Intrinsic value of PRA Health Sciences, Inc. - PRAH

Previous Close

$106.71

  Intrinsic Value

$106.06

stock screener

  Rating & Target

hold

-1%

Previous close

$106.71

 
Intrinsic value

$106.06

 
Up/down potential

-1%

 
Rating

hold

We calculate the intrinsic value of PRAH 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 7.0

 

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, %
  11.20
  10.58
  10.02
  9.52
  9.07
  8.66
  8.29
  7.97
  7.67
  7.40
  7.16
  6.95
  6.75
  6.58
  6.42
  6.28
  6.15
  6.03
  5.93
  5.84
  5.75
  5.68
  5.61
  5.55
  5.49
  5.45
  5.40
  5.36
  5.32
  5.29
Revenue, $m
  3,194
  3,532
  3,885
  4,255
  4,641
  5,043
  5,462
  5,897
  6,349
  6,819
  7,307
  7,815
  8,342
  8,891
  9,461
  10,055
  10,674
  11,318
  11,989
  12,689
  13,419
  14,181
  14,976
  15,807
  16,676
  17,584
  18,534
  19,527
  20,567
  21,655
Variable operating expenses, $m
  2,620
  2,874
  3,140
  3,418
  3,707
  4,010
  4,324
  4,651
  4,991
  5,344
  5,491
  5,872
  6,269
  6,681
  7,110
  7,556
  8,020
  8,504
  9,009
  9,535
  10,083
  10,656
  11,254
  11,878
  12,531
  13,213
  13,927
  14,673
  15,455
  16,272
Fixed operating expenses, $m
  221
  226
  231
  236
  241
  246
  252
  257
  263
  269
  274
  280
  287
  293
  299
  306
  313
  320
  327
  334
  341
  349
  356
  364
  372
  380
  389
  397
  406
  415
Total operating expenses, $m
  2,841
  3,100
  3,371
  3,654
  3,948
  4,256
  4,576
  4,908
  5,254
  5,613
  5,765
  6,152
  6,556
  6,974
  7,409
  7,862
  8,333
  8,824
  9,336
  9,869
  10,424
  11,005
  11,610
  12,242
  12,903
  13,593
  14,316
  15,070
  15,861
  16,687
Operating income, $m
  353
  432
  515
  602
  693
  788
  886
  989
  1,095
  1,207
  1,542
  1,662
  1,787
  1,917
  2,052
  2,193
  2,340
  2,494
  2,653
  2,820
  2,994
  3,176
  3,366
  3,565
  3,773
  3,990
  4,218
  4,457
  4,706
  4,968
EBITDA, $m
  639
  725
  816
  910
  1,009
  1,112
  1,219
  1,331
  1,447
  1,568
  1,693
  1,824
  1,960
  2,101
  2,248
  2,402
  2,561
  2,728
  2,902
  3,083
  3,272
  3,470
  3,676
  3,892
  4,118
  4,354
  4,602
  4,861
  5,132
  5,416
Interest expense (income), $m
  48
  58
  71
  85
  99
  114
  130
  146
  163
  180
  199
  217
  237
  258
  279
  301
  324
  348
  373
  399
  426
  454
  483
  514
  546
  579
  614
  651
  689
  729
  771
Earnings before tax, $m
  295
  361
  430
  503
  579
  658
  740
  826
  915
  1,008
  1,324
  1,425
  1,529
  1,638
  1,752
  1,870
  1,993
  2,121
  2,255
  2,395
  2,540
  2,693
  2,852
  3,019
  3,193
  3,376
  3,567
  3,767
  3,977
  4,197
Tax expense, $m
  80
  97
  116
  136
  156
  178
  200
  223
  247
  272
  358
  385
  413
  442
  473
  505
  538
  573
  609
  647
  686
  727
  770
  815
  862
  912
  963
  1,017
  1,074
  1,133
Net income, $m
  215
  263
  314
  367
  422
  480
  540
  603
  668
  736
  967
  1,040
  1,116
  1,196
  1,279
  1,365
  1,455
  1,548
  1,646
  1,748
  1,855
  1,966
  2,082
  2,204
  2,331
  2,464
  2,604
  2,750
  2,903
  3,064

