Estimating The Fair Value Of IDEXX Laboratories, Inc. (NASDAQ:IDXX)

In This Article:

Key Insights

  • Using the 2 Stage Free Cash Flow to Equity, IDEXX Laboratories fair value estimate is US$407

  • Current share price of US$422 suggests IDEXX Laboratories is potentially trading close to its fair value

  • Our fair value estimate is 15% lower than IDEXX Laboratories' analyst price target of US$477

Today we will run through one way of estimating the intrinsic value of IDEXX Laboratories, Inc. (NASDAQ:IDXX) by projecting its future cash flows and then discounting them to today's value. We will take advantage of the Discounted Cash Flow (DCF) model for this purpose. Believe it or not, it's not too difficult to follow, as you'll see from our example!

Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you.

View our latest analysis for IDEXX Laboratories

Crunching The Numbers

We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. To start off with, we need to estimate 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.

A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we need to discount the sum of these future cash flows to arrive at a present value estimate:

10-year free cash flow (FCF) forecast

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

Levered FCF ($, Millions)

US$988.5m

US$1.07b

US$1.21b

US$1.30b

US$1.38b

US$1.45b

US$1.52b

US$1.57b

US$1.63b

US$1.68b

Growth Rate Estimate Source

Analyst x4

Analyst x3

Analyst x1

Est @ 7.80%

Est @ 6.24%

Est @ 5.16%

Est @ 4.40%

Est @ 3.86%

Est @ 3.49%

Est @ 3.23%

Present Value ($, Millions) Discounted @ 6.5%

US$928

US$940

US$998

US$1.0k

US$1.0k

US$995

US$976

US$951

US$925

US$896

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$9.6b

After calculating the present value of future cash flows in the initial 10-year period, we need to calculate the Terminal Value, which accounts for all future cash flows beyond the first stage. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.6%. We discount the terminal cash flows to today's value at a cost of equity of 6.5%.