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An Intrinsic Calculation For Ball Corporation (NYSE:BALL) Suggests It's 39% Undervalued

In This Article:

Key Insights

  • Ball's estimated fair value is US$83.95 based on 2 Stage Free Cash Flow to Equity

  • Ball is estimated to be 39% undervalued based on current share price of US$51.03

  • Our fair value estimate is 35% higher than Ball's analyst price target of US$62.26

Today we will run through one way of estimating the intrinsic value of Ball Corporation (NYSE:BALL) by taking the expected future cash flows and discounting them to their present value. Our analysis will employ the Discounted Cash Flow (DCF) model. Don't get put off by the jargon, the math behind it is actually quite straightforward.

We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.

See our latest analysis for Ball

The Calculation

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$921.6m

US$1.06b

US$1.05b

US$1.05b

US$1.06b

US$1.08b

US$1.10b

US$1.12b

US$1.15b

US$1.18b

Growth Rate Estimate Source

Analyst x4

Analyst x5

Analyst x1

Est @ 0.19%

Est @ 0.96%

Est @ 1.49%

Est @ 1.87%

Est @ 2.13%

Est @ 2.32%

Est @ 2.45%

Present Value ($, Millions) Discounted @ 6.7%

US$864

US$932

US$865

US$813

US$769

US$732

US$699

US$669

US$642

US$616

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$7.6b

We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (2.8%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 6.7%.