Today we are sharing a way to estimate the intrinsic value of Broadridge Financial Solutions, Inc. . (NYSE: BR) by discounting the company’s forecast future cash flows to today’s value. Our analysis will use the discounted cash flow (DCF) model. Before you think you can’t understand it, just keep reading! It’s actually a lot less complex than you can imagine.
We generally believe that a company’s value is the present value of all the cash it will generate in the future. However, a DCF is just one valuation metric among many and not without its flaws. If you still have burning questions about this type of assessment, take a look at the Simply Wall St analytical model.
We use what’s called a 2-step model, which simply means that we have two different growth rates for the company’s cash flows. Generally, the first stage is higher growth and the second stage is lower growth phase. First, we need to get estimates of the next ten years of cash flow. We use analyst estimates whenever possible. However, if these are not available, we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume that companies with shrinking free cash flow will slow their rate of contraction and that companies with increasing free cash flow will slow their growth rate over this period. We do this to reflect that growth tends to slow down more in the first few years than in later years.
A DCF is all about the idea that a dollar in the future is worth less than a dollar today. Therefore, the sum of these future cash flows is discounted to today’s value:
(« Est » = Simply Wall St’s Estimated FCF Growth Rate) Present Value of 10 Year Cash Flow (PVCF) = $ 5. 8b
The second level is also known as the final value. This is the company’s cash flow after the first stage. The Gordon growth formula is used to calculate the terminal value using a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2. 0%. We discount the terminal cash flows to today’s value at a cost of equity of 8. 0%.
Terminal value (TV) = FCF2030 × (1 g) ÷ (r – g) = US $ 1. 1b × (1 2. 0%) ÷ (8. 0% – 2nd. 0%) = US $ 18b
Present value of terminal value (PVTV) = TV / (1 r) 10 = US $ 18b ÷ (1 8. 0%) 10 = 8 USD. 4b
The total value is the sum of the cash flows for the next ten years plus the discounted final value, which results in the total capital value, which in this case is 14 billion. USD is. The final step is to divide the equity value by the number of shares issued. Compared to its current share price of $ 153, the company appears to be slightly overvalued at the time of writing. The assumptions in any calculation have a huge impact on the valuation, so it is better to think of this as a rough estimate that is not accurate to the last cent.
The above calculation depends heavily on two assumptions. The first is the discount rate and the other is the cash flows. If you do not agree with this result, try the calculation yourself and play with the assumptions. The DCF also does not take into account the possible cyclical nature of an industry or the future capital requirements of a company, so it does not give a complete picture of a company’s potential performance. Given that we view Broadridge Financial Solutions as a potential shareholder, the cost of equity is used as the discount rate and not the cost of capital (or weighted average cost of capital, WACC) responsible for debt. In this calculation we used 8. 0% based on a leverage beta of 1. 142. Beta is a measure of the volatility of a stock compared to the overall market. We get our beta from the industry average beta of comparable companies worldwide with an imposed limit between 0. 8 and 2. 0, which is a reasonable range for a stable business.
While important, the DCF calculation is just one of many factors that you need to evaluate for a business. 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 determine whether they would result in the company becoming undervalued or overvalued. If a company is growing at a different rate, or if the cost of equity or the risk-free rate changes dramatically, performance can look very different. Why is the intrinsic value lower than the current share price? For Broadridge Financial Solutions we have put together three relevant factors that you should consider:
Risks: We believe that you should evaluate the two warning signs for Broadridge Financial Solutions that we have highlighted before investing in the company.
Management: Did insiders increase their stocks to take advantage of market sentiment for BR’s future prospects? Find out more about the CEO’s compensation and governance factors in our management and board analysis.
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 you might be missing!
PS. The Simply Wall St app performs a discounted cash flow rating for every stock on the NYSE every day. If you want to find the calculation for other stocks, just search here.
This article from Simply Wall St is of a general nature. It is not a recommendation to buy or sell shares and does not take into account your goals or your financial situation. We want to provide you with a long-term, focused analysis based on fundamental data. Note that our analysis may not take into account the latest price sensitive company announcements or quality materials. Simply Wall St has no position in the stocks mentioned. Do you have any feedback on this article? Concerned about the content? Contact us. Alternatively, you can also send an email to the editorial team (at) simplywallst. com.
At least there was the stock market. Despite the Covid-19 pandemic that founded the U.. S.. . The Dow and the rest of the major indices ended the year at or near record highs. As is often the case when there is a huge gap between stock market profits and economic pain, many investors wonder if we have seen a massive financial bubble.
