Intrinsic value of Medidata Solutions - MDSO

Previous Close

$70.06

  Intrinsic Value

$17.17

stock screener

  Rating & Target

str. sell

-75%

Previous close

$70.06

 
Intrinsic value

$17.17

 
Up/down potential

-75%

 
Rating

str. sell

We calculate the intrinsic value of MDSO 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 4.2

 

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, %
  14.60
  13.64
  12.78
  12.00
  11.30
  10.67
  10.10
  9.59
  9.13
  8.72
  8.35
  8.01
  7.71
  7.44
  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
  5.56
  5.50
  5.45
Revenue, $m
  625
  710
  801
  897
  999
  1,105
  1,217
  1,334
  1,455
  1,582
  1,714
  1,852
  1,995
  2,143
  2,297
  2,458
  2,624
  2,797
  2,978
  3,165
  3,360
  3,564
  3,775
  3,996
  4,227
  4,467
  4,718
  4,980
  5,255
  5,541
Variable operating expenses, $m
  513
  582
  656
  733
  816
  902
  992
  1,087
  1,186
  1,288
  1,389
  1,500
  1,616
  1,736
  1,861
  1,991
  2,126
  2,266
  2,412
  2,564
  2,722
  2,887
  3,058
  3,237
  3,424
  3,619
  3,822
  4,035
  4,257
  4,489
Fixed operating expenses, $m
  34
  34
  35
  36
  37
  38
  38
  39
  40
  41
  42
  43
  44
  45
  46
  47
  48
  49
  50
  51
  52
  53
  54
  56
  57
  58
  59
  61
  62
  63
Total operating expenses, $m
  547
  616
  691
  769
  853
  940
  1,030
  1,126
  1,226
  1,329
  1,431
  1,543
  1,660
  1,781
  1,907
  2,038
  2,174
  2,315
  2,462
  2,615
  2,774
  2,940
  3,112
  3,293
  3,481
  3,677
  3,881
  4,096
  4,319
  4,552
Operating income, $m
  79
  94
  110
  128
  146
  166
  186
  208
  230
  253
  284
  309
  335
  362
  391
  420
  451
  482
  516
  550
  586
  624
  663
  703
  746
  790
  837
  885
  936
  989
EBITDA, $m
  107
  126
  145
  166
  188
  211
  236
  261
  288
  315
  344
  374
  405
  438
  472
  507
  543
  581
  621
  662
  705
  749
  796
  844
  895
  948
  1,003
  1,061
  1,121
  1,185
Interest expense (income), $m
  3
  21
  23
  25
  28
  30
  33
  36
  39
  43
  46
  49
  53
  57
  61
  65
  69
  74
  78
  83
  88
  93
  99
  104
  110
  116
  123
  129
  136
  144
  151
Earnings before tax, $m
  58
  71
  85
  100
  116
  133
  150
  168
  187
  207
  234
  256
  278
  301
  326
  351
  377
  404
  432
  462
  493
  525
  558
  593
  630
  668
  707
  749
  792
  838
Tax expense, $m
  16
  19
  23
  27
  31
  36
  40
  45
  51
  56
  63
  69
  75
  81
  88
  95
  102
  109
  117
  125
  133
  142
  151
  160
  170
  180
  191
  202
  214
  226
Net income, $m
  42
  52
  62
  73
  85
  97
  109
  123
  137
  151
  171
  187
  203
  220
  238
  256
  275
  295
  316
  337
  360
  383
  408
  433
  460
  487
  516
  547
  578
  612

