Intrinsic value of Patterson - PDCO

Previous Close

$23.09

  Intrinsic Value

$33.89

stock screener

  Rating & Target

buy

+47%

Previous close

$23.09

 
Intrinsic value

$33.89

 
Up/down potential

+47%

 
Rating

buy

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 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 2.2

 

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, %
  3.80
  3.92
  4.03
  4.13
  4.21
  4.29
  4.36
  4.43
  4.48
  4.54
  4.58
  4.62
  4.66
  4.69
  4.73
  4.75
  4.78
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
Revenue, $m
  5,806
  6,033
  6,276
  6,535
  6,810
  7,103
  7,412
  7,740
  8,088
  8,454
  8,842
  9,250
  9,682
  10,136
  10,615
  11,120
  11,651
  12,210
  12,799
  13,418
  14,069
  14,754
  15,474
  16,232
  17,028
  17,864
  18,744
  19,668
  20,639
  21,659
Variable operating expenses, $m
  5,423
  5,631
  5,853
  6,089
  6,341
  6,607
  6,890
  7,190
  7,507
  7,841
  8,071
  8,444
  8,838
  9,253
  9,690
  10,151
  10,636
  11,146
  11,683
  12,248
  12,843
  13,468
  14,126
  14,817
  15,544
  16,308
  17,110
  17,954
  18,840
  19,772
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
  5,423
  5,631
  5,853
  6,089
  6,341
  6,607
  6,890
  7,190
  7,507
  7,841
  8,071
  8,444
  8,838
  9,253
  9,690
  10,151
  10,636
  11,146
  11,683
  12,248
  12,843
  13,468
  14,126
  14,817
  15,544
  16,308
  17,110
  17,954
  18,840
  19,772
Operating income, $m
  382
  402
  423
  446
  470
  495
  522
  551
  581
  613
  771
  806
  844
  883
  925
  969
  1,015
  1,064
  1,115
  1,169
  1,226
  1,286
  1,349
  1,415
  1,484
  1,557
  1,634
  1,714
  1,799
  1,888
EBITDA, $m
  670
  696
  724
  754
  786
  819
  855
  893
  933
  975
  1,020
  1,067
  1,117
  1,169
  1,224
  1,283
  1,344
  1,408
  1,476
  1,548
  1,623
  1,702
  1,785
  1,872
  1,964
  2,061
  2,162
  2,269
  2,381
  2,498
Interest expense (income), $m
  35
  58
  62
  67
  72
  77
  83
  89
  95
  102
  109
  116
  124
  132
  141
  150
  160
  171
  181
  193
  205
  217
  231
  245
  259
  275
  291
  308
  326
  345
  365
Earnings before tax, $m
  324
  340
  356
  374
  393
  412
  434
  456
  479
  504
  654
  682
  711
  742
  775
  809
  845
  883
  923
  965
  1,009
  1,055
  1,104
  1,155
  1,209
  1,266
  1,326
  1,388
  1,454
  1,523
Tax expense, $m
  88
  92
  96
  101
  106
  111
  117
  123
  129
  136
  177
  184
  192
  200
  209
  218
  228
  238
  249
  260
  272
  285
  298
  312
  326
  342
  358
  375
  393
  411
Net income, $m
  237
  248
  260
  273
  287
  301
  316
  333
  350
  368
  478
  498
  519
  542
  566
  590
  617
  644
  674
  704
  736
  770
  806
  843
  883
  924
  968
  1,013
  1,061
  1,112

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
  3,642
  3,785
  3,937
  4,100
  4,272
  4,456
  4,650
  4,856
  5,074
  5,304
  5,547
  5,803
  6,074
  6,359
  6,659
  6,976
  7,309
  7,660
  8,029
  8,418
  8,826
  9,256
  9,708
  10,183
  10,682
  11,207
  11,759
  12,339
  12,948
  13,588
Adjusted assets (=assets-cash), $m
  3,642
  3,785
  3,937
  4,100
  4,272
  4,456
  4,650
  4,856
  5,074
  5,304
  5,547
  5,803
  6,074
  6,359
  6,659
  6,976
  7,309
  7,660
  8,029
  8,418
  8,826
  9,256
  9,708
  10,183
  10,682
  11,207
  11,759
  12,339
  12,948
  13,588
Revenue / Adjusted assets
  1.594
  1.594
  1.594
  1.594
  1.594
  1.594
  1.594
  1.594
  1.594
  1.594
  1.594
  1.594
  1.594
  1.594
  1.594
  1.594
  1.594
  1.594
  1.594
  1.594
  1.594
  1.594
  1.594
  1.594
  1.594
  1.594
  1.594
  1.594
  1.594
  1.594
Average production assets, $m
  1,637
  1,701
  1,770
  1,843
  1,921
  2,003
  2,090
  2,183
  2,281
  2,384
  2,493
  2,609
  2,730
  2,858
  2,993
  3,136
  3,286
  3,443
  3,609
  3,784
  3,968
  4,161
  4,364
  4,577
  4,802
  5,038
  5,286
  5,546
  5,820
  6,108
Working capital, $m
  99
  103
  107
  111
  116
  121
  126
  132
  137
  144
  150
  157
  165
  172
  180
  189
  198
  208
  218
  228
  239
  251
  263
  276
  289
  304
  319
  334
  351
  368
Total debt, $m
  1,151
  1,237
  1,328
  1,426
  1,530
  1,641
  1,758
  1,881
  2,013
  2,151
  2,297
  2,452
  2,615
  2,786
  2,967
  3,158
  3,358
  3,569
  3,792
  4,026
  4,272
  4,530
  4,802
  5,088
  5,389
  5,705
  6,037
  6,386
  6,753
  7,138
Total liabilities, $m
  2,193
  2,279
  2,370
  2,468
  2,572
  2,682
  2,799
  2,923
  3,054
  3,193
  3,339
  3,494
  3,656
  3,828
  4,009
  4,200
  4,400
  4,611
  4,834
  5,067
  5,313
  5,572
  5,844
  6,130
  6,431
  6,747
  7,079
  7,428
  7,795
  8,180
Total equity, $m
  1,450
  1,506
  1,567
  1,632
  1,700
  1,773
  1,851
  1,933
  2,019
  2,111
  2,208
  2,310
  2,417
  2,531
  2,650
  2,776
  2,909
  3,049
  3,196
  3,350
  3,513
  3,684
  3,864
  4,053
  4,252
  4,461
  4,680
  4,911
  5,153
  5,408
Total liabilities and equity, $m
  3,643
  3,785
  3,937
  4,100
  4,272
  4,455
  4,650
  4,856
  5,073
  5,304
  5,547
  5,804
  6,073
  6,359
  6,659
  6,976
  7,309
  7,660
  8,030
  8,417
  8,826
  9,256
  9,708
  10,183
  10,683
  11,208
  11,759
  12,339
  12,948
  13,588
Debt-to-equity ratio
  0.790
  0.820
  0.850
  0.870
  0.900
  0.930
  0.950
  0.970
  1.000
  1.020
  1.040
  1.060
  1.080
  1.100
  1.120
  1.140
  1.150
  1.170
  1.190
  1.200
  1.220
  1.230
  1.240
  1.260
  1.270
  1.280
  1.290
  1.300
  1.310
  1.320
Adjusted equity ratio
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398
  0.398

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  237
  248
  260
  273
  287
  301
  316
  333
  350
  368
  478
  498
  519
  542
  566
  590
  617
  644
  674
  704
  736
  770
  806
  843
  883
  924
  968
  1,013
  1,061
  1,112
Depreciation, amort., depletion, $m
  288
  294
  301
  308
  316
  324
  333
  342
  352
  362
  249
  261
  273
  286
  299
  314
  329
  344
  361
  378
  397
  416
  436
  458
  480
  504
  529
  555
  582
  611
Funds from operations, $m
  524
  542
  561
  581
  603
  625
  649
  675
  702
  730
  727
  759
  792
  828
  865
  904
  945
  989
  1,034
  1,083
  1,133
  1,186
  1,242
  1,301
  1,363
  1,428
  1,496
  1,568
  1,643
  1,723
Change in working capital, $m
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  17
Cash from operations, $m
  521
  538
  557
  577
  598
  620
  644
  669
  696
  724
  720
  752
  785
  820
  857
  895
  936
  979
  1,024
  1,072
  1,122
  1,175
  1,230
  1,288
  1,349
  1,414
  1,481
  1,552
  1,627
  1,705
Maintenance CAPEX, $m
  -158
  -164
  -170
  -177
  -184
  -192
  -200
  -209
  -218
  -228
  -238
  -249
  -261
  -273
  -286
  -299
  -314
  -329
  -344
  -361
  -378
  -397
  -416
  -436
  -458
  -480
  -504
  -529
  -555
  -582
New CAPEX, $m
  -59
  -64
  -69
  -73
  -78
  -82
  -87
  -93
  -98
  -103
  -109
  -115
  -122
  -128
  -135
  -142
  -150
  -158
  -166
  -175
  -184
  -193
  -203
  -214
  -224
  -236
  -248
  -261
  -274
  -288
Cash from investing activities, $m
  -217
  -228
  -239
  -250
  -262
  -274
  -287
  -302
  -316
  -331
  -347
  -364
  -383
  -401
  -421
  -441
  -464
  -487
  -510
  -536
  -562
  -590
  -619
  -650
  -682
  -716
  -752
  -790
  -829
  -870
Free cash flow, $m
  304
  310
  318
  327
  336
  346
  356
  368
  380
  393
  373
  387
  403
  419
  436
  454
  473
  493
  514
  537
  560
  585
  611
  638
  667
  698
  729
  763
  798
  836
Issuance/(repayment) of debt, $m
  79
  86
  92
  98
  104
  110
  117
  124
  131
  139
  146
  154
  163
  172
  181
  191
  201
  211
  222
  234
  246
  259
  272
  286
  301
  316
  332
  349
  367
  385
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  
  79
  86
  92
  98
  104
  110
  117
  124
  131
  139
  146
  154
  163
  172
  181
  191
  201
  211
  222
  234
  246
  259
  272
  286
  301
  316
  332
  349
  367
  385
Total cash flow (excl. dividends), $m
  383
  396
  410
  425
  440
  456
  473
  492
  511
  531
  519
  542
  565
  590
  617
  644
  674
  704
  736
  770
  806
  843
  883
  924
  968
  1,014
  1,062
  1,112
  1,165
  1,221
Retained Cash Flow (-), $m
  -56
  -57
  -61
  -65
  -69
  -73
  -77
  -82
  -87
  -92
  -97
  -102
  -108
  -113
  -120
  -126
  -133
  -140
  -147
  -155
  -163
  -171
  -180
  -189
  -199
  -209
  -220
  -231
  -242
  -255
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
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  25
  27
  28
  29
  30
  32
  33
  35
  37
  38
  40
  42
  44
  46
  49
  51
  54
  56
  59
  62
Cash available for distribution, $m
  327
  339
  349
  360
  371
  383
  396
  410
  424
  440
  422
  440
  458
  477
  497
  518
  541
  565
  590
  616
  643
  672
  703
  735
  769
  805
  842
  881
  923
  966
Discount rate, %
  6.70
  7.04
  7.39
  7.76
  8.14
  8.55
  8.98
  9.43
  9.90
  10.39
  10.91
  11.46
  12.03
  12.63
  13.27
  13.93
  14.63
  15.36
  16.12
  16.93
  17.78
  18.67
  19.60
  20.58
  21.61
  22.69
  23.82
  25.01
  26.26
  27.58
PV of cash for distribution, $m
  307
  296
  282
  267
  251
  234
  217
  199
  181
  164
  135
  120
  105
  90
  77
  64
  53
  43
  34
  27
  21
  16
  11
  8
  6
  4
  3
  2
  1
  1
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
Price to Sales 0.4
Price to Book 1.6
Price to Tangible Book
Price to Cash Flow 13.7
Price to Free Cash Flow 19.2
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 $5593 million for the last fiscal year's total revenue generated by Patterson. The default revenue input number comes from 2017 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 3.8% 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 6.7%, 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 93.5%.

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 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 0.3%.

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 28.2%.

Life of production assets of 10 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 1.7%. 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 - $1394 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 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 $2.2 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.]
▶ Patterson Announces Dental Leadership Transition   [May-03-18 04:57PM  Business Wire]
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