Intrinsic value of Patterson - PDCO

Previous Close

$24.47

  Intrinsic Value

$27.32

stock screener

  Rating & Target

hold

+12%

Previous close

$24.47

 
Intrinsic value

$27.32

 
Up/down potential

+12%

 
Rating

hold

We calculate the intrinsic value of PDCO 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 2.3

 

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, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  5,575
  5,703
  5,850
  6,014
  6,197
  6,397
  6,615
  6,850
  7,104
  7,377
  7,669
  7,980
  8,311
  8,664
  9,037
  9,433
  9,853
  10,296
  10,764
  11,259
  11,781
  12,331
  12,911
  13,523
  14,166
  14,844
  15,558
  16,308
  17,098
  17,929
Variable operating expenses, $m
  2,601
  2,658
  2,723
  2,797
  2,878
  2,967
  3,064
  3,169
  3,282
  3,403
  3,412
  3,551
  3,698
  3,855
  4,021
  4,197
  4,384
  4,581
  4,790
  5,010
  5,242
  5,487
  5,745
  6,017
  6,303
  6,605
  6,922
  7,256
  7,608
  7,977
Fixed operating expenses, $m
  2,811
  2,872
  2,936
  3,000
  3,066
  3,134
  3,202
  3,273
  3,345
  3,419
  3,494
  3,571
  3,649
  3,729
  3,812
  3,895
  3,981
  4,069
  4,158
  4,250
  4,343
  4,439
  4,536
  4,636
  4,738
  4,842
  4,949
  5,058
  5,169
  5,283
Total operating expenses, $m
  5,412
  5,530
  5,659
  5,797
  5,944
  6,101
  6,266
  6,442
  6,627
  6,822
  6,906
  7,122
  7,347
  7,584
  7,833
  8,092
  8,365
  8,650
  8,948
  9,260
  9,585
  9,926
  10,281
  10,653
  11,041
  11,447
  11,871
  12,314
  12,777
  13,260
Operating income, $m
  163
  173
  191
  218
  253
  296
  348
  409
  478
  556
  763
  859
  964
  1,079
  1,205
  1,341
  1,488
  1,646
  1,817
  2,000
  2,196
  2,406
  2,630
  2,870
  3,125
  3,397
  3,686
  3,994
  4,321
  4,669
EBITDA, $m
  335
  346
  365
  393
  430
  476
  530
  592
  664
  744
  833
  932
  1,040
  1,159
  1,288
  1,427
  1,578
  1,741
  1,915
  2,103
  2,304
  2,519
  2,749
  2,994
  3,255
  3,533
  3,829
  4,144
  4,478
  4,833
Interest expense (income), $m
  35
  55
  57
  60
  62
  66
  69
  73
  78
  82
  87
  93
  99
  105
  111
  118
  126
  134
  142
  151
  160
  170
  180
  191
  203
  215
  228
  241
  255
  270
  286
Earnings before tax, $m
  109
  116
  131
  155
  187
  227
  275
  331
  396
  468
  670
  760
  859
  968
  1,086
  1,215
  1,354
  1,504
  1,666
  1,840
  2,026
  2,226
  2,439
  2,667
  2,910
  3,169
  3,445
  3,739
  4,051
  4,383
Tax expense, $m
  29
  31
  35
  42
  51
  61
  74
  89
  107
  126
  181
  205
  232
  261
  293
  328
  366
  406
  450
  497
  547
  601
  659
  720
  786
  856
  930
  1,010
  1,094
  1,183
Net income, $m
  79
  84
  96
  113
  137
  166
  201
  242
  289
  342
  489
  555
  627
  707
  793
  887
  988
  1,098
  1,216
  1,343
  1,479
  1,625
  1,780
  1,947
  2,124
  2,314
  2,515
  2,729
  2,957
  3,200

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
  3,542
  3,623
  3,717
  3,821
  3,937
  4,064
  4,202
  4,352
  4,514
  4,687
  4,872
  5,070
  5,280
  5,504
  5,742
  5,993
  6,260
  6,541
  6,839
  7,153
  7,485
  7,834
  8,203
  8,591
  9,000
  9,431
  9,884
  10,361
  10,863
  11,391
Adjusted assets (=assets-cash), $m
  3,542
  3,623
  3,717
  3,821
  3,937
  4,064
  4,202
  4,352
  4,514
  4,687
  4,872
  5,070
  5,280
  5,504
  5,742
  5,993
  6,260
  6,541
  6,839
  7,153
  7,485
  7,834
  8,203
  8,591
  9,000
  9,431
  9,884
  10,361
  10,863
  11,391
Revenue / Adjusted assets
  1.574
  1.574
  1.574
  1.574
  1.574
  1.574
  1.574
  1.574
  1.574
  1.574
  1.574
  1.574
  1.574
  1.574
  1.574
  1.574
  1.574
  1.574
  1.574
  1.574
  1.574
  1.574
  1.574
  1.574
  1.574
  1.574
  1.574
  1.574
  1.574
  1.574
Average production assets, $m
  925
  947
  971
  998
  1,029
  1,062
  1,098
  1,137
  1,179
  1,225
  1,273
  1,325
  1,380
  1,438
  1,500
  1,566
  1,636
  1,709
  1,787
  1,869
  1,956
  2,047
  2,143
  2,245
  2,352
  2,464
  2,583
  2,707
  2,838
  2,976
Working capital, $m
  914
  935
  959
  986
  1,016
  1,049
  1,085
  1,123
  1,165
  1,210
  1,258
  1,309
  1,363
  1,421
  1,482
  1,547
  1,616
  1,689
  1,765
  1,846
  1,932
  2,022
  2,117
  2,218
  2,323
  2,434
  2,551
  2,675
  2,804
  2,940
Total debt, $m
  1,056
  1,103
  1,157
  1,217
  1,284
  1,358
  1,438
  1,525
  1,618
  1,718
  1,826
  1,940
  2,062
  2,192
  2,329
  2,475
  2,629
  2,792
  2,964
  3,146
  3,338
  3,541
  3,754
  3,979
  4,216
  4,465
  4,728
  5,004
  5,294
  5,600
Total liabilities, $m
  2,051
  2,098
  2,152
  2,212
  2,279
  2,353
  2,433
  2,520
  2,613
  2,714
  2,821
  2,935
  3,057
  3,187
  3,324
  3,470
  3,624
  3,787
  3,960
  4,142
  4,334
  4,536
  4,749
  4,974
  5,211
  5,460
  5,723
  5,999
  6,290
  6,595
Total equity, $m
  1,491
  1,525
  1,565
  1,609
  1,657
  1,711
  1,769
  1,832
  1,900
  1,973
  2,051
  2,134
  2,223
  2,317
  2,417
  2,523
  2,635
  2,754
  2,879
  3,011
  3,151
  3,298
  3,453
  3,617
  3,789
  3,970
  4,161
  4,362
  4,573
  4,795
Total liabilities and equity, $m
  3,542
  3,623
  3,717
  3,821
  3,936
  4,064
  4,202
  4,352
  4,513
  4,687
  4,872
  5,069
  5,280
  5,504
  5,741
  5,993
  6,259
  6,541
  6,839
  7,153
  7,485
  7,834
  8,202
  8,591
  9,000
  9,430
  9,884
  10,361
  10,863
  11,390
Debt-to-equity ratio
  0.710
  0.720
  0.740
  0.760
  0.770
  0.790
  0.810
  0.830
  0.850
  0.870
  0.890
  0.910
  0.930
  0.950
  0.960
  0.980
  1.000
  1.010
  1.030
  1.040
  1.060
  1.070
  1.090
  1.100
  1.110
  1.120
  1.140
  1.150
  1.160
  1.170
Adjusted equity ratio
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  79
  84
  96
  113
  137
  166
  201
  242
  289
  342
  489
  555
  627
  707
  793
  887
  988
  1,098
  1,216
  1,343
  1,479
  1,625
  1,780
  1,947
  2,124
  2,314
  2,515
  2,729
  2,957
  3,200
Depreciation, amort., depletion, $m
  172
  173
  174
  176
  177
  179
  181
  183
  186
  188
  70
  73
  76
  79
  83
  87
  90
  94
  99
  103
  108
  113
  118
  124
  130
  136
  143
  150
  157
  164
Funds from operations, $m
  251
  257
  270
  289
  314
  345
  382
  425
  474
  530
  559
  628
  704
  786
  876
  973
  1,079
  1,193
  1,315
  1,446
  1,587
  1,738
  1,899
  2,071
  2,254
  2,450
  2,658
  2,879
  3,114
  3,364
Change in working capital, $m
  18
  21
  24
  27
  30
  33
  36
  39
  42
  45
  48
  51
  54
  58
  61
  65
  69
  73
  77
  81
  86
  90
  95
  100
  106
  111
  117
  123
  130
  136
Cash from operations, $m
  233
  236
  246
  262
  284
  312
  346
  386
  433
  485
  512
  577
  649
  728
  815
  908
  1,010
  1,120
  1,238
  1,365
  1,501
  1,648
  1,804
  1,971
  2,149
  2,339
  2,541
  2,756
  2,985
  3,228
Maintenance CAPEX, $m
  -50
  -51
  -52
  -54
  -55
  -57
  -59
  -61
  -63
  -65
  -68
  -70
  -73
  -76
  -79
  -83
  -87
  -90
  -94
  -99
  -103
  -108
  -113
  -118
  -124
  -130
  -136
  -143
  -150
  -157
New CAPEX, $m
  -20
  -21
  -24
  -27
  -30
  -33
  -36
  -39
  -42
  -45
  -48
  -52
  -55
  -58
  -62
  -66
  -70
  -74
  -78
  -82
  -87
  -91
  -96
  -101
  -107
  -113
  -118
  -125
  -131
  -138
Cash from investing activities, $m
  -70
  -72
  -76
  -81
  -85
  -90
  -95
  -100
  -105
  -110
  -116
  -122
  -128
  -134
  -141
  -149
  -157
  -164
  -172
  -181
  -190
  -199
  -209
  -219
  -231
  -243
  -254
  -268
  -281
  -295
Free cash flow, $m
  163
  164
  169
  181
  199
  222
  251
  287
  328
  375
  396
  455
  521
  594
  673
  760
  854
  956
  1,066
  1,184
  1,312
  1,448
  1,594
  1,751
  1,918
  2,096
  2,286
  2,489
  2,704
  2,933
Issuance/(repayment) of debt, $m
  41
  47
  54
  61
  67
  74
  80
  87
  93
  100
  107
  114
  122
  130
  137
  146
  154
  163
  172
  182
  192
  202
  213
  225
  237
  249
  262
  276
  291
  306
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  
  41
  47
  54
  61
  67
  74
  80
  87
  93
  100
  107
  114
  122
  130
  137
  146
  154
  163
  172
  182
  192
  202
  213
  225
  237
  249
  262
  276
  291
  306
Total cash flow (excl. dividends), $m
  204
  211
  223
  242
  266
  296
  332
  373
  421
  475
  503
  570
  643
  723
  811
  906
  1,008
  1,119
  1,238
  1,366
  1,504
  1,651
  1,808
  1,976
  2,155
  2,345
  2,549
  2,765
  2,995
  3,239
Retained Cash Flow (-), $m
  -29
  -34
  -39
  -44
  -49
  -54
  -58
  -63
  -68
  -73
  -78
  -83
  -89
  -94
  -100
  -106
  -112
  -119
  -125
  -132
  -140
  -147
  -155
  -163
  -172
  -181
  -191
  -201
  -211
  -222
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
  175
  177
  184
  198
  217
  242
  273
  310
  353
  402
  425
  486
  554
  629
  711
  800
  896
  1,000
  1,113
  1,234
  1,364
  1,503
  1,653
  1,812
  1,982
  2,164
  2,358
  2,564
  2,783
  3,016
Discount rate, %
  6.90
  7.25
  7.61
  7.99
  8.39
  8.81
  9.25
  9.71
  10.19
  10.70
  11.24
  11.80
  12.39
  13.01
  13.66
  14.34
  15.06
  15.81
  16.61
  17.44
  18.31
  19.22
  20.18
  21.19
  22.25
  23.37
  24.53
  25.76
  27.05
  28.40
PV of cash for distribution, $m
  163
  154
  148
  145
  145
  146
  147
  148
  147
  145
  132
  128
  121
  113
  104
  94
  83
  71
  60
  50
  40
  31
  24
  18
  13
  9
  6
  4
  3
  2
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

Patterson Companies, Inc. is a value-added distributor focused on providing a customer experience to professionals in the dental and animal health markets. The Company operates through three segments: dental, animal health and corporate. Dental and Animal health are strategic business units that offer similar products and services to different customer bases. Dental provides a virtually complete range of consumable dental products, equipment and software and turnkey digital solutions. In addition it provides value-added services to dentists, dental laboratories, institutions and other healthcare professionals throughout North America. Animal health is a leading, full-line distributor of animal health products, services and technologies. Corporate segment is comprised of general and administrative expenses, including home office support costs in areas such as information technology, finance, legal, human resources and facilities.

FINANCIAL RATIOS  of  Patterson (PDCO)

Valuation Ratios
P/E Ratio 13.8
Price to Sales 0.4
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 14.5
Price to Free Cash Flow 20.4
Growth Rates
Sales Growth Rate 3.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -40.5%
Cap. Spend. - 3 Yr. Gr. Rate 6.7%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 71.6%
Total Debt to Equity 76.9%
Interest Coverage 8
Management Effectiveness
Return On Assets 5.6%
Ret/ On Assets - 3 Yr. Avg. 6.8%
Return On Total Capital 6.9%
Ret/ On T. Cap. - 3 Yr. Avg. 8.3%
Return On Equity 12.1%
Return On Equity - 3 Yr. Avg. 13.2%
Asset Turnover 1.6
Profitability Ratios
Gross Margin 23.3%
Gross Margin - 3 Yr. Avg. 25%
EBITDA Margin 6.6%
EBITDA Margin - 3 Yr. Avg. 7.8%
Operating Margin 5.1%
Oper. Margin - 3 Yr. Avg. 6.5%
Pre-Tax Margin 4.5%
Pre-Tax Margin - 3 Yr. Avg. 5.7%
Net Profit Margin 3.1%
Net Profit Margin - 3 Yr. Avg. 4.1%
Effective Tax Rate 30.7%
Eff/ Tax Rate - 3 Yr. Avg. 34.5%
Payout Ratio 56.1%

PDCO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PDCO stock intrinsic value calculation we used $5465.683 million for the last fiscal year's total revenue generated by Patterson. The default revenue input number comes from 0001 income statement of Patterson. 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 PDCO stock valuation model: a) initial revenue growth rate of 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 6.9%, whose default value for PDCO is calculated based on our internal credit rating of Patterson, 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 Patterson.
    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 PDCO stock the variable cost ratio is equal to 46.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $2750 million in the base year in the intrinsic value calculation for PDCO 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 Patterson.

Corporate tax rate of 27% is the nominal tax rate for Patterson. 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 PDCO 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 PDCO are equal to 16.6%.

Life of production assets of 18.1 years is the average useful life of capital assets used in Patterson 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 PDCO is equal to 16.4%. 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 - $1461.79 million for Patterson - 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 95.063 million for Patterson 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 Patterson at the current share price and the inputted number of shares is $2.3 billion.

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COMPANY NEWS

▶ Patterson CEO Mark Walchirk made $4 million in first year   [Aug-06-18 11:57AM  American City Business Journals]
▶ June Undervalued Utilities Opportunities   [Jun-09-18 08:02AM  Simply Wall St.]
▶ Former St. Jude Medical CFO joins Patterson Cos.   [02:44PM  American City Business Journals]
▶ May Healthcare Dividend Stocks To Look Out For   [06:02AM  Simply Wall St.]
▶ Highly Undervalued Stocks To Profit From   [10:02AM  Simply Wall St.]

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