In this article, we will use the Discounted Cash Flow (DCF) model to estimate the intrinsic value of MasTec, Inc. (NYSE:MTZ). The projected fair value for MasTec is determined to be US$87.59 based on the 2-stage Free Cash Flow to Equity model. MasTec’s current share price of US$83.86 suggests that it is trading at levels similar to its fair value estimate.
The DCF model is based on the idea that a dollar in the future is worth less than a dollar today. To calculate the intrinsic value, we first estimate the cash flows of the company over the next ten years. We use analyst estimates whenever possible, but if those are not available, we extrapolate from the previous free cash flow. We assume that companies with shrinking free cash flow will slow their rate of shrinkage, while companies with growing free cash flow will see their growth rate slow over time.
Using a discount rate of 8.6%, we calculate the present value of the estimated cash flows for the next ten years, which amounts to US$3.3 billion. We then calculate the Terminal Value, which takes into account all future cash flows beyond the ten-year period. The Terminal Value is calculated using the Gordon Growth formula with a future annual growth rate equal to the 5-year average of the 10-year government bond yield.
The present value of the Terminal Value is US$3.5 billion. Adding this to the present value of the cash flows for the next ten years, we arrive at a Total Equity Value of US$6.8 billion. Dividing this value by the total number of shares outstanding, we get an intrinsic value per share of US$87.59.
Considering MasTec’s current share price of US$83.86, the stock appears to be trading at a slight discount of 4.3% to its estimated intrinsic value.
It’s important to note that the DCF model is just one method of estimating a company’s value, and there are other factors to consider. The discount rate and the actual cash flows are critical inputs to the DCF calculation. Additionally, the model does not account for industry cyclicality or future capital requirements.
In conclusion, the estimated intrinsic value of MasTec, Inc. based on the DCF model is US$87.59 per share. However, it’s essential to remember that this is a rough estimate and should be considered in conjunction with other factors when evaluating the investment potential of the company.
– Simply Wall St analysis model