Intrinsic value of K12 Inc - LRN

Previous Close

$31.25

  Intrinsic Value

$120.25

stock screener

  Rating & Target

str. buy

+285%

Previous close

$31.25

 
Intrinsic value

$120.25

 
Up/down potential

+285%

 
Rating

str. buy

We calculate the intrinsic value of LRN 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 1.3

 

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, %
  17.30
  16.07
  14.96
  13.97
  13.07
  12.26
  11.54
  10.88
  10.29
  9.77
  9.29
  8.86
  8.47
  8.13
  7.81
  7.53
  7.28
  7.05
  6.85
  6.66
  6.50
  6.35
  6.21
  6.09
  5.98
  5.88
  5.79
  5.72
  5.64
  5.58
Revenue, $m
  1,077
  1,250
  1,437
  1,638
  1,852
  2,079
  2,318
  2,571
  2,835
  3,112
  3,401
  3,703
  4,017
  4,343
  4,682
  5,035
  5,401
  5,782
  6,178
  6,590
  7,018
  7,463
  7,927
  8,409
  8,912
  9,437
  9,984
  10,554
  11,150
  11,772
Variable operating expenses, $m
  610
  705
  807
  916
  1,033
  1,157
  1,288
  1,426
  1,571
  1,722
  1,858
  2,023
  2,194
  2,373
  2,558
  2,751
  2,951
  3,159
  3,376
  3,600
  3,834
  4,078
  4,331
  4,595
  4,869
  5,156
  5,455
  5,766
  6,092
  6,432
Fixed operating expenses, $m
  385
  394
  402
  411
  420
  430
  439
  449
  459
  469
  479
  489
  500
  511
  523
  534
  546
  558
  570
  583
  595
  609
  622
  636
  650
  664
  678
  693
  709
  724
Total operating expenses, $m
  995
  1,099
  1,209
  1,327
  1,453
  1,587
  1,727
  1,875
  2,030
  2,191
  2,337
  2,512
  2,694
  2,884
  3,081
  3,285
  3,497
  3,717
  3,946
  4,183
  4,429
  4,687
  4,953
  5,231
  5,519
  5,820
  6,133
  6,459
  6,801
  7,156
Operating income, $m
  81
  152
  228
  310
  398
  492
  591
  696
  806
  922
  1,064
  1,190
  1,322
  1,459
  1,602
  1,750
  1,905
  2,065
  2,233
  2,407
  2,588
  2,777
  2,974
  3,179
  3,393
  3,617
  3,851
  4,094
  4,349
  4,616
EBITDA, $m
  136
  211
  293
  381
  476
  577
  683
  796
  914
  1,038
  1,167
  1,303
  1,444
  1,591
  1,744
  1,903
  2,069
  2,241
  2,420
  2,607
  2,802
  3,004
  3,215
  3,435
  3,664
  3,904
  4,154
  4,415
  4,688
  4,974
Interest expense (income), $m
  1
  1
  3
  4
  6
  7
  9
  11
  13
  15
  17
  20
  22
  25
  27
  30
  33
  36
  39
  42
  45
  48
  52
  56
  60
  64
  68
  72
  77
  81
  86
Earnings before tax, $m
  80
  149
  224
  304
  391
  483
  580
  683
  791
  904
  1,044
  1,168
  1,297
  1,432
  1,572
  1,717
  1,869
  2,027
  2,191
  2,362
  2,540
  2,725
  2,918
  3,120
  3,330
  3,549
  3,778
  4,018
  4,268
  4,530
Tax expense, $m
  22
  40
  60
  82
  105
  130
  157
  184
  214
  244
  282
  315
  350
  387
  424
  464
  505
  547
  592
  638
  686
  736
  788
  842
  899
  958
  1,020
  1,085
  1,152
  1,223
Net income, $m
  58
  109
  163
  222
  285
  352
  423
  498
  577
  660
  762
  853
  947
  1,045
  1,147
  1,254
  1,364
  1,480
  1,599
  1,724
  1,854
  1,989
  2,130
  2,277
  2,431
  2,591
  2,758
  2,933
  3,116
  3,307