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(Bloomberg) – Electric car battery developer QuantumScape Corp.. . Stocks fell the most on Monday, making them a strong outlier in the industry as stocks of most electric vehicle manufacturers rose after strong sales in December. The battery maker’s share price had risen 259% since November by November. 27 Merged with a blank check company, bringing its market valuation to a high of nearly $ 50 billion last month. The company is supported by Volkswagen AG, as well as Bill Gates and Khosla Ventures, and expects to begin production of its solid-state lithium-metal batteries in the second half of 2024. The company’s registration notice for the sale of its shares was declared effective by the Securities and Exchange Commission on December. 31. The stock fell 40% to $ 50. 31 in New York on Monday. For more articles like this, please visit us on Bloomberg. comSubscribe now to stay ahead of the curve with the most trusted business news source. © 2021 Bloomberg L. . P. .
AT&T Inc. . (T) share fell 26% in 2020 and closed the year within 22 cents of its last price traded in December 2018. Of course, perennial latecomer AT&T is a special case, burdened with years of debt amassed from poorly executed purchases, including the disastrous DirecTV acquisition in 2015. The company also overpaid for Time Warner in 2016, but that bet could ultimately pay off as the new HBOMax streaming service grows at a healthy pace.
The major Wall Street indices fell nearly 2% on Monday for the first day of trading of the year as nerves over the result of Georgia’s runoff elections this week offset optimism about a vaccine-driven global economic recovery. The Dow was also pulled down nearly 4. The 3% decline in Boeing Co shares after Bernstein downgraded its rating to « Underperform » said problems with the MAX 787 could hurt the U significantly. S.. . Aircraft manufacturer’s free cash flow. « The market is unlikely to grow much until the Georgia elections are decided, » said Rick Meckler, partner at Cherry Lane Investments in New Vernon, New Jersey.
NIO (NIO) starts 2021 with record deliveries of electric vehicles and the introduction of a used car service and trading platform.
We opened a new page in the calendar, Old Man 20 is out and there is a feeling that 21 is going to be a good year – and so far, so good. The markets closed 2020 with modest session profits to cap larger annual profits. The S&P 500 rose 16% during the coronavirus crisis year, while the NASDAQ, with its strong tech representation, posted an impressive annual gain of nearly 43%. The advent of two viable COVID vaccines is fueling a surge in general optimism. Wall Street’s top analysts have their eyes fixed on the stock markets and have found the gems that investors should seriously consider this new year. These are analysts with 5-star ratings from the TipRanks database who point to stocks with strong buy ratings. In short, this is where investors can expect stock growth over the next 12 months. According to analysts, we are talking about a return of at least 70% over the next 12 months. ElectraMeccanica Vehicles (SOLO) electric vehicles are becoming increasingly popular as consumers seek alternatives to the traditional gasoline engine. While electric vehicles simply relocate the source of combustion from under the hood to the power station, they offer real advantages for the driver: They offer higher acceleration, more torque and are more energy efficient and convert up to 60% of their battery energy into forward motion. These advantages gradually outweigh the disadvantages of shorter range and expensive battery packs as EV technology improves. ElectraMeccanica, a small-cap manufacturer based in British Columbia, is the designer and marketer of the Solo, a single-seat three-wheel electric vehicle for the urban commuter market. Technically, the Solo is classified as an electric motorcycle – but it’s fully closed, has a door on either side, has a trunk, air conditioning, and Bluetooth connectivity, and it can travel up to 100 miles 80 on a single charge miles per hour. The charging time is short with less than 3 hours and the price for the vehicle is under 20. $ 000. Starting in the third quarter of 2020, the company made its first vehicle delivery in the US and expanded into six additional urban markets in the US, including San Diego, California, Scottsdale, and Glendale, Arizona. ElectraMeccanica also opened four new stores in the United States – two in Los Angeles, one in Scottsdale and one in Portland, OR. The company has also started developing and marketing a fleet version of the Solo to target the commercial fleet and rental car markets from the first half of this year. Craig Irwin, 5-star analyst at Roth Capital, is impressed with the potential applications of SOLO in the fleet market. He wrote about the opening: “We believe the pandemic is a tailwind for fast food chains looking for better delivery options. Chains try to avoid third party delivery costs and offset the operator’s impact on brand identity. company vehicles. The range of 100 miles, the low running costs and the standard telematics of the SOLO make the vehicle a good choice in our opinion, especially if location data can be integrated into a chain’s kitchen software. We wouldn’t be surprised if SOLO made some big chain announcements after clients validate plans. Irwin gives SOLO a buy rating backed by its $ 12. 