In This Article:
Does the share price for Laureate Education Inc (NASDAQ:LAUR) reflect it’s really worth? Today, I will calculate the stock’s intrinsic value using the discounted cash flow (DCF) method. 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. Also note that this article was written in March 2018 so be sure check the latest calculation for Laureate Education here.
Is LAUR fairly valued?
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. Firstly, I use the analyst consensus estimates of LAUR’s levered free cash flow (FCF) over the next five years and discounted these values at the rate of 14.21%. 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$809.49M. Want to know how I calculated this value? Take a look at our detailed analysis here.
The infographic above illustrates how LAUR’s earnings are expected to move in the future, which should give you some color on LAUR’s outlook. Now we need to determine the terminal value, which is the business’s cash flow after the first stage. 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$1.18B.
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$1.99B. To get the intrinsic value per share, we divide this by the total number of shares outstanding. This results in an intrinsic value of $10.61, which, compared to the current share price of $13.63, we see that Laureate Education is fair value, maybe slightly overvalued and not available at a discount at this time.
Next Steps:
Whilst important, DCF calculation 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 LAUR, I’ve put together three relevant aspects you should further research:
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Financial Health: Does LAUR 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 LAUR’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 LAUR? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!