The projected fair value for Packaging Corporation of America is US$293 based on 2 Stage Free Cash Flow to Equity
Packaging Corporation of America is estimated to be 35% undervalued based on current share price of US$191
Our fair value estimate is 59% higher than Packaging Corporation of America's analyst price target of US$184
Today we will run through one way of estimating the intrinsic value of Packaging Corporation of America (NYSE:PKG) by estimating the company's future cash flows and discounting them to their present value. This will be done using the Discounted Cash Flow (DCF) model. Believe it or not, it's not too difficult to follow, as you'll see from our example!
We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model.
Is Packaging Corporation of America Fairly Valued?
We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. To begin with, we have to get estimates of the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
Generally we assume that a dollar today is more valuable than a dollar in the future, and so the sum of these future cash flows is then discounted to today's value:
10-year free cash flow (FCF) estimate
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
Levered FCF ($, Millions)
US$1.01b
US$1.07b
US$1.06b
US$1.09b
US$1.11b
US$1.14b
US$1.17b
US$1.19b
US$1.22b
US$1.25b
Growth Rate Estimate Source
Analyst x6
Analyst x5
Analyst x2
Analyst x2
Est @ 2.29%
Est @ 2.32%
Est @ 2.34%
Est @ 2.35%
Est @ 2.36%
Est @ 2.37%
Present Value ($, Millions) Discounted @ 6.3%
US$948
US$943
US$882
US$854
US$822
US$792
US$763
US$735
US$708
US$682
("Est" = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = US$8.1b
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. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.4%. We discount the terminal cash flows to today's value at a cost of equity of 6.3%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$33b÷ ( 1 + 6.3%)10= US$18b
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$26b. The last step is to then divide the equity value by the number of shares outstanding. Relative to the current share price of US$191, the company appears quite good value at a 35% discount to where the stock price trades currently. Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind.
NYSE:PKG Discounted Cash Flow July 21st 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 Packaging Corporation of America 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 6.3%, which is based on a levered beta of 0.844. 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 Packaging Corporation of America
Strength
Debt is well covered by earnings and cashflows.
Dividends are covered by earnings and cash flows.
Dividend information for PKG.
Weakness
Earnings declined over the past year.
Dividend is low compared to the top 25% of dividend payers in the Packaging market.
Opportunity
Annual earnings are forecast to grow for the next 3 years.
Trading below our estimate of fair value by more than 20%.
Threat
Annual earnings are forecast to grow slower than the American market.
What else are analysts forecasting for PKG?
Looking Ahead:
Whilst important, the DCF calculation ideally won't be the sole piece of analysis you scrutinize for a company. The DCF model is not a perfect stock valuation tool. 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. What is the reason for the share price sitting below the intrinsic value? For Packaging Corporation of America, there are three fundamental aspects you should look at:
Risks: For instance, we've identified 1 warning sign for Packaging Corporation of America that you should be aware of.
Future Earnings: How does PKG'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
基于2阶段自由现金流对股权的预测公布的Packaging Corporation of America的公平价值为293美元
根据当前股价为191美元,Packaging Corporation of America的估值被低估了35%
我们的公平价值估计比Packaging Corporation of America的分析师价格目标高59%,达到184美元
今天我们将通过估计公司未来现金流并将其贴现到现值来估计Packaging Corporation of America (NYSE: PKG) 的内在价值。这将使用折现现金流 (DCF) 模型来完成。你将会发现,跟随我们的示例并不难!
我们指出,折现现金流的关键输入参数是折现率和现金流量。对于投资来讲,重要的一部分是对公司未来表现的自我评估,因此尝试进行计算并检查自己的预设是有益的。DCF也没有考虑行业所可能具有的周期性或公司未来所需的资本需求,因此它无法提供公司的全景图。因为我们在考虑作为潜在股东的Packaging Corporation of America,我们只使用了股权成本作为折现率,而不是成本资本 (或加权平均成本资本,WACC),它考虑了债务。在这个计算中,我们使用了6.3%的折现率,这是基于0.844的杠杆beta的。Beta是衡量股票波动率的一个尺度,相对于整个市场。我们从全球可比公司的行业平均beta得到我们的beta,限定在0.8至2.0之间,这是一个稳定业务合理的范围。
Packaging Corporation of America的SWOT分析
优势
债务得到充分覆盖,收入和现金流决定了债务水平。
分红派息由收入和现金流决定。
PKG的股息信息。
弱点
过去一年的收益下降了。
与包装市场前25%的股息支付者相比,股息较低。
机会
预计未来3年的年度收益将增长。
低于我们估价的20%以上。
威胁
预计年度收益增长速度将慢于美国市场。
分析师对PKG还有哪些预测?
展望未来:
虽然DCF计算很重要,但不能作为你仅仅审查公司的唯一分析工具。DCF模型不是一个完美的股票估值工具。相反,DCF模型的最佳用途是检验某些假设和理论,看它们是否会导致公司被低估或高估。例如,公司的权益成本或无风险利率的变化会显著影响公司的估值。股票价格低于内在价值的原因是什么?对于Packaging Corporation of America来说,有三个基本方面需要考虑。
风险:例如,我们已经发现了Packaging Corporation of America的1个警示信号,你应该意识到。