Intrinsic value of Providence Service - PRSC

Previous Close

$71.41

  Intrinsic Value

$114.52

stock screener

  Rating & Target

str. buy

+60%

Previous close

$71.41

 
Intrinsic value

$114.52

 
Up/down potential

+60%

 
Rating

str. 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 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 1.0

 

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, %
  2.90
  3.11
  3.30
  3.47
  3.62
  3.76
  3.88
  4.00
  4.10
  4.19
  4.27
  4.34
  4.41
  4.47
  4.52
  4.57
  4.61
  4.65
  4.68
  4.72
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
Revenue, $m
  1,671
  1,723
  1,780
  1,842
  1,908
  1,980
  2,057
  2,139
  2,227
  2,320
  2,419
  2,524
  2,635
  2,753
  2,877
  3,009
  3,148
  3,294
  3,448
  3,611
  3,782
  3,963
  4,153
  4,353
  4,563
  4,784
  5,017
  5,262
  5,519
  5,789
Variable operating expenses, $m
  471
  485
  500
  517
  535
  555
  576
  598
  622
  647
  657
  686
  716
  748
  782
  818
  855
  895
  937
  981
  1,028
  1,077
  1,129
  1,183
  1,240
  1,300
  1,363
  1,430
  1,500
  1,573
Fixed operating expenses, $m
  1,175
  1,201
  1,228
  1,255
  1,282
  1,310
  1,339
  1,369
  1,399
  1,430
  1,461
  1,493
  1,526
  1,560
  1,594
  1,629
  1,665
  1,701
  1,739
  1,777
  1,816
  1,856
  1,897
  1,939
  1,981
  2,025
  2,070
  2,115
  2,162
  2,209
Total operating expenses, $m
  1,646
  1,686
  1,728
  1,772
  1,817
  1,865
  1,915
  1,967
  2,021
  2,077
  2,118
  2,179
  2,242
  2,308
  2,376
  2,447
  2,520
  2,596
  2,676
  2,758
  2,844
  2,933
  3,026
  3,122
  3,221
  3,325
  3,433
  3,545
  3,662
  3,782
Operating income, $m
  25
  37
  52
  70
  91
  115
  142
  173
  206
  243
  301
  345
  393
  445
  502
  562
  627
  697
  772
  852
  938
  1,030
  1,127
  1,231
  1,341
  1,459
  1,584
  1,717
  1,857
  2,007
EBITDA, $m
  64
  77
  92
  111
  133
  158
  186
  218
  252
  291
  333
  379
  428
  482
  540
  602
  669
  741
  818
  900
  988
  1,082
  1,182
  1,289
  1,402
  1,523
  1,651
  1,786
  1,931
  2,084
Interest expense (income), $m
  10
  1
  5
  10
  15
  20
  26
  32
  39
  46
  54
  62
  71
  80
  90
  100
  111
  122
  135
  147
  161
  175
  190
  206
  222
  240
  258
  278
  298
  319
  342
Earnings before tax, $m
  24
  32
  42
  55
  71
  89
  110
  133
  160
  189
  238
  274
  313
  356
  402
  451
  505
  563
  625
  692
  763
  839
  921
  1,008
  1,101
  1,201
  1,306
  1,418
  1,538
  1,665
Tax expense, $m
  6
  9
  11
  15
  19
  24
  30
  36
  43
  51
  64
  74
  85
  96
  108
  122
  136
  152
  169
  187
  206
  227
  249
  272
  297
  324
  353
  383
  415
  449
Net income, $m
  17
  23
  31
  40
  52
  65
  80
  97
  117
  138
  174
  200
  229
  260
  293
  329
  369
  411
  456
  505
  557
  613
  672
  736
  804
  876
  953
  1,035
  1,123
  1,215

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
  725
  747
  772
  799
  828
  859
  892
  928
  966
  1,006
  1,049
  1,095
  1,143
  1,194
  1,248
  1,305
  1,365
  1,428
  1,495
  1,566
  1,640
  1,718
  1,801
  1,887
  1,979
  2,075
  2,176
  2,282
  2,393
  2,511
Adjusted assets (=assets-cash), $m
  725
  747
  772
  799
  828
  859
  892
  928
  966
  1,006
  1,049
  1,095
  1,143
  1,194
  1,248
  1,305
  1,365
  1,428
  1,495
  1,566
  1,640
  1,718
  1,801
  1,887
  1,979
  2,075
  2,176
  2,282
  2,393
  2,511
Revenue / Adjusted assets
  2.305
  2.307
  2.306
  2.305
  2.304
  2.305
  2.306
  2.305
  2.305
  2.306
  2.306
  2.305
  2.305
  2.306
  2.305
  2.306
  2.306
  2.307
  2.306
  2.306
  2.306
  2.307
  2.306
  2.307
  2.306
  2.306
  2.306
  2.306
  2.306
  2.305
Average production assets, $m
  222
  229
  237
  245
  254
  263
  274
  285
  296
  309
  322
  336
  350
  366
  383
  400
  419
  438
  459
  480
  503
  527
  552
  579
  607
  636
  667
  700
  734
  770
Working capital, $m
  -15
  -16
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -32
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -50
  -52
Total debt, $m
  14
  25
  38
  52
  67
  83
  101
  119
  139
  160
  182
  206
  231
  258
  286
  315
  347
  380
  414
  451
  490
  530
  573
  618
  666
  716
  768
  823
  881
  942
Total liabilities, $m
  377
  389
  401
  415
  430
  447
  464
  482
  502
  523
  545
  569
  594
  621
  649
  678
  710
  743
  778
  814
  853
  894
  936
  981
  1,029
  1,079
  1,131
  1,186
  1,244
  1,305
Total equity, $m
  348
  359
  370
  383
  397
  412
  428
  445
  464
  483
  504
  525
  549
  573
  599
  626
  655
  686
  718
  752
  787
  825
  864
  906
  950
  996
  1,044
  1,095
  1,149
  1,205
Total liabilities and equity, $m
  725
  748
  771
  798
  827
  859
  892
  927
  966
  1,006
  1,049
  1,094
  1,143
  1,194
  1,248
  1,304
  1,365
  1,429
  1,496
  1,566
  1,640
  1,719
  1,800
  1,887
  1,979
  2,075
  2,175
  2,281
  2,393
  2,510
Debt-to-equity ratio
  0.040
  0.070
  0.100
  0.140
  0.170
  0.200
  0.240
  0.270
  0.300
  0.330
  0.360
  0.390
  0.420
  0.450
  0.480
  0.500
  0.530
  0.550
  0.580
  0.600
  0.620
  0.640
  0.660
  0.680
  0.700
  0.720
  0.740
  0.750
  0.770
  0.780
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
  17
  23
  31
  40
  52
  65
  80
  97
  117
  138
  174
  200
  229
  260
  293
  329
  369
  411
  456
  505
  557
  613
  672
  736
  804
  876
  953
  1,035
  1,123
  1,215
Depreciation, amort., depletion, $m
  39
  40
  40
  41
  42
  43
  44
  45
  46
  47
  32
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  53
  55
  58
  61
  64
  67
  70
  73
  77
Funds from operations, $m
  56
  63
  71
  81
  94
  108
  124
  142
  163
  186
  206
  234
  264
  296
  331
  369
  411
  455
  502
  553
  607
  666
  728
  794
  865
  940
  1,020
  1,105
  1,196
  1,292
Change in working capital, $m
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
Cash from operations, $m
  57
  63
  72
  82
  94
  108
  125
  143
  164
  187
  207
  235
  265
  297
  333
  371
  412
  456
  503
  554
  609
  667
  729
  796
  867
  942
  1,022
  1,108
  1,198
  1,295
Maintenance CAPEX, $m
  -22
  -22
  -23
  -24
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -32
  -34
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -53
  -55
  -58
  -61
  -64
  -67
  -70
  -73
New CAPEX, $m
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -33
  -34
  -36
Cash from investing activities, $m
  -29
  -29
  -31
  -32
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -46
  -49
  -51
  -54
  -55
  -58
  -61
  -65
  -68
  -71
  -74
  -78
  -82
  -86
  -90
  -95
  -100
  -104
  -109
Free cash flow, $m
  28
  34
  41
  50
  61
  74
  88
  105
  124
  145
  163
  189
  216
  247
  279
  315
  353
  395
  439
  487
  538
  593
  651
  714
  781
  852
  928
  1,008
  1,094
  1,185
Issuance/(repayment) of debt, $m
  11
  12
  13
  14
  15
  16
  17
  19
  20
  21
  22
  24
  25
  27
  28
  30
  31
  33
  35
  37
  39
  41
  43
  45
  47
  50
  52
  55
  58
  61
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  
  11
  12
  13
  14
  15
  16
  17
  19
  20
  21
  22
  24
  25
  27
  28
  30
  31
  33
  35
  37
  39
  41
  43
  45
  47
  50
  52
  55
  58
  61
Total cash flow (excl. dividends), $m
  39
  46
  54
  64
  76
  90
  106
  123
  143
  166
  185
  212
  241
  273
  307
  345
  385
  428
  474
  524
  577
  634
  694
  759
  828
  902
  980
  1,064
  1,152
  1,246
Retained Cash Flow (-), $m
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -21
  -22
  -23
  -24
  -26
  -27
  -29
  -30
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -54
  -56
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
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
Cash available for distribution, $m
  29
  35
  42
  51
  62
  75
  90
  106
  125
  146
  165
  190
  218
  249
  282
  317
  356
  397
  442
  490
  541
  596
  655
  717
  784
  856
  932
  1,013
  1,099
  1,190
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
  28
  32
  37
  42
  48
  54
  61
  66
  72
  77
  78
  81
  83
  83
  83
  81
  77
  73
  68
  62
  56
  49
  43
  37
  31
  25
  20
  16
  12
  9
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 10.7
Price to Sales 0.6
Price to Book 2.6
Price to Tangible Book
Price to Cash Flow 24.1
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 $1624 million for the last fiscal year's total revenue generated by Providence Service. The default revenue input number comes from 2017 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 2.9% 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 28.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1150 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 0.5%.

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 13.3%.

Life of production assets of 10 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 -0.9%. 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 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 14 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 $1.0 billion.

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COMPANY NEWS

▶ 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]
▶ LogistiCare And Lyft Announce Nationwide Partnership   [Feb-07-17 01:00PM  PR Newswire]
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