The projected fair value for Check Point Software Technologies is US$185 based on 2 Stage Free Cash Flow to Equity
Check Point Software Technologies' US$170 share price indicates it is trading at similar levels as its fair value estimate
Analyst price target for CHKP is US$172 which is 7.0% below our fair value estimate
How far off is Check Point Software Technologies Ltd. (NASDAQ:CHKP) from its intrinsic value? Using the most recent financial data, we'll take a look at whether the stock is fairly priced by projecting its future cash flows and then discounting them to today's value. The Discounted Cash Flow (DCF) model is the tool we will apply to do this. Believe it or not, it's not too difficult to follow, as you'll see from our example!
We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you.
Crunching The Numbers
We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. To start off with, we need to estimate the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
Generally we assume that a dollar today is more valuable than a dollar in the future, and so the sum of these future cash flows is then discounted to today's value:
10-year free cash flow (FCF) forecast
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
Levered FCF ($, Millions)
US$1.13b
US$1.14b
US$1.21b
US$1.25b
US$1.28b
US$1.31b
US$1.34b
US$1.37b
US$1.41b
US$1.44b
Growth Rate Estimate Source
Analyst x18
Analyst x4
Analyst x1
Analyst x1
Est @ 2.53%
Est @ 2.48%
Est @ 2.45%
Est @ 2.43%
Est @ 2.42%
Est @ 2.41%
Present Value ($, Millions) Discounted @ 7.9%
US$1.0k
US$981
US$963
US$917
US$871
US$827
US$785
US$745
US$707
US$671
("Est" = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = US$8.5b
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 7.9%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$27b÷ ( 1 + 7.9%)10= US$12b
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$21b. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Compared to the current share price of US$170, the company appears about fair value at a 7.8% discount to where the stock price trades currently. The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent.
NasdaqGS:CHKP Discounted Cash Flow July 11th 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. 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 Check Point Software Technologies 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 7.9%, which is based on a levered beta of 0.988. 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 Check Point Software Technologies
Strength
Earnings growth over the past year exceeded its 5-year average.
Currently debt free.
Balance sheet summary for CHKP.
Weakness
Earnings growth over the past year underperformed the Software industry.
Opportunity
Annual earnings are forecast to grow for the next 3 years.
Good value based on P/E ratio and estimated fair value.
Threat
Annual earnings are forecast to grow slower than the American market.
What else are analysts forecasting for CHKP?
Looking Ahead:
Valuation is only one side of the coin in terms of building your investment thesis, and it ideally won't be the sole piece of analysis you scrutinize for a company. The DCF model is not a perfect stock valuation tool. 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 Check Point Software Technologies, we've put together three important items you should look at:
Financial Health: Does CHKP have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
Future Earnings: How does CHKP'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 High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!
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.
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
根据二段式自由现金流对股权的预测,Check Point Software Technologies的预计公允价值为185美元。
Check Point Software Technologies的170美元股价表明它的交易水平与公允价值估计相似。
分析师对CHKP的目标价格为172美元,比我们的公允价值预估低7.0%。
Check Point Software Technologies Ltd. (纳斯达克股票代码:CHKP)与内在价值有多大的偏差?我们将采用最新的财务数据,通过预测其未来现金流量并将其折现为今天的价值来查看该股票是否定价合理。我们将应用折现现金流模型(DCF)来完成这项工作。不管你信不信,从我们的例子中可以看出,这不是太难跟随。
我们应该注意的是,估值的方法有很多种,就像DCF一样,每种技术在特定的情况下都有其优点和缺点。对于那些热爱股权分析的学习者来说,这里的 Simply Wall St 分析模型可能是一些感兴趣的内容。
我们要指出,折现现金流最重要的输入是折现率和实际现金流。你不必同意这些输入,我建议重新计算这些输入并对其进行调整。DCF也不考虑一个行业可能的周期性和一个公司未来的资本需求,因此它不能全面展示公司潜在的业绩。鉴于我们将Check Point Software Technologies作为潜在股东,因此使用的是股权成本作为折现率,而不是资本成本(或加权平均资本成本,WACC),后者考虑了债务。在这个计算中,我们使用了7.9%,这是基于0.988的已杠杆贝塔的。贝塔是一种与整个市场相比衡量股票波动性的指标。我们从全球可比公司的行业平均贝塔值得到我们的贝塔值,设置限制在0.8和2.0之间,这是一个稳定业务的合理范围。
Check Point Software Technologies的SWOT分析
优势
过去一年的盈利增长超过了其5年的平均水平
目前无债务。
CHKP的资产负债表摘要。
弱点
过去一年的收益增长低于软件行业。
机会
预计未来3年的年度收益将增长。
基于市盈率和预估公平价值,出现良好的价值。
威胁
预计年度收益增长速度将慢于美国市场。
分析师对CHKP还有什么预测?
展望未来:
估值只是构建投资论点的一方面,而理想情况下,不会是您为公司进行分析的唯一依据。DCF模型不是完美的股票估值工具。最好应用不同的情况和假设,并查看它们将如何影响公司的估值。例如,公司的股权成本或无风险利率的变化可能会对估值产生重大影响。对于Check Point Software Technologies,我们整理了三个重要的项目,您应该看看: