515
  1,718
  1,934
  2,162
  2,403
  2,657
  2,922
  3,169
  3,459
  3,761
  4,075
  4,402
  4,742
  5,095
  5,462
  5,843
  6,240
  6,652
  7,080
  7,526
  7,991
  8,474
  8,978
  9,504
  10,052
  10,624
  11,221
Operating income, $m
  71
  93
  114
  137
  161
  188
  215
  245
  276
  309
  343
  410
  448
  487
  527
  570
  613
  659
  707
  756
  807
  861
  916
  974
  1,034
  1,096
  1,162
  1,230
  1,300
  1,374
  1,452
EBITDA, $m
  83
  129
  151
  175
  201
  228
  257
  288
  321
  355
  391
  428
  467
  508
  551
  595
  641
  688
  738
  789
  843
  899
  957
  1,017
  1,080
  1,145
  1,213
  1,284
  1,358
  1,435
  1,516
Interest expense (income), $m
  3
  3
  4
  6
  8
  9
  11
  13
  16
  18
  20
  23
  25
  28
  31
  34
  37
  40
  44
  47
  51
  54
  58
  62
  67
  71
  75
  80
  85
  90
  96
Earnings before tax, $m
  68
  90
  110
  131
  154
  178
  204
  232
  261
  291
  323
  387
  422
  458
  496
  536
  576
  619
  663
  709
  757
  806
  858
  911
  967
  1,025
  1,086
  1,149
  1,215
  1,284
  1,356
Tax expense, $m
  22
  24
  30
  35
  41
  48
  55
  63
  70
  79
  87
  105
  114
  124
  134
  145
  156
  167
  179
  191
  204
  218
  232
  246
  261
  277
  293
  310
  328
  347
  366
Net income, $m
  37
  66
  80
  96
  112
  130
  149
  169
  190
  213
  236
  283
  308
  335
  362
  391
  421
  452
  484
  518
  552
  589
  626
  665
  706
  749
  793
  839
  887
  937
  990

