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
主要見解
根據二段式自由現金流對股權的預測,Check Point Software Technologies的預計公允價值爲185美元。
Check Point Software Technologies的170美元股價表明它的交易水平與公允價值估計相似。
分析師對CHKP的目標價格爲172美元,比我們的公允價值預估低7.0%。
Check Point Software Technologies Ltd. (納斯達克股票代碼:CHKP)與內在價值有多大的偏差?我們將採用最新的財務數據,通過預測其未來現金流量並將其折現爲今天的價值來查看該股票是否定價合理。我們將應用折現現金流模型(DCF)來完成這項工作。不管你信不信,從我們的例子中可以看出,這不是太難跟隨。
我們應該注意的是,估值的方法有很多種,就像DCF一樣,每種技術在特定的情況下都有其優點和缺點。對於那些熱愛股權分析的學習者來說,這裏的 Simply Wall St 分析模型可能是一些感興趣的內容。
我們要指出,折現現金流最重要的輸入是折現率和實際現金流。你不必同意這些輸入,我建議重新計算這些輸入並對其進行調整。DCF也不考慮一個行業可能的週期性和一個公司未來的資本需求,因此它不能全面展示公司潛在的業績。鑑於我們將Check Point Software Technologies作爲潛在股東,因此使用的是股權成本作爲折現率,而不是資本成本(或加權平均資本成本,WACC),後者考慮了債務。在這個計算中,我們使用了7.9%,這是基於0.988的已槓桿貝塔的。貝塔是一種與整個市場相比衡量股票波動性的指標。我們從全球可比公司的行業平均貝塔值得到我們的貝塔值,設置限制在0.8和2.0之間,這是一個穩定業務的合理範圍。
Check Point Software Technologies的SWOT分析
優勢
過去一年的盈利增長超過了其5年的平均水平
目前無債務。
CHKP的資產負債表摘要。
弱點
過去一年的收益增長低於軟件行業。
機會
預計未來3年的年度收益將增長。
基於市盈率和預估公平價值,出現良好的價值。
威脅
預計年度收益增長速度將慢於美國市場。
分析師對CHKP還有什麼預測?
展望未來:
估值只是構建投資論點的一方面,而理想情況下,不會是您爲公司進行分析的唯一依據。DCF模型不是完美的股票估值工具。最好應用不同的情況和假設,並查看它們將如何影響公司的估值。例如,公司的股權成本或無風險利率的變化可能會對估值產生重大影響。對於Check Point Software Technologies,我們整理了三個重要的項目,您應該看看: