Does the share price for CoreLogic Inc (NYSE:CLGX) reflect it's really worth? Today, I will calculate the stock's intrinsic value by estimating the company's future cash flows and discounting them to their present value. I will use the discounted cash flows (DCF) model. It may sound complicated, but actually it is quite simple! 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 and its not August 2018 then I highly recommend you check out the latest calculation for CoreLogic by following the link below.
Check out our latest analysis for CoreLogic
The calculation
I use what is known as a 2-stage model, which simply means we have two different periods of varying growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a more stable growth phase. To start off with we need to estimate the next five years of cash flows. For this I used the consensus of the analysts covering the stock, as you can see below. I then discount the sum of these cash flows to arrive at a present value estimate.
5-year cash flow estimate
| 2018 | 2019 | 2020 | 2021 | 2022 | |
| Levered FCF ($, Millions) | $291.63 | $308.38 | $338.30 | $370.53 | $405.84 |
| Source | Analyst x3 | Analyst x4 | Analyst x3 | Est @ 9.53% | Est @ 9.53% |
| Present Value Discounted @ 11.55% | $261.43 | $247.81 | $243.69 | $239.27 | $234.92 |
Present Value of 5-year Cash Flow (PVCF)= US$1.23b
The second stage is also known as Terminal Value, this is the business's cash flow after the first stage. The Gordon Growth formula is used to calculate Terminal Value at an annual growth rate equal to the 10-year government bond rate of 2.9%. We discount this to today's value at a cost of equity of 11.6%.
Terminal Value (TV) = FCF2022 × (1 + g) ÷ (r – g) = US$405.84m × (1 + 2.9%) ÷ (11.6% – 2.9%) = US$4.86b
Present Value of Terminal Value (PVTV) = TV / (1 + r)5 = US$4.86b ÷ ( 1 + 11.6%)5 = US$2.81b
The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is US$4.04b. To get the intrinsic value per share, we divide this by the total number of shares outstanding, or the equivalent number if this is a depositary receipt or ADR. This results in an intrinsic value of $49.89. Compared to the current share price of $50.2, the stock is fair value, maybe slightly overvalued and not available at a discount at this time.
The assumptions
I'd like to point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows. If you don't agree with my result, have a go at the calculation yourself and play with the assumptions. Because we are looking at CoreLogic as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighed average cost of capital, WACC) which accounts for debt. In this calculation I've used 11.6%, which is based on a levered beta of 1.22. This is derived from the Bottom-Up Beta method based on comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.
Next Steps:
Although the valuation of a company is important, it shouldn’t be the only metric you look at when researching a company. For CLGX, there are three relevant aspects you should further examine:
- Financial Health: Does CLGX 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 CLGX'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 CLGX? 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.
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The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.