A Look At The Fair Value Of Brookdale Senior Living Inc (NYSE:BKD)
Today I will be providing a simple run-through of the discounted cash flows (DCF) method to estimate the attractiveness of Brookdale Senior Living Inc (NYSE:BKD) as an investment opportunity. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. Also note that this article was written in December 2017 so be sure check the latest calculation for Brookdale Senior Living here.
What’s the value?
I will be using the 2-stage growth model, which takes into account the initial higher growth stage of a company’s life cycle and the steadier growth phase over the long run. Firstly, I use the analyst consensus forecast of BKD’s levered free cash flow (FCF) over the next five years and discounted these figures at the rate of 15.24%. When estimates weren’t available, I’ve extrapolated the average annual growth rate over the previous five years, capped at a reasonable level. This resulted in a present value of 5-year cash flow of $590.4M. Want to know how I arrived at this number? Check out our detailed analysis here.
Above is a visual representation of how BKD’s earnings are expected to move in the future, which should give you some color on BKD’s outlook. Then, I determine the terminal value, which is the business’s cash flow after the first stage. I’ve decided to use the 10-year government bond rate of 2.8% as the stable growth rate, which is rightly below GDP growth, but more towards the conservative side. Discounting the terminal value back five years gives us a present value of $971.5M.
The total value is the sum of cash flows for the next five years and the discounted terminal value, which results in the Total Equity Value, which in this case is $1,562.0M. The last step is to then divide the equity value by the number of shares outstanding. This results in an intrinsic value of $8.38, which, compared to the current share price of $10.05, we find that Brookdale Senior Living is fair value, maybe slightly overvalued and not available at a discount at this time.
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.
For BKD, I’ve put together three key factors you should look at:
PS. Simply Wall St does a DCF calculation for every US stock every 6 hours, so if you want to find the intrinsic value of any other stock just search here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
