Warrior Met Coal's estimated fair value is US$63.82 based on 2 Stage Free Cash Flow to Equity
Warrior Met Coal's US$68.87 share price indicates it is trading at similar levels as its fair value estimate
Analyst price target for HCC is US$74.83, which is 17% above our fair value estimate
Today we'll do a simple run through of a valuation method used to estimate the attractiveness of Warrior Met Coal, Inc. (NYSE:HCC) as an investment opportunity by taking the expected future cash flows and discounting them to their present value. Our analysis will employ the Discounted Cash Flow (DCF) model. There's really not all that much to it, even though it might appear quite complex.
We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.
What's The Estimated Valuation?
We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. To start off with, we need to estimate the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we discount the value of these future cash flows to their estimated value in today's dollars:
10-year free cash flow (FCF) forecast
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
Levered FCF ($, Millions)
US$95.2m
US$201.0m
US$199.9m
US$200.6m
US$202.6m
US$205.4m
US$208.8m
US$212.8m
US$217.1m
US$221.8m
Growth Rate Estimate Source
Analyst x2
Analyst x2
Analyst x1
Est @ 0.36%
Est @ 0.97%
Est @ 1.39%
Est @ 1.69%
Est @ 1.90%
Est @ 2.04%
Est @ 2.14%
Present Value ($, Millions) Discounted @ 7.7%
US$88.4
US$173
US$160
US$149
US$140
US$132
US$124
US$118
US$111
US$106
("Est" = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = US$1.3b
After calculating the present value of future cash flows in the initial 10-year period, we need to calculate the Terminal Value, which accounts for all future cash flows beyond the first stage. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (2.4%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 7.7%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$4.3b÷ ( 1 + 7.7%)10= US$2.0b
The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is US$3.3b. The last step is to then divide the equity value by the number of shares outstanding. Compared to the current share price of US$68.9, the company appears around fair value at the time of writing. Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out.
NYSE:HCC Discounted Cash Flow June 7th 2024
The Assumptions
Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows. You don't have to agree with these inputs, I recommend redoing the calculations yourself and playing with them. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Warrior Met Coal as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 7.7%, which is based on a levered beta of 1.155. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.
SWOT Analysis for Warrior Met Coal
Strength
Debt is not viewed as a risk.
Dividends are covered by earnings and cash flows.
Dividend information for HCC.
Weakness
Earnings declined over the past year.
Dividend is low compared to the top 25% of dividend payers in the Metals and Mining market.
Opportunity
Good value based on P/E ratio compared to estimated Fair P/E ratio.
Threat
Annual earnings are forecast to decline for the next 3 years.
What else are analysts forecasting for HCC?
Next Steps:
Whilst important, the DCF calculation ideally won't be the sole piece of analysis you scrutinize for a company. DCF models are not the be-all and end-all of investment valuation. Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation. For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. For Warrior Met Coal, there are three pertinent factors you should further research:
Risks: For instance, we've identified 2 warning signs for Warrior Met Coal that you should be aware of.
Future Earnings: How does HCC's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.
Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered!
PS. Simply Wall St updates its DCF calculation for every American stock every day, so if you want to find the intrinsic value of any other stock just search here.
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com. This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
主要见解
根据二阶段自由现金流向股东估值法,Warrior Met Coal的估算公允价值为63.82美元。
Warrior Met Coal的股价68.87美元表明其交易水平与公允价值估算相似。
HCC的分析师目标价格为74.83美元,比我们的公允价值估价高17%。
今天我们将通过预期未来现金流,并将其折现到现值来估计Warrior Met Coal, Inc. (纽交所:HCC)的投资吸引力的估值方法进行简单的运行。我们的分析将采用折现现金流量(DCF)模型。实际上,即使它可能看起来相当复杂,其实也没有那么复杂。
现在,折现现金流分析中最重要的输入是折现率,当然,还有实际现金流。你不必同意这些输入,我建议你重新计算这些并与之交互。DCF也不考虑行业的可能周期性,或公司未来的资本需求,因此它并不能给出公司潜在业绩的完整图景。鉴于我们将Warrior Met Coal视为潜在股东,我们使用权益成本作为折现率,而不是考虑债务的资本成本(或加权平均资本成本,WACC)。在这个计算中,我们使用了7.7%,这是基于1.155的杠杆β值计算的。beta是衡量股票波动性的指标,与整个市场相比。我们从全球可比公司行业平均beta获得了我们的beta,范围在0.8和2.0之间,这是一个稳定企业的合理范围。
Warrior Met Coal的SWOT分析
优势
债务不被视为风险。
分红派息由收入和现金流决定。
HCC的股息信息。
弱点
过去一年的收益下降了。
股息与贵金属矿业市场前25%股息支付者相比较低。
机会
基于预估的公平市盈率比值,以P/E比值为基础的价值良好。
威胁
未来3年的年度收益预计将下降。
分析师们还预测了什么?
下一步:
虽然DCF计算很重要,但理想情况下不应该是你为了一家公司进行的唯一分析。DCF模型并不是投资估值的全部和终极,最好是你可以应用不同的情况和假设,并看看它们将如何影响公司的估值。例如,公司的权益成本或无风险利率的变化可能会极大地影响估值。对于Warrior Met Coal,有三个相关的因素,你应该进一步研究一下: