Intrinsic value of Quality Systems - QSII

Previous Close

$13.33

  Intrinsic Value

$3.99

stock screener

  Rating & Target

str. sell

-70%

Previous close

$13.33

 
Intrinsic value

$3.99

 
Up/down potential

-70%

 
Rating

str. sell

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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, %
  3.66
  4.70
  4.73
  4.76
  4.78
  4.80
  4.82
  4.84
  4.86
  4.87
  4.88
  4.90
  4.91
  4.92
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
  4.96
  4.97
  4.97
  4.97
  4.98
  4.98
  4.98
  4.98
  4.98
  4.99
Revenue, $m
  510
  534
  559
  586
  614
  643
  674
  707
  741
  777
  815
  855
  897
  941
  988
  1,036
  1,088
  1,141
  1,198
  1,257
  1,320
  1,385
  1,454
  1,526
  1,602
  1,682
  1,766
  1,853
  1,946
  2,043
  2,145
Variable operating expenses, $m
 
  526
  550
  575
  601
  629
  659
  690
  723
  757
  793
  812
  852
  894
  938
  984
  1,033
  1,084
  1,137
  1,194
  1,253
  1,315
  1,381
  1,449
  1,521
  1,597
  1,676
  1,760
  1,848
  1,940
  2,036
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
  483
  526
  550
  575
  601
  629
  659
  690
  723
  757
  793
  812
  852
  894
  938
  984
  1,033
  1,084
  1,137
  1,194
  1,253
  1,315
  1,381
  1,449
  1,521
  1,597
  1,676
  1,760
  1,848
  1,940
  2,036
Operating income, $m
  27
  8
  10
  11
  12
  14
  15
  17
  19
  21
  23
  43
  45
  48
  50
  52
  55
  58
  60
  63
  67
  70
  73
  77
  81
  85
  89
  94
  98
  103
  108
EBITDA, $m
  67
  43
  45
  48
  50
  52
  55
  57
  60
  63
  66
  69
  73
  76
  80
  84
  88
  93
  97
  102
  107
  113
  118
  124
  130
  137
  143
  151
  158
  166
  174
Interest expense (income), $m
  2
  1
  1
  1
  1
  2
  2
  2
  3
  3
  4
  4
  5
  5
  5
  6
  7
  7
  8
  8
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  18
Earnings before tax, $m
  24
  8
  9
  10
  11
  12
  13
  15
  16
  17
  19
  39
  41
  43
  44
  46
  48
  50
  53
  55
  57
  60
  63
  66
  69
  72
  75
  79
  82
  86
  90
Tax expense, $m
  6
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  11
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
Net income, $m
  18
  6
  6
  7
  8
  9
  10
  11
  12
  13
  14
  29
  30
  31
  32
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  52
  55
  57
  60
  63
  66

