The projected fair value for Zeta Global Holdings is US$14.34 based on 2 Stage Free Cash Flow to Equity
Current share price of US$10.82 suggests Zeta Global Holdings is potentially 25% undervalued
The US$14.83 analyst price target for ZETA is 3.4% more than our estimate of fair value
Today we'll do a simple run through of a valuation method used to estimate the attractiveness of Zeta Global Holdings Corp. (NYSE:ZETA) as an investment opportunity by taking the expected future cash flows and discounting them to their present value. Our analysis will employ the Discounted Cash Flow (DCF) model. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow.
We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model.
The Calculation
We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. To begin with, we have to get estimates of the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we need to discount the sum of these future cash flows to arrive at a present value estimate:
10-year free cash flow (FCF) estimate
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
Levered FCF ($, Millions)
US$78.6m
US$103.1m
US$121.8m
US$138.0m
US$151.9m
US$163.6m
US$173.6m
US$182.2m
US$189.7m
US$196.5m
Growth Rate Estimate Source
Analyst x2
Analyst x2
Est @ 18.10%
Est @ 13.36%
Est @ 10.04%
Est @ 7.71%
Est @ 6.09%
Est @ 4.95%
Est @ 4.15%
Est @ 3.59%
Present Value ($, Millions) Discounted @ 7.1%
US$73.4
US$90.0
US$99.2
US$105
US$108
US$109
US$108
US$106
US$103
US$99.4
("Est" = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = US$1b
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 2.3%. We discount the terminal cash flows to today's value at a cost of equity of 7.1%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$4.2b÷ ( 1 + 7.1%)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$3.1b. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Relative to the current share price of US$10.8, the company appears a touch undervalued at a 25% 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.
The Assumptions
Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual 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 Zeta Global Holdings 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 7.1%, which is based on a levered beta of 1.036. 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 Zeta Global Holdings
Strength
Debt is not viewed as a risk.
Balance sheet summary for ZETA.
Weakness
Shareholders have been diluted in the past year.
See ZETA's current ownership breakdown.
Opportunity
Forecast to reduce losses next year.
Has sufficient cash runway for more than 3 years based on current free cash flows.
Good value based on P/S ratio and estimated fair value.
Threat
No apparent threats visible for ZETA.
Next Steps:
Valuation is only one side of the coin in terms of building your investment thesis, and it shouldn't be the only metric you look at when researching a company. DCF models are not the be-all and end-all of investment valuation. 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. Why is the intrinsic value higher than the current share price? For Zeta Global Holdings, there are three fundamental items you should look at:
Risks: You should be aware of the 1 warning sign for Zeta Global Holdings we've uncovered before considering an investment in the company.
Future Earnings: How does ZETA'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 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.
關鍵見解
根據兩階段股權自由現金流,Zeta Global Holdings的預計公允價值爲14.34美元
目前的股價爲10.82美元,表明澤塔環球控股可能被低估了25%
分析師對ZETA的目標股價爲14.83美元,比我們對公允價值的估計高出3.4%
今天,我們將簡單介紹一種估值方法,該方法用於估算Zeta Global Holdings Corp.(紐約證券交易所代碼:ZETA)作爲投資機會的吸引力,方法是計算預期的未來現金流並將其折現爲現值。我們的分析將採用貼現現金流(DCF)模型。像這樣的模型可能看起來超出外行人的理解,但它們很容易理解。
我們普遍認爲,公司的價值是其未來將產生的所有現金的現值。但是,差價合約只是衆多估值指標中的一個,而且並非沒有缺陷。如果你對這種估值還有一些迫切的問題,可以看看 Simply Wall St 分析模型。
現在,貼現現金流的最重要輸入是貼現率,當然還有實際現金流。你不必同意這些輸入,我建議你自己重做計算然後試一試。DCF也沒有考慮一個行業可能的週期性,也沒有考慮公司未來的資本需求,因此它沒有全面反映公司的潛在表現。鑑於我們將Zeta Global Holdings視爲潛在股東,因此使用股本成本作爲貼現率,而不是構成債務的資本成本(或加權平均資本成本,WACC)。在此計算中,我們使用了7.1%,這是基於1.036的槓桿測試版。Beta是衡量股票與整個市場相比波動性的指標。我們的測試版來自全球可比公司的行業平均貝塔值,設定在0.8到2.0之間,這是一個穩定的業務的合理範圍。
澤塔環球控股的SWOT分析
力量
債務不被視爲風險。
ZETA 的資產負債表摘要。
弱點
在過去的一年中,股東被稀釋了。
查看ZETA當前的所有權明細。
機會
預計明年將減少損失。
根據當前的自由現金流,有足夠的現金流超過3年。
根據市銷率和估計的公允價值,物有所值。
威脅
ZETA看不到明顯的威脅。
後續步驟:
就建立投資論點而言,估值只是硬幣的一面,它不應該是你在研究公司時唯一考慮的指標。DCF模型並不是投資估值的萬能藥。最好你運用不同的案例和假設,看看它們將如何影響公司的估值。如果一家公司以不同的速度增長,或者其股本成本或無風險利率急劇變化,則產出可能會大不相同。爲什麼內在價值高於當前股價?對於Zeta Global Holdings來說,你應該考慮三個基本項目:
風險:在考慮投資Zeta Global Holdings之前,您應該注意我們發現的Zeta Global Holdings的1個警告信號。