Booz Allen Hamilton Holding's estimated fair value is US$160 based on 2 Stage Free Cash Flow to Equity
Current share price of US$152 suggests Booz Allen Hamilton Holding is potentially trading close to its fair value
Our fair value estimate is 4.0% lower than Booz Allen Hamilton Holding's analyst price target of US$167
Does the June share price for Booz Allen Hamilton Holding Corporation (NYSE:BAH) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by taking the expected future cash flows and discounting them to their present value. This will be done using the Discounted Cash Flow (DCF) model. Believe it or not, it's not too difficult to follow, as you'll see from our example!
Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you.
Step By Step Through The Calculation
We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. To start off with, we need to estimate the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we need to discount the sum of these future cash flows to arrive at a present value estimate:
10-year free cash flow (FCF) forecast
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
Levered FCF ($, Millions)
US$179.2m
US$779.4m
US$905.6m
US$957.5m
US$998.7m
US$1.04b
US$1.07b
US$1.10b
US$1.13b
US$1.16b
Growth Rate Estimate Source
Analyst x6
Analyst x7
Analyst x6
Analyst x2
Est @ 4.31%
Est @ 3.73%
Est @ 3.32%
Est @ 3.04%
Est @ 2.84%
Est @ 2.70%
Present Value ($, Millions) Discounted @ 6.7%
US$168
US$684
US$745
US$739
US$722
US$702
US$680
US$656
US$632
US$609
("Est" = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = US$6.3b
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. 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 6.7%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$28b÷ ( 1 + 6.7%)10= US$14b
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$152, the company appears about fair value at a 5.4% 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.
The Assumptions
Now 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 Booz Allen Hamilton Holding 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 6.7%, which is based on a levered beta of 0.940. 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 Booz Allen Hamilton Holding
Strength
Earnings growth over the past year exceeded the industry.
Debt is well covered by earnings.
Balance sheet summary for BAH.
Weakness
Dividend is low compared to the top 25% of dividend payers in the Professional Services market.
Opportunity
Annual earnings are forecast to grow for the next 3 years.
Current share price is below our estimate of fair value.
Threat
Debt is not well covered by operating cash flow.
Dividends are not covered by cash flow.
Annual earnings are forecast to grow slower than the American market.
Is BAH well equipped to handle threats?
Next Steps:
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. The DCF model is not a perfect stock valuation tool. 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 Booz Allen Hamilton Holding, we've compiled three further factors you should look at:
Risks: Take risks, for example - Booz Allen Hamilton Holding has 1 warning sign we think you should be aware of.
Future Earnings: How does BAH'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. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the NYSE every day. If you want to find the calculation for other stocks 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.
キーインサイト
Booz Allen Hamilton Holdingsの公正価値は、2段階のフリーキャッシュフローから株式に相当するものであると予想され、160米ドルです。
現在の152米ドルの株価は、Booz Allen Hamilton Holdingsが公正価値に近づいて取引されていることを示します。
当社の公正価値見積もりは、Booz Allen Hamilton Holdingsのアナリスト価格目標である167米ドルより4.0%低くなっています。
Booz Allen Hamilton Holding Corporation(NYSE:BAH)の6月の株価は実際の価値を反映していますか?今日は、将来のキャッシュフローの見込みを取り、それらの現在価値に割り引いて、株価の内在価値を推定します。これはディスカウントキャッシュフロー(DCF)モデルを使用して行われます。実際、私たちの例からわかるように、それほど難しくはありません!
割引キャッシュフローにとって最も重要な入力は、割引率と、もちろん、実際のキャッシュフローです。これらの入力に同意する必要はありません。自分で計算し直して、数値を変えてみることをお勧めします。DCFは業界の循環性や企業の将来的な資本必要量を考慮していないため、企業の潜在的なパフォーマンスを完全に正確には表していません。Booz Allen Hamilton Holdingsを潜在的な株主として見ているため、コスト・オブ・エクイティを割引率として使用し、債務を考慮したコスト・オブ・キャピタル(または重み付け平均コスト・オブ・キャピタル、WACC)ではありません。この計算では、0.940のレバレッジベータに基づいて6.7%を使用しています。ベータは、市場全体に対する株式の変動性の指標です。世界的に比較可能な企業の業界平均ベータから取得し、安定したビジネスに対する合理的な範囲である0.8から2.0までの範囲が設定されています。
Booz Allen Hamilton HoldingsのSWOT分析
強み
過去1年間の利益成長率は業界平均を上回りました。
債務が収益によって十分カバーされています。
BAHの貸借対照表の概要。
弱み
専門サービス市場の配当支払い上位25%に比べて、配当は低いです。
機会
次の3年間、年間利益が成長する予定です。
現在の株価は、公正な価値の見積もりを下回っています。
脅威
負債は営業キャッシュフローで充分にカバーされていない
キャッシュフローで配当はカバーされていません。
アメリカ市場よりも年間収益成長が遅いと予測されています。
BAHは脅威に対応するために十分に備えていますか?
次のステップ:
投資論文を構築する上での評価は、価値評価だけではありません。会社を評価するために評価を必要とする多数の要素の1つにすぎません。DCFモデルは完璧な株式評価ツールではありません。代わりに、「この株式が過小評価/過大評価されるにはどのような前提条件が真実でなければならないか?」という指針として見るべきです。たとえば、終端値の成長率を微調整すると、全体的な結果が大幅に変わる可能性があります。Booz Allen Hamilton Holdingsについては、3つの追加要素を以下にまとめています。
リスク:リスクを取ること、例えば- Booz Allen Hamilton Holdingには1つの警告サインがあり、アウェアする必要があると考えています。
オーストラリアでは、moomooの投資商品及びサービスはMoomoo Securities Australia Limitedによって提供され、オーストラリア証券投資委員会(ASIC)の管理を受けております(AFSL No. 224663)。「金融サービスガイド」、「利用規約」、「プライバシーポリシー」などの詳細は、Moomoo Securities Australia Limitedのウェブサイトhttps://www.moomoo.com/auでご確認いただけます。
オーストラリアでは、moomooの投資商品及びサービスはMoomoo Securities Australia Limitedによって提供され、オーストラリア証券投資委員会(ASIC)の管理を受けております(AFSL No. 224663)。「金融サービスガイド」、「利用規約」、「プライバシーポリシー」などの詳細は、Moomoo Securities Australia Limitedのウェブサイトhttps://www.moomoo.com/auでご確認いただけます。