Intrinsic value of Providence Service - PRSC

Previous Close

$65.94

  Intrinsic Value

$86.88

stock screener

  Rating & Target

buy

+32%

Previous close

$65.94

 
Intrinsic value

$86.88

 
Up/down potential

+32%

 
Rating

buy

We calculate the intrinsic value of PRSC 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 0.8

 

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
  1,656
  1,694
  1,738
  1,787
  1,841
  1,901
  1,965
  2,035
  2,111
  2,192
  2,278
  2,371
  2,469
  2,574
  2,685
  2,803
  2,927
  3,059
  3,198
  3,345
  3,500
  3,664
  3,836
  4,018
  4,209
  4,410
  4,622
  4,845
  5,080
  5,327
Variable operating expenses, $m
  465
  475
  487
  500
  515
  531
  549
  568
  588
  610
  617
  642
  669
  697
  727
  759
  793
  828
  866
  906
  948
  992
  1,039
  1,088
  1,140
  1,194
  1,252
  1,312
  1,376
  1,443
Fixed operating expenses, $m
  1,176
  1,202
  1,229
  1,256
  1,283
  1,312
  1,340
  1,370
  1,400
  1,431
  1,462
  1,494
  1,527
  1,561
  1,595
  1,630
  1,666
  1,703
  1,740
  1,779
  1,818
  1,858
  1,899
  1,940
  1,983
  2,027
  2,071
  2,117
  2,163
  2,211
Total operating expenses, $m
  1,641
  1,677
  1,716
  1,756
  1,798
  1,843
  1,889
  1,938
  1,988
  2,041
  2,079
  2,136
  2,196
  2,258
  2,322
  2,389
  2,459
  2,531
  2,606
  2,685
  2,766
  2,850
  2,938
  3,028
  3,123
  3,221
  3,323
  3,429
  3,539
  3,654
Operating income, $m
  15
  17
  22
  31
  43
  58
  76
  98
  123
  151
  199
  234
  273
  316
  363
  413
  468
  528
  592
  661
  735
  814
  899
  989
  1,086
  1,189
  1,299
  1,416
  1,541
  1,673
EBITDA, $m
  48
  50
  56
  65
  78
  93
  112
  135
  160
  189
  222
  258
  298
  342
  389
  441
  498
  558
  624
  694
  770
  850
  937
  1,029
  1,128
  1,233
  1,345
  1,465
  1,592
  1,726
Interest expense (income), $m
  10
  1
  4
  7
  11
  15
  20
  25
  31
  37
  44
  51
  58
  67
  75
  84
  94
  104
  115
  127
  139
  152
  165
  180
  195
  211
  227
  245
  263
  283
  303
Earnings before tax, $m
  14
  13
  15
  20
  27
  38
  51
  67
  85
  107
  148
  176
  207
  241
  278
  319
  364
  413
  465
  522
  583
  648
  719
  795
  875
  962
  1,054
  1,153
  1,258
  1,370
Tax expense, $m
  4
  3
  4
  5
  7
  10
  14
  18
  23
  29
  40
  48
  56
  65
  75
  86
  98
  111
  126
  141
  157
  175
  194
  215
  236
  260
  285
  311
  340
  370
Net income, $m
  10
  9
  11
  14
  20
  27
  37
  49
  62
  78
  108
  128
  151
  176
  203
  233
  266
  301
  339
  381
  425
  473
  525
  580
  639
  702
  770
  842
  918
  1,000

