In This Article:
In this article I am going to calculate the intrinsic value of Broadwind Energy Inc (NASDAQ:BWEN) using the discounted cash flows (DCF) model. 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 May 2018 then I highly recommend you check out the latest calculation for Broadwind Energy here.
What’s the value?
I use what is known as the 2-stage model, which simply means we have two different periods of varying growth rates for the company’s cash flows. Generally the initial phase has higher growth rates that plateau over time. To begin, I use the analyst consensus forecast of BWEN’s levered free cash flow (FCF) over the next five years and discounted these figures at the rate of 13.67%. 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 US$27.09M. Keen to understand how I calculated this value? Check out our detailed analysis here.
The infographic above illustrates how BWEN’s earnings are expected to move going forward, which should give you an idea of BWEN’s outlook. Next, I determine the terminal value, which accounts for all the future cash flows after the five years. I’ve decided to use the 10-year government bond rate of 2.8% as the perpetual growth rate, which is rightly below GDP growth, but more towards the conservative side. The present value of the terminal value after discounting it back five years is US$25.96M.
The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is US$53.05M. To get the intrinsic value per share, we divide this by the total number of shares outstanding. This results in an intrinsic value of $3.45, which, compared to the current share price of $2.43, we find that Broadwind Energy is about right, perhaps slightly undervalued at a 29.57% discount to what it is available for right now.
Next Steps:
Although the valuation of a company is important, it 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 BWEN, I’ve compiled three relevant factors you should look at:
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Financial Health: Does BWEN have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
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Future Earnings: How does BWEN’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.
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Other High Quality Alternatives: Are there other high quality stocks you could be holding instead of BWEN? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!