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
  3,545
  3,920
  4,312
  4,723
  5,151
  5,597
  6,062
  6,545
  7,046
  7,568
  8,110
  8,673
  9,259
  9,868
  10,501
  11,160
  11,846
  12,561
  13,306
  14,083
  14,893
  15,739
  16,622
  17,544
  18,508
  19,516
  20,570
  21,673
  22,827
  24,035
Adjusted assets (=assets-cash), $m
  3,545
  3,920
  4,312
  4,723
  5,151
  5,597
  6,062
  6,545
  7,046
  7,568
  8,110
  8,673
  9,259
  9,868
  10,501
  11,160
  11,846
  12,561
  13,306
  14,083
  14,893
  15,739
  16,622
  17,544
  18,508
  19,516
  20,570
  21,673
  22,827
  24,035
Revenue / Adjusted assets
  0.901
  0.901
  0.901
  0.901
  0.901
  0.901
  0.901
  0.901
  0.901
  0.901
  0.901
  0.901
  0.901
  0.901
  0.901
  0.901
  0.901
  0.901
  0.901
  0.901
  0.901
  0.901
  0.901
  0.901
  0.901
  0.901
  0.901
  0.901
  0.901
  0.901
Average production assets, $m
  1,415
  1,564
  1,721
  1,885
  2,056
  2,234
  2,419
  2,612
  2,813
  3,021
  3,237
  3,462
  3,696
  3,939
  4,191
  4,454
  4,728
  5,014
  5,311
  5,621
  5,944
  6,282
  6,634
  7,003
  7,387
  7,790
  8,210
  8,650
  9,111
  9,593
Working capital, $m
  -291
  -321
  -354
  -387
  -422
  -459
  -497
  -537
  -578
  -621
  -665
  -711
  -759
  -809
  -861
  -915
  -971
  -1,030
  -1,091
  -1,155
  -1,221
  -1,290
  -1,363
  -1,438
  -1,518
  -1,600
  -1,687
  -1,777
  -1,872
  -1,971
Total debt, $m
  1,323
  1,575
  1,839
  2,115
  2,403
  2,702
  3,014
  3,339
  3,676
  4,027
  4,391
  4,769
  5,163
  5,572
  5,998
  6,441
  6,902
  7,382
  7,883
  8,405
  8,949
  9,517
  10,111
  10,731
  11,378
  12,056
  12,764
  13,505
  14,280
  15,092
Total liabilities, $m
  2,382
  2,634
  2,898
  3,174
  3,462
  3,761
  4,073
  4,398
  4,735
  5,086
  5,450
  5,828
  6,222
  6,631
  7,057
  7,500
  7,961
  8,441
  8,942
  9,464
  10,008
  10,576
  11,170
  11,790
  12,438
  13,115
  13,823
  14,564
  15,339
  16,151
Total equity, $m
  1,163
  1,286
  1,414
  1,549
  1,690
  1,836
  1,988
  2,147
  2,311
  2,482
  2,660
  2,845
  3,037
  3,237
  3,444
  3,661
  3,886
  4,120
  4,364
  4,619
  4,885
  5,162
  5,452
  5,755
  6,071
  6,401
  6,747
  7,109
  7,487
  7,883
Total liabilities and equity, $m
  3,545
  3,920
  4,312
  4,723
  5,152
  5,597
  6,061
  6,545
  7,046
  7,568
  8,110
  8,673
  9,259
  9,868
  10,501
  11,161
  11,847
  12,561
  13,306
  14,083
  14,893
  15,738
  16,622
  17,545
  18,509
  19,516
  20,570
  21,673
  22,826
  24,034
Debt-to-equity ratio
  1.140
  1.230
  1.300
  1.370
  1.420
  1.470
  1.520
  1.560
  1.590
  1.620
  1.650
  1.680
  1.700
  1.720
  1.740
  1.760
  1.780
  1.790
  1.810
  1.820
  1.830
  1.840
  1.850
  1.860
  1.870
  1.880
  1.890
  1.900
  1.910
  1.910
Adjusted equity ratio
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328
  0.328

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  215
  263
  314
  367
  422
  480
  540
  603
  668
  736
  967
  1,040
  1,116
  1,196
  1,279
  1,365
  1,455
  1,548
  1,646
  1,748
  1,855
  1,966
  2,082
  2,204
  2,331
  2,464
  2,604
  2,750
  2,903
  3,064
Depreciation, amort., depletion, $m
  286
  293
  300
  308
  316
  324
  333
  342
  351
  361
  151
  162
  173
  184
  196
  208
  221
  234
  248
  263
  278
  294
  310
  327
  345
  364
  384
  404
  426
  448
Funds from operations, $m
  501
  556
  614
  675
  738
  805
  873
  945
  1,019
  1,097
  1,118
  1,202
  1,289
  1,380
  1,474
  1,573
  1,676
  1,783
  1,894
  2,011
  2,132
  2,259
  2,392
  2,531
  2,676
  2,828
  2,988
  3,154
  3,329
  3,512
Change in working capital, $m
  -29
  -31
  -32
  -34
  -35
  -37
  -38
  -40
  -41
  -43
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -59
  -61
  -64
  -66
  -69
  -72
  -76
  -79
  -83
  -86
  -90
  -95
  -99
Cash from operations, $m
  530
  587
  647
  709
  774
  841
  911
  984
  1,061
  1,140
  1,163
  1,248
  1,337
  1,430
  1,526
  1,627
  1,732
  1,841
  1,955
  2,074
  2,199
  2,329
  2,465
  2,607
  2,755
  2,911
  3,074
  3,245
  3,424
  3,611
Maintenance CAPEX, $m
  -59
  -66
  -73
  -80
  -88
  -96
  -104
  -113
  -122
  -131
  -141
  -151
  -162
  -173
  -184
  -196
  -208
  -221
  -234
  -248
  -263
  -278
  -294
  -310
  -327
  -345
  -364
  -384
  -404
  -426
New CAPEX, $m
  -142
  -150
  -157
  -164
  -171
  -178
  -185
  -193
  -200
  -208
  -216
  -225
  -234
  -243
  -253
  -263
  -274
  -285
  -297
  -310
  -323
  -338
  -352
  -368
  -385
  -402
  -421
  -440
  -461
  -482
Cash from investing activities, $m
  -201
  -216
  -230
  -244
  -259
  -274
  -289
  -306
  -322
  -339
  -357
  -376
  -396
  -416
  -437
  -459
  -482
  -506
  -531
  -558
  -586
  -616
  -646
  -678
  -712
  -747
  -785
  -824
  -865
  -908
Free cash flow, $m
  329
  371
  417
  464
  515
  567
  622
  679
  738
  800
  805
  872
  942
  1,014
  1,090
  1,168
  1,250
  1,335
  1,424
  1,516
  1,613
  1,713
  1,819
  1,929
  2,043
  2,164
  2,289
  2,421
  2,559
  2,703
Issuance/(repayment) of debt, $m
  241
  252
  264
  276
  288
  300
  312
  324
  337
  350
  364
  379
  393
  409
  426
  443
  461
  480
  501
  522
  545
  568
  593
  620
  648
  677
  708
  741
  775
  812
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  
  241
  252
  264
  276
  288
  300
  312
  324
  337
  350
  364
  379
  393
  409
  426
  443
  461
  480
  501
  522
  545
  568
  593
  620
  648
  677
  708
  741
  775
  812
Total cash flow (excl. dividends), $m
  569
  623
  681
  740
  802
  867
  934
  1,003
  1,075
  1,151
  1,169
  1,251
  1,335
  1,423
  1,515
  1,611
  1,711
  1,815
  1,924
  2,038
  2,157
  2,282
  2,412
  2,548
  2,691
  2,841
  2,998
  3,162
  3,334
  3,515
Retained Cash Flow (-), $m
  -118
  -123
  -129
  -135
  -140
  -146
  -152
  -158
  -165
  -171
  -178
  -185
  -192
  -200
  -208
  -216
  -225
  -234
  -244
  -255
  -266
  -277
  -290
  -303
  -316
  -331
  -346
  -362
  -378
  -396
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
  452
  500
  552
  606
  662
  720
  781
  845
  911
  979
  992
  1,066
  1,143
  1,224
  1,307
  1,395
  1,486
  1,581
  1,680
  1,783
  1,891
  2,004
  2,122
  2,246
  2,375
  2,510
  2,652
  2,800
  2,956
  3,119
Discount rate, %
  6.10
  6.41
  6.73
  7.06
  7.41
  7.79
  8.17
  8.58
  9.01
  9.46
  9.94
  10.43
  10.95
  11.50
  12.08
  12.68
  13.32
  13.98
  14.68
  15.41
  16.19
  16.99
  17.84
  18.74
  19.67
  20.66
  21.69
  22.77
  23.91
  25.11
PV of cash for distribution, $m
  426
  442
  454
  461
  463
  459
  451
  437
  419
  397
  350
  324
  296
  266
  236
  206
  177
  150
  124
  101
  81
  63
  49
  36
  27
  19
  13
  9
  6
  4
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