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
  720
  835
  960
  1,095
  1,238
  1,389
  1,550
  1,718
  1,895
  2,080
  2,274
  2,475
  2,685
  2,903
  3,130
  3,366
  3,611
  3,865
  4,130
  4,405
  4,691
  4,989
  5,299
  5,621
  5,958
  6,308
  6,674
  7,055
  7,453
  7,869
Adjusted assets (=assets-cash), $m
  720
  835
  960
  1,095
  1,238
  1,389
  1,550
  1,718
  1,895
  2,080
  2,274
  2,475
  2,685
  2,903
  3,130
  3,366
  3,611
  3,865
  4,130
  4,405
  4,691
  4,989
  5,299
  5,621
  5,958
  6,308
  6,674
  7,055
  7,453
  7,869
Revenue / Adjusted assets
  1.496
  1.497
  1.497
  1.496
  1.496
  1.497
  1.495
  1.497
  1.496
  1.496
  1.496
  1.496
  1.496
  1.496
  1.496
  1.496
  1.496
  1.496
  1.496
  1.496
  1.496
  1.496
  1.496
  1.496
  1.496
  1.496
  1.496
  1.496
  1.496
  1.496
Average production assets, $m
  164
  190
  218
  249
  281
  316
  352
  391
  431
  473
  517
  563
  611
  660
  712
  765
  821
  879
  939
  1,002
  1,067
  1,134
  1,205
  1,278
  1,355
  1,434
  1,518
  1,604
  1,695
  1,789
Working capital, $m
  146
  170
  195
  223
  252
  283
  315
  350
  386
  423
  463
  504
  546
  591
  637
  685
  735
  786
  840
  896
  954
  1,015
  1,078
  1,144
  1,212
  1,283
  1,358
  1,435
  1,516
  1,601
Total debt, $m
  50
  77
  106
  136
  169
  204
  241
  280
  321
  363
  408
  454
  502
  552
  604
  659
  715
  774
  834
  898
  964
  1,032
  1,103
  1,178
  1,255
  1,335
  1,420
  1,507
  1,599
  1,694
Total liabilities, $m
  166
  192
  221
  252
  285
  320
  356
  395
  436
  478
  523
  569
  618
  668
  720
  774
  830
  889
  950
  1,013
  1,079
  1,147
  1,219
  1,293
  1,370
  1,451
  1,535
  1,623
  1,714
  1,810
Total equity, $m
  554
  643
  740
  843
  953
  1,070
  1,193
  1,323
  1,459
  1,602
  1,751
  1,906
  2,067
  2,235
  2,410
  2,592
  2,780
  2,976
  3,180
  3,392
  3,612
  3,841
  4,080
  4,328
  4,587
  4,857
  5,139
  5,432
  5,739
  6,059
Total liabilities and equity, $m
  720
  835
  961
  1,095
  1,238
  1,390
  1,549
  1,718
  1,895
  2,080
  2,274
  2,475
  2,685
  2,903
  3,130
  3,366
  3,610
  3,865
  4,130
  4,405
  4,691
  4,988
  5,299
  5,621
  5,957
  6,308
  6,674
  7,055
  7,453
  7,869
Debt-to-equity ratio
  0.090
  0.120
  0.140
  0.160
  0.180
  0.190
  0.200
  0.210
  0.220
  0.230
  0.230
  0.240
  0.240
  0.250
  0.250
  0.250
  0.260
  0.260
  0.260
  0.260
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.280
  0.280
  0.280
  0.280
Adjusted equity ratio
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  58
  109
  163
  222
  285
  352
  423
  498
  577
  660
  762
  853
  947
  1,045
  1,147
  1,254
  1,364
  1,480
  1,599
  1,724
  1,854
  1,989
  2,130
  2,277
  2,431
  2,591
  2,758
  2,933
  3,116
  3,307
Depreciation, amort., depletion, $m
  54
  60
  65
  71
  78
  85
  92
  100
  108
  116
  103
  113
  122
  132
  142
  153
  164
  176
  188
  200
  213
  227
  241
  256
  271
  287
  304
  321
  339
  358
Funds from operations, $m
  113
  168
  229
  294
  363
  437
  516
  598
  685
  776
  866
  965
  1,069
  1,177
  1,290
  1,407
  1,529
  1,655
  1,787
  1,924
  2,067
  2,216
  2,371
  2,533
  2,702
  2,878
  3,062
  3,254
  3,455
  3,665
Change in working capital, $m
  22
  24
  25
  27
  29
  31
  33
  34
  36
  38
  39
  41
  43
  44
  46
  48
  50
  52
  54
  56
  58
  61
  63
  66
  68
  71
  74
  78
  81
  85
Cash from operations, $m
  91
  145
  203
  266
  334
  406
  483
  564
  649
  739
  827
  924
  1,026
  1,133
  1,244
  1,359
  1,479
  1,603
  1,733
  1,868
  2,009
  2,156
  2,308
  2,467
  2,633
  2,807
  2,987
  3,176
  3,374
  3,580
Maintenance CAPEX, $m
  -28
  -33
  -38
  -44
  -50
  -56
  -63
  -70
  -78
  -86
  -95
  -103
  -113
  -122
  -132
  -142
  -153
  -164
  -176
  -188
  -200
  -213
  -227
  -241
  -256
  -271
  -287
  -304
  -321
  -339
New CAPEX, $m
  -24
  -26
  -28
  -31
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -58
  -60
  -63
  -65
  -68
  -70
  -73
  -76
  -80
  -83
  -87
  -91
  -95
Cash from investing activities, $m
  -52
  -59
  -66
  -75
  -83
  -91
  -99
  -108
  -118
  -128
  -139
  -149
  -161
  -172
  -184
  -196
  -209
  -222
  -236
  -251
  -265
  -281
  -297
  -314
  -332
  -351
  -370
  -391
  -412
  -434
Free cash flow, $m
  39
  86
  137
  192
  252
  315
  383
  455
  531
  610
  688
  775
  866
  961
  1,060
  1,163
  1,270
  1,381
  1,497
  1,618
  1,744
  1,875
  2,011
  2,153
  2,301
  2,456
  2,617
  2,786
  2,962
  3,146
Issuance/(repayment) of debt, $m
  24
  27
  29
  31
  33
  35
  37
  39
  41
  43
  44
  46
  48
  50
  52
  54
  56
  59
  61
  63
  66
  68
  71
  74
  77
  81
  84
  88
  92
  96
Issuance/(repurchase) of shares, $m
  23
  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  
  47
  27
  29
  31
  33
  35
  37
  39
  41
  43
  44
  46
  48
  50
  52
  54
  56
  59
  61
  63
  66
  68
  71
  74
  77
  81
  84
  88
  92
  96
Total cash flow (excl. dividends), $m
  86
  112
  165
  223
  285
  350
  420
  494
  572
  653
  732
  821
  914
  1,011
  1,112
  1,217
  1,326
  1,440
  1,558
  1,681
  1,810
  1,943
  2,082
  2,227
  2,379
  2,537
  2,701
  2,874
  3,054
  3,242
Retained Cash Flow (-), $m
  -82
  -89
  -96
  -103
  -110
  -117
  -123
  -130
  -136
  -143
  -149
  -155
  -161
  -168
  -175
  -182
  -189
  -196
  -204
  -212
  -220
  -229
  -239
  -248
  -259
  -270
  -281
  -294
  -307
  -320
Prev. year cash balance distribution, $m
  115
  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
  120
  23
  69
  120
  174
  233
  297
  364
  435
  510
  584
  666
  753
  843
  937
  1,036
  1,138
  1,244
  1,354
  1,469
  1,589
  1,714
  1,844
  1,979
  2,120
  2,267
  2,420
  2,580
  2,747
  2,922
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
  115
  21
  60
  98
  135
  169
  200
  228
  250
  268
  277
  284
  286
  283
  275
  263
  248
  229
  209
  187
  164
  142
  121
  101
  82
  66
  52
  40
  30
  22
Current shareholders' claim on cash, %
  97.7
  97.7
  97.7
  97.7
  97.7
  97.7
  97.7
  97.7
  97.7
  97.7
  97.7
  97.7
  97.7
  97.7
  97.7
  97.7
  97.7
  97.7
  97.7
  97.7
  97.7
  97.7
  97.7
  97.7
  97.7
  97.7
  97.7
  97.7
  97.7
  97.7

