Exponent's estimated fair value is US$81.64 based on 2 Stage Free Cash Flow to Equity
With US$95.15 share price, Exponent appears to be trading close to its estimated fair value
Analyst price target for EXPO is US$94.00, which is 15% above our fair value estimate
Today we will run through one way of estimating the intrinsic value of Exponent, Inc. (NASDAQ:EXPO) by projecting its future cash flows and then discounting them to today's value. Our analysis will employ the Discounted Cash Flow (DCF) model. Before you think you won't be able to understand it, just read on! It's actually much less complex than you'd imagine.
Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you.
The Model
We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. In the first stage we need to estimate the cash flows to the business over the next ten years. Seeing as no analyst estimates of free cash flow are available to us, we have extrapolate the previous free cash flow (FCF) from the company's last reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
Generally we assume that a dollar today is more valuable than a dollar in the future, and so the sum of these future cash flows is then discounted to today's value:
10-year free cash flow (FCF) estimate
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
Levered FCF ($, Millions)
US$144.5m
US$154.8m
US$163.6m
US$171.3m
US$178.2m
US$184.4m
US$190.3m
US$195.9m
US$201.3m
US$206.6m
Growth Rate Estimate Source
Est @ 9.16%
Est @ 7.12%
Est @ 5.70%
Est @ 4.70%
Est @ 4.01%
Est @ 3.52%
Est @ 3.18%
Est @ 2.94%
Est @ 2.77%
Est @ 2.65%
Present Value ($, Millions) Discounted @ 6.4%
US$136
US$137
US$136
US$134
US$131
US$127
US$124
US$120
US$116
US$112
("Est" = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = US$1.3b
We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. 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 6.4%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$5.3b÷ ( 1 + 6.4%)10= US$2.9b
The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is US$4.1b. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Relative to the current share price of US$95.2, 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.
NasdaqGS:EXPO Discounted Cash Flow June 16th 2024
Important Assumptions
We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows. Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own assumptions. 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 Exponent 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 6.4%, which is based on a levered beta of 0.866. 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 Exponent
Strength
Currently debt free.
Dividends are covered by earnings and cash flows.
Dividend information for EXPO.
Weakness
Earnings declined over the past year.
Dividend is low compared to the top 25% of dividend payers in the Professional Services market.
Expensive based on P/E ratio and estimated fair value.
Opportunity
Annual earnings are forecast to grow for the next 3 years.
Threat
Annual earnings are forecast to grow slower than the American market.
What else are analysts forecasting for EXPO?
Next Steps:
Valuation is only one side of the coin in terms of building your investment thesis, and it is only one of many factors that you need to assess for a company. DCF models are not the be-all and end-all of investment valuation. Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. For Exponent, we've put together three further factors you should further examine:
Risks: As an example, we've found 1 warning sign for Exponent that you need to consider before investing here.
Future Earnings: How does EXPO'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. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the NASDAQGS every day. If you want to find the calculation for other stocks 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
主要见解
毅博科技咨询根据两阶段自由现金流对股权的估算, Exponent的估值为81.64美元。
Exponent的股价为95.15美元,接近其估算公允价值。
分析师的价格预期为94美元,比我们公允价值估值高15%。
今天我们将通过预测Exponent, Inc. (NASDAQ:EXPO)未来现金流并将其贴现到今天的价值来估算其内在价值。我们的分析将采用折现现金流量(DCF)模型。在您认为自己无法理解之前,请继续阅读!实际上,它比您想象的要简单得多。