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
  827
  940
  1,060
  1,187
  1,321
  1,462
  1,610
  1,764
  1,925
  2,093
  2,268
  2,450
  2,638
  2,835
  3,039
  3,251
  3,471
  3,700
  3,939
  4,187
  4,445
  4,714
  4,994
  5,286
  5,591
  5,909
  6,241
  6,588
  6,950
  7,329
Adjusted assets (=assets-cash), $m
  827
  940
  1,060
  1,187
  1,321
  1,462
  1,610
  1,764
  1,925
  2,093
  2,268
  2,450
  2,638
  2,835
  3,039
  3,251
  3,471
  3,700
  3,939
  4,187
  4,445
  4,714
  4,994
  5,286
  5,591
  5,909
  6,241
  6,588
  6,950
  7,329
Revenue / Adjusted assets
  0.756
  0.755
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
Average production assets, $m
  113
  128
  144
  162
  180
  199
  219
  240
  262
  285
  309
  333
  359
  386
  414
  442
  472
  504
  536
  570
  605
  641
  680
  719
  761
  804
  849
  896
  946
  997
Working capital, $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 debt, $m
  410
  452
  497
  544
  594
  647
  702
  760
  820
  883
  949
  1,017
  1,087
  1,161
  1,237
  1,316
  1,399
  1,484
  1,573
  1,666
  1,763
  1,863
  1,968
  2,077
  2,191
  2,310
  2,435
  2,564
  2,700
  2,842
Total liabilities, $m
  309
  351
  396
  444
  494
  547
  602
  660
  720
  783
  848
  916
  987
  1,060
  1,136
  1,216
  1,298
  1,384
  1,473
  1,566
  1,662
  1,763
  1,868
  1,977
  2,091
  2,210
  2,334
  2,464
  2,599
  2,741
Total equity, $m
  518
  588
  663
  743
  827
  915
  1,008
  1,104
  1,205
  1,310
  1,420
  1,533
  1,652
  1,775
  1,902
  2,035
  2,173
  2,316
  2,466
  2,621
  2,782
  2,951
  3,126
  3,309
  3,500
  3,699
  3,907
  4,124
  4,351
  4,588
Total liabilities and equity, $m
  827
  939
  1,059
  1,187
  1,321
  1,462
  1,610
  1,764
  1,925
  2,093
  2,268
  2,449
  2,639
  2,835
  3,038
  3,251
  3,471
  3,700
  3,939
  4,187
  4,444
  4,714
  4,994
  5,286
  5,591
  5,909
  6,241
  6,588
  6,950
  7,329
Debt-to-equity ratio
  0.790
  0.770
  0.750
  0.730
  0.720
  0.710
  0.700
  0.690
  0.680
  0.670
  0.670
  0.660
  0.660
  0.650
  0.650
  0.650
  0.640
  0.640
  0.640
  0.640
  0.630
  0.630
  0.630
  0.630
  0.630
  0.620
  0.620
  0.620
  0.620
  0.620
Adjusted equity ratio
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  42
  52
  62
  73
  85
  97
  109
  123
  137
  151
  171
  187
  203
  220
  238
  256
  275
  295
  316
  337
  360
  383
  408
  433
  460
  487
  516
  547
  578
  612
Depreciation, amort., depletion, $m
  29
  32
  35
  38
  42
  46
  49
  54
  58
  62
  61
  65
  70
  76
  81
  87
  93
  99
  105
  112
  119
  126
  133
  141
  149
  158
  167
  176
  185
  196
Funds from operations, $m
  71
  83
  97
  111
  126
  142
  159
  176
  195
  214
  231
  252
  273
  296
  319
  343
  368
  394
  421
  449
  478
  509
  541
  574
  609
  645
  683
  722
  764
  807
Change in working capital, $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 operations, $m
  71
  83
  97
  111
  126
  142
  159
  176
  195
  214
  231
  252
  273
  296
  319
  343
  368
  394
  421
  449
  478
  509
  541
  574
  609
  645
  683
  722
  764
  807
Maintenance CAPEX, $m
  -19
  -22
  -25
  -28
  -32
  -35
  -39
  -43
  -47
  -51
  -56
  -61
  -65
  -70
  -76
  -81
  -87
  -93
  -99
  -105
  -112
  -119
  -126
  -133
  -141
  -149
  -158
  -167
  -176
  -185
New CAPEX, $m
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -32
  -34
  -35
  -37
  -38
  -40
  -41
  -43
  -45
  -47
  -49
  -52
Cash from investing activities, $m
  -33
  -37
  -41
  -45
  -50
  -54
  -59
  -64
  -69
  -74
  -80
  -86
  -91
  -97
  -104
  -110
  -117
  -124
  -131
  -139
  -147
  -156
  -164
  -173
  -182
  -192
  -203
  -214
  -225
  -237
Free cash flow, $m
  37
  46
  56
  66
  76
  88
  100
  112
  126
  139
  152
  167
  182
  199
  215
  233
  251
  270
  290
  310
  331
  354
  377
  401
  426
  453
  480
  509
  539
  570
Issuance/(repayment) of debt, $m
  39
  42
  45
  48
  50
  53
  55
  58
  60
  63
  65
  68
  71
  73
  76
  79
  82
  86
  89
  93
  97
  101
  105
  109
  114
  119
  124
  130
  136
  142
Issuance/(repurchase) of shares, $m
  24
  19
  13
  7
  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  
  63
  61
  58
  55
  50
  53
  55
  58
  60
  63
  65
  68
  71
  73
  76
  79
  82
  86
  89
  93
  97
  101
  105
  109
  114
  119
  124
  130
  136
  142
Total cash flow (excl. dividends), $m
  100
  107
  113
  120
  127
  141
  155
  170
  186
  202
  217
  235
  253
  272
  292
  312
  333
  356
  379
  403
  428
  454
  482
  510
  540
  571
  604
  638
  674
  712
Retained Cash Flow (-), $m
  -66
  -71
  -75
  -80
  -84
  -88
  -92
  -97
  -101
  -105
  -109
  -114
  -118
  -123
  -128
  -133
  -138
  -143
  -149
  -155
  -162
  -168
  -175
  -183
  -191
  -199
  -208
  -217
  -227
  -237
Prev. year cash balance distribution, $m
  61
  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
  95
  36
  38
  40
  43
  52
  63
  73
  85
  97
  108
  121
  135
  149
  164
  179
  195
  212
  230
  248
  266
  286
  306
  327
  349
  372
  396
  421
  447
  475
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
  91
  33
  33
  33
  33
  38
  42
  46
  49
  51
  51
  52
  51
  50
  48
  46
  43
  39
  35
  31
  28
  24
  20
  17
  14
  11
  9
  7
  5
  4
Current shareholders' claim on cash, %
  99.4
  98.9
  98.7
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5
  98.5