25 Price target that implies an upside potential of 98% for the stock in 2021. (To see Irwin’s track record, click here. ) Speculative technology is popular on Wall Street, and ElectraMeccanica fits that bill well. The company has 3 recent reviews and they are all buys, which makes the analyst consensus a unanimous strong buy. The price of shares is $ 6. 19 and have an average goal of $ 9. 58, making the year-long upward trend 55%. (See SOLO stock analysis on TipRanks) Nautilus Group (NLS) The Washington state-based fitness equipment maker posted massive stock gains in 2020 as its stocks rose more than 900% over the year, including some of the most recent Collapses in stock value. Nautilus won when social lockdown guidelines went into effect and gyms closed to stop or slow the spread of COVID-19. The company, which owns major home fitness brands like Bowflex, Schwinn, and the Nautilus of the same name, provided home fitness fans the equipment needed to stay in shape. The stock’s appreciation accelerated in the second half of 20, after the company’s revenues recovered from losses in the first quarter due to the “Corona Recession”. Revenue for the second quarter reached $ 114 million, up 22% from the previous quarter. In the third quarter, revenue hit $ 155, a sequential gain of 35% and a massive gain of 151% year over year. The result was just as strong with the third quarter of USD 1. 04 The earnings per share were well above the 30 cent loss of the same quarter of the previous year. 5-star analyst Mark Smith watches this stock for Lake Street Capital and is bullish on this stock. Smith is particularly aware of the recent price decline and notes that the stock has now peaked – making it attractive to investors. “Nautilus reported blowout results for the third quarter of 20 with strength across the portfolio. We believe the company has orders and backlog to generate high sales and profits over the next few quarters, and we believe the movement of consumers’ home behavior has fundamentally changed. We would view the recent withdrawal as a buying opportunity, ”said Smith. Smith’s target price of $ 40 supports his buy recommendation and indicates a robust upside of 120% for a year. (To see Smith’s track record, click here. Strong Buy’s unanimous consensus rating shows Wall Street agrees with Smith on Nautilus’ potential. The stock has 4 current ratings and all of them are for sale. The stock closed 2020 at a price of $ 18. 14 and the average goal of $ 30. 25 suggests the stock has room for upward growth of ~ 67% in 2021. (See NLS stock analysis on TipRanks) KAR Auction Services (KAR) Last but not least, KAR Auction Services, an auto auction company that operates online and physical marketplaces to connect buyers and sellers. Selling to both commercial buyers and individual consumers, KAR offers vehicles for a variety of uses: commercial fleets, personal travel, and even the second-part market. In 2019, the last year for which full year numbers are available, KAR sold 3. 7 million vehicles for $ 2. A total of 8 billion auction revenues. The ongoing corona crisis, with its social lockdown policies, has dampened car travel and reduced demand for used vehicles in all market segments. KAR stock was down 13% in a year of volatile trading in 2020. In its most recent report for the third quarter of 20, the company had sales of $ 593. 6 million, a decrease of over 15% from last year. However, the third quarter earnings declined less at 23 cents per share (11% year-on-year) and showed a strong sequential recovery after the EPS loss in the second quarter of 25 cents. As the new vaccines promise an end to the COVID pandemic later this year and the lifting of lockdown and local travel restrictions, the medium to long-term outlook for the used car market and for KAR auctions analyst Stephanie Benjamin is improving, according to Truist. The 5-star analyst noted, “Our estimates now assume that volume recovery will be in 2021 vs.. . 4Q20 according to our previous estimates… Overall, we believe that the results of the third quarter show that KAR is implementing the initiatives it controls well, in particular improving its cost structure and switching to a purely digital auction model. Looking ahead, she adds, “… Car loan and lease arrears and defaults have increased and we believe they will serve as a significant tailwind in 2021 with the resumption of repo operations. In addition, repo vehicles generally require additional services that should result in a higher RPU. This influx of supply should also help ease the used price environment and encourage dealers to fill their lots, which remain at a three-year low from an inventory standpoint. In line with these comments, Benjamin sets a price target of $ 32, implying a high upside of 71% for the stock for a year, and rates KAR as a buy. (To see Benjamin’s track record, click here. ) Wall Street is generally ready to speculate on the future of KAR. This is evident from recent reviews which split 5 to 1 buy to hold and the analyst’s consensus turns into a strong buy. KAR sells for $ 18. 61 and its $ 24. The average target price of 60 suggests there is room to grow 32% from that level. (See KAR stock analysis on TipRanks. ) To find great ideas for trading stocks at attractive valuations, visit TipRanks ‘Best Stocks to Buy, a newly launched tool that brings together all of TipRanks’ stock insights. Disclaimer: The opinions expressed in this article are solely those of the presented analysts. The content is intended to be used for informational purposes only. It is very important that you do your own analysis before making any investment.
A new year, a new addition to the stock portfolio – what could be more useful? The right time to buy is of course when the stocks are at the low end. Buying low and selling high may be a bit trite, but it’s true, and the truth has staying power. But the markets are on the up. The NASDAQ rose 43% in 2020 and the S&P 500 grew 16%. In such a market environment, finding stocks stuck in the doldrums is harder than it looks. This is where the Wall Street pros can help. We used TipRanks’ database to identify three stocks that fit a profile: a stock price that has fallen over 30% in the past 12 months but has at least double-digit upside potential according to analysts. Not to mention that everyone has received a moderate or strong buy consensus rating. Esperion (ESPR) We’re starting Esperion, a company that specializes in therapies to treat raised low-density lipoprotein cholesterol levels – a major contributor to heart disease. The company’s lead product, bempedoic acid, is now available in tablet form under the brand names Nexletol and Nexlizet. In February 2020, both Nexletol and Nexlizet were approved as oral treatments for lowering LDL-C. Bempedoic acid remains in clinical trials for its effectiveness in reducing the risk of cardiovascular disease. The study, called CLEAR Outcomes, is a large-scale long-term study in which more than 14. 000 patients will be recorded with top-line data, which is expected in the second half of 2022. The study includes 1. 400 locations in 32 countries worldwide. Esperion stock peaked last February following FDA approvals, but the stock has fallen since then. Stocks are down 65% from their high. Along with the decline in its share value, the company saw sales drop from Q2 to Q3, with sales of 212 million. USD fell to USD 3. 8 million. Since the Q3 report, Esperion announced pricing for a senior subordinated debt offering of 250 million. USD at a rate of 4% due in 2025. The offering gives the company a boost in available capital for further work on its development pipeline and marketing efforts for bempedoic acid. Chad Messer, who covers ESPR for Needham, sees the range of grades as positive for Esperion. “We believe this cash position will be enough to support Esperion through 2021 and profitability through 2022. . . We believe this funding should help address concerns about Esperion’s bottom line. Despite a challenging market launch of NEXLETOL and NEXLIZET, product growth continued in the third quarter against the background of a shrinking LDL-C market. This growth path suggests potential for rapid acceleration as conditions improve, « wrote Messer. To this end, Messer is giving ESPR stock a strong buy, and its price target of USD 158 suggests that the stock has room for tremendous growth this year – up to 481% from current levels. (To see Messer’s track record, click here. Overall, Esperion has 6 recent ratings with a breakdown of 5 buy and 1 hold to give the stock a strong buy rating based on analyst consensus. The shares trade at $ 27. 16, have an average target price of $ 63. 33, which is a year-long upward movement of 133%. (See ESPR stock analysis on TipRanks) Intercept Pharma (ICPT) Liver disease is a serious health threat, and Intercept Pharma is focused on developing therapies for some of the more dangerous chronic liver diseases, including non-alcoholic steatohepatitis (NASH) and primary biliary cholangitis (PBC). Intercept has a research pipeline based on FXR, a regulator of the bile acid pathways in the liver system. The effect of FXR not only influences the bile acid metabolism, but also the glucose and lipid metabolism as well as inflammation and fibrosis in the liver. The lead compound obeticholic acid (OCA) is an analogue of the bile acid CDCA and as such may play a role in the FXR pathways and receptors involved in chronic liver disease. Treatment of liver disease by FXR biology has direct applications for PBC and shows promise in treating complications from NASH. ICPT shares fell sharply last summer when the FDA denied the company’s filing for approval of OCA for the treatment of NASH-related liver fibrosis. This delays the drug’s potential entry into a lucrative market. There is currently no treatment for NASH, and the first drug to get approved will come out on top in reaching a market estimated to have potential annual sales of $ 2 billion to $ 5 billion. The impact on the stock continues to be felt and the ICPT remains at its 52-week low. In response, Intercept announced significant changes in top-level management in December 2020 when CEO and President Mark Pruzanski announced that he would be joining. January this year resigns. He will be replaced by Jerome Durso, former COO of the company, who will also take up a position on the Board of Directors. Pruzanski remains an advisor and holds the position of director on the company’s board of directors. Yasmeen Rahimi, analyst at Piper Sandler, takes an in-depth look at Intercept’s continued efforts to expand the uses of OCA and resubmit the new drug application to the FDA. She sees the change in leadership as part of this effort and writes: “[We] believe that Dr. . Pruzanski’s commitment to liver space transformation remains strong and he will continue to lead ICPT’s advances as an advisor and board member. Additionally, we have had the pleasure to work closely with Jerry Durso and believe that he will transform the company and guide ICPT’s success in growing the PBC market and leading the way to the potential approval and commercial introduction of OCA in NASH. Rahimi takes a long-term bullish stance on ICPT and gives the stock an overweight (i. e. Buy) and a target price of $ 82. This number shows an impressive upward trend of 220% for the next 12 months. (To see Rahimi’s track record, click here. ) Wall Street is a little more divided about the drug maker. ICPT’s moderate buying consensus rating is based on 17 ratings including 8 buys and 9 holds. The price of shares is $ 25. 82 and the average target price of $ 59. 19 suggests an upside of 132% over the next 12 months. (See ICPT stock analysis on TipRanks) Gilead Sciences (GILD) Gilead had a year like fireworks – fast up and fast down. The gains came in 1H20 when it was revealed that the company’s antiviral drug Remdesivir would become a top-notch treatment for COVID-19. By November, even though remdesivir was approved, the World Health Organization (WHO) advised against its use, and the COVID vaccines currently on the market have made remdesivir irrelevant to the pandemic. This was just one of Gilead’s recent headwinds. The company worked with Galapagos (GLPG) to develop filgotinib for the treatment of rheumatoid arthritis. While the drug received EU and Japanese approvals in September 2020, the FDA denied approval and Gilead announced in December that it would halt US development efforts for the drug. Even so, Gilead has a diverse and active research pipeline with over 70 research candidates at various stages of development and approval for a variety of diseases and conditions, including HIV / AIDS, & inflammatory respiratory disease, cardiovascular disease, and hematology / oncology. On the positive side, Gilead posted a profit in the third quarter that was above estimates and posted sales of $ 6. 58 billion, beating forecast by 6% and growing 17% year over year. The company updated its full-year 2020 forecast for product sales of 23 billion. USD to 23 billion. USD. 5 billion. Among the bulls is the Oppenheimer analyst Hartaj Singh, who gives GILD shares an outperformance (i. e. Buy) Valuation and $ 100 Target Price. Investors can achieve a 69% profit if the analyst’s thesis prevails. (To see Singh’s track record, click here. ) Singh confirms his stance: “We continue to believe in our thesis of (1) a reliable business with remdesivir / other drugs against SARS-CoV flares, (2) a basic business (HIV) / oncology / HCV) growth in the low single digits in the next few years, (3) operational leverage for higher earnings growth and (4) dividend yield of 3-4%. What is the rest of the street thinking? With regard to the consensus distribution, the opinions of other analysts are more diverse. 10 buys, 12 holds and 1 sell result in a moderate buy consensus. Additionally, those are $ 73. The average target price of 94 shows an upside potential of 25% compared to the current level. (See GILD stock analysis on TipRanks. ) To find great ideas for trading rundown stocks at attractive valuations, visit TipRanks ‘Best Stocks to Buy, a newly launched tool that brings together all of TipRanks’ stock insights. Disclaimer: The opinions expressed in this article are solely those of the presented analysts. The content is intended to be used for informational purposes only. It is very important that you do your own analysis before making any investment.
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Investors have weighed a major political unknown since the November election that could affect asset prices: Senate control. A move to democratic control could put more pressure on the dollar and boost government bond yields, while Republican control could boost stocks, various analysts said. While investors see some risks in how Tuesday’s Georgia runoff elections play out between incumbent Republican Senators David Perdue and Kelly Loeffler and Democratic challengers Jon Ossoff and Raphael Warnock, the long-awaited clarity on the balance of power should bring at least some relief to Congress.
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