Investors In Global Payments Inc (NYSE:GPN) Are Paying Above The Intrinsic Value
How far off is Global Payments Inc (NYSE:GPN) from its intrinsic value? Using the most recent financial data, I am going to take a look at whether the stock is fairly priced 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 December 2017 then I highly recommend you check out the latest calculation for Global Payments here.
What’s the value?
I’ve used the 2-stage growth model, which takes into account the initial higher growth stage of a company’s life cycle and the steadier growth phase over the long run. To start off, I pulled together the analyst consensus estimates of GPN’s levered free cash flow (FCF) over the next five years and discounted these figures at the rate of 10.34%. This resulted in a present value of 5-year cash flow of $3,275.5M. Keen to know how I calculated this value? Read our detailed analysis here.
The infographic above illustrates how GPN’s earnings are expected to move in the future, which should give you some color on GPN’s outlook. Then, I calculate the terminal value, which accounts for all the future cash flows after the five years. I’ve decided 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 $9,110.6M.
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 $12,386.1M. In the final step we divide the equity value by the number of shares outstanding. This results in an intrinsic value of $77.83, which, compared to the current share price of $100.36, we see that Global Payments is fair value, maybe slightly overvalued at the time of writing.
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 GPN, there are three pertinent aspects you should further examine:
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.
