In this article we are going to estimate the intrinsic value of Allegion plc (NYSE:ALLE) 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. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow.
Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. 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.
Check out our latest analysis for Allegion
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. 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.
A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we need to discount the sum of these future cash flows to arrive at a present value estimate:
10-year free cash flow (FCF) estimate
| 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 |
Levered FCF ($, Millions) | US$531.7m | US$531.0m | US$533.6m | US$538.6m | US$545.2m | US$553.1m | US$561.9m | US$571.4m | US$581.5m | US$592.1m |
Growth Rate Estimate Source | Analyst x2 | Est @ -0.12% | Est @ 0.49% | Est @ 0.93% | Est @ 1.23% | Est @ 1.44% | Est @ 1.59% | Est @ 1.7% | Est @ 1.77% | Est @ 1.82% |
Present Value ($, Millions) Discounted @ 8.1% | US$492 | US$454 | US$422 | US$394 | US$369 | US$347 | US$326 | US$307 | US$289 | US$272 |
("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$3.7b
The second stage is also known as Terminal Value, this is the business's cash flow after 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 1.9%. We discount the terminal cash flows to today's value at a cost of equity of 8.1%.
Terminal Value (TV)= FCF2032 × (1 + g) ÷ (r – g) = US$592m× (1 + 1.9%) ÷ (8.1%– 1.9%) = US$9.8b
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$9.8b÷ ( 1 + 8.1%)10= US$4.5b
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$8.2b. The last step is to then divide the equity value by the number of shares outstanding. Compared to the current share price of US$90.6, the company appears about fair value at a 2.6% 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:ALLE Discounted Cash Flow September 23rd 2022
The Assumptions
Now 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 Allegion 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 1.212. 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.
Moving On:
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. It's not possible to obtain a foolproof valuation with a DCF model. Rather it should be seen as a guide to "what assumptions need to be true for this stock to be under/overvalued?" For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result. For Allegion, we've put together three important factors you should assess:
- Risks: You should be aware of the 2 warning signs for Allegion (1 doesn't sit too well with us!) we've uncovered before considering an investment in the company.
- Future Earnings: How does ALLE'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.
在本文中,我們將通過預測未來的現金流並將其折現為今天的價值來估計Alcion plc(紐約證券交易所代碼:ALLE)的內在價值。為此,我們將利用貼現現金流(DCF)模型。像這樣的模型可能看起來超出了外行的理解,但它們很容易被效仿。
不過請記住,有很多方法可以評估一家公司的價值,貼現現金流只是其中一種方法。如果你想了解更多關於貼現現金流的信息,可以在Simply Wall St.分析模型中詳細閲讀這種計算背後的原理。
查看我們對Alcion的最新分析
模型
我們使用的是兩階段增長模型,也就是説,我們考慮了公司發展的兩個階段。在初期,公司可能有較高的增長率,而第二階段通常被假設為有一個穩定的增長率。首先,我們必須對未來十年的現金流進行估計。在可能的情況下,我們使用分析師的估計,但當這些估計不可用時,我們會根據上次估計或報告的價值推斷先前的自由現金流(FCF)。我們假設,自由現金流萎縮的公司將減緩收縮速度,而自由現金流增長的公司在這段時間內的增長速度將放緩。我們這樣做是為了反映出,增長在最初幾年往往比後來幾年放緩得更多。
貼現現金流就是這樣一種想法,即未來一美元的價值低於現在的一美元,因此我們需要對這些未來現金流的總和進行貼現,以得出現值估計:
10年自由現金流(FCF)估計
| 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 |
槓桿式FCF(百萬美元) | 5.317億美元 | 5.310億美元 | 5.336億美元 | 5.386億美元 | 5.452億美元 | 5.531億美元 | 5.619億美元 | 5.714億美元 | 5.815億美元 | 5.921億美元 |
增長率預估來源 | 分析師x2 | Est@-0.12% | Est@0.49% | Est@0.93% | Est@1.23% | Est@1.44% | Est@1.59% | Est@1.7% | Est@1.77% | Est@1.82% |
現值(美元,百萬)貼現@8.1% | 492美元 | 454美元 | 422美元 | 394美元 | 369美元 | 347美元 | 326美元 | 307美元 | 289美元 | 272美元 |
(“EST”=Simply Wall St.預估的FCF成長率)
10年期現金流現值(PVCF)=37億美元
第二階段也被稱為終端價值,這是企業在第一階段之後的現金流。戈登增長公式用於計算終端價值,其未來年增長率等於10年期政府債券收益率1.9%的5年平均水平。我們以8.1%的權益成本將終端現金流貼現到今天的價值。
終端值(TV)=FCF2032×(1+g)?(r-g)=5.92億美元×(1+1.9%)?(8.1%-1.9%)=98億美元
終值現值(PVTV)=TV/(1+r)10=98億美元?(1+8.1%)10=45億美元
那麼,總價值或權益價值就是未來現金流的現值之和,在這種情況下,現金流的現值為82億美元。最後一步是將股權價值除以流通股數量。與目前90.6美元的股價相比,該公司的公允價值似乎比目前的股價有2.6%的折扣。然而,估值是不精確的工具,更像是一臺望遠鏡--移動幾度,就會到達另一個星系。一定要記住這一點。
紐約證券交易所:ALLE貼現現金流2022年9月23日
假設
現在,貼現現金流最重要的投入是貼現率,當然還有實際現金流。投資的一部分是你自己對一家公司未來業績的評估,所以你自己試一試計算,檢查你自己的假設。DCF也沒有考慮一個行業可能的週期性,也沒有考慮一家公司未來的資本要求,因此它沒有給出一家公司潛在業績的全貌。鑑於我們將Alcion視為潛在股東,股權成本被用作貼現率,而不是佔債務的資本成本(或加權平均資本成本,WACC)。在這個計算中,我們使用了8.1%,這是基於槓桿率為1.212的測試版。貝塔係數是衡量一隻股票相對於整個市場的波動性的指標。我們的貝塔係數來自全球可比公司的行業平均貝塔係數,強制限制在0.8到2.0之間,這是一個穩定業務的合理範圍。
下一步:
就構建你的投資論點而言,估值只是硬幣的一面,它只是你需要為一家公司評估的眾多因素之一。用貼現現金流模型不可能獲得萬無一失的估值。相反,它應該被視為“什麼假設需要成立才能讓這隻股票被低估或高估”的指南。例如,如果終端價值增長率稍有調整,可能會極大地改變整體結果。對於Alcion,我們列出了你應該評估的三個重要因素:
- 風險:你應該意識到Alcion的2個警告標誌(%1與我們的關係不太好!)我們在考慮投資該公司之前發現了這一點。
- 未來收益:與同行和更廣泛的市場相比,Alle的增長率如何?通過與我們的免費分析師增長預期圖表互動,更深入地挖掘分析師對未來幾年的共識數字。
- 其他穩固的企業:低債務、高股本回報率和良好的過去業績是強勁業務的基礎。為什麼不探索我們具有堅實商業基本面的股票的互動列表,看看是否有其他您可能沒有考慮過的公司!
PS.Simply Wall St.每天更新每隻美國股票的貼現現金流計算,所以如果你想找出任何其他股票的內在價值,只需搜索此處。
對這篇文章有什麼反饋嗎?擔心內容嗎? 保持聯繫直接與我們聯繫。或者,也可以給編輯組發電子郵件,地址是implywallst.com。
本文由Simply Wall St.撰寫,具有概括性。我們僅使用不偏不倚的方法提供基於歷史數據和分析師預測的評論,我們的文章並不打算作為財務建議。它不構成買賣任何股票的建議,也沒有考慮你的目標或你的財務狀況。我們的目標是為您帶來由基本面數據驅動的長期重點分析。請注意,我們的分析可能不會將最新的對價格敏感的公司公告或定性材料考慮在內。Simply Wall St.對上述任何一隻股票都沒有持倉。