Intrinsic value of Quality Systems - QSII

Previous Close

$21.99

  Intrinsic Value

$2.97

stock screener

  Rating & Target

str. sell

-86%

Previous close

$21.99

 
Intrinsic value

$2.97

 
Up/down potential

-86%

 
Rating

str. sell

We calculate the intrinsic value of QSII 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 1.4

 

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, %
  3.50
  3.65
  3.78
  3.91
  4.02
  4.11
  4.20
  4.28
  4.35
  4.42
  4.48
  4.53
  4.58
  4.62
  4.66
  4.69
  4.72
  4.75
  4.77
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
Revenue, $m
  528
  547
  568
  590
  614
  639
  666
  694
  725
  757
  790
  826
  864
  904
  946
  990
  1,037
  1,086
  1,138
  1,193
  1,250
  1,311
  1,375
  1,441
  1,512
  1,586
  1,663
  1,745
  1,831
  1,921
Variable operating expenses, $m
  519
  537
  556
  577
  599
  623
  648
  674
  702
  732
  737
  770
  806
  843
  882
  923
  967
  1,013
  1,061
  1,112
  1,166
  1,222
  1,281
  1,344
  1,409
  1,478
  1,551
  1,627
  1,707
  1,791
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
  519
  537
  556
  577
  599
  623
  648
  674
  702
  732
  737
  770
  806
  843
  882
  923
  967
  1,013
  1,061
  1,112
  1,166
  1,222
  1,281
  1,344
  1,409
  1,478
  1,551
  1,627
  1,707
  1,791
Operating income, $m
  9
  10
  12
  13
  15
  16
  18
  20
  22
  24
  54
  56
  59
  61
  64
  67
  70
  74
  77
  81
  85
  89
  93
  98
  102
  107
  113
  118
  124
  130
EBITDA, $m
  68
  70
  73
  76
  79
  82
  85
  89
  93
  97
  101
  106
  111
  116
  121
  127
  133
  139
  146
  153
  160
  168
  176
  185
  194
  203
  213
  224
  235
  246
Interest expense (income), $m
  2
  1
  1
  1
  2
  2
  3
  3
  4
  4
  5
  5
  6
  6
  7
  8
  9
  9
  10
  11
  12
  13
  14
  15
  16
  17
  19
  20
  21
  23
  24
Earnings before tax, $m
  8
  9
  10
  11
  12
  14
  15
  17
  18
  20
  48
  50
  52
  54
  56
  59
  61
  63
  66
  69
  72
  75
  78
  81
  85
  89
  93
  97
  101
  106
Tax expense, $m
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  13
  14
  14
  15
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
Net income, $m
  6
  7
  7
  8
  9
  10
  11
  12
  13
  14
  35
  37
  38
  40
  41
  43
  44
  46
  48
  50
  52
  55
  57
  59
  62
  65
  68
  71
  74
  77

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
  490
  508
  527
  548
  570
  593
  618
  645
  673
  702
  734
  767
  802
  839
  878
  920
  963
  1,009
  1,057
  1,108
  1,161
  1,217
  1,276
  1,338
  1,404
  1,472
  1,545
  1,620
  1,700
  1,784
Adjusted assets (=assets-cash), $m
  490
  508
  527
  548
  570
  593
  618
  645
  673
  702
  734
  767
  802
  839
  878
  920
  963
  1,009
  1,057
  1,108
  1,161
  1,217
  1,276
  1,338
  1,404
  1,472
  1,545
  1,620
  1,700
  1,784
Revenue / Adjusted assets
  1.078
  1.077
  1.078
  1.077
  1.077
  1.078
  1.078
  1.076
  1.077
  1.078
  1.076
  1.077
  1.077
  1.077
  1.077
  1.076
  1.077
  1.076
  1.077
  1.077
  1.077
  1.077
  1.078
  1.077
  1.077
  1.077
  1.076
  1.077
  1.077
  1.077
Average production assets, $m
  319
  330
  343
  356
  371
  386
  402
  419
  438
  457
  477
  499
  522
  546
  571
  598
  626
  656
  688
  721
  755
  792
  830
  871
  913
  958
  1,005
  1,054
  1,106
  1,160
Working capital, $m
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -16
  -17
Total debt, $m
  21
  27
  34
  41
  49
  57
  66
  76
  86
  96
  107
  119
  132
  145
  159
  173
  189
  205
  222
  240
  259
  279
  300
  322
  345
  369
  395
  422
  450
  480
Total liabilities, $m
  174
  180
  187
  194
  202
  211
  219
  229
  239
  249
  261
  272
  285
  298
  312
  326
  342
  358
  375
  393
  412
  432
  453
  475
  498
  523
  548
  575
  604
  633
Total equity, $m
  316
  328
  340
  353
  368
  383
  399
  416
  434
  453
  473
  495
  517
  541
  567
  593
  621
  651
  682
  714
  749
  785
  823
  863
  905
  950
  996
  1,045
  1,097
  1,151
Total liabilities and equity, $m
  490
  508
  527
  547
  570
  594
  618
  645
  673
  702
  734
  767
  802
  839
  879
  919
  963
  1,009
  1,057
  1,107
  1,161
  1,217
  1,276
  1,338
  1,403
  1,473
  1,544
  1,620
  1,701
  1,784
Debt-to-equity ratio
  0.070
  0.080
  0.100
  0.120
  0.130
  0.150
  0.170
  0.180
  0.200
  0.210
  0.230
  0.240
  0.250
  0.270
  0.280
  0.290
  0.300
  0.310
  0.330
  0.340
  0.350
  0.360
  0.360
  0.370
  0.380
  0.390
  0.400
  0.400
  0.410
  0.420
Adjusted equity ratio
  0.645
  0.645
  0.645
  0.645
  0.645
  0.645
  0.645
  0.645
  0.645
  0.645
  0.645
  0.645
  0.645
  0.645
  0.645
  0.645
  0.645
  0.645
  0.645
  0.645
  0.645
  0.645
  0.645
  0.645
  0.645
  0.645
  0.645
  0.645
  0.645
  0.645

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  6
  7
  7
  8
  9
  10
  11
  12
  13
  14
  35
  37
  38
  40
  41
  43
  44
  46
  48
  50
  52
  55
  57
  59
  62
  65
  68
  71
  74
  77
Depreciation, amort., depletion, $m
  59
  60
  61
  63
  64
  65
  67
  69
  71
  73
  48
  50
  52
  55
  57
  60
  63
  66
  69
  72
  76
  79
  83
  87
  91
  96
  100
  105
  111
  116
Funds from operations, $m
  65
  67
  69
  71
  73
  76
  78
  81
  84
  87
  83
  87
  90
  94
  98
  103
  107
  112
  117
  122
  128
  134
  140
  147
  153
  161
  168
  176
  185
  193
Change in working capital, $m
  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
  -1
  -1
Cash from operations, $m
  65
  67
  69
  71
  73
  76
  78
  81
  84
  87
  83
  87
  91
  94
  99
  103
  108
  112
  117
  123
  128
  134
  141
  147
  154
  161
  169
  177
  185
  194
Maintenance CAPEX, $m
  -31
  -32
  -33
  -34
  -36
  -37
  -39
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -55
  -57
  -60
  -63
  -66
  -69
  -72
  -76
  -79
  -83
  -87
  -91
  -96
  -100
  -105
  -111
New CAPEX, $m
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -35
  -37
  -38
  -40
  -42
  -45
  -47
  -49
  -52
  -55
Cash from investing activities, $m
  -42
  -44
  -46
  -47
  -50
  -52
  -55
  -57
  -60
  -63
  -66
  -70
  -73
  -76
  -80
  -84
  -88
  -93
  -97
  -102
  -107
  -113
  -117
  -123
  -129
  -136
  -143
  -149
  -157
  -166
Free cash flow, $m
  23
  23
  23
  23
  23
  23
  24
  24
  24
  24
  17
  17
  18
  18
  19
  19
  19
  20
  20
  21
  22
  22
  23
  24
  24
  25
  26
  27
  28
  29
Issuance/(repayment) of debt, $m
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  30
Issuance/(repurchase) of shares, $m
  5
  5
  5
  5
  5
  5
  5
  5
  5
  5
  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
  11
  12
  12
  13
  13
  14
  14
  15
  16
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  30
Total cash flow (excl. dividends), $m
  34
  34
  35
  36
  36
  37
  37
  38
  39
  40
  28
  29
  30
  31
  32
  34
  35
  36
  38
  39
  41
  42
  44
  46
  48
  50
  52
  54
  56
  59
Retained Cash Flow (-), $m
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -44
  -47
  -49
  -51
  -54
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
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
Cash available for distribution, $m
  23
  23
  23
  22
  22
  22
  21
  21
  21
  20
  8
  8
  8
  7
  7
  7
  7
  7
  7
  6
  6
  6
  6
  6
  6
  5
  5
  5
  5
  5
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
  22
  21
  20
  18
  17
  16
  14
  13
  12
  11
  4
  3
  3
  2
  2
  2
  1
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  99.6
  99.3
  98.9
  98.6
  98.3
  98.0
  97.7
  97.4
  97.2
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9

