Estimating The Intrinsic Value Of BJ’s Restaurants Inc (NASDAQ:BJRI)
Does the share price for BJ’s Restaurants Inc (NASDAQ:BJRI) 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 January 2018 so be sure check the latest calculation for BJ’s Restaurants here.
What’s the value?
We are going to use a two-stage DCF 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. Firstly, I pulled together the analyst consensus estimates of BJRI’s levered free cash flow (FCF) over the next five years and discounted these values at the cost of equity of 10.25%. 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 $245.9M. Keen to know how I arrived at this number? Read our detailed analysis here.
In the visual above, we see how how BJRI’s earnings are expected to move going forward, which should give you some color on BJRI’s outlook. Secondly, I determine the terminal value, which is the business’s cash flow after the first stage. It’s appropriate 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 $668.1M.
The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is $914.0M. The last step is to then divide the equity value by the number of shares outstanding. This results in an intrinsic value of $44.30, which, compared to the current share price of $36.4, we see that BJ’s Restaurants is about right, perhaps slightly undervalued at a 17.83% discount to what it is available for right now.
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.
For BJRI, I’ve put together three fundamental factors you should further examine:
PS. The Simply Wall St app conducts a discounted cash flow for every stock on the NASDAQ every 6 hours. If you want to find the calculation for other stocks 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.
