Analysts Offer Insights on Consumer Cyclical Companies: ARB Corporation (OtherARBFF) and Aristocrat Leisure (OtherARLUF)
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ARB Corporation (ARBFF)
Citi analyst Sam Teeger maintained a Hold rating on ARB Corporation yesterday and set a price target of A$39.54. The company's shares closed last Monday at $24.92.
According to TipRanks.com, Teeger is a 4-star analyst with an average return of 3.2% and a 44.3% success rate. Teeger covers the NA sector, focusing on stocks such as Domino's Pizza Enterprises Limited, Temple & Webster Group Ltd, and G.U.D. Holdings.
ARB Corporation has an analyst consensus of Moderate Buy, with a price target consensus of $25.87.
Aristocrat Leisure (ARLUF)
In a report released today, Melinda Baxter from Morgan Stanley maintained a Buy rating on Aristocrat Leisure, with a price target of A$73.20. The company's shares closed last Friday at $40.56.
According to TipRanks.com, Baxter 's ranking currently consits of 0 on a 0-5 ranking scale, with an average return of -7.4% and a 36.6% success rate. Baxter covers the NA sector, focusing on stocks such as Harvey Norman Holdings Ltd, Tabcorp Holdings Limited, and Wesfarmers Limited.
Aristocrat Leisure has an analyst consensus of Strong Buy, with a price target consensus of $48.99, a 20.8% upside from current levels. In a report issued on April 30, Goldman Sachs also maintained a Buy rating on the stock with a A$77.00 price target.
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Calculating The Intrinsic Value Of Aristocrat Leisure Limited (ASX:ALL)
Key Insights Aristocrat Leisure's estimated fair value is AU$71.39 based on 2 Stage Free Cash Flow to Equity With AU$70.68 share price, Aristocrat Leisure appears to be trading close to its estimated fair value The AU$71.52 analyst price target for ALLis comparable to our estimate of fair value. Today we'll do a simple run through of a valuation method used to estimate the attractiveness of Aristocrat Leisure Limited (ASX:ALL) as an investment opportunity by taking the expected future cash flows and discounting them to today's value. We will take advantage of the Discounted Cash Flow (DCF) model for this purpose. It may sound complicated, but actually it is quite simple! Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model. This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality. What's The Estimated Valuation? We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. To begin with, we have to get estimates of the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, and so the sum of these future cash flows is then discounted to today's value: 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Levered FCF (A$, Millions) AU$1.69b AU$1.88b AU$2.11b AU$2.27b AU$2.40b AU$2.52b AU$2.63b AU$2.73b AU$2.84b AU$2.94b Growth Rate Estimate Source Analyst x7 Analyst x7 Analyst x2 Analyst x1 Est @ 5.73% Est @ 4.95% Est @ 4.40% Est @ 4.01% Est @ 3.74% Est @ 3.55% Present Value (A$, Millions) Discounted @ 8.0% AU$1.6k AU$1.6k AU$1.7k AU$1.7k AU$1.6k AU$1.6k AU$1.5k AU$1.5k AU$1.4k AU$1.4k ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = AU$16b We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. 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 (3.1%) 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 8.0%. Terminal Value (TV)= FCF2035 × (1 + g) ÷ (r – g) = AU$2.9b× (1 + 3.1%) ÷ (8.0%– 3.1%) = AU$62b Present Value of Terminal Value (PVTV)= TV / (1 + r)10= AU$62b÷ ( 1 + 8.0%)10= AU$29b The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is AU$44b. The last step is to then divide the equity value by the number of shares outstanding. Compared to the current share price of AU$70.7, the company appears about fair value at a 1.0% discount to where the stock price trades currently. The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent. Important Assumptions The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows. 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 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 Aristocrat Leisure 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 8.0%, which is based on a levered beta of 1.159. 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 Aristocrat Leisure SWOT Analysis for Aristocrat Leisure Strength Debt is not viewed as a risk. Weakness Earnings declined over the past year. Dividend is low compared to the top 25% of dividend payers in the Hospitality market. Opportunity Annual earnings are forecast to grow faster than the Australian market. Current share price is below our estimate of fair value. Threat Annual revenue is forecast to grow slower than the Australian market. Looking Ahead: Whilst important, the DCF calculation is only one of many factors that you need to assess for a company. The DCF model is not a perfect stock valuation tool. Rather it should be seen as a guide to "what assumptions need to be true for this stock to be under/overvalued?" For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. For Aristocrat Leisure, there are three relevant items you should consider: Risks: For example, we've discovered 1 warning sign for Aristocrat Leisure that you should be aware of before investing here. Management:Have insiders been ramping up their shares to take advantage of the market's sentiment for ALL's future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors. 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 ASX every day. If you want to find the calculation for other stocks 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. Errore nel recupero dei dati Effettua l'accesso per consultare il tuo portafoglio Errore nel recupero dei dati Errore nel recupero dei dati Errore nel recupero dei dati Errore nel recupero dei dati