Quality Systems, Inc. (QSI) primarily, through its NextGen Healthcare subsidiary, provides technology-based solutions and services to the ambulatory care market in the United States. The Company is engaged in developing and marketing software and services that automate certain aspects of practice management (PM) and electronic health records (EHR) for medical and dental practices. The Company operates through three segments: the NextGen Division, the RCM Services Division and the QSI Dental Division. It also provides implementation, training, support and maintenance for software and complementary services, such as revenue cycle management (RCM) and electronic data interchange (EDI). The Company's clients include single and small practice physicians, networks of practices, such as physician hospital organizations (PHOs), management service organizations (MSOs), accountable care organizations (ACOs), ambulatory care centers, community health centers, and medical and dental schools.

FINANCIAL RATIOS  of  Quality Systems (QSII)

Valuation Ratios
P/E Ratio 76.3
Price to Sales 2.7
Price to Book 4.5
Price to Tangible Book
Price to Cash Flow 12.4
Price to Free Cash Flow 15.1
Growth Rates
Sales Growth Rate 3.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -31%
Cap. Spend. - 3 Yr. Gr. Rate -7.2%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 4.9%
Total Debt to Equity 4.9%
Interest Coverage 13
Management Effectiveness
Return On Assets 3.9%
Ret/ On Assets - 3 Yr. Avg. 3.8%
Return On Total Capital 5.2%
Ret/ On T. Cap. - 3 Yr. Avg. 5.4%
Return On Equity 6.3%
Return On Equity - 3 Yr. Avg. 5.9%
Asset Turnover 1
Profitability Ratios
Gross Margin 56.1%
Gross Margin - 3 Yr. Avg. 54.9%
EBITDA Margin 12.9%
EBITDA Margin - 3 Yr. Avg. 11.2%
Operating Margin 5.3%
Oper. Margin - 3 Yr. Avg. 4.7%
Pre-Tax Margin 4.7%
Pre-Tax Margin - 3 Yr. Avg. 4.4%
Net Profit Margin 3.5%
Net Profit Margin - 3 Yr. Avg. 3.4%
Effective Tax Rate 25%
Eff/ Tax Rate - 3 Yr. Avg. 16.7%
Payout Ratio 0%

QSII stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the QSII stock intrinsic value calculation we used $510 million for the last fiscal year's total revenue generated by Quality Systems. The default revenue input number comes from 2017 income statement of Quality Systems. 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 QSII stock valuation model: a) initial revenue growth rate of 3.5% 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 QSII is calculated based on our internal credit rating of Quality Systems, 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 Systems.
    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 QSII stock the variable cost ratio is equal to 98.5%.

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 QSII 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 Systems.

Corporate tax rate of 27% is the nominal tax rate for Quality Systems. 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 QSII stock is equal to 1.5%.

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 QSII are equal to 60.4%.

Life of production assets of 10 years is the average useful life of capital assets used in Quality Systems 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 QSII 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 - $305 million for Quality Systems - 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 62 million for Quality Systems 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 Systems at the current share price and the inputted number of shares is $1.4 billion.

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COMPANY NEWS

▶ Sell Rules For Growth Stocks: Watch For A Big Break Of An Uptrend Line   [Aug-07-18 06:30PM  Investor's Business Daily]
▶ Quality Systems: Fiscal 1Q Earnings Snapshot   [04:34PM  Associated Press]
▶ Company News For May 29, 2018   [May-29-18 10:21AM  Zacks]
▶ Why Quality Systems Inc. Stock Surged Today   [May-25-18 04:43PM  Motley Fool]
▶ Quality Systems: Fiscal 4Q Earnings Snapshot   [May-24-18 04:41PM  Associated Press]
▶ KLAS Report Names NextGen Healthcare as Most Improved   [Feb-06-18 07:30AM  Business Wire]
▶ Quality Systems meets 3Q profit forecasts   [Jan-25-18 04:51PM  Associated Press]
▶ Quality Systems beats Street 2Q forecasts   [Oct-26-17 06:36AM  Associated Press]
▶ Quality Systems tops Street 1Q forecasts   [Aug-01-17 09:33PM  Associated Press]
▶ Quality Systems tops Street 4Q forecasts   [May-19-17 06:36AM  Associated Press]
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