PRA Health Sciences, Inc. is a contract research organization. The Company provides outsourced clinical development services to the biotechnology and pharmaceutical industries. The Company offers therapeutic services in areas of pharmaceutical development, including oncology, central nervous system, inflammation and infectious diseases. Its services include data management, statistical analysis, clinical trial management, and regulatory and drug development consulting. It provides its clients with clinical development service offerings, which includes both traditional, project-based Phase I through Phase IV services, as well as embedded and functional outsourcing services. As of December 31, 2016, its clinical development platform included approximately 70 offices across North America, Europe, Asia, Latin America, South Africa, Australia and the Middle East. The Company's service offerings include product registration, strategic solutions and early development services.

FINANCIAL RATIOS  of  PRA Health Sciences, Inc. (PRAH)

Valuation Ratios
P/E Ratio 96.7
Price to Sales 3.6
Price to Book 9
Price to Tangible Book
Price to Cash Flow 41.1
Price to Free Cash Flow 51.8
Growth Rates
Sales Growth Rate 12.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 10.5%
Financial Strength
Quick Ratio 5
Current Ratio 0
LT Debt to Equity 109.3%
Total Debt to Equity 113.6%
Interest Coverage 3
Management Effectiveness
Return On Assets 4.6%
Ret/ On Assets - 3 Yr. Avg. 3.8%
Return On Total Capital 4.3%
Ret/ On T. Cap. - 3 Yr. Avg. 2.4%
Return On Equity 9.5%
Return On Equity - 3 Yr. Avg. 5%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 30.2%
Gross Margin - 3 Yr. Avg. 29.5%
EBITDA Margin 11.7%
EBITDA Margin - 3 Yr. Avg. 12.1%
Operating Margin 6.8%
Oper. Margin - 3 Yr. Avg. 6.4%
Pre-Tax Margin 5.2%
Pre-Tax Margin - 3 Yr. Avg. 3.1%
Net Profit Margin 3.8%
Net Profit Margin - 3 Yr. Avg. 2.1%
Effective Tax Rate 30.9%
Eff/ Tax Rate - 3 Yr. Avg. 25.3%
Payout Ratio 0%

PRAH stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PRAH stock intrinsic value calculation we used $2872 million for the last fiscal year's total revenue generated by PRA Health Sciences, Inc.. The default revenue input number comes from 0001 income statement of PRA Health Sciences, 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 PRAH stock valuation model: a) initial revenue growth rate of 11.2% 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 6.1%, whose default value for PRAH is calculated based on our internal credit rating of PRA Health Sciences, 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 PRA Health Sciences, 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 PRAH stock the variable cost ratio is equal to 82.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $216 million in the base year in the intrinsic value calculation for PRAH 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 PRA Health Sciences, Inc..

Corporate tax rate of 27% is the nominal tax rate for PRA Health Sciences, 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 PRAH 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 PRAH are equal to 44.3%.

Life of production assets of 21.4 years is the average useful life of capital assets used in PRA Health Sciences, 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 PRAH is equal to -9.1%. 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 - $1045.03 million for PRA Health Sciences, 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 65.560 million for PRA Health Sciences, 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 PRA Health Sciences, Inc. at the current share price and the inputted number of shares is $7.0 billion.

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