Avnet, Inc. Undervalued By 20%?
Model. Avnet is estimated to be worth US$54.94. This is based on the 2 Stage Free Cash Flow to Equity Model. The fair value projection is calculated using this model.
Avnet's share price is currently US$43.84. It could be undervalued by as much as 20%.
The AVT price target is US$46.71, as analyzed by experts. This is 15% less than our fair value estimate.
Is Avnet's share price in June accurate? We'll use the DCF model to project future cash flows and find out the stock's true worth. It might seem complicated, but it's not that hard.
Be careful, there are many ways to value a company. Each technique has pros and cons. If you want to know more about intrinsic value, check out the Simply Wall St analysis.
Check out our most recent study on Avnet. We've thoroughly researched the company. Our analysis includes all the necessary information you need. Read what we found out about Avnet. Stay up-to-date with our reports.
We'll use a two-stage DCF model. It has two growth stages. The first stage has fast growth then levels off. The second stage has steady growth until the end. First, we'll find the cash flows for the next ten years. We'll use analyst estimates when we can. If we can't, we'll estimate based on past FCF. Shrinking FCF will shrink more slowly. Growing FCF will grow more slowly. This is because early growth slows more than later growth.
Usually, we believe that a dollar now is worth more than a dollar later. That's why we have to lower the value of future cash flows to figure out an estimate for present value.
The Levered FCF data is presented in millions of dollars.
Where the Growth Rate Comes From
The blog talks about the present value and its calculation. The amount is in millions of dollars. To calculate the present value, we need to discount it at 11%.
The estimated FCF growth rate is called "Est". The Present Value of 10-year Cash Flow (PVCF) is US$1.9b.
Next, we must figure out the Terminal Value. This is for all the cash flows occurring after ten years. We use a cautious growth rate that cannot surpass the country's GDP growth due to several reasons. We have taken the 5-year average of the 10-year government bond yield, which is 2.1%, to estimate future growth. We reduce the future cash flows to their current value, just like we did with the growth period. We do this using a cost of equity of 11%.
The Terminal Value is found by using a formula. This formula includes the FCF2032 (which is a financial number), the growth rate (which is 2.1%), and the required rate of return (which is 11%). When you put these numbers into the formula, you get a Terminal Value of US$9.2b.
The PVTV is a way to figure out how much something will be worth in the future. It takes into account things like interest rates and time. In this case, the PVTV is $3.1 billion for a company.
The value is cash flows plus terminal value for 10 years, and it equals US$5.0b. Divide that by shares and it's undervalued at 20% discount to current price of US$43.8. But this is not precise like a telescope, so keep that in mind.
Most important parts of a discounted cash flow are discount rate and cash flows. Have your own evaluation and check assumptions. DCF doesn't consider cyclicality or capital requirements. For Avnet, cost of equity is used as discount rate, not WACC which accounts for debt. 11% discount rate used based on industry average beta of 1.557. Beta measures stock's volatility compared to market. Industry average beta for stable business between 0.8 and 2.0.
Avnet's SWOT Analysis
The industry was surpassed in earnings growth over the past year.
Earnings can easily cover the debt.
The dividend is not very high. Other Electronic companies pay more.
P/E ratio and fair value suggest good value.
Cash flow alone cannot cover debt.
Company giving investors a dividend despite not having extra money.
They expect earnings to drop for 2 years in a row.
Company valuation is important, but not the only thing to consider when researching a company. DCF models are not the only factor to consider for investment valuation. It's just a guide for assumptions to see if the stock is undervalued or overvalued. Changes in the cost of equity or risk free rate can impact the valuation of a company. We should investigate why the company is trading at a discount to its intrinsic value. For Avnet, we suggest exploring these three important factors:
Avnet has 5 warning signs to consider before investing. 3 of them are concerning. These risks should be taken into account before making a decision.
Has the management been buying AVT shares to benefit from the positive market sentiment? Find out by reading our analysis of the management and board, including CEO pay and governing practices.
Looking for good businesses? Then, check out our interactive list. We have compiled stocks with high returns on equity, low debt, and good past performance. These are essential factors for a strong business. Maybe, you can discover new companies that you haven't thought of before.
The Simply Wall St app does a valuation for every stock on the NASDAQGS every day. They use discounted cash flow. You can find the calculation for other stocks by searching on their website.
Do you have feedback on this article? Are you worried about the content? You can contact us directly. You can also email editorial-team (at) simplywallst.com.
Simply Wall St's article is informative and impartial. We look at past data and expert predictions, but our insights are not meant to be financial guidance. We don't recommend buying or selling specific stocks without considering your goals and finances. Our research focuses on fundamental information for long-term analysis. While we work to include all relevant news, our analysis may not reflect recent company updates or other qualitative data. Simply Wall St doesn't have any investments in the stocks mentioned.
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