Intrinsic value of Magellan Health, Inc. - MGLN

Previous Close

$67.20

  Intrinsic Value

$161.19

stock screener

  Rating & Target

str. buy

+140%

Previous close

$67.20

 
Intrinsic value

$161.19

 
Up/down potential

+140%

 
Rating

str. buy

We calculate the intrinsic value of MGLN 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 1.6

 

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, %
  8.90
  8.51
  8.16
  7.84
  7.56
  7.30
  7.07
  6.87
  6.68
  6.51
  6.36
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.59
  5.53
  5.47
  5.43
  5.38
  5.35
  5.31
  5.28
  5.25
  5.23
  5.20
  5.18
Revenue, $m
  7,965
  8,643
  9,348
  10,081
  10,843
  11,635
  12,458
  13,313
  14,202
  15,127
  16,089
  17,090
  18,133
  19,220
  20,352
  21,533
  22,765
  24,052
  25,395
  26,799
  28,266
  29,800
  31,404
  33,083
  34,840
  36,679
  38,606
  40,623
  42,738
  44,953
Variable operating expenses, $m
  7,739
  8,387
  9,061
  9,762
  10,490
  11,247
  12,034
  12,851
  13,701
  14,585
  15,380
  16,337
  17,334
  18,372
  19,455
  20,584
  21,762
  22,991
  24,275
  25,617
  27,019
  28,486
  30,019
  31,624
  33,304
  35,062
  36,903
  38,832
  40,853
  42,971
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
  7,739
  8,387
  9,061
  9,762
  10,490
  11,247
  12,034
  12,851
  13,701
  14,585
  15,380
  16,337
  17,334
  18,372
  19,455
  20,584
  21,762
  22,991
  24,275
  25,617
  27,019
  28,486
  30,019
  31,624
  33,304
  35,062
  36,903
  38,832
  40,853
  42,971
Operating income, $m
  226
  256
  287
  319
  353
  388
  424
  462
  501
  542
  709
  754
  800
  847
  897
  949
  1,004
  1,060
  1,120
  1,182
  1,246
  1,314
  1,385
  1,459
  1,536
  1,617
  1,702
  1,791
  1,884
  1,982
EBITDA, $m
  431
  467
  506
  545
  587
  629
  674
  720
  768
  818
  870
  924
  981
  1,040
  1,101
  1,165
  1,231
  1,301
  1,374
  1,450
  1,529
  1,612
  1,699
  1,789
  1,884
  1,984
  2,088
  2,197
  2,312
  2,432
Interest expense (income), $m
  9
  41
  49
  57
  66
  75
  85
  95
  105
  116
  127
  139
  151
  163
  176
  190
  204
  219
  234
  250
  267
  285
  303
  322
  342
  363
  385
  408
  432
  458
  484
Earnings before tax, $m
  186
  207
  230
  253
  278
  303
  329
  357
  385
  415
  571
  603
  636
  671
  708
  745
  785
  826
  869
  915
  962
  1,011
  1,062
  1,116
  1,173
  1,232
  1,294
  1,359
  1,427
  1,498
Tax expense, $m
  50
  56
  62
  68
  75
  82
  89
  96
  104
  112
  154
  163
  172
  181
  191
  201
  212
  223
  235
  247
  260
  273
  287
  301
  317
  333
  349
  367
  385
  404
Net income, $m
  135
  151
  168
  185
  203
  221
  241
  261
  281
  303
  417
  440
  465
  490
  517
  544
  573
  603
  635
  668
  702
  738
  776
  815
  856
  899
  945
  992
  1,041
  1,093

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
  3,244
  3,520
  3,808
  4,106
  4,417
  4,739
  5,074
  5,423
  5,785
  6,162
  6,554
  6,961
  7,386
  7,829
  8,290
  8,771
  9,273
  9,797
  10,344
  10,916
  11,513
  12,138
  12,792
  13,476
  14,191
  14,941
  15,725
  16,547
  17,408
  18,311
Adjusted assets (=assets-cash), $m
  3,244
  3,520
  3,808
  4,106
  4,417
  4,739
  5,074
  5,423
  5,785
  6,162
  6,554
  6,961
  7,386
  7,829
  8,290
  8,771
  9,273
  9,797
  10,344
  10,916
  11,513
  12,138
  12,792
  13,476
  14,191
  14,941
  15,725
  16,547
  17,408
  18,311
Revenue / Adjusted assets
  2.455
  2.455
  2.455
  2.455
  2.455
  2.455
  2.455
  2.455
  2.455
  2.455
  2.455
  2.455
  2.455
  2.455
  2.455
  2.455
  2.455
  2.455
  2.455
  2.455
  2.455
  2.455
  2.455
  2.455
  2.455
  2.455
  2.455
  2.455
  2.455
  2.455
Average production assets, $m
  852
  925
  1,000
  1,079
  1,160
  1,245
  1,333
  1,425
  1,520
  1,619
  1,722
  1,829
  1,940
  2,056
  2,178
  2,304
  2,436
  2,574
  2,717
  2,867
  3,024
  3,189
  3,360
  3,540
  3,728
  3,925
  4,131
  4,347
  4,573
  4,810
Working capital, $m
  16
  17
  19
  20
  22
  23
  25
  27
  28
  30
  32
  34
  36
  38
  41
  43
  46
  48
  51
  54
  57
  60
  63
  66
  70
  73
  77
  81
  85
  90
Total debt, $m
  905
  1,062
  1,226
  1,396
  1,572
  1,756
  1,947
  2,145
  2,351
  2,565
  2,788
  3,020
  3,262
  3,514
  3,776
  4,050
  4,335
  4,634
  4,945
  5,270
  5,610
  5,966
  6,338
  6,727
  7,134
  7,560
  8,007
  8,475
  8,964
  9,478
Total liabilities, $m
  1,846
  2,003
  2,167
  2,337
  2,513
  2,697
  2,887
  3,086
  3,292
  3,506
  3,729
  3,961
  4,203
  4,455
  4,717
  4,991
  5,276
  5,575
  5,886
  6,211
  6,551
  6,907
  7,279
  7,668
  8,075
  8,501
  8,948
  9,415
  9,905
  10,419
Total equity, $m
  1,398
  1,517
  1,641
  1,770
  1,904
  2,043
  2,187
  2,337
  2,493
  2,656
  2,825
  3,000
  3,183
  3,374
  3,573
  3,780
  3,997
  4,223
  4,458
  4,705
  4,962
  5,232
  5,513
  5,808
  6,116
  6,439
  6,778
  7,132
  7,503
  7,892
Total liabilities and equity, $m
  3,244
  3,520
  3,808
  4,107
  4,417
  4,740
  5,074
  5,423
  5,785
  6,162
  6,554
  6,961
  7,386
  7,829
  8,290
  8,771
  9,273
  9,798
  10,344
  10,916
  11,513
  12,139
  12,792
  13,476
  14,191
  14,940
  15,726
  16,547
  17,408
  18,311
Debt-to-equity ratio
  0.650
  0.700
  0.750
  0.790
  0.830
  0.860
  0.890
  0.920
  0.940
  0.970
  0.990
  1.010
  1.020
  1.040
  1.060
  1.070
  1.080
  1.100
  1.110
  1.120
  1.130
  1.140
  1.150
  1.160
  1.170
  1.170
  1.180
  1.190
  1.190
  1.200
Adjusted equity ratio
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  135
  151
  168
  185
  203
  221
  241
  261
  281
  303
  417
  440
  465
  490
  517
  544
  573
  603
  635
  668
  702
  738
  776
  815
  856
  899
  945
  992
  1,041
  1,093
Depreciation, amort., depletion, $m
  205
  211
  218
  226
  233
  241
  250
  258
  267
  276
  161
  171
  181
  192
  204
  215
  228
  241
  254
  268
  283
  298
  314
  331
  348
  367
  386
  406
  427
  450
Funds from operations, $m
  340
  363
  386
  411
  436
  463
  490
  519
  548
  579
  578
  611
  646
  682
  720
  760
  801
  844
  889
  936
  985
  1,036
  1,090
  1,146
  1,205
  1,266
  1,331
  1,398
  1,469
  1,543
Change in working capital, $m
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
Cash from operations, $m
  339
  361
  385
  409
  435
  461
  488
  517
  547
  577
  576
  609
  644
  680
  718
  757
  798
  841
  886
  933
  982
  1,033
  1,086
  1,142
  1,201
  1,262
  1,327
  1,394
  1,465
  1,539
Maintenance CAPEX, $m
  -73
  -80
  -86
  -93
  -101
  -108
  -116
  -125
  -133
  -142
  -151
  -161
  -171
  -181
  -192
  -204
  -215
  -228
  -241
  -254
  -268
  -283
  -298
  -314
  -331
  -348
  -367
  -386
  -406
  -427
New CAPEX, $m
  -66
  -73
  -75
  -78
  -82
  -85
  -88
  -92
  -95
  -99
  -103
  -107
  -112
  -116
  -121
  -126
  -132
  -138
  -144
  -150
  -157
  -164
  -172
  -180
  -188
  -197
  -206
  -216
  -226
  -237
Cash from investing activities, $m
  -139
  -153
  -161
  -171
  -183
  -193
  -204
  -217
  -228
  -241
  -254
  -268
  -283
  -297
  -313
  -330
  -347
  -366
  -385
  -404
  -425
  -447
  -470
  -494
  -519
  -545
  -573
  -602
  -632
  -664
Free cash flow, $m
  199
  209
  223
  237
  252
  268
  284
  301
  318
  336
  321
  341
  361
  382
  404
  427
  451
  476
  502
  529
  557
  586
  617
  649
  682
  717
  754
  792
  832
  874
Issuance/(repayment) of debt, $m
  152
  157
  163
  170
  177
  184
  191
  198
  206
  214
  223
  232
  242
  252
  262
  274
  286
  298
  311
  325
  340
  356
  372
  389
  407
  426
  446
  468
  490
  513
Issuance/(repurchase) of shares, $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 financing (excl. dividends), $m  
  152
  157
  163
  170
  177
  184
  191
  198
  206
  214
  223
  232
  242
  252
  262
  274
  286
  298
  311
  325
  340
  356
  372
  389
  407
  426
  446
  468
  490
  513
Total cash flow (excl. dividends), $m
  351
  366
  386
  407
  429
  451
  475
  499
  524
  551
  544
  573
  603
  634
  667
  701
  737
  774
  813
  854
  897
  942
  989
  1,038
  1,089
  1,144
  1,200
  1,260
  1,322
  1,388
Retained Cash Flow (-), $m
  -113
  -119
  -124
  -129
  -134
  -139
  -144
  -150
  -156
  -162
  -169
  -176
  -183
  -191
  -199
  -207
  -216
  -226
  -236
  -246
  -258
  -269
  -282
  -295
  -308
  -323
  -338
  -354
  -371
  -389
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
  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
  238
  247
  263
  279
  295
  312
  330
  349
  368
  388
  376
  397
  420
  444
  468
  494
  520
  548
  577
  608
  639
  672
  707
  743
  781
  821
  862
  906
  951
  999
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
  228
  226
  229
  229
  229
  227
  223
  218
  212
  204
  178
  170
  160
  149
  137
  125
  113
  101
  89
  77
  66
  56
  46
  38
  30
  24
  19
  14
  10
  8
Current shareholders' claim on cash, %
  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

Magellan Health, Inc. is engaged in the healthcare management business. The Company's segments include Healthcare, Pharmacy Management and Corporate. It is focused on managing special populations, complete pharmacy benefits and other specialty areas of healthcare. Its Healthcare includes its management of behavioral healthcare services and employee assistance program (EAP) services, management of other specialty areas, including diagnostic imaging and musculoskeletal management, and the integrated management of physical, behavioral and pharmaceutical healthcare for special populations, delivered through Magellan Complete Care (MCC). Its Pharmacy Management segment consists of products and solutions that provide clinical and financial management of pharmaceuticals paid under medical and pharmacy benefit programs. Its Corporate segment consists primarily of operational support functions. It provides services to health plans and other managed care organizations (MCOs).

FINANCIAL RATIOS  of  Magellan Health, Inc. (MGLN)

Valuation Ratios
P/E Ratio 20.3
Price to Sales 0.3
Price to Book 1.4
Price to Tangible Book
Price to Cash Flow 23.6
Price to Free Cash Flow 263.4
Growth Rates
Sales Growth Rate 5.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -15.3%
Cap. Spend. - 3 Yr. Gr. Rate -1.3%
Financial Strength
Quick Ratio 1
Current Ratio 0.3
LT Debt to Equity 19.5%
Total Debt to Equity 56.2%
Interest Coverage 17
Management Effectiveness
Return On Assets 3.7%
Ret/ On Assets - 3 Yr. Avg. 3.1%
Return On Total Capital 5.1%
Ret/ On T. Cap. - 3 Yr. Avg. 4.5%
Return On Equity 7.2%
Return On Equity - 3 Yr. Avg. 5.6%
Asset Turnover 2.1
Profitability Ratios
Gross Margin 5.4%
Gross Margin - 3 Yr. Avg. 5%
EBITDA Margin 5.4%
EBITDA Margin - 3 Yr. Avg. 5%
Operating Margin 3.2%
Oper. Margin - 3 Yr. Avg. 2.7%
Pre-Tax Margin 3%
Pre-Tax Margin - 3 Yr. Avg. 2.6%
Net Profit Margin 1.6%
Net Profit Margin - 3 Yr. Avg. 1.5%
Effective Tax Rate 47.9%
Eff/ Tax Rate - 3 Yr. Avg. 48.1%
Payout Ratio 0%

MGLN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MGLN stock intrinsic value calculation we used $7314 million for the last fiscal year's total revenue generated by Magellan Health, Inc.. The default revenue input number comes from 0001 income statement of Magellan Health, 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 MGLN stock valuation model: a) initial revenue growth rate of 8.9% 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 MGLN is calculated based on our internal credit rating of Magellan Health, 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 Magellan Health, 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 MGLN stock the variable cost ratio is equal to 97.3%.

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 MGLN 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 Magellan Health, Inc..

Corporate tax rate of 27% is the nominal tax rate for Magellan Health, 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 MGLN 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 MGLN are equal to 10.7%.

Life of production assets of 10.7 years is the average useful life of capital assets used in Magellan Health, 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 MGLN is equal to 0.2%. 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 - $1285.303 million for Magellan Health, 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 23.887 million for Magellan Health, 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 Magellan Health, Inc. at the current share price and the inputted number of shares is $1.6 billion.

RELATED COMPANIES Price Int.Val. Rating
CNC Centene Corpor 59.36 306.07  str.buy
HMSY HMS Holdings C 32.68 12.13  str.sell
MOH Molina Healthc 143.02 5.83  str.sell
MMS Maximus, Inc. 70.78 82.51  hold

CONTACT US       ASSET ALLOCATION

About X-FIN       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2019. All rigths reserved.