Using the 2 Stage Free Cash Flow to Equity, IQVIA Holdings fair value estimate is US$394
Current share price of US$243 suggests IQVIA Holdings is potentially 38% undervalued
Our fair value estimate is 43% higher than IQVIA Holdings' analyst price target of US$277
Does the September share price for IQVIA Holdings Inc. (NYSE:IQV) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by taking the expected future cash flows and discounting them to today's value. This will be done using the Discounted Cash Flow (DCF) model. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow.
Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.
Is IQVIA Holdings Fairly Valued?
We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. In the first stage we need to estimate the cash flows to the business over the next ten years. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
Generally we assume that a dollar today is more valuable than a dollar in the future, so we discount the value of these future cash flows to their estimated value in today's dollars:
10-year free cash flow (FCF) forecast
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
Levered FCF ($, Millions)
US$2.20b
US$2.15b
US$2.74b
US$3.04b
US$3.27b
US$3.47b
US$3.64b
US$3.79b
US$3.93b
US$4.06b
Growth Rate Estimate Source
Analyst x7
Analyst x4
Analyst x2
Analyst x2
Est @ 7.51%
Est @ 6.01%
Est @ 4.95%
Est @ 4.22%
Est @ 3.70%
Est @ 3.34%
Present Value ($, Millions) Discounted @ 6.8%
US$2.1k
US$1.9k
US$2.2k
US$2.3k
US$2.4k
US$2.3k
US$2.3k
US$2.2k
US$2.2k
US$2.1k
("Est" = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = US$22b
The second stage is also known as Terminal Value, this is the business's cash flow after 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 6.8%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$96b÷ ( 1 + 6.8%)10= US$50b
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$72b. The last step is to then divide the equity value by the number of shares outstanding. Compared to the current share price of US$243, the company appears quite undervalued at a 38% 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.
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 IQVIA Holdings 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 6.8%, which is based on a levered beta of 1.048. 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 IQVIA Holdings
Strength
Earnings growth over the past year exceeded the industry.
Debt is well covered by earnings.
Balance sheet summary for IQV.
Weakness
Earnings growth over the past year is below its 5-year average.
Opportunity
Annual earnings are forecast to grow for the next 3 years.
Good value based on P/E ratio and estimated fair value.
Threat
Debt is not well covered by operating cash flow.
Annual earnings are forecast to grow slower than the American market.
Is IQV well equipped to handle threats?
Next Steps:
Although the valuation of a company is important, it 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. Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation. For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result. Can we work out why the company is trading at a discount to intrinsic value? For IQVIA Holdings, there are three additional factors you should further research:
Risks: For example, we've discovered 1 warning sign for IQVIA Holdings that you should be aware of before investing here.
Management:Have insiders been ramping up their shares to take advantage of the market's sentiment for IQV's future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors.
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
使用兩階段自由現金流對股權的方法,艾昆緯控股的公允價值估計爲394美元
當前股價爲243美元,表明艾昆緯控股有可能被低估了38%
我們的公允價值估計比艾昆緯控股分析師的目標股價(277美元)高出43%
九月份IQVIA Holdings Inc. (紐交所:IQV)的股價是否反映了其真正的價值?今天,我們將通過對未來預期現金流的折現,將其轉化爲今天的價值,來估計該股票的內在價值。這將使用折現現金流(DCF)模型來完成。這樣的模型可能超出了普通人的理解範圍,但其實非常容易理解。