Warrior Met Coal's estimated fair value is US$63.82 based on 2 Stage Free Cash Flow to Equity
Warrior Met Coal's US$68.87 share price indicates it is trading at similar levels as its fair value estimate
Analyst price target for HCC is US$74.83, which is 17% above our fair value estimate
Today we'll do a simple run through of a valuation method used to estimate the attractiveness of Warrior Met Coal, Inc. (NYSE:HCC) as an investment opportunity by taking the expected future cash flows and discounting them to their present value. Our analysis will employ the Discounted Cash Flow (DCF) model. There's really not all that much to it, even though it might appear quite complex.
We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.
What's The Estimated Valuation?
We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. To start off with, we need to estimate the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we discount the value of these future cash flows to their estimated value in today's dollars:
10-year free cash flow (FCF) forecast
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
Levered FCF ($, Millions)
US$95.2m
US$201.0m
US$199.9m
US$200.6m
US$202.6m
US$205.4m
US$208.8m
US$212.8m
US$217.1m
US$221.8m
Growth Rate Estimate Source
Analyst x2
Analyst x2
Analyst x1
Est @ 0.36%
Est @ 0.97%
Est @ 1.39%
Est @ 1.69%
Est @ 1.90%
Est @ 2.04%
Est @ 2.14%
Present Value ($, Millions) Discounted @ 7.7%
US$88.4
US$173
US$160
US$149
US$140
US$132
US$124
US$118
US$111
US$106
("Est" = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = US$1.3b
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. 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 (2.4%) 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 7.7%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$4.3b÷ ( 1 + 7.7%)10= US$2.0b
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$3.3b. The last step is to then divide the equity value by the number of shares outstanding. Compared to the current share price of US$68.9, the company appears around fair value at the time of writing. Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out.
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 Warrior Met Coal 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 7.7%, which is based on a levered beta of 1.155. 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 Warrior Met Coal
Strength
Debt is not viewed as a risk.
Dividends are covered by earnings and cash flows.
Dividend information for HCC.
Weakness
Earnings declined over the past year.
Dividend is low compared to the top 25% of dividend payers in the Metals and Mining market.
Opportunity
Good value based on P/E ratio compared to estimated Fair P/E ratio.
Threat
Annual earnings are forecast to decline for the next 3 years.
What else are analysts forecasting for HCC?
Next Steps:
Whilst important, the DCF calculation 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. Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation. For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. For Warrior Met Coal, there are three pertinent factors you should further research:
Risks: For instance, we've identified 2 warning signs for Warrior Met Coal that you should be aware of.
Future Earnings: How does HCC'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. 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
根據二階段自由現金流向股東估值法,Warrior Met Coal的估算公允價值爲63.82美元。
Warrior Met Coal的股價68.87美元表明其交易水平與公允價值估算相似。
HCC的分析師目標價格爲74.83美元,比我們的公允價值估價高17%。
今天我們將通過預期未來現金流,並將其折現到現值來估計Warrior Met Coal, Inc. (紐交所:HCC)的投資吸引力的估值方法進行簡單的運行。我們的分析將採用折現現金流量(DCF)模型。實際上,即使它可能看起來相當複雜,其實也沒有那麼複雜。
現在,折現現金流分析中最重要的輸入是折現率,當然,還有實際現金流。你不必同意這些輸入,我建議你重新計算這些並與之交互。DCF也不考慮行業的可能週期性,或公司未來的資本需求,因此它並不能給出公司潛在業績的完整圖景。鑑於我們將Warrior Met Coal視爲潛在股東,我們使用權益成本作爲折現率,而不是考慮債務的資本成本(或加權平均資本成本,WACC)。在這個計算中,我們使用了7.7%,這是基於1.155的槓桿β值計算的。beta是衡量股票波動性的指標,與整個市場相比。我們從全球可比公司行業平均beta獲得了我們的beta,範圍在0.8和2.0之間,這是一個穩定企業的合理範圍。
Warrior Met Coal的SWOT分析
優勢
債務不被視爲風險。
分紅派息由收入和現金流決定。
HCC的股息信息。
弱點
過去一年的收益下降了。
股息與貴金屬礦業市場前25%股息支付者相比較低。
機會
基於預估的公平市盈率比值,以P/E比值爲基礎的價值良好。
威脅
未來3年的年度收益預計將下降。
分析師們還預測了什麼?
下一步:
雖然DCF計算很重要,但理想情況下不應該是你爲了一家公司進行的唯一分析。DCF模型並不是投資估值的全部和終極,最好是你可以應用不同的情況和假設,並看看它們將如何影響公司的估值。例如,公司的權益成本或無風險利率的變化可能會極大地影響估值。對於Warrior Met Coal,有三個相關的因素,你應該進一步研究一下: