Intrinsic value of Quality Care Properties - QCP

Previous Close

$20.74

  Intrinsic Value

$52.51

stock screener

  Rating & Target

str. buy

+153%

Previous close

$20.74

 
Intrinsic value

$52.51

 
Up/down potential

+153%

 
Rating

str. buy

We calculate the intrinsic value of QCP 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 1.9

 

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, %
  2.00
  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
  324
  332
  340
  350
  361
  372
  385
  399
  413
  429
  446
  464
  484
  504
  526
  549
  573
  599
  626
  655
  685
  717
  751
  787
  824
  864
  905
  949
  995
  1,043
Variable operating expenses, $m
  246
  252
  259
  266
  274
  283
  292
  303
  314
  326
  338
  351
  366
  382
  398
  415
  434
  453
  474
  496
  519
  543
  569
  595
  624
  654
  685
  718
  753
  789
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
  246
  252
  259
  266
  274
  283
  292
  303
  314
  326
  338
  351
  366
  382
  398
  415
  434
  453
  474
  496
  519
  543
  569
  595
  624
  654
  685
  718
  753
  789
Operating income, $m
  78
  80
  82
  84
  87
  89
  93
  96
  100
  103
  108
  113
  118
  123
  128
  133
  139
  146
  152
  159
  167
  174
  183
  191
  200
  210
  220
  231
  242
  254
EBITDA, $m
  547
  560
  574
  590
  608
  628
  649
  672
  697
  724
  753
  783
  816
  850
  887
  926
  967
  1,010
  1,056
  1,105
  1,156
  1,210
  1,267
  1,327
  1,390
  1,457
  1,527
  1,600
  1,678
  1,759
Interest expense (income), $m
  11
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
Earnings before tax, $m
  78
  80
  82
  84
  87
  89
  93
  96
  99
  103
  108
  113
  117
  122
  128
  133
  139
  145
  152
  159
  166
  174
  182
  191
  200
  209
  219
  230
  241
  253
Tax expense, $m
  21
  22
  22
  23
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
  36
  38
  39
  41
  43
  45
  47
  49
  51
  54
  57
  59
  62
  65
  68
Net income, $m
  57
  58
  60
  61
  63
  65
  68
  70
  73
  75
  79
  82
  86
  89
  93
  97
  102
  106
  111
  116
  121
  127
  133
  139
  146
  153
  160
  168
  176
  184

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
  -576
  -589
  -605
  -622
  -640
  -661
  -684
  -708
  -734
  -762
  -793
  -825
  -859
  -895
  -934
  -975
  -1,018
  -1,064
  -1,112
  -1,164
  -1,217
  -1,274
  -1,334
  -1,397
  -1,464
  -1,534
  -1,608
  -1,685
  -1,767
  -1,853
Adjusted assets (=assets-cash), $m
  -576
  -589
  -605
  -622
  -640
  -661
  -684
  -708
  -734
  -762
  -793
  -825
  -859
  -895
  -934
  -975
  -1,018
  -1,064
  -1,112
  -1,164
  -1,217
  -1,274
  -1,334
  -1,397
  -1,464
  -1,534
  -1,608
  -1,685
  -1,767
  -1,853
Revenue / Adjusted assets
  -0.563
  -0.564
  -0.562
  -0.563
  -0.564
  -0.563
  -0.563
  -0.564
  -0.563
  -0.563
  -0.562
  -0.562
  -0.563
  -0.563
  -0.563
  -0.563
  -0.563
  -0.563
  -0.563
  -0.563
  -0.563
  -0.563
  -0.563
  -0.563
  -0.563
  -0.563
  -0.563
  -0.563
  -0.563
  -0.563
Average production assets, $m
  4,682
  4,790
  4,913
  5,051
  5,205
  5,373
  5,556
  5,754
  5,967
  6,196
  6,441
  6,702
  6,981
  7,277
  7,591
  7,923
  8,275
  8,648
  9,041
  9,456
  9,895
  10,357
  10,844
  11,358
  11,898
  12,468
  13,067
  13,697
  14,361
  15,059
Working capital, $m
  -1,663
  -1,701
  -1,745
  -1,794
  -1,848
  -1,908
  -1,973
  -2,043
  -2,119
  -2,201
  -2,288
  -2,380
  -2,479
  -2,584
  -2,696
  -2,814
  -2,939
  -3,071
  -3,211
  -3,359
  -3,514
  -3,678
  -3,851
  -4,034
  -4,226
  -4,428
  -4,641
  -4,865
  -5,100
  -5,348
Total debt, $m
  0
  0
  0
  1
  1
  1
  2
  2
  2
  3
  3
  4
  4
  5
  5
  6
  6
  7
  8
  8
  9
  10
  11
  12
  12
  13
  14
  16
  17
  18
Total liabilities, $m
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  20
  21
  23
  24
  25
  26
Total equity, $m
  -584
  -598
  -613
  -630
  -649
  -670
  -693
  -718
  -744
  -773
  -804
  -836
  -871
  -908
  -947
  -989
  -1,032
  -1,079
  -1,128
  -1,180
  -1,234
  -1,292
  -1,353
  -1,417
  -1,484
  -1,555
  -1,630
  -1,709
  -1,792
  -1,879
Total liabilities and equity, $m
  -576
  -590
  -605
  -621
  -640
  -661
  -683
  -708
  -734
  -762
  -793
  -824
  -859
  -895
  -934
  -975
  -1,018
  -1,064
  -1,112
  -1,164
  -1,217
  -1,274
  -1,334
  -1,397
  -1,464
  -1,534
  -1,607
  -1,685
  -1,767
  -1,853
Debt-to-equity ratio
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
Adjusted equity ratio
  1.014
  1.014
  1.014
  1.014
  1.014
  1.014
  1.014
  1.014
  1.014
  1.014
  1.014
  1.014
  1.014
  1.014
  1.014
  1.014
  1.014
  1.014
  1.014
  1.014
  1.014
  1.014
  1.014
  1.014
  1.014
  1.014
  1.014
  1.014
  1.014
  1.014

