Intrinsic value of Medidata Solutions - MDSO

Previous Close

$66.11

  Intrinsic Value

$54.73

stock screener

  Rating & Target

hold

-17%

Previous close

$66.11

 
Intrinsic value

$54.73

 
Up/down potential

-17%

 
Rating

hold

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

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

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, %
  17.81
  16.70
  15.53
  14.48
  13.53
  12.68
  11.91
  11.22
  10.60
  10.04
  9.53
  9.08
  8.67
  8.30
  7.97
  7.68
  7.41
  7.17
  6.95
  6.76
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
  5.76
  5.68
  5.61
  5.55
Revenue, $m
  463
  540
  624
  715
  811
  914
  1,023
  1,138
  1,258
  1,385
  1,517
  1,654
  1,798
  1,947
  2,102
  2,264
  2,431
  2,606
  2,787
  2,975
  3,171
  3,374
  3,586
  3,807
  4,037
  4,276
  4,526
  4,787
  5,059
  5,342
  5,639
Variable operating expenses, $m
 
  386
  445
  509
  578
  651
  728
  809
  894
  984
  1,077
  1,172
  1,273
  1,379
  1,489
  1,603
  1,722
  1,846
  1,974
  2,107
  2,246
  2,390
  2,540
  2,697
  2,859
  3,029
  3,206
  3,390
  3,583
  3,784
  3,994
Fixed operating expenses, $m
 
  86
  88
  90
  93
  95
  97
  100
  102
  105
  108
  110
  113
  116
  119
  122
  125
  128
  131
  134
  138
  141
  145
  148
  152
  156
  160
  164
  168
  172
  176
Total operating expenses, $m
  413
  472
  533
  599
  671
  746
  825
  909
  996
  1,089
  1,185
  1,282
  1,386
  1,495
  1,608
  1,725
  1,847
  1,974
  2,105
  2,241
  2,384
  2,531
  2,685
  2,845
  3,011
  3,185
  3,366
  3,554
  3,751
  3,956
  4,170
Operating income, $m
  50
  68
  91
  115
  141
  169
  198
  229
  262
  296
  332
  372
  411
  452
  495
  539
  585
  632
  682
  734
  787
  843
  902
  962
  1,026
  1,092
  1,161
  1,233
  1,308
  1,386
  1,469
EBITDA, $m
  65
  84
  108
  134
  162
  192
  224
  258
  293
  330
  369
  410
  452
  496
  542
  590
  640
  691
  745
  801
  859
  920
  983
  1,049
  1,117
  1,189
  1,263
  1,341
  1,423
  1,508
  1,597
Interest expense (income), $m
  3
  9
  11
  13
  16
  19
  22
  25
  29
  33
  36
  40
  45
  49
  53
  58
  63
  68
  73
  79
  84
  90
  96
  103
  109
  116
  124
  131
  139
  147
  156
Earnings before tax, $m
  37
  59
  80
  101
  125
  149
  176
  203
  233
  263
  295
  332
  367
  403
  441
  481
  522
  564
  609
  655
  703
  753
  805
  860
  916
  975
  1,037
  1,102
  1,169
  1,239
  1,313
Tax expense, $m
  8
  16
  22
  27
  34
  40
  47
  55
  63
  71
  80
  90
  99
  109
  119
  130
  141
  152
  164
  177
  190
  203
  217
  232
  247
  263
  280
  297
  316
  335
  355
Net income, $m
  29
  43
  58
  74
  91
  109
  128
  149
  170
  192
  216
  242
  268
  294
  322
  351
  381
  412
  444
  478
  513
  550
  588
  627
  669
  712
  757
  804
  853
  905
  958

