Adtalem Global Education Inc. (NYSE:ATGE) has been subject to an analysis of its intrinsic value using the Discounted Cash Flow (DCF) model. This model estimates the present value of the company’s future cash flows by discounting them to their current value. While there are different techniques for valuing a company, the DCF model provides valuable insights into Adtalem Global Education’s fair value estimate.
Instead of relying on quotes from analysts, we can understand that Adtalem Global Education’s fair value estimate is US$54.21. This fair value estimate serves as a benchmark for evaluating the company’s current share price. We can observe that Adtalem Global Education is trading at a level that aligns with its fair value estimate, with a share price of US$62.02.
To estimate the intrinsic value, a 2-stage model is utilized. This involves considering two different periods of growth rates for the company’s cash flows. The first stage represents higher growth, while the second stage represents a lower growth phase. By estimating the next ten years of cash flows, the DCF model calculates the present value of these future cash flows.
The DCF model recognizes that a dollar received in the future is less valuable than a dollar received today, and therefore applies a discount rate to account for this. The estimated 10-year free cash flow for Adtalem Global Education is discounted at a rate of 7.6%. Taking into account the terminal value, which considers future cash flows beyond the ten-year period, the total equity value of the company is calculated.
It is important to note that valuations are not precise and can vary depending on different factors. Therefore, the DCF model serves as a guide rather than an absolute valuation. In addition, the analysis does not consider the cyclicality of the industry or the future capital requirements of the company.
While the DCF model provides valuable insights into Adtalem Global Education’s intrinsic value, it should not be the sole metric used when researching a company. Investors should consider other factors and perform their own evaluations to gain a comprehensive understanding of a company’s potential performance.
FAQ Section:
1. What is the Discounted Cash Flow (DCF) model?
– The DCF model estimates the present value of a company’s future cash flows by discounting them to their current value.
2. How does the DCF model determine the fair value estimate of Adtalem Global Education?
– The DCF model calculates the company’s fair value estimate as US$54.21.
3. Is Adtalem Global Education’s share price aligned with its fair value estimate?
– Yes, the share price of Adtalem Global Education is currently US$62.02, which aligns with its fair value estimate.
4. What is a 2-stage model?
– The 2-stage model considers two different periods of growth rates for the company’s cash flows. The first stage represents higher growth, while the second stage represents a lower growth phase.
5. How does the DCF model account for the time value of money?
– The DCF model recognizes that a dollar received in the future is less valuable than a dollar received today, so it applies a discount rate to future cash flows.
6. What is the discount rate used for Adtalem Global Education?
– The discount rate used for Adtalem Global Education is 7.6%.
7. Does the DCF model consider future cash flows beyond the ten-year period?
– Yes, the DCF model considers future cash flows beyond the ten-year period by calculating the terminal value.
8. Are valuations precise according to the DCF model?
– No, valuations are not precise and can vary depending on different factors. The DCF model serves as a guide rather than an absolute valuation.
9. What factors does the analysis using the DCF model not consider?
– The analysis using the DCF model does not consider the cyclicality of the industry or the future capital requirements of the company.
10. Should the DCF model be the sole metric for researching a company?
– No, investors should consider other factors and perform their own evaluations to gain a comprehensive understanding of a company’s potential performance.
Key Terms:
– Discounted Cash Flow (DCF) model: A financial model that estimates the present value of a company’s future cash flows by discounting them to their current value.
– Fair value estimate: The estimated value of a company based on its future cash flows and the DCF model.
– Intrinsic value: The actual value of a company based on its cash flows and profitability, as opposed to its market value.
– Terminal value: The value of a company’s future cash flows beyond a specified time period, often calculated using a perpetuity formula.
Suggested Related Links:
– Adtalem Global Education Inc.