Intrinsic value of LHC Group - LHCG

Previous Close

$66.34

  Intrinsic Value

$71.07

stock screener

  Rating & Target

hold

+7%

  Value-price divergence*

-120%

Previous close

$66.34

 
Intrinsic value

$71.07

 
Up/down potential

+7%

 
Rating

hold

 
Value-price divergence*

-120%

*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

Revenue (in 2016), $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 1.2

 

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
  15.00
  14.00
  13.10
  12.29
  11.56
  10.90
  10.31
  9.78
  9.30
  8.87
  8.49
  8.14
  7.82
  7.54
  7.29
  7.06
  6.85
  6.67
  6.50
  6.35
  6.22
  6.09
  5.98
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
Revenue, $m
  915
  1,052
  1,200
  1,357
  1,523
  1,700
  1,885
  2,079
  2,283
  2,495
  2,717
  2,947
  3,187
  3,436
  3,695
  3,965
  4,245
  4,536
  4,838
  5,152
  5,480
  5,820
  6,175
  6,545
  6,930
  7,332
  7,751
  8,188
  8,645
  9,123
  9,622
Variable operating expenses, $m
 
  962
  1,093
  1,232
  1,380
  1,536
  1,700
  1,872
  2,052
  2,240
  2,436
  2,610
  2,822
  3,043
  3,272
  3,511
  3,758
  4,016
  4,284
  4,562
  4,852
  5,154
  5,468
  5,795
  6,136
  6,492
  6,863
  7,250
  7,655
  8,078
  8,520
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
  962
  1,093
  1,232
  1,380
  1,536
  1,700
  1,872
  2,052
  2,240
  2,436
  2,610
  2,822
  3,043
  3,272
  3,511
  3,758
  4,016
  4,284
  4,562
  4,852
  5,154
  5,468
  5,795
  6,136
  6,492
  6,863
  7,250
  7,655
  8,078
  8,520
Operating income, $m
  71
  90
  107
  125
  144
  164
  185
  207
  231
  255
  280
  338
  365
  394
  423
  454
  486
  520
  554
  590
  628
  667
  707
  750
  794
  840
  888
  938
  990
  1,045
  1,102
EBITDA, $m
  83
  126
  143
  162
  182
  203
  225
  249
  273
  298
  325
  353
  381
  411
  442
  474
  508
  543
  579
  616
  655
  696
  739
  783
  829
  877
  927
  979
  1,034
  1,091
  1,151
Interest expense (income), $m
  3
  3
  4
  5
  7
  8
  10
  11
  13
  15
  16
  18
  20
  22
  24
  26
  29
  31
  33
  36
  39
  41
  44
  47
  50
  53
  57
  60
  64
  68
  72
Earnings before tax, $m
  68
  87
  102
  119
  137
  156
  176
  196
  218
  241
  264
  319
  345
  372
  399
  428
  458
  489
  521
  554
  589
  625
  663
  703
  744
  786
  831
  878
  926
  977
  1,031
Tax expense, $m
  22
  23
  28
  32
  37
  42
  47
  53
  59
  65
  71
  86
  93
  100
  108
  116
  124
  132
  141
  150
  159
  169
  179
  190
  201
  212
  224
  237
  250
  264
  278
Net income, $m
  37
  63
  75
  87
  100
  114
  128
  143
  159
  176
  193
  233
  252
  271
  291
  312
  334
  357
  380
  405
  430
  457
  484
  513
  543
  574
  607
  641
  676
  713
  752