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  375
  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
  818
  517
  597
  684
  776
  875
  979
  1,089
  1,204
  1,325
  1,451
  1,583
  1,720
  1,863
  2,012
  2,166
  2,327
  2,493
  2,667
  2,847
  3,034
  3,229
  3,432
  3,643
  3,863
  4,092
  4,331
  4,581
  4,841
  5,112
  5,396
Adjusted assets (=assets-cash), $m
  443
  517
  597
  684
  776
  875
  979
  1,089
  1,204
  1,325
  1,451
  1,583
  1,720
  1,863
  2,012
  2,166
  2,327
  2,493
  2,667
  2,847
  3,034
  3,229
  3,432
  3,643
  3,863
  4,092
  4,331
  4,581
  4,841
  5,112
  5,396
Revenue / Adjusted assets
  1.045
  1.044
  1.045
  1.045
  1.045
  1.045
  1.045
  1.045
  1.045
  1.045
  1.045
  1.045
  1.045
  1.045
  1.045
  1.045
  1.045
  1.045
  1.045
  1.045
  1.045
  1.045
  1.045
  1.045
  1.045
  1.045
  1.045
  1.045
  1.045
  1.045
  1.045
Average production assets, $m
  58
  68
  78
  89
  101
  114
  128
  142
  157
  173
  190
  207
  225
  243
  263
  283
  304
  326
  348
  372
  396
  422
  448
  476
  505
  535
  566
  598
  632
  668
  705
Working capital, $m
  387
  14
  16
  19
  21
  24
  27
  30
  33
  36
  39
  43
  47
  51
  55
  59
  63
  68
  72
  77
  82
  88
  93
  99
  105
  111
  118
  124
  132
  139
  147
Total debt, $m
  263
  312
  385
  462
  546
  634
  728
  827
  931
  1,039
  1,153
  1,272
  1,395
  1,524
  1,658
  1,797
  1,941
  2,091
  2,247
  2,409
  2,578
  2,753
  2,936
  3,126
  3,324
  3,530
  3,745
  3,969
  4,204
  4,448
  4,704
Total liabilities, $m
  416
  465
  538
  615
  699
  787
  881
  980
  1,084
  1,192
  1,306
  1,425
  1,548
  1,677
  1,811
  1,950
  2,094
  2,244
  2,400
  2,562
  2,731
  2,906
  3,089
  3,279
  3,477
  3,683
  3,898
  4,122
  4,357
  4,601
  4,857
Total equity, $m
  402
  52
  60
  68
  78
  87
  98
  109
  120
  132
  145
  158
  172
  186
  201
  217
  233
  249
  267
  285
  303
  323
  343
  364
  386
  409
  433
  458
  484
  511
  540
Total liabilities and equity, $m
  818
  517
  598
  683
  777
  874
  979
  1,089
  1,204
  1,324
  1,451
  1,583
  1,720
  1,863
  2,012
  2,167
  2,327
  2,493
  2,667
  2,847
  3,034
  3,229
  3,432
  3,643
  3,863
  4,092
  4,331
  4,580
  4,841
  5,112
  5,397
Debt-to-equity ratio
  0.654
  6.040
  6.440
  6.760
  7.030
  7.250
  7.440
  7.590
  7.730
  7.850
  7.950
  8.030
  8.110
  8.180
  8.240
  8.290
  8.340
  8.390
  8.430
  8.460
  8.500
  8.530
  8.550
  8.580
  8.600
  8.630
  8.650
  8.670
  8.680
  8.700
  8.720
Adjusted equity ratio
  0.061
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  29
  43
  58
  74
  91
  109
  128
  149
  170
  192
  216
  242
  268
  294
  322
  351
  381
  412
  444
  478
  513
  550
  588
  627
  669
  712
  757
  804
  853
  905
  958
Depreciation, amort., depletion, $m
  15
  15
  17
  19
  22
  24
  26
  29
  32
  35
  38
  38
  41
  44
  48
  51
  55
  59
  63
  68
  72
  77
  82
  87
  92
  97
  103
  109
  115
  121
  128
Funds from operations, $m
  69
  59
  76
  93
  113
  133
  155
  177
  202
  227
  253
  280
  309
  339
  370
  402
  436
  471
  508
  546
  585
  626
  669
  714
  761
  809
  860
  913
  968
  1,026
  1,087
Change in working capital, $m
  -20
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  6
  7
  7
  7
  8
Cash from operations, $m
  89
  57
  73
  91
  110
  130
  152
  174
  198
  223
  250
  276
  305
  335
  366
  398
  432
  467
  503
  541
  580
  621
  664
  708
  755
  803
  853
  906
  961
  1,019
  1,079
Maintenance CAPEX, $m
  0
  -11
  -12
  -14
  -16
  -18
  -21
  -23
  -26
  -29
  -31
  -34
  -38
  -41
  -44
  -48
  -51
  -55
  -59
  -63
  -68
  -72
  -77
  -82
  -87
  -92
  -97
  -103
  -109
  -115
  -121
New CAPEX, $m
  -26
  -10
  -10
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -24
  -25
  -26
  -28
  -29
  -30
  -31
  -33
  -34
  -35
  -37
Cash from investing activities, $m
  -41
  -21
  -22
  -25
  -28
  -31
  -35
  -37
  -41
  -45
  -47
  -51
  -56
  -60
  -63
  -68
  -72
  -77
  -82
  -87
  -92
  -97
  -103
  -110
  -116
  -122
  -128
  -136
  -143
  -150
  -158
Free cash flow, $m
  48
  37
  51
  66
  82
  99
  117
  137
  157
  179
  202
  225
  249
  275
  302
  330
  359
  390
  421
  454
  488
  524
  561
  599
  639
  681
  725
  771
  818
  868
  920
Issuance/(repayment) of debt, $m
  0
  49
  72
  78
  83
  89
  94
  99
  104
  109
  114
  119
  124
  129
  134
  139
  144
  150
  156
  162
  169
  175
  183
  190
  198
  206
  215
  224
  234
  245
  255
Issuance/(repurchase) of shares, $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
Cash from financing (excl. dividends), $m  
  -3
  49
  72
  78
  83
  89
  94
  99
  104
  109
  114
  119
  124
  129
  134
  139
  144
  150
  156
  162
  169
  175
  183
  190
  198
  206
  215
  224
  234
  245
  255
Total cash flow (excl. dividends), $m
  44
  86
  123
  143
  165
  188
  211
  236
  261
  288
  315
  343
  373
  404
  436
  469
  504
  540
  577
  616
  657
  699
  743
  789
  837
  888
  940
  995
  1,053
  1,113
  1,176
Retained Cash Flow (-), $m
  -118
  -25
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
Prev. year cash balance distribution, $m
 
  375
  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
 
  436
  115
  135
  156
  178
  201
  225
  250
  276
  303
  330
  359
  390
  421
  454
  488
  523
  560
  598
  638
  679
  723
  768
  815
  865
  916
  970
  1,027
  1,086
  1,147
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
 
  418
  105
  117
  128
  138
  146
  152
  156
  158
  159
  157
  153
  148
  141
  133
  124
  114
  103
  92
  81
  70
  60
  50
  42
  34
  27
  21
  16
  12
  9
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

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 131.6
Price to Sales 8.2
Price to Book 9.5
Price to Tangible Book
Price to Cash Flow 42.9
Price to Free Cash Flow 60.6
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 $463 million for the last fiscal year's total revenue generated by Medidata Solutions. The default revenue input number comes from 2016 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 16.7% 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 71.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $84 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 3.5% 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 12.5%.

Life of production assets of 5.5 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 2.6%. 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 - $402 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 59.965 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 $4.0 billion.

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COMPANY NEWS

▶ Qlik Announces New CEO   [Jan-11-18 11:00AM  Business Wire]
▶ Medidata Solutions Clears Key Benchmark, Hitting 80-Plus RS Rating   [Oct-31-17 03:00AM  Investor's Business Daily]
▶ Medidata tops 3Q profit forecasts   [Oct-26-17 06:47AM  Associated Press]
▶ Medidata Selected for Inaugural Fortune Future 50 List   [Oct-19-17 09:09AM  Business Wire]
▶ Is Medidata Solutions Inc (MDSO) A Sell At Its Current Price?   [Oct-03-17 12:06PM  Simply Wall St.]
▶ New Strong Sell Stocks for August 10th   [Aug-10-17 07:39AM  Zacks]
▶ Medidata beats Street 2Q forecasts   [Jul-18-17 10:07PM  Associated Press]
▶ Medical Software Uptrend Steady, Even As TrumpCare Rocks The Boat   [Jul-06-17 05:23PM  Investor's Business Daily]
▶ Medidata to Present at Upcoming Investor Conferences   [May-03-17 08:30AM  Business Wire]
▶ Medidata beats Street 1Q forecasts   [Apr-26-17 07:10AM  Associated Press]
Financial statements of MDSO
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