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  38
  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
  473
  456
  477
  500
  524
  549
  575
  603
  633
  663
  696
  730
  766
  803
  843
  884
  928
  974
  1,022
  1,073
  1,126
  1,182
  1,241
  1,302
  1,367
  1,435
  1,506
  1,581
  1,660
  1,743
  1,830
Adjusted assets (=assets-cash), $m
  435
  456
  477
  500
  524
  549
  575
  603
  633
  663
  696
  730
  766
  803
  843
  884
  928
  974
  1,022
  1,073
  1,126
  1,182
  1,241
  1,302
  1,367
  1,435
  1,506
  1,581
  1,660
  1,743
  1,830
Revenue / Adjusted assets
  1.172
  1.171
  1.172
  1.172
  1.172
  1.171
  1.172
  1.172
  1.171
  1.172
  1.171
  1.171
  1.171
  1.172
  1.172
  1.172
  1.172
  1.171
  1.172
  1.171
  1.172
  1.172
  1.172
  1.172
  1.172
  1.172
  1.173
  1.172
  1.172
  1.172
  1.172
Average production assets, $m
  121
  127
  133
  139
  145
  152
  160
  168
  176
  184
  193
  203
  213
  223
  234
  246
  258
  271
  284
  298
  313
  328
  345
  362
  380
  399
  418
  439
  461
  484
  508
Working capital, $m
  18
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -35
  -37
  -39
  -40
  -42
  -45
  -47
  -49
  -51
  -54
  -57
  -60
  -62
  -66
  -69
  -72
  -76
  -80
  -84
Total debt, $m
  15
  23
  31
  40
  49
  59
  69
  80
  91
  103
  116
  129
  143
  157
  172
  188
  205
  223
  242
  261
  282
  303
  326
  350
  375
  401
  428
  457
  488
  520
  553
Total liabilities, $m
  168
  176
  184
  193
  202
  212
  222
  233
  244
  256
  269
  282
  296
  310
  325
  341
  358
  376
  395
  414
  435
  456
  479
  503
  528
  554
  581
  610
  641
  673
  706
Total equity, $m
  305
  280
  293
  307
  322
  337
  353
  370
  388
  407
  427
  448
  470
  493
  517
  543
  570
  598
  628
  659
  691
  726
  762
  800
  839
  881
  925
  971
  1,019
  1,070
  1,124
Total liabilities and equity, $m
  473
  456
  477
  500
  524
  549
  575
  603
  632
  663
  696
  730
  766
  803
  842
  884
  928
  974
  1,023
  1,073
  1,126
  1,182
  1,241
  1,303
  1,367
  1,435
  1,506
  1,581
  1,660
  1,743
  1,830
Debt-to-equity ratio
  0.049
  0.080
  0.110
  0.130
  0.150
  0.170
  0.200
  0.220
  0.230
  0.250
  0.270
  0.290
  0.300
  0.320
  0.330
  0.350
  0.360
  0.370
  0.380
  0.400
  0.410
  0.420
  0.430
  0.440
  0.450
  0.460
  0.460
  0.470
  0.480
  0.490
  0.490
Adjusted equity ratio
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  18
  6
  6
  7
  8
  9
  10
  11
  12
  13
  14
  29
  30
  31
  32
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  52
  55
  57
  60
  63
  66
Depreciation, amort., depletion, $m
  40
  35
  36
  37
  37
  38
  39
  40
  41
  43
  44
  26
  28
  29
  30
  32
  33
  35
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
  63
  66
Funds from operations, $m
  141
  41
  42
  44
  46
  47
  49
  51
  53
  55
  58
  55
  57
  60
  63
  66
  69
  72
  75
  79
  83
  86
  91
  95
  99
  104
  109
  114
  120
  126
  132
Change in working capital, $m
  30
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
Cash from operations, $m
  111
  42
  43
  45
  47
  48
  50
  52
  54
  57
  59
  56
  59
  62
  65
  68
  71
  74
  78
  81
  85
  89
  93
  98
  102
  107
  112
  118
  123
  129
  136
Maintenance CAPEX, $m
  0
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
  -60
  -63
New CAPEX, $m
  -20
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
Cash from investing activities, $m
  -11
  -22
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -33
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -54
  -57
  -59
  -62
  -65
  -68
  -72
  -75
  -79
  -83
  -87
Free cash flow, $m
  100
  20
  21
  21
  22
  23
  23
  24
  25
  25
  26
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
Issuance/(repayment) of debt, $m
  -90
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  34
Issuance/(repurchase) of shares, $m
  1
  7
  7
  7
  7
  7
  6
  6
  6
  6
  6
  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  
  -89
  15
  15
  16
  16
  17
  16
  17
  17
  18
  19
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  34
Total cash flow (excl. dividends), $m
  11
  35
  36
  37
  38
  39
  40
  41
  42
  43
  45
  35
  37
  38
  40
  42
  44
  46
  48
  50
  52
  54
  57
  60
  62
  65
  68
  72
  75
  79
  82
Retained Cash Flow (-), $m
  -36
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -53
Prev. year cash balance distribution, $m
 
  38
  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
 
  61
  23
  23
  23
  23
  24
  24
  24
  24
  25
  14
  15
  15
  16
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
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
 
  58
  21
  20
  19
  18
  17
  16
  15
  14
  13
  7
  6
  6
  5
  5
  4
  4
  3
  3
  2
  2
  2
  1
  1
  1
  1
  1
  0
  0
  0
Current shareholders' claim on cash, %
  100
  99.1
  98.2
  97.4
  96.7
  96.0
  95.3
  94.7
  94.1
  93.6
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1
  93.1

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 46.2
Price to Sales 1.6
Price to Book 2.7
Price to Tangible Book
Price to Cash Flow 7.5
Price to Free Cash Flow 9.1
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 4.7% 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 98.6%.

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 3.5% 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 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 QSII are equal to 23.7%.

Life of production assets of 7.7 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 -3.9%. 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 64.094 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 $0.9 billion.

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COMPANY NEWS

▶ 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]
▶ NextGen Healthcare Completes Acquisition of Entrada, Inc.   [Apr-17-17 09:00AM  Business Wire]
▶ NextGen Healthcare Announces Appointment of New COO   [Apr-04-17 05:00PM  Business Wire]
▶ Quality Systems beats Street 3Q forecasts   [04:47PM  Associated Press]
▶ Hedge Funds Continue to Hold On To Quality Systems, Inc. (QSII)   [Dec-05-16 02:00PM  at Insider Monkey]
Financial statements of QSII
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