The projected fair value for Comfort Systems USA is US$274 based on 2 Stage Free Cash Flow to Equity
Comfort Systems USA's US$345 share price signals that it might be 26% overvalued
The US$331 analyst price target for FIX is 21% more than our estimate of fair value
In this article we are going to estimate the intrinsic value of Comfort Systems USA, Inc. (NYSE:FIX) by taking the expected future cash flows and discounting them to today's value. We will take advantage of the Discounted Cash Flow (DCF) model for this purpose. Before you think you won't be able to understand it, just read on! It's actually much less complex than you'd imagine.
Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model.
What's The Estimated Valuation?
We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. To begin with, we have to get estimates of the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
Generally we assume that a dollar today is more valuable than a dollar in the future, so we discount the value of these future cash flows to their estimated value in today's dollars:
10-year free cash flow (FCF) estimate
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
Levered FCF ($, Millions)
US$429.1m
US$454.1m
US$474.0m
US$491.8m
US$508.3m
US$523.9m
US$538.9m
US$553.5m
US$568.0m
US$582.4m
Growth Rate Estimate Source
Analyst x3
Analyst x3
Est @ 4.37%
Est @ 3.77%
Est @ 3.35%
Est @ 3.06%
Est @ 2.86%
Est @ 2.71%
Est @ 2.61%
Est @ 2.54%
Present Value ($, Millions) Discounted @ 7.2%
US$400
US$396
US$385
US$373
US$360
US$346
US$332
US$318
US$305
US$292
("Est" = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = US$3.5b
The second stage is also known as Terminal Value, this is the business's cash flow after 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 2.4%. We discount the terminal cash flows to today's value at a cost of equity of 7.2%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$12b÷ ( 1 + 7.2%)10= US$6.3b
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$9.8b. The last step is to then divide the equity value by the number of shares outstanding. Compared to the current share price of US$345, the company appears slightly overvalued at the time of writing. 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.
The 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 Comfort Systems USA 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 7.2%, which is based on a levered beta of 1.038. 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.
SWOT Analysis for Comfort Systems USA
Strength
Earnings growth over the past year exceeded the industry.
Debt is not viewed as a risk.
Balance sheet summary for FIX.
Weakness
Dividend is low compared to the top 25% of dividend payers in the Construction market.
Expensive based on P/E ratio and estimated fair value.
Opportunity
Annual earnings are forecast to grow faster than the American market.
Threat
Revenue is forecast to grow slower than 20% per year.
What else are analysts forecasting for FIX?
Looking Ahead:
Whilst important, the DCF calculation shouldn't be the only metric you look at when researching 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. Can we work out why the company is trading at a premium to intrinsic value? For Comfort Systems USA, we've put together three relevant items you should further examine:
Risks: For example, we've discovered 1 warning sign for Comfort Systems USA 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 FIX's future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors.
Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered!
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.
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com. This 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.
この記事では、予想される未来のキャッシュフローを取り、これを現在価値に割引して、Comfort Systems USA, Inc.(NYSE:FIX)の内在価値を見積もります。この目的のためにディスカウントキャッシュフロー(DCF)モデルを利用します。理解できないと思う前に、読み続けてください!実際に想像以上に複雑ではありません。
上記の計算は、2つの前提条件に非常に依存しています。1つ目はディスカウント率であり、もう1つはキャッシュフローです。投資には、企業の将来のパフォーマンスに対する独自の評価を行う必要があるため、自分自身で計算を行い、自分自身の前提条件をチェックしてください。DCFは、業界のサイクリシティや企業の将来の資本要件などを考慮しないため、会社の潜在的なパフォーマンスの完全なイメージを提供するものではありません。Comfort Systems USAを潜在的な株主として見ているため、割引率として資本コスト(または加重平均資本コスト、WACC)ではなく、資産コストを使用しています。 (1.038のレバレッジβに基づく7.2%を使用しました。βは、市場全体に対する株式の変動性を計るものです。グローバルに比較可能な企業の業界平均ベータからベータを取得し、0.8〜2.0の範囲を設定しているため、これは安定したビジネスにとって合理的な範囲です。
Comfort Systems USAのSWOT分析
強み
過去1年間の利益成長率は業界平均を上回りました。
負債はリスクとして見られていません。
FIXの貸借対照表の要約
弱み
建設業市場の配当上位25%に比べて配当が低い
P/E比率と見積もられる公正価値に基づいて高価です。
機会
年間売上高はアメリカ市場よりも急速に成長する見込みです。
脅威
売上高は年間20%以下で成長する見込みです。
FIXについてアナリストは何を予測していますか?
今後に向けて:
DCF計算は重要ですが、企業を調査する際に見るべき唯一のメトリックではありません。DCFモデルによる完全に正確な評価を獲得することはできません。異なるシナリオや前提条件を適用し、その影響を見て、会社の評価にどのように影響するかを確認してください。企業が異なる割合で成長する場合、またはその資本コストやリスクフリーレートが急激に変化する場合、出力は非常に異なる場合があります。企業が内在価値にプレミアムをつけて取引している理由を突き止めることができますか?Comfort Systems USAについては、さらに調べるべき3つの関連項目を提示しています。
リスク:たとえば、当社が投資する前に把握しておく必要があるComfort Systems USAの警告事項1つを発見しました。