Intrinsic value of Nevro - NVRO

Previous Close

$41.67

  Intrinsic Value

$2.07

stock screener

  Rating & Target

str. sell

-95%

Previous close

$41.67

 
Intrinsic value

$2.07

 
Up/down potential

-95%

 
Rating

str. sell

We calculate the intrinsic value of NVRO 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, %
  23.20
  21.38
  19.74
  18.27
  16.94
  15.75
  14.67
  13.71
  12.83
  12.05
  11.35
  10.71
  10.14
  9.63
  9.16
  8.75
  8.37
  8.04
  7.73
  7.46
  7.21
  6.99
  6.79
  6.61
  6.45
  6.31
  6.18
  6.06
  5.95
  5.86
Revenue, $m
  402
  489
  585
  692
  809
  936
  1,074
  1,221
  1,378
  1,544
  1,719
  1,903
  2,096
  2,298
  2,508
  2,728
  2,956
  3,193
  3,440
  3,697
  3,964
  4,241
  4,529
  4,828
  5,140
  5,464
  5,801
  6,153
  6,519
  6,901
Variable operating expenses, $m
  427
  518
  621
  734
  858
  994
  1,139
  1,295
  1,462
  1,638
  1,824
  2,019
  2,224
  2,438
  2,661
  2,894
  3,136
  3,388
  3,650
  3,923
  4,205
  4,499
  4,805
  5,123
  5,453
  5,797
  6,155
  6,528
  6,917
  7,322
Fixed operating expenses, $m
  9
  9
  10
  10
  10
  10
  10
  11
  11
  11
  11
  12
  12
  12
  12
  13
  13
  13
  14
  14
  14
  15
  15
  15
  16
  16
  16
  17
  17
  17
Total operating expenses, $m
  436
  527
  631
  744
  868
  1,004
  1,149
  1,306
  1,473
  1,649
  1,835
  2,031
  2,236
  2,450
  2,673
  2,907
  3,149
  3,401
  3,664
  3,937
  4,219
  4,514
  4,820
  5,138
  5,469
  5,813
  6,171
  6,545
  6,934
  7,339
Operating income, $m
  -34
  -39
  -45
  -52
  -59
  -67
  -76
  -85
  -95
  -105
  -116
  -128
  -140
  -152
  -165
  -179
  -193
  -208
  -223
  -239
  -256
  -273
  -291
  -310
  -329
  -349
  -370
  -392
  -415
  -438
EBITDA, $m
  -32
  -37
  -42
  -49
  -56
  -63
  -71
  -79
  -88
  -98
  -108
  -119
  -130
  -141
  -153
  -166
  -179
  -193
  -207
  -222
  -237
  -253
  -269
  -287
  -304
  -323
  -342
  -362
  -383
  -405
Interest expense (income), $m
  2
  10
  13
  17
  21
  26
  31
  37
  43
  49
  56
  64
  71
  79
  88
  97
  106
  115
  125
  136
  147
  158
  170
  182
  194
  208
  221
  235
  250
  266
  282
Earnings before tax, $m
  -44
  -53
  -63
  -73
  -86
  -99
  -113
  -128
  -144
  -162
  -180
  -199
  -219
  -240
  -262
  -285
  -309
  -334
  -359
  -386
  -414
  -443
  -473
  -504
  -537
  -570
  -606
  -642
  -680
  -720
Tax expense, $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
Net income, $m
  -44
  -53
  -63
  -73
  -86
  -99
  -113
  -128
  -144
  -162
  -180
  -199
  -219
  -240
  -262
  -285
  -309
  -334
  -359
  -386
  -414
  -443
  -473
  -504
  -537
  -570
  -606
  -642
  -680
  -720

