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Yahoo
2 hours ago
- Business
- Yahoo
Is Donaldson Company, Inc. (NYSE:DCI) Trading At A 28% Discount?
The projected fair value for Donaldson Company is US$96.03 based on 2 Stage Free Cash Flow to Equity Donaldson Company's US$69.57 share price signals that it might be 28% undervalued Our fair value estimate is 33% higher than Donaldson Company's analyst price target of US$72.40 Today we will run through one way of estimating the intrinsic value of Donaldson Company, Inc. (NYSE:DCI) by taking the expected future cash flows and discounting them to their present value. The Discounted Cash Flow (DCF) model is the tool we will apply to do this. Don't get put off by the jargon, the math behind it is actually quite straightforward. We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model. This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality. We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. To start off with, we need to estimate the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. Generally we assume that a dollar today is more valuable than a dollar in the future, so we discount the value of these future cash flows to their estimated value in today's dollars: 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Levered FCF ($, Millions) US$368.2m US$459.5m US$478.8m US$539.2m US$574.5m US$605.9m US$634.4m US$660.9m US$686.1m US$710.4m Growth Rate Estimate Source Analyst x2 Analyst x2 Analyst x1 Analyst x1 Est @ 6.55% Est @ 5.47% Est @ 4.71% Est @ 4.18% Est @ 3.81% Est @ 3.55% Present Value ($, Millions) Discounted @ 7.6% US$342 US$397 US$384 US$402 US$397 US$389 US$379 US$367 US$354 US$340 ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = US$3.7b 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. 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 2.9%. We discount the terminal cash flows to today's value at a cost of equity of 7.6%. Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = US$710m× (1 + 2.9%) ÷ (7.6%– 2.9%) = US$16b Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$16b÷ ( 1 + 7.6%)10= US$7.4b 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$11b. In the final step we divide the equity value by the number of shares outstanding. Compared to the current share price of US$69.6, the company appears a touch undervalued at a 28% 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 calculation above is very dependent on two assumptions. The first is the discount rate and the other is the 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 Donaldson Company 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 7.6%, which is based on a levered beta of 1.087. 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. Check out our latest analysis for Donaldson Company Strength Debt is not viewed as a risk. Dividends are covered by earnings and cash flows. Weakness Earnings declined over the past year. Dividend is low compared to the top 25% of dividend payers in the Machinery market. Opportunity Annual earnings are forecast to grow for the next 3 years. Trading below our estimate of fair value by more than 20%. Threat Annual earnings are forecast to grow slower than the American market. Valuation is only one side of the coin in terms of building your investment thesis, and it ideally won't be the sole piece of analysis you scrutinize for a company. It's not possible to obtain a foolproof valuation with a DCF model. Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation. If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different. What is the reason for the share price sitting below the intrinsic value? For Donaldson Company, we've compiled three essential items you should assess: Financial Health: Does DCI have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk. Future Earnings: How does DCI'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) 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. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
4 hours ago
- Business
- Yahoo
Is There An Opportunity With DNOW Inc.'s (NYSE:DNOW) 49% Undervaluation?
DNOW's estimated fair value is US$31.03 based on 2 Stage Free Cash Flow to Equity DNOW's US$15.83 share price signals that it might be 49% undervalued Our fair value estimate is 77% higher than DNOW's analyst price target of US$17.50 Does the June share price for DNOW Inc. (NYSE:DNOW) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by estimating the company's 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. If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model. AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early. We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. To begin with, we have to get estimates of the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, and so the sum of these future cash flows is then discounted to today's value: 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Levered FCF ($, Millions) US$148.1m US$160.0m US$154.2m US$164.3m US$168.9m US$173.7m US$178.7m US$183.9m US$189.2m US$194.7m Growth Rate Estimate Source Analyst x2 Analyst x2 Analyst x1 Analyst x1 Est @ 2.80% Est @ 2.84% Est @ 2.87% Est @ 2.89% Est @ 2.91% Est @ 2.92% Present Value ($, Millions) Discounted @ 7.5% US$138 US$138 US$124 US$123 US$118 US$112 US$108 US$103 US$98.5 US$94.3 ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = US$1.2b 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. 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 2.9%. We discount the terminal cash flows to today's value at a cost of equity of 7.5%. Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = US$195m× (1 + 2.9%) ÷ (7.5%– 2.9%) = US$4.4b Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$4.4b÷ ( 1 + 7.5%)10= US$2.1b 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$3.3b. In the final step we divide the equity value by the number of shares outstanding. Compared to the current share price of US$15.8, the company appears quite good value at a 49% 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 calculation above is very dependent on two assumptions. The first is the discount rate and the other is the 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 DNOW 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 7.5%, which is based on a levered beta of 1.058. 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. See our latest analysis for DNOW Strength Currently debt free. Weakness Earnings declined over the past year. Opportunity Annual earnings are forecast to grow for the next 3 years. Trading below our estimate of fair value by more than 20%. Threat Annual earnings are forecast to grow slower than the American market. Although the valuation of a company is important, it shouldn't be the only metric you look at when researching a company. The DCF model is not a perfect stock valuation tool. 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. Why is the intrinsic value higher than the current share price? For DNOW, we've put together three important items you should look at: Risks: Case in point, we've spotted 1 warning sign for DNOW you should be aware of. Future Earnings: How does DNOW'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. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the NYSE every day. If you want to find the calculation for other stocks just search here. — Investing narratives with Fair Values A case for TSXV:USA to reach USD $5.00 - $9.00 (CAD $7.30–$12.29) by 2029. By Agricola – Community Contributor Fair Value Estimated: CA$12.29 · 0.9% Overvalued DLocal's Future Growth Fueled by 35% Revenue and Profit Margin Boosts By WynnLevi – Community Contributor Fair Value Estimated: $195.39 · 0.9% Overvalued Historically Cheap, but the Margin of Safety Is Still Thin By Mandelman – Community Contributor Fair Value Estimated: SEK232.58 · 0.1% Overvalued View more featured narratives — Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) 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. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
10 hours ago
- Business
- Yahoo
BAE Systems: here's the latest dividend and share price forecast!
A rupturing of the geopolitical landscape has supercharged the BAE Systems (LSE:BA.) share price in recent years. The FTSE 100 defence giant has risen 233% in value since the start of 2022, a rally first sparked by Russia's invasion of Ukraine. Since then, orders, sales, and profits have rocketed higher as broader spending by NATO members has increased. Fears over Chinese expansionism and fresh conflict in the Middle East have further reinforced military-related spending. Even after rising 38% in the last 12 months alone, the Square Mile's brokers broadly believe BAE Systems shares will continue to rise over the near term. There are 12 brokers who currently have ratings on the FTSE share. As the chart shows, the average price target among them is just over £20 per share, representing a 9% increase on current levels of approximately £18.36. But the number crunchers aren't unanimous in their largely bullish view. One especially optimistic analyst thinks BAE's share price will rise as high as £23.50 per share. But at the other end of the scale, one broker thinks it will drop back to £16. There's a lot of cash sloshing around in the company's coffers, underpinning the City's bright forecasts. Free cash flow was £2.5bn on 2024, and the business predicts this will be 'in excess of £5.5bn' in the three years to 2026. That's up from a prior forecast of above £5bn. Reflecting this, City analysts also believe annual dividends will continue rising sharply over the next couple of years at least: A 35.7p per share payout is tipped for 2025, up 8% year on year. A 39.4p per share dividend is expected next year, up 10%. If these forecasts are accurate, the dividend yield is 1.9% and 2.1% for these years. That's below the FTSE 100 long-term average of between 3% and 4%. However, expected dividend growth is better than the 1.5% to 2% increase analysts tip for the broader blue-chip index. It will also keep BAE's long record of annual dividend increases going (cash rewards have risen each year since 2012). Based on City expectations, then, BAE Systems may look to some like an attractive share for capital gains and dividend income. But there are significant risks to buying the company. One is a potential drop in US defence spending. This is the FTSE company's single largest market and responsible for around half of revenues. There's also the danger that the growth of ESG (environmental, social, and governance) investing will limit demand for its shares. However, there are also significant investment opportunities as NATO countries ramp up defence spending. This month, all 32 group members (except Spain) agreed to splash out 5% of their GDPs on defence by 2035. To put that in context, spending averaged 2.2% across the bloc in 2024. BAE systems has the scale, the geographic footprint, and the expertise across multiple technologies to capitalise on this opportunity. This is reflected by its record order backlog of £77.8bn at the end of last year, up 77% in just three years. More major contract wins in 2025 include a $356m contract from the US army to support armoured multi-purpose vehicle (AMPV) production. While not without risk, I believe the company is worth serious consideration today. The post BAE Systems: here's the latest dividend and share price forecast! appeared first on The Motley Fool UK. More reading 5 Stocks For Trying To Build Wealth After 50 One Top Growth Stock from the Motley Fool Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended BAE Systems. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors. Motley Fool UK 2025
Yahoo
15 hours ago
- Business
- Yahoo
Do you know your monthly cash flow? Here's how to calculate it.
If money seems to disappear from your bank account nearly as soon as it arrives, you may have a cash flow problem. Cash flow is the movement of money into and out of your accounts. While cash flow is a common term within the business world, it applies to your personal finances too. If you don't yet know how to calculate your cash flow, learning can help you better manage your money. For instance, knowing your cash flow can help you make smart budgeting decisions and ensure you make progress toward your savings goals. And don't worry — you don't need a calculus degree to figure this out. Continue reading to learn the simple equation for calculating your cash flow and why it's so important. This embedded content is not available in your region. Cash flow is the movement of money into and out of your bank account. A positive cash flow means more money enters your bank account than leaves it, allowing your balance to grow over time. A negative cash flow is the opposite — you're spending more money than you bring in. Positive cash flow is the goal because it allows you to save money for the future. Several types of transactions can contribute to your cash flow, broken up by 'inflows' and 'outflows.' Inflows might include income from a W2 job, self-employment, rental income, or other investments. Outflows include all of your expenses, such as housing, utilities, groceries, debt payments, clothing, entertainment, and more. Your cash flow is equal to your inflows minus your outflows. Understanding and tracking your cash flow isn't just crucial for businesses — it's important for any individual who wants to keep tabs on their financial health. For example, say you have a negative cash flow every month, but you don't realize it. Eventually, you'll empty your savings account and need to take on debt to cover your expenses. However, if you keep a closer eye on your cash flow, you'd notice that you're spending more than you earn every month. Knowing this, you can take action to improve your cash flow, such as cutting discretionary spending, getting a roommate to help with rent, or negotiating a raise at work. Unlike some financial calculations, finding your cash flow is simple. To calculate your cash flow: Add up all your sources of monthly income. Then, add up all of your monthly expenses. Last, subtract your total monthly expenses from your total monthly income. Say your income or expenses vary each month. In that case, you can calculate an average monthly cash flow by adding up several months of income and several months of expenses, finding the difference, and dividing by the number of months. To illustrate what a cash flow calculation looks like, here's an example: Say you earn $4,500 per month after taxes. You also have a side hustle that generates $1,200 in monthly income. Total monthly income: $5,700 Your typical monthly expenses are as follows: Rent: $1,500 Utilities: $200 Groceries: $400 Transportation: $500 Insurance: $300 Student loan payment: $200 Household and clothing: $200 Dining out: $300 Fun money: $200 TOTAL: $3,800 Next, subtract your total expenses from your total income: $5,700 - $3,800 = $1,900 Cash flow = $1,900 With a positive cash flow of $1,900, you have money left over each month to save or invest. For example, you might decide to invest $800 for retirement, put $800 toward a down payment savings account, and put the remaining $300 into a travel fund. If you calculate your cash flow only to find a negative number, it can be discouraging. However, there are some things you can do to improve your personal cash flow over time. If your spending in certain categories consistently exceeds what you plan for, budgeting may help. A budget can help you proactively plan for and track your spending. So if you're halfway through the month with only 10% of your fun money left, you know it's time to cut back. When creating a budget, you may find you're spending a lot more than you realize. If that's the case, cut down on spending where you can. Though discretionary spending is usually the easiest place to cut back, you can also see if there are ways to reduce your essential expenses. For example, you could get a roommate to save on rent and replace your new car with a fully paid-off older model. There's only so much you can cut from your expenses without living in a state of constant deprivation. That's why it's also helpful to focus on growing your income. This could look like negotiating a raise, applying for a higher-paying role, or even starting a side hustle outside of your day job. If you've heard the phrase, 'pay yourself first,' but never took it to heart, it may be time to follow this advice. Paying yourself first means prioritizing your future by immediately contributing to your savings and investment accounts — ideally using automatic contributions — before paying other bills. This ensures you aren't short-changing yourself at the end of the month. Paying yourself first may force you to cut back on discretionary expenses, which can be helpful for those who struggle to do so on their own. You can calculate your monthly cash flow by totaling your monthly inflows, totaling your monthly outflows, and subtracting the total outflows from the total inflows. Inflows include any form of income, and outflows include bills and other monthly spending. There's no specific healthy cash flow number, but generally, a positive cash flow is best. Having a positive personal cash flow means your income exceeds your bills, and there's money left over for saving and investing. The bigger your savings and investment goals (or the shorter your timeline), the more advantageous it is to have a bigger cash flow. Cash flow tells you the net movement of money into your accounts every month. For example, a positive cash flow tells you that you earn more than you spend. This means you have money left over to stash in a savings account or invest for the future. If your cash flow is negative, that means you spend more than you earn, and unless you change your habits, you'll eventually deplete your savings.
Yahoo
16 hours ago
- Business
- Yahoo
Why TIM S.A. Sponsored ADR (TIMB) is a Top Dividend Stock for Your Portfolio
Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus. Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases. Based in Rio De Janeiro, TIM S.A. Sponsored ADR (TIMB) is in the Computer and Technology sector, and so far this year, shares have seen a price change of 66.33%. The company is currently shelling out a dividend of $0.46 per share, with a dividend yield of 4.37%. This compares to the Wireless Non-US industry's yield of 3.4% and the S&P 500's yield of 1.6%. Taking a look at the company's dividend growth, its current annualized dividend of $0.86 is up 54.7% from last year. In the past five-year period, TIM S.A. Sponsored ADR has increased its dividend 2 times on a year-over-year basis for an average annual increase of 9.28%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Right now, TIM's payout ratio is 18%, which means it paid out 18% of its trailing 12-month EPS as dividend. Earnings growth looks solid for TIMB for this fiscal year. The Zacks Consensus Estimate for 2025 is $1.37 per share, which represents a year-over-year growth rate of 13.22%. From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer a quarterly payout. For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, TIMB is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold). Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report TIM S.A. Sponsored ADR (TIMB) : Free Stock Analysis Report This article originally published on Zacks Investment Research ( Zacks Investment Research Error while retrieving data Sign in to access your portfolio Error while retrieving data Error while retrieving data Error while retrieving data Error while retrieving data