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
  718
  734
  753
  775
  798
  824
  852
  882
  915
  950
  988
  1,028
  1,070
  1,116
  1,164
  1,215
  1,269
  1,326
  1,386
  1,450
  1,517
  1,588
  1,663
  1,742
  1,824
  1,912
  2,004
  2,100
  2,202
  2,309
Adjusted assets (=assets-cash), $m
  718
  734
  753
  775
  798
  824
  852
  882
  915
  950
  988
  1,028
  1,070
  1,116
  1,164
  1,215
  1,269
  1,326
  1,386
  1,450
  1,517
  1,588
  1,663
  1,742
  1,824
  1,912
  2,004
  2,100
  2,202
  2,309
Revenue / Adjusted assets
  2.306
  2.308
  2.308
  2.306
  2.307
  2.307
  2.306
  2.307
  2.307
  2.307
  2.306
  2.306
  2.307
  2.306
  2.307
  2.307
  2.307
  2.307
  2.307
  2.307
  2.307
  2.307
  2.307
  2.307
  2.308
  2.306
  2.306
  2.307
  2.307
  2.307
Average production assets, $m
  134
  137
  141
  145
  149
  154
  159
  165
  171
  178
  185
  192
  200
  208
  217
  227
  237
  248
  259
  271
  284
  297
  311
  325
  341
  357
  374
  392
  411
  431
Working capital, $m
  -25
  -25
  -26
  -27
  -28
  -29
  -29
  -31
  -32
  -33
  -34
  -36
  -37
  -39
  -40
  -42
  -44
  -46
  -48
  -50
  -53
  -55
  -58
  -60
  -63
  -66
  -69
  -73
  -76
  -80
Total debt, $m
  10
  19
  29
  40
  52
  65
  80
  96
  113
  131
  151
  171
  194
  217
  242
  269
  297
  327
  358
  391
  426
  463
  502
  543
  586
  631
  679
  729
  782
  838
Total liabilities, $m
  373
  382
  392
  403
  415
  428
  443
  459
  476
  494
  514
  534
  557
  580
  605
  632
  660
  689
  721
  754
  789
  826
  865
  906
  949
  994
  1,042
  1,092
  1,145
  1,201
Total equity, $m
  345
  353
  362
  372
  383
  395
  409
  423
  439
  456
  474
  493
  514
  536
  559
  583
  609
  636
  665
  696
  728
  762
  798
  836
  876
  918
  962
  1,008
  1,057
  1,108
Total liabilities and equity, $m
  718
  735
  754
  775
  798
  823
  852
  882
  915
  950
  988
  1,027
  1,071
  1,116
  1,164
  1,215
  1,269
  1,325
  1,386
  1,450
  1,517
  1,588
  1,663
  1,742
  1,825
  1,912
  2,004
  2,100
  2,202
  2,309
Debt-to-equity ratio
  0.030
  0.050
  0.080
  0.110
  0.140
  0.170
  0.200
  0.230
  0.260
  0.290
  0.320
  0.350
  0.380
  0.410
  0.430
  0.460
  0.490
  0.510
  0.540
  0.560
  0.580
  0.610
  0.630
  0.650
  0.670
  0.690
  0.710
  0.720
  0.740
  0.760
Adjusted equity ratio
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  10
  9
  11
  14
  20
  27
  37
  49
  62
  78
  108
  128
  151
  176
  203
  233
  266
  301
  339
  381
  425
  473
  525
  580
  639
  702
  770
  842
  918
  1,000
Depreciation, amort., depletion, $m
  33
  34
  34
  34
  35
  36
  36
  37
  38
  38
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
  37
  38
  40
  42
  44
  46
  48
  51
  53
Funds from operations, $m
  43
  43
  45
  49
  55
  63
  73
  86
  100
  117
  131
  152
  176
  202
  230
  261
  295
  332
  371
  414
  460
  510
  563
  620
  681
  746
  816
  890
  969
  1,053
Change in working capital, $m
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
Cash from operations, $m
  44
  43
  45
  49
  56
  64
  74
  87
  101
  118
  132
  154
  177
  203
  232
  263
  297
  334
  374
  416
  463
  512
  566
  623
  684
  749
  819
  893
  973
  1,057
Maintenance CAPEX, $m
  -16
  -17
  -17
  -17
  -18
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -33
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -48
  -51
New CAPEX, $m
  -2
  -3
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
Cash from investing activities, $m
  -18
  -20
  -21
  -21
  -22
  -23
  -24
  -26
  -26
  -28
  -29
  -30
  -32
  -33
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -53
  -55
  -58
  -61
  -64
  -67
  -71
Free cash flow, $m
  25
  24
  25
  28
  33
  41
  50
  61
  75
  90
  103
  123
  145
  170
  197
  227
  259
  294
  332
  373
  417
  464
  515
  570
  628
  691
  758
  829
  905
  986
Issuance/(repayment) of debt, $m
  7
  9
  10
  11
  12
  13
  15
  16
  17
  18
  20
  21
  22
  24
  25
  27
  28
  30
  31
  33
  35
  37
  39
  41
  43
  45
  48
  50
  53
  56
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  
  7
  9
  10
  11
  12
  13
  15
  16
  17
  18
  20
  21
  22
  24
  25
  27
  28
  30
  31
  33
  35
  37
  39
  41
  43
  45
  48
  50
  53
  56
Total cash flow (excl. dividends), $m
  33
  32
  35
  39
  46
  54
  65
  77
  92
  108
  123
  144
  168
  194
  222
  253
  287
  323
  363
  406
  452
  501
  554
  611
  671
  736
  806
  879
  958
  1,042
Retained Cash Flow (-), $m
  -6
  -8
  -9
  -10
  -11
  -12
  -13
  -15
  -16
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -26
  -27
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -49
  -51
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
  26
  24
  26
  29
  34
  42
  51
  62
  76
  92
  105
  125
  147
  172
  199
  229
  261
  296
  334
  375
  419
  467
  518
  573
  632
  694
  761
  833
  909
  990
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
  25
  22
  22
  24
  27
  30
  34
  39
  44
  48
  50
  53
  56
  58
  58
  58
  57
  55
  51
  48
  43
  39
  34
  29
  25
  20
  16
  13
  10
  7
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

The Providence Service Corporation (Providence) is a holding company. The Company, through its subsidiaries, is engaged in the provision of healthcare and workforce development services for public and private sector entities. The Company's segments include Non-Emergency Transportation Services (NET Services), Workforce Development Services (WD Services) and Matrix Investment. NET Services segment includes nationwide provider of non-emergency medical transportation programs for state governments and managed care organizations. WD Services segment is a global provider of employment preparation and placement and legal offender rehabilitation services to eligible participants of government sponsored programs. Matrix Investment segment includes minority interest in nationwide provider of in-home care optimization and management solutions, including comprehensive health assessments (CHAs), to members of managed care organizations, accounted for as an equity method investment.

FINANCIAL RATIOS  of  Providence Service (PRSC)

Valuation Ratios
P/E Ratio 9.9
Price to Sales 0.6
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 22.3
Price to Free Cash Flow 0
Growth Rates
Sales Growth Rate 6.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 17.1%
Cap. Spend. - 3 Yr. Gr. Rate 32.6%
Financial Strength
Quick Ratio 36
Current Ratio 0.1
LT Debt to Equity 0.5%
Total Debt to Equity 1.1%
Interest Coverage 1
Management Effectiveness
Return On Assets 21.6%
Ret/ On Assets - 3 Yr. Avg. 12.2%
Return On Total Capital 17.5%
Ret/ On T. Cap. - 3 Yr. Avg. 10.9%
Return On Equity 24.7%
Return On Equity - 3 Yr. Avg. 21.4%
Asset Turnover 1.8
Profitability Ratios
Gross Margin 8%
Gross Margin - 3 Yr. Avg. 8%
EBITDA Margin 3.5%
EBITDA Margin - 3 Yr. Avg. 4.9%
Operating Margin 0.6%
Oper. Margin - 3 Yr. Avg. 1.5%
Pre-Tax Margin -0.1%
Pre-Tax Margin - 3 Yr. Avg. 0.7%
Net Profit Margin 5.8%
Net Profit Margin - 3 Yr. Avg. 4.4%
Effective Tax Rate -850%
Eff/ Tax Rate - 3 Yr. Avg. -325.3%
Payout Ratio 4.3%

PRSC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PRSC stock intrinsic value calculation we used $1623.882 million for the last fiscal year's total revenue generated by Providence Service. The default revenue input number comes from 0001 income statement of Providence Service. 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 PRSC 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 4.3%, whose default value for PRSC is calculated based on our internal credit rating of Providence Service, 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 Providence Service.
    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 PRSC stock the variable cost ratio is equal to 28.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1151 million in the base year in the intrinsic value calculation for PRSC 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 38.8% for Providence Service.

Corporate tax rate of 27% is the nominal tax rate for Providence Service. 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 PRSC 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 PRSC are equal to 8.1%.

Life of production assets of 8.1 years is the average useful life of capital assets used in Providence Service 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 PRSC is equal to -1.5%. 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 - $338.182 million for Providence Service - 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 12.809 million for Providence Service 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 Providence Service at the current share price and the inputted number of shares is $0.8 billion.

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COMPANY NEWS

▶ LogistiCare enters into agreement to acquire Circulation   [Sep-17-18 07:00AM  GlobeNewswire]
▶ Providence Service Corporation to Host Earnings Call   [Aug-08-18 06:00AM  ACCESSWIRE]
▶ Providence Service: 2Q Earnings Snapshot   [05:04AM  Associated Press]
▶ Providence Service: 1Q Earnings Snapshot   [May-10-18 05:06AM  Associated Press]
▶ LogistiCare Names Neil Singer Chief Technology Officer   [May-01-18 12:19PM  GlobeNewswire]
▶ LogistiCare Names Tim Canning as Chief Customer Officer   [Mar-28-18 11:30AM  GlobeNewswire]
▶ Providence Service Corporation to Host Earnings Call   [Mar-09-18 06:00AM  ACCESSWIRE]
▶ Providence Service posts 4Q profit   [Mar-08-18 07:33PM  Associated Press]
▶ LogistiCare is National Sponsor for Kidney Walk   [Mar-01-18 12:52PM  GlobeNewswire]
▶ Matrix Medical Network Completes Acquisition of HealthFair   [Feb-20-18 09:00AM  GlobeNewswire]
▶ Providence Service posts 3Q profit   [Nov-07-17 06:16PM  Associated Press]
▶ Matrix Medical Network to Acquire LP Health Services   [Oct-23-17 01:18PM  GlobeNewswire]
▶ Matrix Medical Network Achieves HITRUST CSF Certification   [Jun-19-17 10:39AM  GlobeNewswire]
▶ Providence Service reports 1Q loss   [May-09-17 06:54PM  Associated Press]
▶ Providence Service posts 4Q profit   [Mar-09-17 05:56PM  Associated Press]

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