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  3
  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
  614
  722
  844
  976
  1,119
  1,272
  1,435
  1,607
  1,789
  1,980
  2,180
  2,389
  2,608
  2,836
  3,072
  3,319
  3,575
  3,841
  4,118
  4,405
  4,704
  5,015
  5,338
  5,674
  6,024
  6,389
  6,769
  7,165
  7,578
  8,010
  8,460
Adjusted assets (=assets-cash), $m
  611
  722
  844
  976
  1,119
  1,272
  1,435
  1,607
  1,789
  1,980
  2,180
  2,389
  2,608
  2,836
  3,072
  3,319
  3,575
  3,841
  4,118
  4,405
  4,704
  5,015
  5,338
  5,674
  6,024
  6,389
  6,769
  7,165
  7,578
  8,010
  8,460
Revenue / Adjusted assets
  1.498
  1.499
  1.498
  1.498
  1.498
  1.498
  1.498
  1.498
  1.498
  1.498
  1.498
  1.498
  1.498
  1.498
  1.498
  1.498
  1.498
  1.498
  1.498
  1.498
  1.498
  1.498
  1.498
  1.498
  1.498
  1.498
  1.498
  1.498
  1.498
  1.498
  1.498
Average production assets, $m
  140
  164
  192
  222
  255
  290
  327
  366
  407
  451
  496
  544
  594
  646
  700
  756
  814
  875
  938
  1,003
  1,071
  1,142
  1,215
  1,292
  1,372
  1,455
  1,541
  1,631
  1,726
  1,824
  1,926
Working capital, $m
  70
  79
  92
  107
  122
  139
  157
  176
  196
  217
  238
  261
  285
  310
  336
  363
  391
  420
  450
  482
  514
  548
  584
  621
  659
  699
  740
  784
  829
  876
  925
Total debt, $m
  88
  127
  171
  219
  270
  324
  383
  444
  509
  578
  649
  724
  803
  884
  969
  1,057
  1,149
  1,244
  1,343
  1,446
  1,553
  1,664
  1,780
  1,900
  2,026
  2,156
  2,292
  2,434
  2,582
  2,736
  2,898
Total liabilities, $m
  219
  258
  302
  350
  401
  455
  514
  575
  640
  709
  780
  855
  934
  1,015
  1,100
  1,188
  1,280
  1,375
  1,474
  1,577
  1,684
  1,795
  1,911
  2,031
  2,157
  2,287
  2,423
  2,565
  2,713
  2,867
  3,029
Total equity, $m
  395
  464
  542
  627
  718
  817
  921
  1,032
  1,148
  1,271
  1,400
  1,534
  1,674
  1,820
  1,973
  2,131
  2,295
  2,466
  2,644
  2,828
  3,020
  3,220
  3,427
  3,643
  3,868
  4,102
  4,346
  4,600
  4,865
  5,142
  5,431
Total liabilities and equity, $m
  614
  722
  844
  977
  1,119
  1,272
  1,435
  1,607
  1,788
  1,980
  2,180
  2,389
  2,608
  2,835
  3,073
  3,319
  3,575
  3,841
  4,118
  4,405
  4,704
  5,015
  5,338
  5,674
  6,025
  6,389
  6,769
  7,165
  7,578
  8,009
  8,460
Debt-to-equity ratio
  0.223
  0.280
  0.320
  0.350
  0.380
  0.400
  0.420
  0.430
  0.440
  0.450
  0.460
  0.470
  0.480
  0.490
  0.490
  0.500
  0.500
  0.500
  0.510
  0.510
  0.510
  0.520
  0.520
  0.520
  0.520
  0.530
  0.530
  0.530
  0.530
  0.530
  0.530
Adjusted equity ratio
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  37
  66
  80
  96
  112
  130
  149
  169
  190
  213
  236
  283
  308
  335
  362
  391
  421
  452
  484
  518
  552
  589
  626
  665
  706
  749
  793
  839
  887
  937
  990
Depreciation, amort., depletion, $m
  12
  36
  37
  38
  39
  40
  42
  43
  44
  46
  47
  18
  20
  22
  23
  25
  27
  29
  31
  33
  36
  38
  41
  43
  46
  48
  51
  54
  58
  61
  64
Funds from operations, $m
  48
  102
  117
  134
  151
  170
  191
  212
  235
  258
  283
  301
  328
  356
  386
  416
  448
  481
  515
  551
  588
  627
  667
  708
  752
  797
  844
  893
  945
  998
  1,054
Change in working capital, $m
  -19
  12
  13
  14
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  42
  43
  45
  47
  49
Cash from operations, $m
  67
  90
  104
  119
  136
  154
  173
  193
  215
  237
  261
  278
  304
  331
  360
  389
  420
  452
  485
  520
  555
  593
  631
  672
  714
  757
  803
  850
  899
  951
  1,005
Maintenance CAPEX, $m
  0
  -5
  -5
  -6
  -7
  -8
  -10
  -11
  -12
  -14
  -15
  -17
  -18
  -20
  -22
  -23
  -25
  -27
  -29
  -31
  -33
  -36
  -38
  -41
  -43
  -46
  -48
  -51
  -54
  -58
  -61
New CAPEX, $m
  -16
  -25
  -28
  -30
  -33
  -35
  -37
  -39
  -41
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -58
  -61
  -63
  -65
  -68
  -71
  -74
  -77
  -80
  -83
  -87
  -90
  -94
  -98
  -103
Cash from investing activities, $m
  -50
  -30
  -33
  -36
  -40
  -43
  -47
  -50
  -53
  -58
  -61
  -65
  -68
  -72
  -76
  -79
  -83
  -88
  -92
  -96
  -101
  -107
  -112
  -118
  -123
  -129
  -135
  -141
  -148
  -156
  -164
Free cash flow, $m
  17
  60
  71
  83
  96
  110
  126
  143
  161
  180
  201
  214
  236
  260
  284
  310
  336
  364
  393
  423
  454
  486
  520
  555
  591
  628
  668
  708
  751
  795
  841
Issuance/(repayment) of debt, $m
  -11
  39
  44
  47
  51
  55
  58
  62
  65
  68
  72
  75
  78
  81
  85
  88
  92
  95
  99
  103
  107
  111
  116
  120
  125
  131
  136
  142
  148
  154
  161
Issuance/(repurchase) of shares, $m
  -1
  6
  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  
  -20
  45
  44
  47
  51
  55
  58
  62
  65
  68
  72
  75
  78
  81
  85
  88
  92
  95
  99
  103
  107
  111
  116
  120
  125
  131
  136
  142
  148
  154
  161
Total cash flow (excl. dividends), $m
  -3
  105
  114
  130
  147
  165
  184
  205
  226
  249
  272
  289
  314
  341
  369
  398
  428
  459
  492
  526
  561
  597
  635
  675
  716
  759
  804
  850
  899
  950
  1,003
Retained Cash Flow (-), $m
  -40
  -72
  -78
  -85
  -92
  -98
  -104
  -111
  -117
  -123
  -129
  -134
  -140
  -146
  -152
  -158
  -164
  -171
  -178
  -185
  -192
  -199
  -207
  -216
  -225
  -234
  -244
  -254
  -265
  -277
  -289
Prev. year cash balance distribution, $m
 
  3
  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
 
  37
  36
  45
  55
  67
  80
  94
  109
  126
  144
  154
  174
  195
  217
  240
  264
  289
  314
  341
  369
  398
  428
  459
  491
  525
  560
  596
  634
  673
  714
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
 
  35
  33
  39
  46
  52
  58
  64
  68
  72
  75
  73
  74
  74
  73
  70
  67
  63
  58
  53
  47
  41
  36
  30
  25
  20
  16
  13
  10
  7
  5
Current shareholders' claim on cash, %
  100
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5

LHC Group, Inc. is a holding company. The Company provides post-acute healthcare services to patients through its home nursing agencies, hospice agencies, community-based services agencies and long-term acute care hospitals (LTACHs). The Company operates through four segments: home health services, hospice services, community-based services and facility-based services. Through its home health services segment, the Company offers a range of services, including skilled nursing, medically oriented social services, and physical, occupational and speech therapy. Through its hospice services segment, the Company offers a range of services, including pain and symptom management, and emotional and spiritual support. Its community-based service operations offer a range of services to patients in their home or in a medical facility. The services range from assistance with grooming, medication reminders and meal preparation. It provides facility-based services principally through its LTACHs.

FINANCIAL RATIOS  of  LHC Group (LHCG)

Valuation Ratios
P/E Ratio 30.3
Price to Sales 1.2
Price to Book 2.8
Price to Tangible Book
Price to Cash Flow 16.7
Price to Free Cash Flow 22
Growth Rates
Sales Growth Rate 12.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -81%
Cap. Spend. - 3 Yr. Gr. Rate -14.5%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 22.3%
Total Debt to Equity 22.3%
Interest Coverage 24
Management Effectiveness
Return On Assets 6.6%
Ret/ On Assets - 3 Yr. Avg. 6%
Return On Total Capital 7.9%
Ret/ On T. Cap. - 3 Yr. Avg. 7.3%
Return On Equity 9.9%
Return On Equity - 3 Yr. Avg. 8.9%
Asset Turnover 1.6
Profitability Ratios
Gross Margin 39%
Gross Margin - 3 Yr. Avg. 40.3%
EBITDA Margin 9.1%
EBITDA Margin - 3 Yr. Avg. 8.7%
Operating Margin 7.8%
Oper. Margin - 3 Yr. Avg. 7.4%
Pre-Tax Margin 7.4%
Pre-Tax Margin - 3 Yr. Avg. 7.1%
Net Profit Margin 4%
Net Profit Margin - 3 Yr. Avg. 3.7%
Effective Tax Rate 32.4%
Eff/ Tax Rate - 3 Yr. Avg. 33.4%
Payout Ratio 0%

LHCG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LHCG stock intrinsic value calculation we used $915 million for the last fiscal year's total revenue generated by LHC Group. The default revenue input number comes from 2016 income statement of LHC 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 LHCG stock valuation model: a) initial revenue growth rate of 18.2% 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 LHCG is calculated based on our internal credit rating of LHC 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 LHC 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 LHCG stock the variable cost ratio is equal to 91.9%.

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 LHCG 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 3.5% for LHC Group.

Corporate tax rate of 27% is the nominal tax rate for LHC 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 LHCG 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 LHCG are equal to 15.2%.

Life of production assets of 36.5 years is the average useful life of capital assets used in LHC 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 LHCG is equal to 7.3%. 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 - $395 million for LHC 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 18.122 million for LHC 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 LHC Group at the current share price and the inputted number of shares is $1.2 billion.

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COMPANY NEWS

▶ ETFs with exposure to LHC Group, Inc. : December 19, 2017   [Dec-19-17 01:31PM  Capital Cube]
▶ One of Louisville's largest public companies is merging, moving HQ   [11:15AM  American City Business Journals]
▶ LHC tops Street 3Q forecasts   [07:35AM  Associated Press]
▶ LHC Group, Inc. to Host Earnings Call   [06:50AM  ACCESSWIRE]
▶ ETFs with exposure to LHC Group, Inc. : August 21, 2017   [Aug-21-17 04:33PM  Capital Cube]
▶ Company Profile for LHC Group   [Aug-11-17 10:40AM  Business Wire]
▶ LHC tops Street 2Q forecasts   [Aug-04-17 12:12AM  Associated Press]
▶ ETFs with exposure to LHC Group, Inc. : July 10, 2017   [Jul-10-17 02:46PM  Capital Cube]
▶ ETFs with exposure to LHC Group, Inc. : June 26, 2017   [Jun-26-17 04:21PM  Capital Cube]
▶ Insiders Roundup: Medley Capital, LHC Group   [Jun-09-17 05:27PM  GuruFocus.com]
▶ LHC tops Street 1Q forecasts   [May-04-17 05:03AM  Associated Press]
▶ Archie Manning joins LHC Group as national spokesperson   [Mar-28-17 03:23PM  PR Newswire]
▶ Correction: Earns-LHC Group story   [Mar-13-17 02:48PM  Associated Press]
▶ Stocks Steven Cohen Continues to Buy   [Mar-02-17 04:44PM  GuruFocus.com]
▶ Should You Buy LHC Group, Inc. (LHCG)?   [08:11AM  at Insider Monkey]
Financial statements of LHCG
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