Calculating The Fair Value Of Valvoline Inc. (NYSE:VVV)
Calculating The Fair Value Of Valvoline Inc. (NYSE:VVV)
Key Insights
- Valvoline's estimated fair value is US$45.71 based on 2 Stage Free Cash Flow to Equity
- Current share price of US$43.27 suggests Valvoline is potentially trading close to its fair value
- Our fair value estimate is 2.3% higher than Valvoline's analyst price target of US$44.67
Today we'll do a simple run through of a valuation method used to estimate the attractiveness of Valvoline Inc. (NYSE:VVV) as an investment opportunity by taking the expected future cash flows and discounting them to their present value. The Discounted Cash Flow (DCF) model is the tool we will apply to do this. Don't get put off by the jargon, the math behind it is actually quite straightforward.
Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you.
Step By Step Through The Calculation
We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. In the first stage we need to estimate the cash flows to the business over the next ten years. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
Generally we assume that a dollar today is more valuable than a dollar in the future, and so the sum of these future cash flows is then discounted to today's value:
10-year free cash flow (FCF) estimate
2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | |
Levered FCF ($, Millions) | US$167.1m | US$186.7m | US$243.7m | US$286.9m | US$324.5m | US$356.5m | US$383.5m | US$406.5m | US$426.4m | US$443.9m |
Growth Rate Estimate Source | Analyst x5 | Analyst x5 | Analyst x3 | Est @ 17.74% | Est @ 13.10% | Est @ 9.86% | Est @ 7.59% | Est @ 6.00% | Est @ 4.89% | Est @ 4.11% |
Present Value ($, Millions) Discounted @ 7.8% | US$155 | US$161 | US$194 | US$212 | US$223 | US$227 | US$227 | US$223 | US$217 | US$209 |
("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$2.0b
The second stage is also known as Terminal Value, this is the business's cash flow after the first stage. 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 (2.3%) 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 7.8%.
Terminal Value (TV)= FCF2033 × (1 + g) ÷ (r – g) = US$444m× (1 + 2.3%) ÷ (7.8%– 2.3%) = US$8.2b
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$8.2b÷ ( 1 + 7.8%)10= US$3.9b
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$5.9b. The last step is to then divide the equity value by the number of shares outstanding. Compared to the current share price of US$43.3, the company appears about fair value at a 5.3% discount to where the stock price trades currently. Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out.
The 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. 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 Valvoline 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 7.8%, which is based on a levered beta of 1.200. 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 Valvoline
- Earnings growth over the past year exceeded the industry.
- Debt is well covered by earnings.
- Balance sheet summary for VVV.
- No major weaknesses identified for VVV.
- Annual revenue is forecast to grow faster than the American market.
- Current share price is below our estimate of fair value.
- Debt is not well covered by operating cash flow.
- Annual earnings are forecast to grow slower than the American market.
- Is VVV well equipped to handle threats?
Moving On:
Whilst important, the DCF calculation shouldn't be the only metric you look at when researching a company. The DCF model is not a perfect stock valuation tool. 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 example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. For Valvoline, there are three fundamental factors you should assess:
- Risks: Every company has them, and we've spotted 2 warning signs for Valvoline you should know about.
- Future Earnings: How does VVV'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
- 根據兩階段的股本自由現金流,Valvoline的公允價值估計爲45.71美元
- 目前的股價爲43.27美元,表明Valvoline的交易價格可能接近其公允價值
- 我們的公允價值估計比Valvoline的分析師目標股價44.67美元高出2.3%
今天,我們將簡單介紹一種估值方法,該方法通過計算預期的未來現金流並將其折現爲現值,來估計Valvoline Inc.(紐約證券交易所代碼:VVV)作爲投資機會的吸引力。折扣現金流(DCF)模型是我們將應用的工具。不要被行話嚇跑,它背後的數學其實很簡單。
但請記住,估算公司價值的方法有很多,而差價合約只是一種方法。對於那些熱衷於股票分析的人來說,你可能會對這裏的Simply Wall St分析模型感興趣。
逐步進行計算
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。在第一階段,我們需要估算未來十年的業務現金流。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。
通常,我們假設今天的一美元比未來一美元更有價值,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) 估計
2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | |
Levered FCF(美元,百萬) | 167.1 億美元 | 186.7 億美元 | 2.437 億美元 | 286.9 億美元 | 324.5 億美元 | 3.565 億美元 | 3.835 億美元 | 4.065 億美元 | 4.264 億美元 | 443.9 億美元 |
增長率估算來源 | 分析師 x5 | 分析師 x5 | 分析師 x3 | 美國東部標準時間 @ 17.74% | 美國東部時間 @ 13.10% | Est @ 9.86% | Est @ 7.59% | Est @ 6.00% | Est @ 4.89% | 美國東部標準時間 @ 4.11% |
現值(美元,百萬)折扣 @ 7.8% | 155 美元 | 161 美元 | 194 美元 | 212 美元 | 223 美元 | 227 美元 | 227 美元 | 223 美元 | 217 美元 | 209 美元 |
(“Est” = Simply Wall St估計的FCF增長率)
十年期現金流(PVCF)的現值 = 20億美元
第二階段也稱爲終值,這是企業在第一階段之後的現金流。出於多種原因,使用的增長率非常保守,不能超過一個國家的GDP增長率。在這種情況下,我們使用10年期國債收益率的5年平均值(2.3%)來估計未來的增長。與10年 “增長” 期一樣,我們使用7.8%的股本成本將未來的現金流折現爲今天的價值。
終端價值 (TV) = FCF2033 × (1 + g) ÷ (r — g) = 4.44億美元× (1 + 2.3%) ÷ (7.8% — 2.3%) = 82億美元
終端價值的現值 (PVTV) = 電視/ (1 + r)10= 82億美元÷ (1 + 7.8%)10= 39 億美元
總價值是未來十年的現金流總額加上貼現的終端價值,由此得出總權益價值,在本例中爲59億美元。最後一步是將股票價值除以已發行股票的數量。與目前的43.3美元股價相比,該公司的公允價值似乎比目前的股價折扣了5.3%。但請記住,這只是一個近似的估值,就像任何複雜的公式一樣,垃圾進出。
假設
我們要指出的是,貼現現金流的最重要投入是貼現率,當然還有實際的現金流。如果你不同意這些結果,那就自己計算一下,試一試假設。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Valvoline視爲潛在股東,因此使用權益成本作爲貼現率,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7.8%,這是基於1.200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。
Valvoline 的 SWOT 分析
- 過去一年的收益增長超過了該行業。
- 債務可以很好地由收益支付。
- VVV 的資產負債表摘要。
- 沒有發現 VVV 的主要弱點。
- 預計年收入的增長速度將快於美國市場。
- 目前的股價低於我們對公允價值的估計。
- 運營現金流無法很好地覆蓋債務。
- 預計年收益的增長速度將低於美國市場。
- VVV 有足夠的能力應對威脅嗎?
繼續前進:
儘管重要,但DCF的計算不應是你在研究公司時唯一考慮的指標。DCF模型不是完美的股票估值工具。相反,DCF模型的最佳用途是測試某些假設和理論,看看它們是否會導致公司被低估或高估。例如,公司權益成本或無風險利率的變化會對估值產生重大影響。對於 Valvoline,您應該評估三個基本因素:
- 風險:每家公司都有風險,我們發現了兩個你應該知道的Valvoline警告信號。
- 未來收益:與同行和整個市場相比,VVV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,深入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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