Baidu, Inc. (NASDAQ:BIDU) Shares Could Be 36% Below Their Intrinsic Value Estimate

Simply Wall St.2023-12-12

Key Insights Using the 2 Stage Free Cash Flow to Equity, Baidu fair value estimate is US$179 Current share price of US$114 suggests Baidu is potentially 36% undervalued The CN¥168 analyst price...

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(NASDAQ:BIDU) Shares Could Be 36% Below Their Intrinsic Value Estimate","media":"Simply Wall St.","content":"<div>\n<p>Key Insights\n\n Using the 2 Stage Free Cash Flow to Equity, Baidu fair value estimate is US$179 \n Current share price of US$114 suggests Baidu is potentially 36% undervalued \n  The CN¥168 analyst price...</p>\n\n<a href=\"https://finance.yahoo.com/news/baidu-inc-nasdaq-bidu-shares-122230796.html\">Source Link</a>\n\n</div>\n","source":"yahoofinance","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Baidu, Inc. (NASDAQ:BIDU) Shares Could Be 36% Below Their Intrinsic Value Estimate</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nBaidu, Inc. (NASDAQ:BIDU) Shares Could Be 36% Below Their Intrinsic Value Estimate\n</h2>\n\n<h4 class=\"meta\">\n\n\n2023-12-12 20:22 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://finance.yahoo.com/news/baidu-inc-nasdaq-bidu-shares-122230796.html><strong>Simply Wall St.</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Key Insights\n\n Using the 2 Stage Free Cash Flow to Equity, Baidu fair value estimate is US$179 \n Current share price of US$114 suggests Baidu is potentially 36% undervalued \n  The CN¥168 analyst price...</p>\n\n<a href=\"https://finance.yahoo.com/news/baidu-inc-nasdaq-bidu-shares-122230796.html\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU0359201612.USD","symbol_name":"贝莱德中国基金A2","start_time":0,"source_url":"https://finance.yahoo.com/news/baidu-inc-nasdaq-bidu-shares-122230796.html","article_id":"2390322916","we_media_id":null,"thumbnails":["https://s.yimg.com/uu/api/res/1.2/WySxYJEKYxglsjOAMiyeUA--~B/aD00MzI7dz0xMTk0O2FwcGlkPXl0YWNoeW9u/https://media.zenfs.com/en/simply_wall_st__316/f736be599b0531f3c61304814b769159"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2390322916","pubTimestamp":1702383750,"sourceInfo":{"source_id":"yahoofinance","name":"雅虎金融"},"weMediaInfo":null,"summary":"Using the 2 Stage Free Cash Flow to Equity, Baidu fair value estimate is US$179. Current share price of US$114 suggests Baidu is potentially 36% undervalued. The CN168 analyst price target for BIDU is 6.1% less than our estimate of fair value. How far off is Baidu, Inc.  from its intrinsic value?Using the most recent financial data, we'll take a look at whether the stock is fairly priced by estimating the company's future cash flows and discounting them to their present value. We will take advantage of the Discounted Cash Flow  model for this purpose. Before you think you won't be able to understand it, just read on!It's actually much less complex than you'd imagine.Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.","collect":0,"end_time":0,"defaultTopTitle":"yahoo.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"LU0359201612.USD":"贝莱德中国基金A2","BK4504":"桥水持仓","LU0359202008.SGD":"Blackrock China Fund A2 SGD-H","LU1023057109.AUD":"BGF CHINA \"A2\" (AUDHDG) ACC","BK4548":"巴美列捷福持仓","BK4514":"搜索引擎","DCF":"Dreyfus Alcentra Global Credit Income 2024 Target Term Fund, Inc","IE00B0JY6N72.USD":"PINEBRIDGE GLOBAL EMERGING MARKETS FOCUS EQUITY \"A\" (USD) ACC","LU0640798160.USD":"EASTSPRING INVESTMENTS GLOBAL EMERGING MARKET DYNAMIC \"A\" (USD) ACC","LU1115378108.SGD":"Eastspring Investments - Global Emerging Markets Dynamic AS SGD","BK4531":"中概回港概念","BIDU":"百度","FCF":"第一联邦金融","BK4585":"ETF&股票定投概念","BK4100":"有线和卫星","BK4211":"区域性银行","BK4587":"ChatGPT概念","TV":"墨西哥电视","BK4535":"淡马锡持仓","LU0287142896.SGD":"Fidelity China Focus A-SGD","BK4579":"人工智能","BAIDF":"Baidu, Inc.","BK4077":"互动媒体与服务","BK4526":"热门中概股","BK4588":"碎股","BK4552":"Archegos爆仓风波概念","BK4574":"无人驾驶","LU0173614495.USD":"富达中国焦点A"},"translate_title":"百度公司（纳斯达克：BIDU）的股票可能比其内在价值估计低36%","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"BAIDF":1,"TV":1,"FCF":1,"DCF":1,"BIDU":0.9},"content_text":"Key Insights\n\n Using the 2 Stage Free Cash Flow to Equity, Baidu fair value estimate is US$179 \n Current share price of US$114 suggests Baidu is potentially 36% undervalued \n  The CN¥168 analyst price target for BIDU is 6.1% less than our estimate of fair value \n\n How far off is Baidu, Inc. (NASDAQ:BIDU) from its intrinsic value? Using the most recent financial data, we'll take a look at whether the stock is fairly priced by estimating the company's future cash flows and discounting them to their present value. We will take advantage of the Discounted Cash Flow (DCF) model for this purpose. Before you think you won't be able to understand it, just read on! It's actually much less complex than you'd imagine. \n Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. \n Check out our latest analysis for Baidu \n Is Baidu Fairly Valued? \n We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. In the first stage we need to estimate the cash flows to the business over the next ten years. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. \n A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we need to discount the sum of these future cash flows to arrive at a present value estimate: \n 10-year free cash flow (FCF) forecast \n\n\n\n\n2024\n2025\n2026\n2027\n2028\n2029\n2030\n2031\n2032\n2033\n\n\n Levered FCF (CN¥, Millions) \nCN¥27.2b\nCN¥30.0b\nCN¥32.1b\nCN¥33.9b\nCN¥35.4b\nCN¥36.8b\nCN¥38.0b\nCN¥39.2b\nCN¥40.3b\nCN¥41.3b\n\n\nGrowth Rate Estimate Source\nAnalyst x3\nAnalyst x3\nEst @ 6.98%\nEst @ 5.55%\nEst @ 4.55%\nEst @ 3.85%\nEst @ 3.36%\nEst @ 3.02%\nEst @ 2.78%\nEst @ 2.61%\n\n\n Present Value (CN¥, Millions) Discounted @ 9.5% \nCN¥24.8k\nCN¥25.0k\nCN¥24.4k\nCN¥23.5k\nCN¥22.5k\nCN¥21.3k\nCN¥20.1k\nCN¥18.9k\nCN¥17.8k\nCN¥16.6k\n\n\n\n(\"Est\" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = CN¥215b\n 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 a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.2%. We discount the terminal cash flows to today's value at a cost of equity of 9.5%. \nTerminal Value (TV)= FCF2033 × (1 + g) ÷ (r – g) = CN¥41b× (1 + 2.2%) ÷ (9.5%– 2.2%) = CN¥579b\nPresent Value of Terminal Value (PVTV)= TV / (1 + r)10= CN¥579b÷ ( 1 + 9.5%)10= CN¥233b\n The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is CN¥448b. In the final step we divide the equity value by the number of shares outstanding. Relative to the current share price of US$114, the company appears quite good value at a 36% discount to where the stock price trades currently. The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent. \n\n\n\n  NasdaqGS:BIDU Discounted Cash Flow December 12th 2023\n \n\n Important Assumptions \n We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows. Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Baidu as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 9.5%, which is based on a levered beta of 1.202. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. \nSWOT Analysis for Baidu\n\n\nStrength\n\nEarnings growth over the past year exceeded the industry.\n\n\nDebt is not viewed as a risk.\n\n\nBalance sheet summary for BIDU.\n\n\n\nWeakness\n\n No major weaknesses identified for BIDU.\n\n\n\nOpportunity\n\nAnnual earnings are forecast to grow for the next 3 years.\n\n\nGood value based on P/E ratio and estimated fair value.\n\n\n\nThreat\n\n Annual earnings are forecast to grow slower than the American market.\n\n\nWhat else are analysts forecasting for BIDU?\n\n\n\n Moving On: \n Whilst important, the DCF calculation is only one of many factors that you need to assess for a company. It's not possible to obtain a foolproof valuation with a DCF model. Rather it should be seen as a guide to \"what assumptions need to be true for this stock to be under/overvalued?\" For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. Why is the intrinsic value higher than the current share price? For Baidu, we've compiled three essential aspects you should consider: \n\nFinancial Health: Does BIDU 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.\nFuture Earnings: How does BIDU'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.\n Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered! \n\n PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the NASDAQGS every day. If you want to find the calculation for other stocks just search here.\nHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.This article by Simply Wall St 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. 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