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
  702
  801
  906
  1,017
  1,135
  1,258
  1,388
  1,524
  1,666
  1,813
  1,967
  2,127
  2,294
  2,467
  2,647
  2,834
  3,028
  3,230
  3,440
  3,658
  3,885
  4,122
  4,369
  4,626
  4,894
  5,174
  5,466
  5,771
  6,090
  6,423
Adjusted assets (=assets-cash), $m
  611
  702
  801
  906
  1,017
  1,135
  1,258
  1,388
  1,524
  1,666
  1,813
  1,967
  2,127
  2,294
  2,467
  2,647
  2,834
  3,028
  3,230
  3,440
  3,658
  3,885
  4,122
  4,369
  4,626
  4,894
  5,174
  5,466
  5,771
  6,090
  6,423
Revenue / Adjusted assets
  1.498
  1.499
  1.498
  1.498
  1.498
  1.498
  1.498
  1.498
  1.498
  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
Average production assets, $m
  140
  160
  182
  206
  232
  258
  287
  316
  347
  379
  413
  448
  484
  522
  562
  603
  645
  689
  735
  783
  833
  885
  939
  995
  1,053
  1,114
  1,178
  1,245
  1,314
  1,387
  1,463
Working capital, $m
  70
  77
  88
  99
  111
  124
  138
  152
  167
  182
  198
  215
  233
  251
  270
  289
  310
  331
  353
  376
  400
  425
  451
  478
  506
  535
  566
  598
  631
  666
  702
Total debt, $m
  88
  120
  156
  193
  233
  275
  319
  366
  415
  465
  518
  573
  631
  690
  752
  817
  883
  953
  1,025
  1,100
  1,179
  1,260
  1,345
  1,433
  1,525
  1,621
  1,721
  1,826
  1,935
  2,049
  2,169
Total liabilities, $m
  219
  251
  287
  324
  364
  406
  450
  497
  546
  596
  649
  704
  762
  821
  883
  948
  1,014
  1,084
  1,156
  1,231
  1,310
  1,391
  1,476
  1,564
  1,656
  1,752
  1,852
  1,957
  2,066
  2,180
  2,300
Total equity, $m
  395
  451
  514
  581
  653
  728
  808
  891
  978
  1,069
  1,164
  1,263
  1,366
  1,473
  1,584
  1,699
  1,819
  1,944
  2,073
  2,208
  2,348
  2,494
  2,646
  2,805
  2,970
  3,142
  3,322
  3,509
  3,705
  3,910
  4,124
Total liabilities and equity, $m
  614
  702
  801
  905
  1,017
  1,134
  1,258
  1,388
  1,524
  1,665
  1,813
  1,967
  2,128
  2,294
  2,467
  2,647
  2,833
  3,028
  3,229
  3,439
  3,658
  3,885
  4,122
  4,369
  4,626
  4,894
  5,174
  5,466
  5,771
  6,090
  6,424
Debt-to-equity ratio
  0.223
  0.270
  0.300
  0.330
  0.360
  0.380
  0.400
  0.410
  0.420
  0.440
  0.450
  0.450
  0.460
  0.470
  0.470
  0.480
  0.490
  0.490
  0.490
  0.500
  0.500
  0.510
  0.510
  0.510
  0.510
  0.520
  0.520
  0.520
  0.520
  0.520
  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
  63
  75
  87
  100
  114
  128
  143
  159
  176
  193
  233
  252
  271
  291
  312
  334
  357
  380
  405
  430
  457
  484
  513
  543
  574
  607
  641
  676
  713
  752
Depreciation, amort., depletion, $m
  12
  36
  37
  38
  38
  39
  40
  41
  42
  43
  44
  15
  16
  17
  19
  20
  22
  23
  25
  26
  28
  29
  31
  33
  35
  37
  39
  41
  44
  46
  49
Funds from operations, $m
  48
  99
  112
  125
  138
  153
  168
  185
  201
  219
  237
  248
  268
  289
  310
  332
  356
  380
  405
  431
  458
  486
  515
  546
  578
  611
  646
  682
  720
  760
  801
Change in working capital, $m
  -19
  10
  11
  11
  12
  13
  14
  14
  15
  16
  16
  17
  18
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
  36
Cash from operations, $m
  67
  89
  101
  113
  126
  140
  155
  170
  187
  203
  221
  231
  250
  270
  291
  313
  335
  358
  383
  408
  434
  461
  490
  519
  550
  582
  615
  650
  687
  725
  765
Maintenance CAPEX, $m
  0
  -5
  -5
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -19
  -20
  -22
  -23
  -25
  -26
  -28
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -44
  -46
New CAPEX, $m
  -16
  -20
  -22
  -24
  -25
  -27
  -28
  -30
  -31
  -32
  -34
  -35
  -36
  -38
  -39
  -41
  -43
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -59
  -61
  -64
  -67
  -69
  -73
  -76
Cash from investing activities, $m
  -50
  -25
  -27
  -30
  -32
  -35
  -37
  -40
  -42
  -44
  -47
  -49
  -51
  -54
  -56
  -60
  -63
  -66
  -69
  -73
  -76
  -80
  -83
  -87
  -92
  -96
  -101
  -106
  -110
  -117
  -122
Free cash flow, $m
  17
  64
  73
  83
  94
  106
  118
  131
  145
  160
  175
  183
  199
  216
  234
  253
  273
  293
  314
  336
  358
  382
  406
  432
  458
  486
  515
  545
  576
  608
  642
Issuance/(repayment) of debt, $m
  -11
  32
  35
  38
  40
  42
  44
  46
  49
  51
  53
  55
  57
  60
  62
  64
  67
  70
  72
  75
  78
  81
  85
  88
  92
  96
  100
  105
  109
  114
  119
Issuance/(repurchase) of shares, $m
  -1
  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  
  -20
  32
  35
  38
  40
  42
  44
  46
  49
  51
  53
  55
  57
  60
  62
  64
  67
  70
  72
  75
  78
  81
  85
  88
  92
  96
  100
  105
  109
  114
  119
Total cash flow (excl. dividends), $m
  -3
  97
  108
  121
  134
  148
  162
  178
  194
  210
  228
  238
  256
  276
  296
  317
  339
  362
  386
  411
  436
  463
  491
  520
  550
  582
  615
  649
  685
  723
  762
Retained Cash Flow (-), $m
  -40
  -59
  -63
  -67
  -71
  -75
  -79
  -83
  -87
  -91
  -95
  -99
  -103
  -107
  -111
  -115
  -120
  -125
  -130
  -135
  -140
  -146
  -152
  -158
  -165
  -172
  -180
  -188
  -196
  -205
  -214
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
 
  41
  45
  53
  62
  72
  83
  94
  107
  119
  133
  139
  154
  169
  185
  202
  219
  238
  256
  276
  296
  317
  339
  362
  385
  410
  435
  462
  489
  518
  548
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
 
  39
  41
  46
  51
  56
  60
  64
  67
  69
  70
  66
  66
  64
  62
  59
  56
  52
  47
  42
  38
  33
  28
  24
  20
  16
  13
  10
  8
  6
  4
Current shareholders' claim on cash, %
  100
  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

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 31.6
Price to Sales 1.3
Price to Book 3
Price to Tangible Book
Price to Cash Flow 17.4
Price to Free Cash Flow 22.9
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 15% 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 18.067 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.

RELATED COMPANIES Price Int.Val. Rating
AMED Amedisys 49.25 62.62  buy
AFAM Almost Family 47.05 49.24  hold
CIVI Civitas Soluti 18.30 23.25  buy
CHE Chemed 205.54 176.06  hold

COMPANY NEWS

▶ 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
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.