Question

Valuation Using Price-to-NOA Multiple

The following table provides summary data for Cerner Corporation (CERN) and its competitors, Allscripts Healthcare Solutions (MRDX) and McKesson (MCK).

(in millions)	CERN	MDRX	MCK
Company assumed value	--	$1,960	$23,685
Equity assumed value	--	$1,624	$21,268
Net operating assets	$1,484	$1,620	$ 9,487
Book value of equity	$2,834	$1,284	$ 7,070
Net nonoperating obligations (assets)	$(1,350)	$ 336	$ 2,417
Common shares outstanding	172.1 shares	172.4 shares	197.0 shares

(a) Compute the price to net operating assets ratio for both MDRX and MCK. (Round your answers to two decimal places.)

MDRX Answer
MCK Answer

(b) Use MDRX and MCK as comparables, along with the rounded price to NOA ratios from part (a), and then estimate for Cerner its company intrinsic value, its equity intrinsic value, and its equity intrinsic value per share. (Round the intrinsic value and equity intrinsic value to the nearest million and the value per share to the nearest cent.)

Average of the two rounded ratios in (a) above
Answer (Round to two decimal places.)

Using the rounded average calculation above, calculate the following:

Intrinsic value $Answer million
Equity intrinsic value $Answer million
Equity intrinsic value per share $Answer

Answer 1

a). Price to NOA Ratio = Company assumed value / Net Operating Assets
MDRX = 1960 / 1620 = 1.21
MCK = 23685 / 9487 = 2.50

Take average of above two companies ratios for using as comparables:
= (1.21 + 2.50) / 2 = 1.855 or 1.85

b). Cerner's
Intrinsic Value = 1.85 * 1484 = $2745.4 million
Equity Intrinsic Value = Intrinsic value - Non operating obligations = 2745.4 + 1350 = $4095.4 million
Equity intrinsic value per share = Equity Intrinsic Value / Common shares outstanding
= 4095.4 / 172.1 = $23.80