The projected fair value for Inspire Medical Systems is US$266 based on 2 Stage Free Cash Flow to Equity
Inspire Medical Systems is estimated to be 21% undervalued based on current share price of US$211
Analyst price target for INSP is US$224 which is 16% below our fair value estimate
In this article we are going to estimate the intrinsic value of Inspire Medical Systems, Inc. (NYSE:INSP) by estimating the company's future cash flows and discounting them to their present value. This will be done using the Discounted Cash Flow (DCF) model. It may sound complicated, but actually it is quite simple!
Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you.
Step By Step Through The Calculation
We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. To start off with, we need to estimate the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
Generally we assume that a dollar today is more valuable than a dollar in the future, and so the sum of these future cash flows is then discounted to today's value:
10-year free cash flow (FCF) estimate
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
Levered FCF ($, Millions)
US$117.5m
US$149.5m
US$190.0m
US$243.0m
US$283.1m
US$317.8m
US$347.6m
US$372.9m
US$394.8m
US$413.9m
Growth Rate Estimate Source
Analyst x3
Analyst x2
Analyst x1
Analyst x1
Est @ 16.48%
Est @ 12.29%
Est @ 9.35%
Est @ 7.30%
Est @ 5.86%
Est @ 4.85%
Present Value ($, Millions) Discounted @ 6.3%
US$111
US$132
US$158
US$190
US$208
US$220
US$226
US$228
US$227
US$224
("Est" = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = US$1.9b
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. 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 2.5%. We discount the terminal cash flows to today's value at a cost of equity of 6.3%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$11b÷ ( 1 + 6.3%)10= US$6.0b
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$7.9b. 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$211, the company appears a touch undervalued at a 21% 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
The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the 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 Inspire Medical Systems 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 6.3%, which is based on a levered beta of 0.927. 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 Inspire Medical Systems
Strength
Currently debt free.
Balance sheet summary for INSP.
Weakness
No major weaknesses identified for INSP.
Opportunity
Annual earnings are forecast to grow faster than the American market.
Trading below our estimate of fair value by more than 20%.
Threat
Revenue is forecast to grow slower than 20% per year.
What else are analysts forecasting for INSP?
Moving On:
Whilst important, the DCF calculation ideally won't be the sole piece of analysis you scrutinize 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. Why is the intrinsic value higher than the current share price? For Inspire Medical Systems, we've compiled three additional elements you should consider:
Risks: To that end, you should be aware of the 1 warning sign we've spotted with Inspire Medical Systems .
Future Earnings: How does INSP'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. 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.
主要见解
根据2阶段自由现金流至权益的预测公允价值为美元266
根据当前股价美元211,估计Inspire Medical Systems被低估了21%
INSP的分析师目标价为美元224,比我们的公允价值估计低16%
在本文中,我们将通过估计公司未来现金流量并将其贴现到现值来估算Inspire Medical Systems, Inc.(NYSE:INSP)的内在价值。这将使用贴现现金流(DCF)模型来完成。听起来可能有些复杂,但实际上相当简单!
上述计算非常依赖两个假设。一个是折现率,另一个是现金流量。您不必同意这些输入,我建议重新进行计算并进行调整。DCF也不考虑行业可能的周期性,或公司未来的资本需求,因此它不能全面展现公司的潜力表现。鉴于我们正在考虑 inspire medical systems 作为潜在股东,成本权益用作贴现率,而不是成本资本(或加权平均资本成本,WACC),这考虑了债务。在这个计算中,我们使用了6.3%,这是基于0.927的区别贝塔。贝塔是衡量股票波动性的指标,与整个市场相比。我们从全球可比公司的行业平均贝塔中获得我们的贝塔,设置在0.8和2.0之间,这是一个稳定业务的合理区间。
inspire medical systems的SWOT分析
优势
目前无债务。
INSP的资产负债表摘要。
弱点
未识别INSP的主要弱点。
机会
预计年度盈利增长将快于美国市场。
低于我们估价的20%以上。
威胁
预计营业收入每年增长将慢于20%。
分析师还预测了Inspire Medical Systems的其他内容吗?
接下来:
尽管重要,DCF计算理想情况下不应是您用来分析公司的唯一依据。使用DCF模型无法获得完全有效的估值。相反,它应被视为“这支股票被低估/高估需要什么样的假设?”的指导。例如,如果终端价值增长率稍作调整,就可能大大改变整体结果。为什么内在价值高于当前股价?对于Inspire Medical Systems,我们整理了另外三个您应该考虑的因素:
风险:因此,您应该注意我们发现的关于Inspire Medical Systems的一个警示信号。
未来收益:inspire medical systems的增长率与同行及更广阔市场相比如何?通过与我们的免费分析师增长预期图表互动,深入了解未来几年的分析师共识数字。