In This Article:
In this article I am going to calculate the intrinsic value of Wynn Resorts Limited (NASDAQ:WYNN) using the discounted cash flows (DCF) model. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. If you are reading this after March 2018 then I highly recommend you check out the latest calculation for Wynn Resorts here.
Crunching the numbers
I’ve used the 2-stage growth model, which simply means we take in account two stages of company’s growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have perpetual stable growth rate. To begin, I pulled together the analyst consensus forecast of WYNN’s levered free cash flow (FCF) over the next five years and discounted these figures at the cost of equity of 12.71%. This resulted in a present value of 5-year cash flow of US$4.98B. Want to know how I calculated this value? Read our detailed analysis here.
Above is a visual representation of how WYNN’s top and bottom lines are expected to move in the future, which should give you some color on WYNN’s outlook. Next, I determine the terminal value, which accounts for all the future cash flows after the five years. It’s appropriate 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. After discounting the terminal value back five years, the present value becomes US$10.83B.
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 US$15.82B. In the final step we divide the equity value by the number of shares outstanding. This results in an intrinsic value of $145.83, which, compared to the current share price of $182.36, we find that Wynn Resorts is fair value, maybe slightly overvalued at the time of writing.
Next Steps:
Valuation is only one side of the coin in terms of building your investment thesis, and 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 WYNN, I’ve put together three essential aspects you should further research:
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Financial Health: Does WYNN 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 WYNN’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 WYNN? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!