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
キーインサイト
2段階のフリーキャッシュフローから株式の公正価値を導くと、Check Point Software Technologiesの公正価値予測はUS$185です。
Check Point Software Technologiesの株価はUS$170であり、公正価値予測と同様のレベルで取引されていることを示しています。
アナリストの価格ターゲットによると、CHKPの公正価値予測から7.0%下回るUS$172です。
NASDAQ: CHKPの正当な価値と比較して、Check Point Software Technologies Ltd.はどの程度乖離しているのでしょうか?最新の財務データを使用して、将来のキャッシュフローを予測し、それらを現在価値にディスカウントすることにより、株式が公正に評価されているかどうかを調べます。この評価にはDCF(ディスカウンティッドキャッシュフローモデル)が使用されます。おそらく、例からわかるように、それほど難しくはありません!
ディスカウント現金フローの最も重要な入力は、割引率と現金フローです。これらの入力に同意する必要はありませんが、それらを再計算して自分自身で遊んでみることをお勧めします。DCFは、業界の周期変動や企業の将来の資本需要を考慮せず、企業の潜在的なパフォーマンスの完全な画像を提供しません。私たちは、潜在的な株主としてCheck Point Software Technologiesを見ているため、コストオブイクイティが割引率として使用されます。これは、債務を考慮する費用(または加重平均費用オブキャピタル、WACC)ではなく、7.9%のレバレッジベータに基づくものです。ベータは、市場全体と比較して株式の変動性を測定するものです。私たちは、グローバルに比較可能な企業の業界平均ベータからベータを得て、安定したビジネスに対して合理的な範囲である0.8から2.0の範囲が課せられます。
Check Point Software TechnologiesのSWOt分析
強み
過去1年間の収益成長は5年平均を上回っています。
現在負債ゼロ。
CHKPの貸借対照表概要
弱み
過去1年間の収益成長率は、ソフトウェア業界に比べて低いです。
機会
次の3年間、年間利益が成長する予定です。
P/E比と見積もり公正価値に基づいて、よい価値があります。
脅威
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。
他にもアナリストはCHKPについて予測していることがありますか?
今後に向けて:
評価は、投資テーゼを構築する上でのコインの片面にすぎず、理想的には、あなたが会社のために細部まで分析する唯一の分析ではありません。DCFモデルは完璧な株式評価ツールではありません。異なるケースと仮定を適用し、会社の評価にどのような影響を与えるかを見ることができるとより良いです。たとえば、企業の自己資本コストや無リスク利子率の変化は、評価に重要な影響を与える場合があります。Check Point Software Technologiesでは、次の3つの重要な項目を調べる必要があります。
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。