An Intrinsic Calculation For Alamo Group Inc. (NYSE:ALG) Suggests It's 23% Undervalued
An Intrinsic Calculation For Alamo Group Inc. (NYSE:ALG) Suggests It's 23% Undervalued
Key Insights
- Using the 2 Stage Free Cash Flow to Equity, Alamo Group fair value estimate is US$287
- Alamo Group is estimated to be 23% undervalued based on current share price of US$220
- The US$231 analyst price target for ALG is 20% less than our estimate of fair value
In this article we are going to estimate the intrinsic value of Alamo Group Inc. (NYSE:ALG) by estimating the company's future cash flows and discounting them to their present value. We will use the Discounted Cash Flow (DCF) model on this occasion. Before you think you won't be able to understand it, just read on! It's actually much less complex than you'd imagine.
We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.
The Model
We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. To start off with, we need to estimate the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, and so the sum of these future cash flows is then discounted to today's value:
10-year free cash flow (FCF) forecast
2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | |
Levered FCF ($, Millions) | US$118.1m | US$139.5m | US$155.3m | US$168.8m | US$180.2m | US$190.0m | US$198.5m | US$206.0m | US$213.0m | US$219.4m |
Growth Rate Estimate Source | Analyst x2 | Analyst x2 | Est @ 11.40% | Est @ 8.67% | Est @ 6.75% | Est @ 5.41% | Est @ 4.48% | Est @ 3.82% | Est @ 3.36% | Est @ 3.04% |
Present Value ($, Millions) Discounted @ 7.2% | US$110 | US$121 | US$126 | US$128 | US$127 | US$125 | US$122 | US$118 | US$113 | US$109 |
("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$1.2b
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 2.3%. We discount the terminal cash flows to today's value at a cost of equity of 7.2%.
Terminal Value (TV)= FCF2033 × (1 + g) ÷ (r – g) = US$219m× (1 + 2.3%) ÷ (7.2%– 2.3%) = US$4.5b
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$4.5b÷ ( 1 + 7.2%)10= US$2.2b
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$3.4b. 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$220, the company appears a touch undervalued at a 23% 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 Alamo Group 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 7.2%, which is based on a levered beta of 1.078. 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 Alamo Group
- Earnings growth over the past year exceeded the industry.
- Debt is not viewed as a risk.
- Balance sheet summary for ALG.
- Dividend is low compared to the top 25% of dividend payers in the Machinery market.
- Annual earnings are forecast to grow for the next 2 years.
- Trading below our estimate of fair value by more than 20%.
- Annual earnings are forecast to grow slower than the American market.
- What else are analysts forecasting for ALG?
Next Steps:
