An intrinsic calculation for Malibu Boats, Inc. (NASDAQ: MBUU) suggests that the value is 45% undervalued

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<p class = "canvas-atom canvas-text MB (1.0em) MB (0) – SM MB (0.8em) – SM" type = "text" content = "In this article we will appreciate the intrinsic value of Malibu Boats, Inc. (NASDAQ: MBUU) by calculating the company's future cash flows back to today's value. This is done with the Discounted Cash Flow (DCF) model. Don't be put off by the jargon, the math behind it is actually quite simple. "Data-reactid =" 27 "> In this article, we will estimate the intrinsic value of Malibu Boats, Inc. (NASDAQ: MBUU) By discounting the company's foreast future cash flows to today's value, you are using the discounted -Cashflow model (DCF model).

<p class = "canvas-atom canvas-text MB (1.0em) MB (0) – SM MB (0.8em) – SM" type = "text" content = "However, note that there are many ways to appreciate The Company value and a DCF are just one method. Anyone who wants to learn more about intrinsic value should read this Simply Wall St analysis model, "data-reactid =" 28 "> Note, however, that there are many ways to appreciate a company's value, and a DCF is just one method. If you want to learn more about its intrinsic value, read the Simply Wall St- analysis model.

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = " Check out our latest analysis for Malibu Boats "data-reactid =" 29 "> Check out our latest analysis for Malibu Boats

Is Malibu Boats fairly rated?

We're going to use a two-stage DCF model that, as the name suggests, takes into account two stages of growth. The first phase is generally a longer growth phase that focuses on the final value and is recorded in the second phase of "steady growth". First, we need to get estimates of the cash flows over the next ten years. Wherever possible, we use analyst estimates. However, if these are not available, we extrapolate the previous free cash flow (FCF) from the most recent estimate or the most recently reported value. We expect companies with shrinking free cash flow to slow down their rate of shrinkage and that companies with growing free cash flow will slow down their growth rate during this period. We do this to take into account that growth tends to slow down more in the early years than in later years.

In general, we assume that a dollar is more valuable today than a dollar in the future. Therefore, we discount the value of these future cash flows to the estimated value in today's dollars:

Estimation of 10-year free cash flow (FCF)

2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
FCF Leverage ($ million) $ 87.2 million $ 91.7 million $ 95.1 million $ 98.1 million $ 100.8 million $ 103.2 million $ 105.5 million $ 107.7 million $ 109.9 million $ 112.0 million
Growth rate Estimated source Analyst x2 Analyst x2 Est @ 3.77% Estimate at 3.16% Est @ 2.73% Est @ 2.43% 2.23% estimate Est @ 2.08% Est @ 1.98% Est @ 1.91%
Present value ($. Million) reduced at 7.7% $ 80.9 $ 79.0 $ 76.1 $ 72.9 $ 69.5 $ 66.1 $ 62.7 $ 59.4 $ 56.3 $ 53.2

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "("Est" = FCF growth rate, estimated by Simply Wall St)
Present value of 10-year cash flow (PVCF) = US $ 676 million data-reactid = "36">("Est" = FCF growth rate, estimated by Simply Wall St)
Present value of 10-year cash flow (PVCF) = $ 676 million

After calculating the present value of future cash flows in the first 10-year period, we have to calculate the final value, which takes into account all future cash flows after the first stage. The Gordon growth formula is used to calculate the final value with a future annual growth rate that corresponds to the 10-year government bond rate of 1.7%. We discount the terminal cash flows with an equity cost rate of 7.7% to today's value.

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "Terminal value (TV)= FCF2029 × (1 + g) ÷ (r – g) = USD 112 million × (1 + 1.7%) ÷ 7.7% – 1.7%) = USD 1.9 billion data-reactid = 38Terminal value (TV)= FCF2029 × (1 + g) ÷ (r – g) = $ 112 million × (1 + 1.7%) ÷ 7.7% – 1.7%) = $ 1.9 billion

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "Present value of the final value (PVTV)= TV / (1 + r)10= $ 1.9 billion (1 + 7.7%)10= US $ 906 million data-reactid = "39">Present value of the final value (PVTV)= TV / (1 + r)10= $ 1.9 billion (1 + 7.7%)10= $ 906 million

The total is the sum of cash flows for the next ten years plus the discounted final value, which gives the total equity value, which in this case is $ 1.6 billion. The final step is to divide the equity value by the number of shares issued. Compared to the current share price of $ 41.0, the company appears to be quite undervalued at a discount of 45% compared to the current share price. However, ratings are inaccurate instruments, more like a telescope – move a few degrees and land in another galaxy. Remember that.

NasdaqGM: MBUU intrinsic value, January 3, 2020

The assumptions

The most important parameters for a discounted cash flow are now the discount rate and, of course, the actual cash flows. Investing also includes evaluating a company's future performance itself. So try the calculation yourself and check your own assumptions. The DCF also does not take into account the potential cyclicality of an industry or the future capital requirements of a company and therefore does not provide a complete overview of a company's potential performance. Given that we consider Malibu Boats to be potential shareholders, the cost of equity is used as the discount rate, not the cost of capital (or weighted average cost of capital, WACC) that make up debt. We used 7.7% in this calculation, based on a leverage beta of 1.099. Beta is a measure of the volatility of a share compared to the overall market. We get our beta from the industry-standard beta of globally comparable companies with a defined limit between 0.8 and 2.0, which is an appropriate range for stable business.

Next Steps:

Valuation is just one side of the coin in creating your investment thesis and shouldn't be the only metric you consider when researching a company. The DCF model is not a perfect tool for stock valuation. Rather, it should serve as a guide to "What assumptions must be made for this stock to be under or overvalued?" If a company grows at a different growth rate or if the cost of equity or risk-free interest rates changes significantly, the output can look very different. What is the reason why the stock price differs from the intrinsic value? There are three relevant aspects to consider for Malibu boats:

  1. Financial health: Does the MBUU have a healthy balance sheet? Check out our free balance sheet analysis with six simple reviews of key factors such as leverage and risk.
  2. Future result: What is the MBUU's growth rate compared to its competitors and the overall market? Find out more about analyst consensus numbers for the coming years by accessing our free graph of analyst growth expectations.
  3. Other high quality alternatives: Are there other high quality stocks you could hold instead of MBUU? Check out our interactive list of high quality stocks to get an idea of ​​what else is missing!

<p class = "canvas-atom canvas-text MB (1.0em) MB (0) – SM MB (0.8em) – SM" type = "text" content = "PS. Simply Wall St updates its DCF calculation for each US stock every day, so if you just want to find the intrinsic value of another stock Search here, "data-reactid =" 65 "> PS. Simply Wall St updates its DCF calculation for each US stock daily, so if you want to find the intrinsic value of another stock, just search here.

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "If you discover an error that justifies a correction, please contact the editorial team at editorial-team@simplywallst.com, This article from Simply Wall St is general in nature. It is not a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Simply Wall St has no position in the stocks mentioned.

We strive to provide you with long-term, focused research analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Thank you for reading."data-reactid =" 66 ">If you discover an error that justifies a correction, please contact the editorial team at editorial-team@simplywallst.com. This article from Simply Wall St is general in nature. It is not a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Simply Wall St has no position in the stocks mentioned.

We strive to provide you with long-term, focused research analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Thank you for reading.