Calculating The Fair Value Of ATN International Inc (NASDAQ:ATNI)
Today I will be providing a simple run-through of the discounted cash flows (DCF) method to estimate the attractiveness of ATN International Inc (NASDAQ:ATNI) as an investment opportunity. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. Also note that this article was written in March 2018 so be sure check the latest calculation for ATN International here.
What’s the value?
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. Firstly, I use the analyst consensus forecast of ATNI’s levered free cash flow (FCF) over the next five years and discounted these figures at the cost of equity of 8.49%. 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$160.65M. Want to know how I arrived at this number? Read our detailed analysis here.
The infographic above illustrates how ATNI’s earnings are expected to move in the future, which should give you an idea of ATNI’s outlook. Secondly, I calculate 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 stable 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$720.54M.
The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is US$881.19M. The last step is to then divide the equity value by the number of shares outstanding. This results in an intrinsic value of $54.99, which, compared to the current share price of $59.62, we see that ATN International 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.
For ATNI, I’ve put together three fundamental aspects you should further examine:
Financial Health: Does ATNI 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.
Future Earnings: How does ATNI’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.
Other High Quality Alternatives: Are there other high quality stocks you could be holding instead of ATNI? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!
PS. Simply Wall St does a DCF calculation for every US stock every 6 hours, so if you want to find the intrinsic value of any other stock just search here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
