Donaldson Company, Inc.'s (NYSE:DCI) Intrinsic Value Is Potentially 65% Above Its Share Price

In This Article:

Key Insights

  • The projected fair value for Donaldson Company is US$111 based on 2 Stage Free Cash Flow to Equity

  • Donaldson Company's US$67.35 share price signals that it might be 39% undervalued

  • Our fair value estimate is 46% higher than Donaldson Company's analyst price target of US$75.83

How far off is Donaldson Company, Inc. (NYSE:DCI) from its intrinsic value? Using the most recent financial data, we'll take a look at whether the stock is fairly priced by taking the expected future cash flows and discounting them to today's value. We will take advantage of the Discounted Cash Flow (DCF) model for this purpose. It may sound complicated, but actually it is quite simple!

We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model.

Check out our latest analysis for Donaldson Company

Crunching The Numbers

We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. 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.

Generally we assume that a dollar today is more valuable than a dollar in the future, and so the sum of these future cash flows is then discounted to today's value:

10-year free cash flow (FCF) estimate

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

Levered FCF ($, Millions)

US$393.7m

US$461.4m

US$518.8m

US$567.9m

US$605.3m

US$638.0m

US$667.2m

US$693.7m

US$718.5m

US$742.2m

Growth Rate Estimate Source

Analyst x3

Analyst x3

Analyst x1

Analyst x1

Est @ 6.59%

Est @ 5.40%

Est @ 4.57%

Est @ 3.98%

Est @ 3.57%

Est @ 3.29%

Present Value ($, Millions) Discounted @ 6.9%

US$368

US$404

US$425

US$435

US$434

US$428

US$418

US$407

US$394

US$381

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$4.1b


Waiting for permission
Allow microphone access to enable voice search

Try again.