Company Profile (excerpt from Reuters): Envision Healthcare Corporation, incorporated on June 10, 2016, is a provider of healthcare services. The Company offers an array of clinical solutions, including physician-led services, ambulatory services and post-acute services. The Company operates through two segments: physician services and ambulatory services. The physician services segment includes the Company’s hospital-based and non-hospital-based physician services business. The ambulatory services segment includes the Company’s ambulatory surgery business, which acquires, develops, owns and operates ambulatory surgery centers (ASCs) and surgical hospitals in partnership with physicians and health systems. As of March 31, 2017, the Company had physician services contracts covering more than 1,600 clinical departments at healthcare facilities in 45 states and the District of Columbia, and owned and operated 264 ASCs in 35 states and the District of Columbia.
Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$5,160,068,300||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||2.27||Pass|
|3. Earnings Stability||Positive EPS for 10 years prior||Fail|
|4. Dividend Record||Dividend Payments for 10 years prior||Fail|
|5. Earnings Growth||Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end||-78.62%||Fail|
|6. Moderate PEmg Ratio||PEmg < 20||41.26||Fail|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||0.75||Pass|
|Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.|
|1. Sufficiently Strong Financial Condition||Current Ratio > 1.5||2.27||Pass|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||3.26||Fail|
|3. Earnings Stability||Positive EPS for 5 years prior||Fail|
|4. Dividend Record||Currently Pays Dividend||Fail|
|5. Earnings Growth||EPSmg greater than 5 years ago||Fail|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||-4.25%|
|MG Value based on 3% Growth||$15.19|
|MG Value based on 0% Growth||$8.90|
|Market Implied Growth Rate||16.38%|
|% of Intrinsic Value||N/A|
Envision Healthcare Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability or growth over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.74 in 2014 to an estimated $1.05 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 16.38% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Envision Healthcare Corporation revealed the company was trading below its Graham Number of $64.98. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 41.26, which was below the industry average of 46.81, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-38.91.
Envision Healthcare Corporation receives an average overall rating in the ModernGraham grading system, scoring a C-.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||-$38.91|
|Number of Consecutive Years of Dividend Growth||0|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||3/1/2018|
|Total Current Assets||$2,534,000,000|
|Total Current Liabilities||$1,118,300,000|
|Shares Outstanding (Diluted Average)||122,354,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$3.48|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$1.05|
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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. See my current holdings here. This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions. ModernGraham is not affiliated with the company in any manner. Please be sure to review our detailed disclaimer.