![]() 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. Beta is a measure of a stock's volatility, compared to the market as a whole. In this calculation we've used 7.8%, which is based on a levered beta of 0.969. Given that we are looking at Boeing 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. 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. Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own assumptions. The first is the discount rate and the other is the cash flows. The calculation above is very dependent on two assumptions. We do this to reflect that growth tends to slow more in the early years than it does in later years.Ī 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) estimate 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. 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. ![]() In the first stage we need to estimate the cash flows to the business over the next ten years. Generally the first stage is higher growth, and the second stage is a lower growth phase. We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.Ĭheck out our latest analysis for Boeing Is Boeing Fairly Valued? Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow.Ĭompanies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. This will be done using the Discounted Cash Flow (DCF) model. ![]() In this article we are going to estimate the intrinsic value of The Boeing Company ( NYSE:BA) by taking the expected future cash flows and discounting them to their present value. Our fair value estimate is 58% higher than Boeing's analyst price target of US$232 The projected fair value for Boeing is US$365 based on 2 Stage Free Cash Flow to Equityīoeing is estimated to be 43% undervalued based on current share price of US$207 ![]()
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