Medidata Solutions Inc. (Medidata) is a provider of cloud-based solutions for life sciences. The Company provides cloud-based solutions for clinical research in life sciences, offering platform technology that focuses on the clinical development. The Company's plan study addresses three areas to ensure optimal study design, grant development and negotiation, and investigator payments. Study Design Optimization enables customers to gain visibility into the impact of protocol elements on resource and trial endpoints. Grants Manager compares specific industry benchmarks and analytics, using industry's database of negotiated procedure costs, to support appropriate grants to investigator sites and automated negotiations with multiple investigator sites. Payments enables customers to establish a global investigator payment strategy and process to automate payment calculation, distribution and reporting, including tax and currency exchange calculations.

FINANCIAL RATIOS  of  Medidata Solutions (MDSO)

Valuation Ratios
P/E Ratio 139.5
Price to Sales 8.7
Price to Book 10.1
Price to Tangible Book
Price to Cash Flow 45.4
Price to Free Cash Flow 64.2
Growth Rates
Sales Growth Rate 17.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 36.8%
Cap. Spend. - 3 Yr. Gr. Rate -3.5%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 65.4%
Total Debt to Equity 65.4%
Interest Coverage 13
Management Effectiveness
Return On Assets 4.2%
Ret/ On Assets - 3 Yr. Avg. 2.7%
Return On Total Capital 4.8%
Ret/ On T. Cap. - 3 Yr. Avg. 2.9%
Return On Equity 8.5%
Return On Equity - 3 Yr. Avg. 5.2%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 75.8%
Gross Margin - 3 Yr. Avg. 75.8%
EBITDA Margin 11.9%
EBITDA Margin - 3 Yr. Avg. 8.5%
Operating Margin 10.8%
Oper. Margin - 3 Yr. Avg. 8.1%
Pre-Tax Margin 8%
Pre-Tax Margin - 3 Yr. Avg. 4.7%
Net Profit Margin 6.3%
Net Profit Margin - 3 Yr. Avg. 3.8%
Effective Tax Rate 21.6%
Eff/ Tax Rate - 3 Yr. Avg. 18.2%
Payout Ratio 0%

MDSO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MDSO stock intrinsic value calculation we used $545.532 million for the last fiscal year's total revenue generated by Medidata Solutions. The default revenue input number comes from 0001 income statement of Medidata Solutions. 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 MDSO stock valuation model: a) initial revenue growth rate of 14.6% 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 MDSO is calculated based on our internal credit rating of Medidata Solutions, 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 Medidata Solutions.
    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 MDSO stock the variable cost ratio is equal to 82.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $33 million in the base year in the intrinsic value calculation for MDSO 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 5.6% for Medidata Solutions.

Corporate tax rate of 27% is the nominal tax rate for Medidata Solutions. 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 MDSO 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 MDSO are equal to 18%.

Life of production assets of 5.1 years is the average useful life of capital assets used in Medidata Solutions 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 MDSO is equal to 0%. 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 - $512.61 million for Medidata Solutions - 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 59.676 million for Medidata Solutions 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 Medidata Solutions at the current share price and the inputted number of shares is $4.2 billion.

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COMPANY NEWS

▶ Medidata: 3Q Earnings Snapshot   [06:48AM  Associated Press]
▶ Medidata Reports Third Quarter 2018 Results   [06:30AM  Business Wire]
▶ Medidata to Host Investor Day on October 24 in New York   [Oct-17-18 08:30AM  Business Wire]
▶ Medidata Certified as a Great Place to Work┬«   [Sep-18-18 08:30AM  Business Wire]
▶ Medidata to Present at Upcoming Investor Conferences   [Aug-28-18 08:30AM  Business Wire]
▶ Medidata: 2Q Earnings Snapshot   [06:46AM  Associated Press]
▶ Medidata Reports Second Quarter 2018 Results   [06:30AM  Business Wire]
▶ New Strong Sell Stocks for July 6th   [Jul-06-18 09:25AM  Zacks]
▶ [$$] Medidata to Acquire Shyft Analytics   [Jun-12-18 05:38PM  The Wall Street Journal]
▶ Is Medidata Solutions Inc (NASDAQ:MDSO) Undervalued?   [Apr-19-18 08:42AM  Simply Wall St.]
▶ Medidata: 1Q Earnings Snapshot   [06:40AM  Associated Press]
▶ Medidata Reports First Quarter 2018 Results   [06:30AM  Business Wire]
▶ Medidata beats Street 4Q forecasts   [07:09AM  Associated Press]
▶ Qlik Announces New CEO   [Jan-11-18 11:00AM  Business Wire]

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