The projected fair value for CoreCivic is US$22.63 based on 2 Stage Free Cash Flow to Equity
CoreCivic is estimated to be 41% undervalued based on current share price of US$13.42
The US$15.67 analyst price target for CXW is 31% less than our estimate of fair value
Does the August share price for CoreCivic, Inc. (NYSE:CXW) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by taking the expected future cash flows and discounting them to their present value. This will be done using the Discounted Cash Flow (DCF) model. Believe it or not, it's not too difficult to follow, as you'll see from our example!
We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model.
Crunching The Numbers
We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. To begin with, we have to get estimates of the next ten years of cash flows. Seeing as no analyst estimates of free cash flow are available to us, we have extrapolate the previous free cash flow (FCF) from the company's last reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
Generally we assume that a dollar today is more valuable than a dollar in the future, and so the sum of these future cash flows is then discounted to today's value:
10-year free cash flow (FCF) estimate
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
Levered FCF ($, Millions)
US$153.2m
US$146.8m
US$143.6m
US$142.4m
US$142.7m
US$144.0m
US$146.0m
US$148.5m
US$151.4m
US$154.6m
Growth Rate Estimate Source
Est @ -7.05%
Est @ -4.18%
Est @ -2.18%
Est @ -0.77%
Est @ 0.21%
Est @ 0.90%
Est @ 1.38%
Est @ 1.71%
Est @ 1.95%
Est @ 2.11%
Present Value ($, Millions) Discounted @ 7.6%
US$142
US$127
US$115
US$106
US$98.9
US$92.8
US$87.4
US$82.6
US$78.3
US$74.3
("Est" = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = US$1.0b
The second stage is also known as Terminal Value, this is the business's cash flow after the first stage. 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 (2.5%) 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 7.6%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$3.1b÷ ( 1 + 7.6%)10= US$1.5b
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$2.5b. In the final step we divide the equity value by the number of shares outstanding. Compared to the current share price of US$13.4, the company appears quite undervalued at a 41% 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.
Important Assumptions
Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows. If you don't agree with these result, have a go at the calculation yourself and play with the 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 CoreCivic 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 7.6%, which is based on a levered beta of 1.240. 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 CoreCivic
Strength
Debt is well covered by cash flow.
Balance sheet summary for CXW.
Weakness
Earnings declined over the past year.
Interest payments on debt are not well covered.
Opportunity
Trading below our estimate of fair value by more than 20%.
Threat
Annual earnings are forecast to decline for the next 2 years.
What else are analysts forecasting for CXW?
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. DCF models are not the be-all and end-all of investment valuation. 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. Can we work out why the company is trading at a discount to intrinsic value? For CoreCivic, there are three pertinent items you should consider:
Risks: For instance, we've identified 5 warning signs for CoreCivic (2 don't sit too well with us) you should be aware of.
Future Earnings: How does CXW'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.
主要見解
根據兩階段自由現金流向股東的權益,CoreCivic的預期公允價值爲22.63美元。
基於當前股價13.42美元,估計CoreCivic被低估41%。
分析師給予CXW的15.67美元價格目標比我們估計的公允價值低31%。
八月份CoreCivic, Inc. (紐交所:CXW)的股價是否反映了它真正的價值?今天,我們將通過預期未來現金流量並將其貼現到現值來估算股票的內在價值。我們將使用貼現現金流量(DCF)模型進行估算。信不信由你,跟隨我們的例子,你會發現這並不太難!
("Est" = FCF growth rate estimated by Simply Wall St)
The second stage is also known as Terminal Value, this is the business's cash flow after the first stage. 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 (2.5%) 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 7.6%.
1.436億美元
1724354417023
1.427億美元。
1.44億美元
1.46億美元
1年自由現金流爲1.485億美元。
1.514億美元
Opportunity
增長率估計來源
估計@ -7.05%
預計@-4.18%
預估漲幅爲-2.18%
預計下跌0.77%
0.21%的估值
增幅爲0.90%
以1.38%爲基礎估算
預計@1.71%
預期 @ 1.95%
預計爲2.11%
以7.6%的貼現率貼現後的現值(百萬美元)。
美元142
美元127
115美元
美元106
98.9美元
92.8美元
87.4美元
82.6美元
7.43美元。
("Est" = Simply Wall St 估計的自由現金流增長率) 10年現金流的現值(PVCF)= 美元10億