Does the share price for The Walt Disney Company (NYSE:DIS) reflect it’s really worth? Today, I will calculate the stock’s intrinsic value using the discounted cash flow (DCF) method. If you want to learn more about this method, the basis for my calculations can be found in detail in the Simply Wall St analysis model. If you are reading this after December 2017 then I highly recommend you check out the latest calculation for Walt Disney here.

What’s the value?

I’ve used 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. To start off, I took the analyst consensus forecast of DIS’s levered free cash flow (FCF) over the next five years and discounted these figures at the rate of 9.5%. This resulted in a present value of 5-year cash flow of $33,513.7M. Want to know how I arrived at this number? Check out our detailed analysis here.

The graph above shows how DIS’s top and bottom lines are expected to move going forward, which should give you some color on DIS’s outlook. Then, I determine the terminal value, which accounts for all the future cash flows after the five years. I think it’s suitable to use the 10-year government bond rate of 2.8% as the steady 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 $84,291.3M.

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 $117,805.0M. To get the intrinsic value per share, we divide this by the total number of shares outstanding. This results in an intrinsic value of $78.00, which, compared to the current share price of $104.23, we see that Walt Disney is rather overvalued and not available at a discount at this time.

Next Steps:

Whilst important, DCF calculation shouldn’t be the only metric you look at when researching a company. What is the reason for the share price to differ from the intrinsic value? For DIS, I’ve compiled three relevant factors you should further examine:

PS. The Simply Wall St app conducts a discounted cash flow for every stock on the NYSE every 6 hours. If you want to find the calculation for other stocks 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.