Intrinsic value of Medidata Solutions - MDSO

Previous Close

$87.00

  Intrinsic Value

$26.19

stock screener

  Rating & Target

str. sell

-70%

Previous close

$87.00

 
Intrinsic value

$26.19

 
Up/down potential

-70%

 
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 2017), $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 4.9

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  17.70
  16.43
  15.29
  14.26
  13.33
  12.50
  11.75
  11.07
  10.47
  9.92
  9.43
  8.99
  8.59
  8.23
  7.91
  7.61
  7.35
  7.12
  6.91
  6.72
  6.54
  6.39
  6.25
  6.13
  6.01
  5.91
  5.82
  5.74
  5.66
  5.60
Revenue, $m
  643
  748
  863
  986
  1,117
  1,257
  1,404
  1,560
  1,723
  1,894
  2,073
  2,259
  2,453
  2,655
  2,864
  3,083
  3,309
  3,545
  3,790
  4,044
  4,309
  4,584
  4,871
  5,169
  5,480
  5,804
  6,141
  6,494
  6,862
  7,246
Variable operating expenses, $m
  532
  618
  711
  812
  919
  1,033
  1,154
  1,281
  1,414
  1,554
  1,693
  1,846
  2,004
  2,169
  2,340
  2,519
  2,704
  2,896
  3,096
  3,304
  3,521
  3,746
  3,980
  4,223
  4,477
  4,742
  5,018
  5,306
  5,607
  5,921
Fixed operating expenses, $m
  31
  31
  32
  33
  33
  34
  35
  36
  36
  37
  38
  39
  40
  41
  42
  42
  43
  44
  45
  46
  47
  48
  49
  51
  52
  53
  54
  55
  56
  58
Total operating expenses, $m
  563
  649
  743
  845
  952
  1,067
  1,189
  1,317
  1,450
  1,591
  1,731
  1,885
  2,044
  2,210
  2,382
  2,561
  2,747
  2,940
  3,141
  3,350
  3,568
  3,794
  4,029
  4,274
  4,529
  4,795
  5,072
  5,361
  5,663
  5,979
Operating income, $m
  80
  99
  119
  141
  164
  189
  215
  243
  272
  303
  341
  374
  409
  445
  482
  521
  562
  604
  648
  693
  741
  790
  841
  895
  951
  1,009
  1,069
  1,133
  1,199
  1,268
EBITDA, $m
  101
  123
  145
  170
  196
  224
  254
  285
  318
  352
  388
  425
  464
  505
  547
  591
  637
  684
  734
  785
  839
  894
  952
  1,012
  1,075
  1,140
  1,209
  1,280
  1,354
  1,432
Interest expense (income), $m
  3
  17
  22
  27
  33
  39
  46
  53
  60
  68
  76
  85
  94
  103
  113
  123
  133
  144
  156
  167
  180
  192
  206
  219
  234
  249
  264
  280
  297
  315
  333
Earnings before tax, $m
  63
  77
  92
  108
  125
  143
  163
  183
  204
  226
  256
  280
  306
  332
  359
  388
  418
  448
  480
  514
  548
  584
  622
  661
  702
  744
  789
  835
  884
  934
Tax expense, $m
  17
  21
  25
  29
  34
  39
  44
  49
  55
  61
  69
  76
  83
  90
  97
  105
  113
  121
  130
  139
  148
  158
  168
  178
  190
  201
  213
  226
  239
  252
Net income, $m
  46
  56
  67
  79
  91
  105
  119
  133
  149
  165
  187
  205
  223
  242
  262
  283
  305
  327
  351
  375
  400
  427
  454
  483
  512
  543
  576
  610
  645
  682

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
  1,160
  1,351
  1,557
  1,779
  2,016
  2,268
  2,535
  2,815
  3,110
  3,419
  3,741
  4,077
  4,427
  4,792
  5,170
  5,564
  5,973
  6,398
  6,840
  7,300
  7,777
  8,274
  8,792
  9,330
  9,891
  10,476
  11,086
  11,722
  12,386
  13,079
Adjusted assets (=assets-cash), $m
  1,160
  1,351
  1,557
  1,779
  2,016
  2,268
  2,535
  2,815
  3,110
  3,419
  3,741
  4,077
  4,427
  4,792
  5,170
  5,564
  5,973
  6,398
  6,840
  7,300
  7,777
  8,274
  8,792
  9,330
  9,891
  10,476
  11,086
  11,722
  12,386
  13,079
Revenue / Adjusted assets
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
Average production assets, $m
  146
  170
  196
  224
  254
  285
  319
  354
  391
  430
  470
  513
  557
  603
  650
  700
  751
  805
  860
  918
  978
  1,041
  1,106
  1,173
  1,244
  1,317
  1,394
  1,474
  1,558
  1,645
Working capital, $m
  -6
  -7
  -8
  -9
  -10
  -11
  -13
  -14
  -16
  -17
  -19
  -20
  -22
  -24
  -26
  -28
  -30
  -32
  -34
  -36
  -39
  -41
  -44
  -47
  -49
  -52
  -55
  -58
  -62
  -65
Total debt, $m
  396
  490
  593
  702
  820
  945
  1,077
  1,215
  1,361
  1,514
  1,674
  1,840
  2,013
  2,194
  2,381
  2,576
  2,779
  2,989
  3,208
  3,435
  3,672
  3,918
  4,174
  4,440
  4,718
  5,007
  5,309
  5,624
  5,953
  6,296
Total liabilities, $m
  574
  669
  771
  881
  998
  1,123
  1,255
  1,394
  1,540
  1,692
  1,852
  2,018
  2,192
  2,372
  2,559
  2,754
  2,957
  3,167
  3,386
  3,613
  3,850
  4,096
  4,352
  4,618
  4,896
  5,186
  5,487
  5,802
  6,131
  6,474
Total equity, $m
  586
  682
  786
  898
  1,018
  1,145
  1,280
  1,422
  1,571
  1,726
  1,889
  2,059
  2,236
  2,420
  2,611
  2,810
  3,016
  3,231
  3,454
  3,686
  3,928
  4,179
  4,440
  4,712
  4,995
  5,290
  5,598
  5,919
  6,255
  6,605
Total liabilities and equity, $m
  1,160
  1,351
  1,557
  1,779
  2,016
  2,268
  2,535
  2,816
  3,111
  3,418
  3,741
  4,077
  4,428
  4,792
  5,170
  5,564
  5,973
  6,398
  6,840
  7,299
  7,778
  8,275
  8,792
  9,330
  9,891
  10,476
  11,085
  11,721
  12,386
  13,079
Debt-to-equity ratio
  0.680
  0.720
  0.750
  0.780
  0.810
  0.820
  0.840
  0.850
  0.870
  0.880
  0.890
  0.890
  0.900
  0.910
  0.910
  0.920
  0.920
  0.930
  0.930
  0.930
  0.930
  0.940
  0.940
  0.940
  0.940
  0.950
  0.950
  0.950
  0.950
  0.950
Adjusted equity ratio
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  46
  56
  67
  79
  91
  105
  119
  133
  149
  165
  187
  205
  223
  242
  262
  283
  305
  327
  351
  375
  400
  427
  454
  483
  512
  543
  576
  610
  645
  682
Depreciation, amort., depletion, $m
  21
  23
  26
  29
  32
  35
  38
  42
  46
  49
  47
  51
  56
  60
  65
  70
  75
  80
  86
  92
  98
  104
  111
  117
  124
  132
  139
  147
  156
  164
Funds from operations, $m
  67
  80
  93
  108
  123
  140
  157
  175
  195
  215
  234
  256
  279
  303
  327
  353
  380
  408
  437
  467
  498
  531
  565
  600
  637
  675
  715
  757
  801
  847
Change in working capital, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
Cash from operations, $m
  68
  81
  94
  109
  124
  141
  158
  177
  196
  216
  236
  258
  281
  305
  329
  355
  382
  410
  439
  469
  500
  533
  567
  603
  640
  678
  718
  760
  804
  850
Maintenance CAPEX, $m
  -12
  -15
  -17
  -20
  -22
  -25
  -29
  -32
  -35
  -39
  -43
  -47
  -51
  -56
  -60
  -65
  -70
  -75
  -80
  -86
  -92
  -98
  -104
  -111
  -117
  -124
  -132
  -139
  -147
  -156
New CAPEX, $m
  -22
  -24
  -26
  -28
  -30
  -32
  -34
  -35
  -37
  -39
  -41
  -42
  -44
  -46
  -48
  -50
  -51
  -53
  -56
  -58
  -60
  -62
  -65
  -68
  -71
  -74
  -77
  -80
  -84
  -87
Cash from investing activities, $m
  -34
  -39
  -43
  -48
  -52
  -57
  -63
  -67
  -72
  -78
  -84
  -89
  -95
  -102
  -108
  -115
  -121
  -128
  -136
  -144
  -152
  -160
  -169
  -179
  -188
  -198
  -209
  -219
  -231
  -243
Free cash flow, $m
  33
  42
  51
  61
  72
  84
  96
  110
  124
  138
  152
  168
  185
  203
  221
  241
  261
  281
  303
  325
  349
  373
  398
  424
  452
  480
  510
  541
  573
  607
Issuance/(repayment) of debt, $m
  86
  94
  102
  110
  117
  125
  132
  139
  146
  153
  160
  166
  173
  180
  188
  195
  203
  210
  219
  227
  236
  246
  256
  267
  278
  289
  302
  315
  329
  343
Issuance/(repurchase) of shares, $m
  43
  40
  37
  33
  29
  23
  16
  8
  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  
  129
  134
  139
  143
  146
  148
  148
  147
  146
  153
  160
  166
  173
  180
  188
  195
  203
  210
  219
  227
  236
  246
  256
  267
  278
  289
  302
  315
  329
  343
Total cash flow (excl. dividends), $m
  162
  176
  191
  204
  218
  231
  244
  257
  269
  291
  312
  335
  359
  383
  409
  436
  463
  492
  522
  553
  585
  619
  654
  691
  729
  770
  812
  856
  902
  950
Retained Cash Flow (-), $m
  -89
  -96
  -104
  -112
  -120
  -127
  -135
  -142
  -149
  -156
  -163
  -170
  -177
  -184
  -191
  -199
  -207
  -215
  -223
  -232
  -241
  -251
  -261
  -272
  -283
  -295
  -308
  -321
  -335
  -350
Prev. year cash balance distribution, $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 flow adjustment, $m
  48
  57
  66
  76
  87
  98
  111
  124
  137
  152
  167
  182
  199
  216
  234
  252
  271
  291
  312
  333
  356
  379
  403
  429
  455
  482
  511
  540
  571
  604
Cash available for distribution, $m
  73
  80
  86
  92
  98
  104
  110
  115
  121
  135
  149
  165
  182
  199
  218
  237
  256
  277
  298
  321
  344
  368
  393
  419
  446
  474
  504
  535
  567
  600
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
  70
  73
  75
  76
  76
  75
  74
  72
  69
  71
  71
  70
  69
  67
  64
  60
  56
  51
  46
  41
  36
  31
  26
  21
  17
  14
  11
  8
  6
  5
Current shareholders' claim on cash, %
  99.1
  98.4
  97.9
  97.5
  97.2
  96.9
  96.8
  96.7
  96.7
  96.7
  96.7
  96.7
  96.7
  96.7
  96.7
  96.7
  96.7
  96.7
  96.7
  96.7
  96.7
  96.7
  96.7
  96.7
  96.7
  96.7
  96.7
  96.7
  96.7
  96.7

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 173.2
Price to Sales 10.8
Price to Book 12.5
Price to Tangible Book
Price to Cash Flow 56.4
Price to Free Cash Flow 79.7
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 $546 million for the last fiscal year's total revenue generated by Medidata Solutions. The default revenue input number comes from 2017 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 17.7% 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 82.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $30 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 8.8%.

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 22.7%.

Life of production assets of 10 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 -0.9%. 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 - $497 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 56 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 $4.9 billion.

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COMPANY NEWS

▶ 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]
▶ 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.]
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