An Intrinsic Value Calculation For Mondelez International Inc (MDLZ) Shows Investors Are Overpaying
Does the share price for Mondelez International Inc (NASDAQ:MDLZ) 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 November 2017 so be sure check the latest calculation for Mondelez International here.
Crunching the numbers
I’ve used the 2-stage growth 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. To start off, I use the analyst consensus estimates of MDLZ’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 $12,392M. Want to know how I arrived at this number? Read our detailed analysis here.
The infographic above illustrates how MDLZ’s top and bottom lines are expected to move in the future, which should give you an idea of MDLZ’s outlook. Secondly, I calculate the terminal value, which accounts for all the future cash flows after the five years. I think it’s suitable 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. Discounting the terminal value back five years gives us a present value of $39,698M.
The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is $52,090M. In the final step we divide the equity value by the number of shares outstanding. This results in an intrinsic value of $34.86, which, compared to the current share price of $42.61, we find that Mondelez International 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 MDLZ, there are three pertinent factors you should further research:
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.