K12 Inc. (K12) is a technology-based education company. The Company offers curriculum, software systems and educational services designed to facilitate individualized learning for students in kindergarten through 12th grade (K-12). It provides a continuum of technology-based educational products and solutions to public school districts, public schools, virtual charter schools, private schools and families. The Company offers a set of products and services primarily to three lines of business, which include Managed Public School Programs, which consists of virtual and blended schools; Institutional business, which includes educational products and services sold to school districts, public schools and other educational institutions, and Private Pay Schools and Other, which includes private schools, including international, for which it charges student tuition and direct consumer sales. It sells individual online courses and supplemental educational products directly to families.

FINANCIAL RATIOS  of  K12 Inc (LRN)

Valuation Ratios
P/E Ratio 0
Price to Sales 1.4
Price to Book 2.2
Price to Tangible Book
Price to Cash Flow 14.3
Price to Free Cash Flow 31.1
Growth Rates
Sales Growth Rate 1.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -23.8%
Cap. Spend. - 3 Yr. Gr. Rate -0.4%
Financial Strength
Quick Ratio 19
Current Ratio 0.1
LT Debt to Equity 1.7%
Total Debt to Equity 3.8%
Interest Coverage 6
Management Effectiveness
Return On Assets 0%
Ret/ On Assets - 3 Yr. Avg. 1%
Return On Total Capital 0%
Ret/ On T. Cap. - 3 Yr. Avg. 1.2%
Return On Equity 0%
Return On Equity - 3 Yr. Avg. 1.2%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 37.2%
Gross Margin - 3 Yr. Avg. 36.8%
EBITDA Margin 9%
EBITDA Margin - 3 Yr. Avg. 9.5%
Operating Margin 0.4%
Oper. Margin - 3 Yr. Avg. 1.3%
Pre-Tax Margin 0.6%
Pre-Tax Margin - 3 Yr. Avg. 1.2%
Net Profit Margin 0%
Net Profit Margin - 3 Yr. Avg. 0.7%
Effective Tax Rate 100%
Eff/ Tax Rate - 3 Yr. Avg. 56.9%
Payout Ratio 0%

LRN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LRN stock intrinsic value calculation we used $918 million for the last fiscal year's total revenue generated by K12 Inc. The default revenue input number comes from 0001 income statement of K12 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 LRN stock valuation model: a) initial revenue growth rate of 17.3% 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 LRN is calculated based on our internal credit rating of K12 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 K12 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 LRN stock the variable cost ratio is equal to 57%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $377 million in the base year in the intrinsic value calculation for LRN 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 K12 Inc.

Corporate tax rate of 27% is the nominal tax rate for K12 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 LRN 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 LRN are equal to 15.2%.

Life of production assets of 3.3 years is the average useful life of capital assets used in K12 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 LRN is equal to 13.6%. 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 - $587.189 million for K12 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 40.261 million for K12 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 K12 Inc at the current share price and the inputted number of shares is $1.3 billion.

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