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  57
  58
  60
  61
  63
  65
  68
  70
  73
  75
  79
  82
  86
  89
  93
  97
  102
  106
  111
  116
  121
  127
  133
  139
  146
  153
  160
  168
  176
  184
Depreciation, amort., depletion, $m
  469
  480
  492
  506
  521
  538
  557
  576
  598
  621
  644
  670
  698
  728
  759
  792
  828
  865
  904
  946
  989
  1,036
  1,084
  1,136
  1,190
  1,247
  1,307
  1,370
  1,436
  1,506
Funds from operations, $m
  526
  538
  552
  568
  585
  604
  624
  646
  670
  696
  723
  753
  784
  817
  852
  890
  929
  971
  1,015
  1,062
  1,111
  1,163
  1,217
  1,275
  1,336
  1,400
  1,467
  1,538
  1,612
  1,690
Change in working capital, $m
  -33
  -38
  -44
  -49
  -54
  -60
  -65
  -70
  -76
  -81
  -87
  -93
  -99
  -105
  -111
  -118
  -125
  -132
  -140
  -148
  -156
  -164
  -173
  -182
  -192
  -202
  -213
  -224
  -236
  -248
Cash from operations, $m
  559
  576
  596
  617
  639
  663
  689
  717
  746
  777
  810
  845
  883
  922
  964
  1,008
  1,054
  1,103
  1,155
  1,209
  1,266
  1,327
  1,390
  1,457
  1,528
  1,602
  1,680
  1,762
  1,848
  1,938
Maintenance CAPEX, $m
  -460
  -468
  -479
  -491
  -505
  -520
  -537
  -556
  -575
  -597
  -620
  -644
  -670
  -698
  -728
  -759
  -792
  -828
  -865
  -904
  -946
  -989
  -1,036
  -1,084
  -1,136
  -1,190
  -1,247
  -1,307
  -1,370
  -1,436
New CAPEX, $m
  -84
  -108
  -123
  -138
  -153
  -168
  -183
  -198
  -213
  -229
  -245
  -261
  -278
  -296
  -314
  -333
  -352
  -372
  -393
  -415
  -438
  -462
  -487
  -513
  -541
  -569
  -599
  -631
  -663
  -698
Cash from investing activities, $m
  -544
  -576
  -602
  -629
  -658
  -688
  -720
  -754
  -788
  -826
  -865
  -905
  -948
  -994
  -1,042
  -1,092
  -1,144
  -1,200
  -1,258
  -1,319
  -1,384
  -1,451
  -1,523
  -1,597
  -1,677
  -1,759
  -1,846
  -1,938
  -2,033
  -2,134
Free cash flow, $m
  14
  0
  -6
  -13
  -19
  -25
  -31
  -37
  -43
  -48
  -54
  -60
  -66
  -72
  -78
  -84
  -90
  -97
  -103
  -110
  -117
  -125
  -133
  -140
  -149
  -157
  -166
  -176
  -185
  -196
Issuance/(repayment) of debt, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
Issuance/(repurchase) of shares, $m
  -11
  -13
  -15
  -17
  -19
  -21
  -23
  -25
  -27
  -29
  -31
  -33
  -35
  -37
  -39
  -42
  -44
  -46
  -49
  -52
  -55
  -58
  -61
  -64
  -67
  -71
  -75
  -79
  -83
  -87
Cash from financing (excl. dividends), $m  
  -11
  -13
  -15
  -17
  -19
  -21
  -23
  -25
  -27
  -29
  -31
  -33
  -35
  -36
  -38
  -41
  -43
  -45
  -48
  -51
  -54
  -57
  -60
  -63
  -66
  -70
  -74
  -78
  -82
  -86
Total cash flow (excl. dividends), $m
  4
  -13
  -22
  -30
  -38
  -46
  -54
  -61
  -69
  -77
  -85
  -92
  -100
  -108
  -116
  -125
  -134
  -143
  -152
  -161
  -171
  -182
  -192
  -204
  -215
  -227
  -240
  -253
  -267
  -282
Retained Cash Flow (-), $m
  11
  13
  15
  17
  19
  21
  23
  25
  27
  29
  31
  33
  35
  37
  39
  42
  44
  46
  49
  52
  55
  58
  61
  64
  67
  71
  75
  79
  83
  87
Prev. year cash balance distribution, $m
  574
  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
  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
  588
  13
  15
  17
  19
  21
  23
  25
  27
  29
  31
  33
  35
  37
  39
  42
  44
  46
  49
  52
  55
  58
  61
  64
  67
  71
  75
  79
  83
  87
Discount rate, %
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
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  0.00
  0.00
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  0.00
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  0.00
PV of cash for distribution, $m
  588
  13
  15
  17
  19
  21
  23
  25
  27
  29
  31
  33
  35
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  49
  52
  55
  58
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  64
  67
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  75
  79
  83
  87
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

Quality Care Properties, Inc. is a self-managed and self-administered real estate investment trust. The Company is focused on post-acute/skilled nursing and memory care/assisted living properties. As of June 30, 2016, the Company's portfolio included 274 post-acute/skilled nursing properties, 62 memory care/assisted living properties, a surgical hospital and a medical office building (MOB) across 30 states of the United States. The Company's primary tenant is HCR ManorCare, Inc. (HCRMC), a provider of post-acute, memory care and hospice services. As of June 30, 2016, 249 of the Company's post-acute/skilled nursing properties and 61 of its memory care/assisted living properties were leased to HCR III Healthcare, LLC (HCR III), a subsidiary of HCRMC. As of June 30, 2016, its hospital had a capacity of 37 beds. As of June 30, 2016, its medical office covered 88,000 square feet. As of June 30, 2016, its post-acute/skilled nursing properties had a capacity of 33,490 beds.

FINANCIAL RATIOS  of  Quality Care Properties (QCP)

Valuation Ratios
P/E Ratio 24
Price to Sales 4.1
Price to Book 0.6
Price to Tangible Book
Price to Cash Flow 3.7
Price to Free Cash Flow 4.7
Growth Rates
Sales Growth Rate -18.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -39.9%
Cap. Spend. - 3 Yr. Gr. Rate 105.5%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 24.9%
Total Debt to Equity 56.4%
Interest Coverage 10
Management Effectiveness
Return On Assets 1.8%
Ret/ On Assets - 3 Yr. Avg. 4.8%
Return On Total Capital 1.6%
Ret/ On T. Cap. - 3 Yr. Avg. 4.7%
Return On Equity 2%
Return On Equity - 3 Yr. Avg. 4.8%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 99.2%
Gross Margin - 3 Yr. Avg. 99.3%
EBITDA Margin 58.6%
EBITDA Margin - 3 Yr. Avg. 72.3%
Operating Margin 18.7%
Oper. Margin - 3 Yr. Avg. 28%
Pre-Tax Margin 21%
Pre-Tax Margin - 3 Yr. Avg. 31.1%
Net Profit Margin 17.2%
Net Profit Margin - 3 Yr. Avg. 29.4%
Effective Tax Rate 18.2%
Eff/ Tax Rate - 3 Yr. Avg. 6.2%
Payout Ratio 0%

QCP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the QCP stock intrinsic value calculation we used $318 million for the last fiscal year's total revenue generated by Quality Care Properties. The default revenue input number comes from 2017 income statement of Quality Care Properties. 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 QCP 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 0%, whose default value for QCP is calculated based on our internal credit rating of Quality Care Properties, 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 Quality Care Properties.
    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 QCP stock the variable cost ratio is equal to 76%.

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 QCP 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 Quality Care Properties.

Corporate tax rate of 27% is the nominal tax rate for Quality Care Properties. 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 QCP stock is equal to 2.4%.

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 QCP are equal to 1443.6%.

Life of production assets of 10 years is the average useful life of capital assets used in Quality Care Properties 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 QCP is equal to -512.7%. 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 - $0 million for Quality Care Properties - 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 94 million for Quality Care Properties 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 Quality Care Properties at the current share price and the inputted number of shares is $1.9 billion.

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