Intrinsic value of Wright Medical Group N.V. - WMGI

Previous Close

$31.62

  Intrinsic Value

$8.60

stock screener

  Rating & Target

str. sell

-73%

Previous close

$31.62

 
Intrinsic value

$8.60

 
Up/down potential

-73%

 
Rating

str. sell

We calculate the intrinsic value of WMGI 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 4.0

 

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, %
  9.40
  8.96
  8.56
  8.21
  7.89
  7.60
  7.34
  7.10
  6.89
  6.70
  6.53
  6.38
  6.24
  6.12
  6.01
  5.91
  5.82
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.32
  5.28
  5.26
  5.23
  5.21
Revenue, $m
  915
  997
  1,082
  1,171
  1,263
  1,359
  1,459
  1,562
  1,670
  1,782
  1,898
  2,020
  2,146
  2,277
  2,414
  2,556
  2,705
  2,860
  3,022
  3,191
  3,368
  3,552
  3,745
  3,947
  4,158
  4,379
  4,611
  4,853
  5,107
  5,373
Variable operating expenses, $m
  782
  838
  897
  958
  1,021
  1,087
  1,155
  1,226
  1,300
  1,377
  1,301
  1,384
  1,471
  1,561
  1,655
  1,752
  1,854
  1,960
  2,071
  2,187
  2,308
  2,435
  2,567
  2,706
  2,850
  3,002
  3,160
  3,327
  3,501
  3,683
Fixed operating expenses, $m
  122
  124
  127
  130
  133
  136
  139
  142
  145
  148
  151
  155
  158
  161
  165
  169
  172
  176
  180
  184
  188
  192
  196
  201
  205
  210
  214
  219
  224
  229
Total operating expenses, $m
  904
  962
  1,024
  1,088
  1,154
  1,223
  1,294
  1,368
  1,445
  1,525
  1,452
  1,539
  1,629
  1,722
  1,820
  1,921
  2,026
  2,136
  2,251
  2,371
  2,496
  2,627
  2,763
  2,907
  3,055
  3,212
  3,374
  3,546
  3,725
  3,912
Operating income, $m
  11
  34
  58
  83
  109
  137
  165
  195
  225
  257
  446
  481
  517
  555
  594
  635
  678
  723
  771
  820
  871
  925
  982
  1,041
  1,103
  1,168
  1,236
  1,308
  1,383
  1,461
EBITDA, $m
  220
  248
  277
  307
  339
  372
  406
  441
  479
  517
  557
  599
  643
  688
  736
  785
  837
  891
  948
  1,007
  1,069
  1,134
  1,201
  1,272
  1,347
  1,425
  1,507
  1,592
  1,682
  1,777
Interest expense (income), $m
  7
  89
  103
  116
  131
  146
  161
  178
  194
  212
  230
  249
  269
  289
  310
  333
  356
  380
  405
  431
  458
  487
  517
  548
  580
  614
  650
  687
  726
  767
  810
Earnings before tax, $m
  -78
  -69
  -58
  -48
  -36
  -25
  -12
  0
  13
  27
  197
  212
  228
  244
  262
  280
  299
  319
  340
  361
  384
  409
  434
  460
  488
  518
  549
  581
  615
  651
Tax expense, $m
  0
  0
  0
  0
  0
  0
  0
  0
  4
  7
  53
  57
  62
  66
  71
  76
  81
  86
  92
  98
  104
  110
  117
  124
  132
  140
  148
  157
  166
  176
Net income, $m
  -78
  -69
  -58
  -48
  -36
  -25
  -12
  0
  10
  20
  144
  155
  166
  178
  191
  204
  218
  233
  248
  264
  281
  298
  317
  336
  357
  378
  401
  424
  449
  475

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
  2,950
  3,215
  3,490
  3,776
  4,074
  4,384
  4,705
  5,040
  5,387
  5,748
  6,124
  6,515
  6,921
  7,345
  7,786
  8,246
  8,725
  9,226
  9,748
  10,293
  10,863
  11,459
  12,081
  12,732
  13,414
  14,127
  14,873
  15,655
  16,474
  17,331
Adjusted assets (=assets-cash), $m
  2,950
  3,215
  3,490
  3,776
  4,074
  4,384
  4,705
  5,040
  5,387
  5,748
  6,124
  6,515
  6,921
  7,345
  7,786
  8,246
  8,725
  9,226
  9,748
  10,293
  10,863
  11,459
  12,081
  12,732
  13,414
  14,127
  14,873
  15,655
  16,474
  17,331
Revenue / Adjusted assets
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
Average production assets, $m
  982
  1,070
  1,162
  1,257
  1,356
  1,460
  1,567
  1,678
  1,794
  1,914
  2,039
  2,169
  2,304
  2,445
  2,592
  2,745
  2,905
  3,072
  3,245
  3,427
  3,617
  3,815
  4,022
  4,239
  4,466
  4,703
  4,952
  5,212
  5,485
  5,770
Working capital, $m
  160
  174
  189
  205
  221
  238
  255
  273
  292
  312
  332
  353
  375
  398
  422
  447
  473
  500
  529
  558
  589
  622
  655
  691
  728
  766
  807
  849
  894
  940
Total debt, $m
  1,283
  1,456
  1,636
  1,823
  2,018
  2,220
  2,431
  2,649
  2,876
  3,113
  3,358
  3,614
  3,880
  4,157
  4,445
  4,746
  5,060
  5,387
  5,728
  6,085
  6,458
  6,847
  7,254
  7,680
  8,126
  8,592
  9,080
  9,591
  10,127
  10,688
Total liabilities, $m
  1,929
  2,102
  2,282
  2,470
  2,665
  2,867
  3,077
  3,296
  3,523
  3,759
  4,005
  4,261
  4,527
  4,804
  5,092
  5,393
  5,706
  6,034
  6,375
  6,732
  7,104
  7,494
  7,901
  8,327
  8,772
  9,239
  9,727
  10,238
  10,774
  11,335
Total equity, $m
  1,021
  1,112
  1,208
  1,307
  1,410
  1,517
  1,628
  1,744
  1,864
  1,989
  2,119
  2,254
  2,395
  2,541
  2,694
  2,853
  3,019
  3,192
  3,373
  3,561
  3,759
  3,965
  4,180
  4,405
  4,641
  4,888
  5,146
  5,417
  5,700
  5,997
Total liabilities and equity, $m
  2,950
  3,214
  3,490
  3,777
  4,075
  4,384
  4,705
  5,040
  5,387
  5,748
  6,124
  6,515
  6,922
  7,345
  7,786
  8,246
  8,725
  9,226
  9,748
  10,293
  10,863
  11,459
  12,081
  12,732
  13,413
  14,127
  14,873
  15,655
  16,474
  17,332
Debt-to-equity ratio
  1.260
  1.310
  1.350
  1.400
  1.430
  1.460
  1.490
  1.520
  1.540
  1.560
  1.580
  1.600
  1.620
  1.640
  1.650
  1.660
  1.680
  1.690
  1.700
  1.710
  1.720
  1.730
  1.740
  1.740
  1.750
  1.760
  1.760
  1.770
  1.780
  1.780
Adjusted equity ratio
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -78
  -69
  -58
  -48
  -36
  -25
  -12
  0
  10
  20
  144
  155
  166
  178
  191
  204
  218
  233
  248
  264
  281
  298
  317
  336
  357
  378
  401
  424
  449
  475
Depreciation, amort., depletion, $m
  209
  214
  219
  224
  229
  235
  241
  247
  253
  260
  111
  119
  126
  134
  142
  150
  159
  168
  177
  187
  198
  208
  220
  232
  244
  257
  271
  285
  300
  315
Funds from operations, $m
  131
  145
  160
  176
  193
  210
  228
  247
  263
  280
  255
  273
  292
  312
  333
  354
  377
  401
  425
  451
  478
  507
  537
  568
  601
  635
  671
  709
  749
  791
Change in working capital, $m
  14
  14
  15
  16
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
  39
  40
  42
  44
  47
Cash from operations, $m
  117
  131
  145
  161
  177
  193
  211
  229
  244
  260
  235
  252
  270
  289
  309
  329
  351
  373
  397
  422
  447
  474
  503
  532
  564
  596
  631
  667
  704
  744
Maintenance CAPEX, $m
  -49
  -54
  -58
  -63
  -69
  -74
  -80
  -86
  -92
  -98
  -105
  -111
  -119
  -126
  -134
  -142
  -150
  -159
  -168
  -177
  -187
  -198
  -208
  -220
  -232
  -244
  -257
  -271
  -285
  -300
New CAPEX, $m
  -85
  -88
  -92
  -95
  -99
  -103
  -107
  -111
  -116
  -120
  -125
  -130
  -135
  -141
  -147
  -153
  -160
  -167
  -174
  -182
  -190
  -198
  -207
  -217
  -227
  -237
  -249
  -260
  -273
  -286
Cash from investing activities, $m
  -134
  -142
  -150
  -158
  -168
  -177
  -187
  -197
  -208
  -218
  -230
  -241
  -254
  -267
  -281
  -295
  -310
  -326
  -342
  -359
  -377
  -396
  -415
  -437
  -459
  -481
  -506
  -531
  -558
  -586
Free cash flow, $m
  -17
  -11
  -5
  2
  9
  16
  24
  32
  37
  42
  5
  11
  16
  22
  28
  35
  41
  48
  55
  63
  70
  79
  87
  96
  105
  115
  125
  136
  147
  159
Issuance/(repayment) of debt, $m
  168
  173
  180
  187
  195
  202
  210
  219
  227
  236
  246
  256
  266
  277
  289
  301
  314
  327
  342
  357
  373
  389
  407
  426
  446
  466
  488
  511
  535
  561
Issuance/(repurchase) of shares, $m
  167
  160
  154
  147
  139
  132
  124
  116
  110
  105
  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  
  335
  333
  334
  334
  334
  334
  334
  335
  337
  341
  246
  256
  266
  277
  289
  301
  314
  327
  342
  357
  373
  389
  407
  426
  446
  466
  488
  511
  535
  561
Total cash flow (excl. dividends), $m
  317
  322
  329
  336
  343
  350
  358
  366
  374
  383
  251
  266
  282
  299
  317
  335
  355
  375
  397
  419
  443
  468
  494
  522
  551
  581
  613
  647
  682
  720
Retained Cash Flow (-), $m
  -167
  -160
  -154
  -147
  -139
  -132
  -124
  -116
  -120
  -125
  -130
  -135
  -141
  -147
  -153
  -159
  -166
  -173
  -181
  -189
  -197
  -206
  -215
  -225
  -236
  -247
  -258
  -270
  -283
  -297
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
  151
  162
  175
  189
  204
  219
  234
  250
  254
  258
  121
  131
  142
  153
  164
  176
  189
  202
  216
  231
  246
  262
  279
  296
  315
  334
  355
  377
  399
  423
Discount rate, %
  9.00
  9.45
  9.92
  10.42
  10.94
  11.49
  12.06
  12.66
  13.30
  13.96
  14.66
  15.39
  16.16
  16.97
  17.82
  18.71
  19.65
  20.63
  21.66
  22.74
  23.88
  25.07
  26.33
  27.64
  29.03
  30.48
  32.00
  33.60
  35.28
  37.05
PV of cash for distribution, $m
  138
  135
  132
  127
  121
  114
  106
  96
  83
  70
  27
  23
  20
  17
  14
  11
  9
  7
  5
  4
  3
  2
  1
  1
  1
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  96.0
  92.6
  89.7
  87.2
  85.1
  83.3
  81.7
  80.4
  79.2
  78.1
  78.1
  78.1
  78.1
  78.1
  78.1
  78.1
  78.1
  78.1
  78.1
  78.1
  78.1
  78.1
  78.1
  78.1
  78.1
  78.1
  78.1
  78.1
  78.1
  78.1

