The projected fair value for PBF Energy is US$37.30 based on 2 Stage Free Cash Flow to Equity
With US$33.06 share price, PBF Energy appears to be trading close to its estimated fair value
The US$45.33 analyst price target for PBF is 22% more than our estimate of fair value
Does the September share price for PBF Energy Inc. (NYSE:PBF) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by projecting its future cash flows and then discounting them to today's value. We will take advantage of the Discounted Cash Flow (DCF) model for this purpose. There's really not all that much to it, even though it might appear quite complex.
Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.
The Model
We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. In the first stage we need to estimate the cash flows to the business over the next ten years. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
Generally we assume that a dollar today is more valuable than a dollar in the future, so we discount the value of these future cash flows to their estimated value in today's dollars:
10-year free cash flow (FCF) forecast
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
Levered FCF ($, Millions)
US$465.7m
US$315.0m
US$290.9m
US$277.4m
US$270.6m
US$267.9m
US$268.1m
US$270.2m
US$273.7m
US$278.3m
Growth Rate Estimate Source
Analyst x3
Analyst x3
Est @ -7.66%
Est @ -4.61%
Est @ -2.48%
Est @ -0.98%
Est @ 0.06%
Est @ 0.79%
Est @ 1.31%
Est @ 1.66%
Present Value ($, Millions) Discounted @ 8.1%
US$431
US$270
US$230
US$203
US$183
US$168
US$156
US$145
US$136
US$128
("Est" = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = US$2.1b
We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. 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 2.5%. We discount the terminal cash flows to today's value at a cost of equity of 8.1%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$5.1b÷ ( 1 + 8.1%)10= US$2.4b
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$4.4b. 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$33.1, the company appears about fair value at a 11% discount to where the stock price trades currently. Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out.
The 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 PBF Energy 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 8.1%, which is based on a levered beta of 1.354. 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 PBF Energy
Strength
Debt is not viewed as a risk.
Dividends are covered by earnings and cash flows.
Dividend information for PBF.
Weakness
Earnings declined over the past year.
Dividend is low compared to the top 25% of dividend payers in the Oil and Gas market.
Opportunity
Current share price is below our estimate of fair value.
Threat
Annual earnings are forecast to decline for the next 3 years.
What else are analysts forecasting for PBF?
Looking Ahead:
Valuation is only one side of the coin in terms of building your investment thesis, and it shouldn't be the only metric you look at when researching 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. For PBF Energy, we've compiled three further factors you should consider:
Risks: Every company has them, and we've spotted 3 warning signs for PBF Energy (of which 1 is a bit unpleasant!) you should know about.
Future Earnings: How does PBF'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
基于2阶段自由现金流对股权的预期公允价值,PBF Energy的预期公允价值为37.30美元。
以33.06美元的股价来看,PBF Energy似乎接近其预估的公允价值交易。
PBF的分析师目标价为45.33美元,比我们的公允价值估计高出22%。
9月份PBF Energy Inc. (纽交所:PBF)的股价是否反映了其真正的价值?今天,我们将通过预测其未来现金流并将其贴现到今天的价值来估算该股票的内在价值。我们将利用贴现现金流量(DCF)模型。实际上,并不是那么复杂,尽管可能看起来相当复杂。