The projected fair value for Astrana Health is US$70.39 based on 2 Stage Free Cash Flow to Equity
Astrana Health's US$61.07 share price indicates it is trading at similar levels as its fair value estimate
The US$63.63 analyst price target for ASTH is 9.6% less than our estimate of fair value
In this article we are going to estimate the intrinsic value of Astrana Health, Inc. (NASDAQ:ASTH) by taking the expected future cash flows and discounting them to today's value. We will use the Discounted Cash Flow (DCF) model on this occasion. There's really not all that much to it, even though it might appear quite complex.
Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model.
What's The Estimated Valuation?
We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. To start off with, we need to estimate the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
Generally we assume that a dollar today is more valuable than a dollar in the future, so we need to discount the sum of these future cash flows to arrive at a present value estimate:
10-year free cash flow (FCF) estimate
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
Levered FCF ($, Millions)
US$84.1m
US$95.3m
US$105.0m
US$113.2m
US$120.3m
US$126.5m
US$132.0m
US$137.0m
US$141.6m
US$146.0m
Growth Rate Estimate Source
Analyst x1
Est @ 13.41%
Est @ 10.14%
Est @ 7.85%
Est @ 6.24%
Est @ 5.12%
Est @ 4.33%
Est @ 3.78%
Est @ 3.40%
Est @ 3.13%
Present Value ($, Millions) Discounted @ 5.8%
US$79.5
US$85.2
US$88.7
US$90.4
US$90.8
US$90.2
US$89.0
US$87.3
US$85.3
US$83.1
("Est" = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = US$869m
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 (2.5%) 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 5.8%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$4.5b÷ ( 1 + 5.8%)10= US$2.6b
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$3.5b. 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$61.1, the company appears about fair value at a 13% 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. 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 Astrana Health 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 5.8%, which is based on a levered beta of 0.800. 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 Astrana Health
Strength
Earnings growth over the past year exceeded the industry.
Debt is well covered by earnings.
Balance sheet summary for ASTH.
Weakness
Shareholders have been diluted in the past year.
Opportunity
Annual earnings are forecast to grow faster than the American market.
Current share price is below our estimate of fair value.
Threat
Debt is not well covered by operating cash flow.
Revenue is forecast to grow slower than 20% per year.
Is ASTH well equipped to handle threats?
Looking Ahead:
Although the valuation of a company is important, it ideally won't be the sole piece of analysis you scrutinize for a company. DCF models are not the be-all and end-all of investment valuation. Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result. For Astrana Health, we've compiled three important elements you should explore:
Risks: To that end, you should be aware of the 1 warning sign we've spotted with Astrana Health .
Future Earnings: How does ASTH'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 NASDAQCM 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
Astrana Health的预测公平价值为70.39美元,基于2阶段自由现金流对股东权益
Astrana Health的61.07美元股价表明其交易水平与公平价值估算相似
ASTH的63.63美元分析师价格目标比我们的公平价值估算低9.6%
在本文中,我们将通过预期未来现金流并将它们折现到今天的价值来估算Astrana Health, Inc. (纳斯达克:ASTH) 的内在价值。 这次我们将使用贴现现金流量(DCF)模型。尽管可能看起来相当复杂,实际上并不是那么复杂。
("Est" = Simply Wall St 估计的自由现金流增长率) 10年现金流的现值(PVCF)= 869百万美元
现在我们需要计算终值,这将考虑到这十年之后的所有未来现金流量。出于多种原因,我们使用了一个非常保守的增长率,不能超过一个国家的 GDP 增长率。在这种情况下,我们使用了十年期政府债券收益率(2.5%)的五年平均值来估计未来增长。与十年增长期相同,我们将未来现金流折现到今天的价值,使用权益成本为5.8%。
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。如果您不同意这些结果,请自行尝试计算并调整假设。贴现现金流也没有考虑行业可能的周期性,或公司未来的资本需求,因此并不能全面展示公司的潜在表现。考虑到我们正在研究 Astrana Health 作为潜在股东,将权益成本作为折现率,而不是资本成本(或加权平均成本资本,WACC),该成本考虑了债务。在这个计算中,我们使用了5.8%,这是基于β为0.800的杠杆贝塔。贝塔是衡量股票波动性的指标,相对于整个市场。我们从全球可比公司的行业平均β获取我们的β,设定一个在0.8和2.0之间的上限,这是稳定业务的合理范围。