Wright Medical Group, Inc. is a global specialty orthopaedic company. The Company through Wright Medical Technology, Inc. (WMT) and other subsidiaries provides extremity and biologic solutions that enable clinicians to alleviate pain and restore the patients' lifestyles. The Company operates through three segments: U.S., International and BioMimetic. The Company's business includes products that are used in foot and ankle repair, upper extremity products and biologics products, which are used to replace damaged or diseased bone, to stimulate bone growth and to provide other biological solutions for surgeons and patients. The Company's products include extremity hardware, foot and ankle hardware, upper extremity hardware and biologics.

FINANCIAL RATIOS  of  Wright Medical Group N.V. (WMGI)

Valuation Ratios
P/E Ratio -6.2
Price to Sales 5.4
Price to Book 5.8
Price to Tangible Book
Price to Cash Flow -14
Price to Free Cash Flow -9.2
Growth Rates
Sales Growth Rate 23.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 42.9%
Cap. Spend. - 3 Yr. Gr. Rate 4.1%
Financial Strength
Quick Ratio 230
Current Ratio 0.3
LT Debt to Equity 100.4%
Total Debt to Equity 100.7%
Interest Coverage -34
Management Effectiveness
Return On Assets -26.6%
Ret/ On Assets - 3 Yr. Avg. -17.6%
Return On Total Capital -40.2%
Ret/ On T. Cap. - 3 Yr. Avg. -25.2%
Return On Equity -70.4%
Return On Equity - 3 Yr. Avg. -41.7%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 75.5%
Gross Margin - 3 Yr. Avg. 76.2%
EBITDA Margin -70.8%
EBITDA Margin - 3 Yr. Avg. -42.6%
Operating Margin -33.6%
Oper. Margin - 3 Yr. Avg. -48.3%
Pre-Tax Margin -82.9%
Pre-Tax Margin - 3 Yr. Avg. -59.8%
Net Profit Margin -87.2%
Net Profit Margin - 3 Yr. Avg. -66%
Effective Tax Rate 2.4%
Eff/ Tax Rate - 3 Yr. Avg. -6.4%
Payout Ratio 0%

WMGI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the WMGI stock intrinsic value calculation we used $836 million for the last fiscal year's total revenue generated by Wright Medical Group N.V.. The default revenue input number comes from 0001 income statement of Wright Medical Group N.V.. 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 WMGI stock valuation model: a) initial revenue growth rate of 9.4% 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 9%, whose default value for WMGI is calculated based on our internal credit rating of Wright Medical Group N.V., 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 Wright Medical Group N.V..
    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 WMGI stock the variable cost ratio is equal to 87.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $119 million in the base year in the intrinsic value calculation for WMGI 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 8% for Wright Medical Group N.V..

Corporate tax rate of 27% is the nominal tax rate for Wright Medical Group N.V.. 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 WMGI 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 WMGI are equal to 107.4%.

Life of production assets of 18.3 years is the average useful life of capital assets used in Wright Medical Group N.V. 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 WMGI is equal to 17.5%. 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 - $932.459 million for Wright Medical Group N.V. - 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 125.889 million for Wright Medical Group N.V. 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 Wright Medical Group N.V. at the current share price and the inputted number of shares is $4.0 billion.

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