Whilst important, the DCF calculation is only one of many factors that you need to assess 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 Alamo Group, there are three important aspects you should assess:
- Risks: As an example, we've found 1 warning sign for Alamo Group that you need to consider before investing here.
- Future Earnings: How does ALG'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.
關鍵見解
- 使用兩階段的自由現金流股權,阿拉莫集團的公允價值估計爲287美元
- 根據目前220美元的股價,阿拉莫集團的估值估計被低估了23%
- 分析師對ALG的231美元目標股價比我們對公允價值的估計低20%
在本文中,我們將通過估算阿拉莫集團公司(紐約證券交易所代碼:ALG)的未來現金流並將其折現爲現值,來估算該公司的內在價值。在這種情況下,我們將使用折扣現金流(DCF)模型。在你認爲自己無法理解之前,請繼續閱讀!實際上,它沒有你想象的那麼複雜。
我們要提醒的是,對公司進行估值的方法有很多,就像DCF一樣,每種技術在某些情況下都有優點和缺點。任何有興趣進一步了解內在價值的人都應該讀一讀 Simply Wall St 分析模型。
該模型
我們使用的是兩階段增長模型,這只是意味着我們考慮了公司增長的兩個階段。在初始階段,公司的增長率可能更高,而第二階段通常被認爲具有穩定的增長率。首先,我們需要估計未來十年的現金流。在可能的情況下,我們會使用分析師的估計值,但是當這些估計值不可用時,我們會從最新的估計值或報告的價值中推斷出之前的自由現金流(FCF)。我們假設自由現金流萎縮的公司將減緩其萎縮速度,而自由現金流不斷增長的公司在此期間的增長率將放緩。我們這樣做是爲了反映早期增長的放緩幅度往往比後來的幾年更大。
差價合約就是關於未來一美元的價值低於今天一美元的概念,因此,這些未來現金流的總和將折現爲今天的價值:
10 年自由現金流 (FCF) 預測
2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | |
Levered FCF(美元,百萬) | 1.181 億美元 | 1.395 億美元 | 1.553 億美元 | 168.8 億美元 | 180.2 億美元 | 1.90 億美元 | 198.5 億美元 | 2.06 億美元 | 2.130 億美元 | 2.194 億美元 |
增長率估算來源 | 分析師 x2 | 分析師 x2 | 美國東部時間 @ 11.40% | Est @ 8.67% | Est @ 6.75% | Est @ 5.41% | Est @ 4.48% | 美國東部時間 @ 3.82% | Est @ 3.36% | Est @ 3.04% |
現值(美元,百萬)折扣 @ 7.2% | 110 美元 | 121 美元 | 126 美元 | 128 美元 | 127 美元 | 125 美元 | 122 美元 | 118 美元 | 113 美元 | 109 美元 |
(“Est” = Simply Wall St估計的FCF增長率)
十年期現金流(PVCF)的現值 = 12億美元
第二階段也稱爲終值,這是第一階段之後的企業現金流。戈登增長公式用於計算終值,其未來年增長率等於10年期國債收益率2.3%的5年平均水平。我們將終端現金流折現爲今天的價值,權益成本爲7.2%。
終端價值 (TV) = FCF2033 × (1 + g) ÷ (r — g) = 2.19億美元× (1 + 2.3%) ÷ (7.2% — 2.3%) = 45億美元
終端價值的現值 (PVTV) = 電視/ (1 + r)10= 45億美元÷ (1 + 7.2%)10= 22億美元
因此,總價值或權益價值是未來現金流現值的總和,在本例中爲34億美元。爲了得出每股內在價值,我們將其除以已發行股票總數。與目前的220美元股價相比,該公司的估值似乎略有低估,比目前的股價折扣了23%。但是,估值是不精確的工具,就像望遠鏡一樣——移動幾度,最終進入另一個星系。請記住這一點。
假設
現在,貼現現金流的最重要輸入是貼現率,當然還有實際現金流。你不必同意這些輸入,我建議你自己重做計算然後試一試。DCF也沒有考慮一個行業可能的週期性,也沒有考慮公司未來的資本需求,因此它沒有全面反映公司的潛在表現。鑑於我們將阿拉莫集團視爲潛在股東,因此使用股本成本作爲貼現率,而不是構成債務的資本成本(或加權平均資本成本,WACC)。在此計算中,我們使用了7.2%,這是基於1.078的槓桿測試版。Beta是衡量股票與整個市場相比波動性的指標。我們的測試版來自全球可比公司的行業平均貝塔值,設定在0.8到2.0之間,這是一個穩定的業務的合理範圍。
阿拉莫集團的 SWOT 分析
- 過去一年的收益增長超過了該行業。
- 債務不被視爲風險。
- ALG 的資產負債表摘要。
- 與機械市場前25%的股息支付者相比,股息很低。
- 預計未來兩年的年收入將增長。
- 交易價格比我們估計的公允價值低20%以上。
- 預計年收益的增長速度將低於美國市場。
- 分析師對ALG還有什麼預測?
後續步驟:
雖然重要,但DCF的計算只是公司需要評估的衆多因素之一。使用DCF模型不可能獲得萬無一失的估值。相反,它應該被視爲 “需要哪些假設才能低估/高估這隻股票的價值?” 的指南例如,如果稍微調整終值增長率,則可能會極大地改變整體結果。爲什麼內在價值高於當前股價?對於阿拉莫集團而言,您應該評估三個重要方面:
- 風險:舉個例子,我們發現阿拉莫集團有一個警告信號,在投資之前,你需要考慮這個信號。
- 未來收益:與同行和整個市場相比,ALG的增長率如何?通過與我們的免費分析師增長預期圖表互動,更深入地了解未來幾年的分析師共識數字。
- 其他高質量的替代品:你喜歡一個優秀的全能選手嗎?瀏覽我們的高品質股票互動清單,了解您可能還會錯過什麼!
PS。Simply Wall St每天都會更新每隻美國股票的差價合約計算結果,因此,如果您想找到任何其他股票的內在價值,請在此處搜索。
對這篇文章有反饋嗎?對內容感到擔憂?直接聯繫我們。 或者,給編輯團隊 (at) simplywallst.com 發送電子郵件。
Simply Wall St的這篇文章本質上是籠統的。我們僅使用公正的方法根據歷史數據和分析師的預測提供評論,我們的文章無意作爲財務建議。它不構成買入或賣出任何股票的建議,也沒有考慮到您的目標或財務狀況。我們的目標是爲您提供由基本數據驅動的長期重點分析。請注意,我們的分析可能不考慮最新的價格敏感型公司公告或定性材料。簡而言之,華爾街沒有持有任何上述股票的頭寸。
譯文內容由第三人軟體翻譯。
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