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
  298
  361
  433
  512
  598
  693
  794
  903
  1,019
  1,142
  1,271
  1,407
  1,550
  1,699
  1,855
  2,017
  2,186
  2,362
  2,545
  2,734
  2,932
  3,137
  3,350
  3,571
  3,802
  4,041
  4,291
  4,551
  4,822
  5,104
Adjusted assets (=assets-cash), $m
  298
  361
  433
  512
  598
  693
  794
  903
  1,019
  1,142
  1,271
  1,407
  1,550
  1,699
  1,855
  2,017
  2,186
  2,362
  2,545
  2,734
  2,932
  3,137
  3,350
  3,571
  3,802
  4,041
  4,291
  4,551
  4,822
  5,104
Revenue / Adjusted assets
  1.349
  1.355
  1.351
  1.352
  1.353
  1.351
  1.353
  1.352
  1.352
  1.352
  1.352
  1.353
  1.352
  1.353
  1.352
  1.353
  1.352
  1.352
  1.352
  1.352
  1.352
  1.352
  1.352
  1.352
  1.352
  1.352
  1.352
  1.352
  1.352
  1.352
Average production assets, $m
  10
  12
  14
  17
  19
  22
  26
  29
  33
  37
  41
  46
  50
  55
  60
  65
  71
  77
  83
  89
  95
  102
  109
  116
  123
  131
  139
  148
  156
  166
Working capital, $m
  139
  169
  202
  239
  280
  324
  372
  422
  477
  534
  595
  658
  725
  795
  868
  944
  1,023
  1,105
  1,190
  1,279
  1,371
  1,467
  1,567
  1,671
  1,778
  1,891
  2,007
  2,129
  2,256
  2,388
Total debt, $m
  192
  246
  307
  374
  447
  527
  613
  705
  803
  907
  1,017
  1,132
  1,253
  1,380
  1,511
  1,649
  1,792
  1,941
  2,095
  2,256
  2,423
  2,597
  2,777
  2,965
  3,160
  3,363
  3,575
  3,795
  4,024
  4,263
Total liabilities, $m
  252
  306
  366
  433
  507
  587
  673
  765
  863
  967
  1,077
  1,192
  1,313
  1,439
  1,571
  1,709
  1,852
  2,001
  2,155
  2,316
  2,483
  2,657
  2,837
  3,025
  3,220
  3,423
  3,634
  3,855
  4,084
  4,323
Total equity, $m
  46
  55
  66
  78
  92
  106
  122
  138
  156
  175
  195
  215
  237
  260
  284
  309
  335
  361
  389
  418
  449
  480
  513
  546
  582
  618
  657
  696
  738
  781
Total liabilities and equity, $m
  298
  361
  432
  511
  599
  693
  795
  903
  1,019
  1,142
  1,272
  1,407
  1,550
  1,699
  1,855
  2,018
  2,187
  2,362
  2,544
  2,734
  2,932
  3,137
  3,350
  3,571
  3,802
  4,041
  4,291
  4,551
  4,822
  5,104
Debt-to-equity ratio
  4.220
  4.450
  4.630
  4.770
  4.880
  4.970
  5.040
  5.100
  5.150
  5.190
  5.230
  5.260
  5.280
  5.310
  5.330
  5.340
  5.360
  5.370
  5.380
  5.390
  5.400
  5.410
  5.420
  5.430
  5.430
  5.440
  5.440
  5.450
  5.450
  5.460
Adjusted equity ratio
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -44
  -53
  -63
  -73
  -86
  -99
  -113
  -128
  -144
  -162
  -180
  -199
  -219
  -240
  -262
  -285
  -309
  -334
  -359
  -386
  -414
  -443
  -473
  -504
  -537
  -570
  -606
  -642
  -680
  -720
Depreciation, amort., depletion, $m
  2
  2
  3
  3
  4
  4
  5
  6
  7
  7
  8
  9
  10
  11
  12
  13
  14
  15
  17
  18
  19
  20
  22
  23
  25
  26
  28
  30
  31
  33
Funds from operations, $m
  -42
  -50
  -60
  -70
  -82
  -94
  -108
  -122
  -138
  -154
  -172
  -190
  -209
  -229
  -250
  -272
  -295
  -318
  -343
  -368
  -395
  -422
  -451
  -481
  -512
  -544
  -578
  -613
  -649
  -687
Change in working capital, $m
  26
  30
  33
  37
  41
  44
  48
  51
  54
  57
  61
  64
  67
  70
  73
  76
  79
  82
  85
  89
  92
  96
  100
  104
  108
  112
  117
  122
  127
  132
Cash from operations, $m
  -68
  -80
  -93
  -107
  -122
  -138
  -155
  -173
  -192
  -212
  -232
  -254
  -276
  -299
  -323
  -348
  -374
  -400
  -428
  -457
  -487
  -518
  -551
  -585
  -620
  -656
  -694
  -734
  -776
  -819
Maintenance CAPEX, $m
  -2
  -2
  -2
  -3
  -3
  -4
  -4
  -5
  -6
  -7
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -17
  -18
  -19
  -20
  -22
  -23
  -25
  -26
  -28
  -30
  -31
New CAPEX, $m
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
Cash from investing activities, $m
  -4
  -4
  -4
  -6
  -6
  -7
  -7
  -9
  -10
  -11
  -11
  -12
  -14
  -15
  -16
  -17
  -18
  -20
  -21
  -23
  -24
  -26
  -27
  -29
  -30
  -33
  -34
  -36
  -39
  -40
Free cash flow, $m
  -71
  -84
  -98
  -113
  -128
  -145
  -163
  -182
  -202
  -222
  -244
  -266
  -290
  -314
  -339
  -365
  -392
  -420
  -449
  -480
  -511
  -544
  -578
  -613
  -650
  -689
  -729
  -770
  -814
  -859
Issuance/(repayment) of debt, $m
  47
  54
  60
  67
  73
  80
  86
  92
  98
  104
  110
  115
  121
  126
  132
  137
  143
  149
  155
  161
  167
  174
  180
  188
  195
  203
  211
  220
  229
  239
Issuance/(repurchase) of shares, $m
  52
  62
  73
  86
  99
  113
  128
  145
  162
  180
  200
  220
  241
  263
  286
  310
  335
  360
  387
  415
  444
  474
  505
  538
  572
  607
  644
  682
  722
  763
Cash from financing (excl. dividends), $m  
  99
  116
  133
  153
  172
  193
  214
  237
  260
  284
  310
  335
  362
  389
  418
  447
  478
  509
  542
  576
  611
  648
  685
  726
  767
  810
  855
  902
  951
  1,002
Total cash flow (excl. dividends), $m
  28
  32
  36
  40
  44
  48
  51
  55
  59
  62
  66
  69
  72
  76
  79
  82
  86
  89
  92
  96
  100
  104
  108
  112
  117
  121
  126
  132
  137
  143
Retained Cash Flow (-), $m
  -52
  -62
  -73
  -86
  -99
  -113
  -128
  -145
  -162
  -180
  -200
  -220
  -241
  -263
  -286
  -310
  -335
  -360
  -387
  -415
  -444
  -474
  -505
  -538
  -572
  -607
  -644
  -682
  -722
  -763
Prev. year cash balance distribution, $m
  212
  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
  188
  -30
  -37
  -46
  -55
  -65
  -77
  -90
  -103
  -118
  -134
  -151
  -169
  -187
  -207
  -228
  -249
  -271
  -295
  -319
  -344
  -370
  -398
  -426
  -455
  -486
  -517
  -550
  -585
  -620
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
  180
  -28
  -32
  -38
  -43
  -47
  -52
  -56
  -59
  -62
  -64
  -64
  -64
  -63
  -61
  -58
  -54
  -50
  -45
  -41
  -36
  -31
  -26
  -22
  -18
  -14
  -11
  -9
  -6
  -5
Current shareholders' claim on cash, %
  78.1
  61.4
  48.6
  38.7
  30.9
  24.8
  20.0
  16.2
  13.1
  10.7
  8.7
  7.1
  5.8
  4.8
  3.9
  3.2
  2.6
  2.2
  1.8
  1.5
  1.2
  1.0
  0.8
  0.7
  0.6
  0.5
  0.4
  0.3
  0.3
  0.2

Nevro Corp. is a global medical device company. The Company focuses on providing products that improve the quality of life of patients suffering from chronic pain. The Company has developed and commercialized the Senza spinal cord stimulation (SCS) system, an evidence-based neuromodulation platform for the treatment of chronic pain. Its HF10 therapy is designed to deliver neuromodulation solutions for treating chronic pain. HF10 therapy enables patients to achieve sustained pain relief without paresthesia, thus enabling its patients to avoid the uncomfortable shocking or jolting sensations commonly associated with paresthesia. HF10 therapy relies on consistent anatomical lead placement. As of December 31, 2016, it was investigating the use of HF10 therapy to address additional indications, such as chronic upper limb and neck pain, painful neuropathies and non-surgical refractory back pain. The Senza system is approved to create electrical impulses from 2 hertz (Hz) to 10,000 Hz.

FINANCIAL RATIOS  of  Nevro (NVRO)

Valuation Ratios
P/E Ratio -37.6
Price to Sales 5.3
Price to Book 4.8
Price to Tangible Book
Price to Cash Flow -20.4
Price to Free Cash Flow -19.4
Growth Rates
Sales Growth Rate 227.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -40%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 55.4%
Total Debt to Equity 55.4%
Interest Coverage -14
Management Effectiveness
Return On Assets -8.3%
Ret/ On Assets - 3 Yr. Avg. -19%
Return On Total Capital -10%
Ret/ On T. Cap. - 3 Yr. Avg. -21.3%
Return On Equity -13.2%
Return On Equity - 3 Yr. Avg. -24%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 66.8%
Gross Margin - 3 Yr. Avg. 63%
EBITDA Margin -11.4%
EBITDA Margin - 3 Yr. Avg. -64.1%
Operating Margin -10.5%
Oper. Margin - 3 Yr. Avg. -61.3%
Pre-Tax Margin -13.1%
Pre-Tax Margin - 3 Yr. Avg. -66.1%
Net Profit Margin -14%
Net Profit Margin - 3 Yr. Avg. -67.9%
Effective Tax Rate -6.7%
Eff/ Tax Rate - 3 Yr. Avg. -3.8%
Payout Ratio 0%

NVRO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NVRO stock intrinsic value calculation we used $326.674 million for the last fiscal year's total revenue generated by Nevro. The default revenue input number comes from 0001 income statement of Nevro. 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 NVRO stock valuation model: a) initial revenue growth rate of 23.2% 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 NVRO is calculated based on our internal credit rating of Nevro, 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 Nevro.
    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 NVRO stock the variable cost ratio is equal to 106.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $9 million in the base year in the intrinsic value calculation for NVRO 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 7% for Nevro.

Corporate tax rate of 27% is the nominal tax rate for Nevro. 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 NVRO 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 NVRO are equal to 2.4%.

Life of production assets of 3.2 years is the average useful life of capital assets used in Nevro 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 NVRO is equal to 34.6%. 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 - $249.172 million for Nevro - 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 30.116 million for Nevro 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 Nevro at the current share price and the inputted number of shares is $1.3 billion.

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COMPANY NEWS

▶ Is Nevro Corp (NVRO) Going to Burn These Hedge Funds?   [Dec-12-18 03:16AM  Insider Monkey]
▶ Spinal-cord stimulators mean big business for device makers   [Nov-25-18 12:46PM  Associated Press]
▶ Here's Why Nevro Corp. Shares Fell 16.9% Today   [Nov-06-18 05:14PM  Motley Fool]
▶ Nevro: 3Q Earnings Snapshot   [04:39PM  Associated Press]
▶ Steven Cohen Plunges Into Nevro   [Oct-04-18 01:30PM  GuruFocus.com]

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