Are Investors Undervaluing Genuine Parts Company (NYSE:GPC) By 28%?

Simply Wall St.05-21

Key Insights Using the 2 Stage Free Cash Flow to Equity, Genuine Parts fair value estimate is US$212 Genuine Parts' US$152 share price signals that it might be 28% undervalued Analyst price ...

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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\">\nAre Investors Undervaluing Genuine Parts Company (NYSE:GPC) By 28%?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-05-21 23:04 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://finance.yahoo.com/news/investors-undervaluing-genuine-parts-company-150416083.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, Genuine Parts fair value estimate is US$212 \n Genuine Parts' US$152 share price signals that it might be 28% undervalued \n  Analyst price ...</p>\n\n<a href=\"https://finance.yahoo.com/news/investors-undervaluing-genuine-parts-company-150416083.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":"BK4211","symbol_name":"区域性银行","start_time":0,"source_url":"https://finance.yahoo.com/news/investors-undervaluing-genuine-parts-company-150416083.html","article_id":"2437428601","we_media_id":null,"thumbnails":["https://s.yimg.com/uu/api/res/1.2/4Z2zABeV9DiesrFHRLjB2w--~B/aD00MzI7dz0xMTk0O2FwcGlkPXl0YWNoeW9u/https://media.zenfs.com/en/simply_wall_st__316/36c6840dc76edf99f4dd4c6af7e086b2"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2437428601","pubTimestamp":1716303856,"sourceInfo":{"source_id":"yahoofinance","name":"雅虎金融"},"weMediaInfo":null,"summary":"Using the 2 Stage Free Cash Flow to Equity, Genuine Parts fair value estimate is US$212. Genuine Parts' US$152 share price signals that it might be 28% undervalued. Analyst price target for GPC is US$168 which is 21% below our fair value estimate. Does the May share price for Genuine Parts Company  reflect what it's really worth?Today, we will estimate the stock's intrinsic value by estimating the company's future cash flows and discounting them to their present value. We will use the Discounted Cash Flow  model on this occasion. It may sound complicated, but actually it is quite simple!Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you.","collect":0,"end_time":0,"defaultTopTitle":"yahoo.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4211":"区域性银行","LU2237443382.USD":"Aberdeen Standard SICAV I - Global Dynamic Dividend A MIncA USD","GPC":"Genuine Parts Co","BK4585":"ETF&股票定投概念","LU2237443549.SGD":"Aberdeen Standard SICAV I - Global Dynamic Dividend A MIncA SGD-H","FCF":"第一联邦金融","DCF":"Dreyfus Alcentra Global Credit Income 2024 Target Term Fund, Inc","BK4100":"有线和卫星","TV":"墨西哥电视","BK4588":"碎股","LU2237443622.USD":"Aberdeen Standard SICAV I - Global Dynamic Dividend A Acc USD","NYSE":"纽交所","BK4159":"经销商","ISBC":"投资者银行","LU2237443978.SGD":"Aberdeen Standard SICAV I - Global Dynamic Dividend A Acc SGD-H"},"translate_title":"投资者是否低估了原厂零部件公司（纽约证券交易所代码：GPC）28%？","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"DCF":1,"FCF":1,"GPC":1,"ISBC":1,"NYSE":1,"TV":1},"content_text":"Key Insights\n\n Using the 2 Stage Free Cash Flow to Equity, Genuine Parts fair value estimate is US$212 \n Genuine Parts' US$152 share price signals that it might be 28% undervalued \n  Analyst price target for GPC is US$168 which is 21% below our fair value estimate \n\n Does the May share price for Genuine Parts Company (NYSE:GPC) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by estimating the company's future cash flows and discounting them to their present value. We will use the Discounted Cash Flow (DCF) model on this occasion. It may sound complicated, but actually it is quite simple! \n Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you. \n See our latest analysis for Genuine Parts \n What's The Estimated Valuation? \n We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. To start off with, we need to estimate the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. \n A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we discount the value of these future cash flows to their estimated value in today's dollars: \n 10-year free cash flow (FCF) forecast \n\n\n\n\n2024\n2025\n2026\n2027\n2028\n2029\n2030\n2031\n2032\n2033\n\n\n Levered FCF ($, Millions) \nUS$881.0m\nUS$1.15b\nUS$1.24b\nUS$1.44b\nUS$1.52b\nUS$1.59b\nUS$1.65b\nUS$1.71b\nUS$1.76b\nUS$1.81b\n\n\nGrowth Rate Estimate Source\nAnalyst x5\nAnalyst x5\nAnalyst x4\nAnalyst x1\nAnalyst x1\nEst @ 4.45%\nEst @ 3.83%\nEst @ 3.39%\nEst @ 3.09%\nEst @ 2.88%\n\n\n Present Value ($, Millions) Discounted @ 7.1% \nUS$822\nUS$1.0k\nUS$1.0k\nUS$1.1k\nUS$1.1k\nUS$1.1k\nUS$1.0k\nUS$986\nUS$948\nUS$911\n\n\n\n(\"Est\" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = US$9.9b\n We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (2.4%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 7.1%. \nTerminal Value (TV)= FCF2033 × (1 + g) ÷ (r – g) = US$1.8b× (1 + 2.4%) ÷ (7.1%– 2.4%) = US$39b\nPresent Value of Terminal Value (PVTV)= TV / (1 + r)10= US$39b÷ ( 1 + 7.1%)10= US$20b\n The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is US$30b. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Compared to the current share price of US$152, the company appears a touch undervalued at a 28% discount to where the stock price trades currently. Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind. \n\n\n\n  NYSE:GPC Discounted Cash Flow May 21st 2024\n \n\n Important Assumptions \n Now 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 Genuine Parts 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 7.1%, which is based on a levered beta of 1.031. 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 Genuine Parts\n\n\nStrength\n\nEarnings growth over the past year exceeded the industry.\n\n\nDebt is well covered by earnings and cashflows.\n\n\nDividends are covered by earnings and cash flows.\n\n\nDividend information for GPC.\n\n\n\nWeakness\n\nEarnings growth over the past year is below its 5-year average.\n\n\nDividend is low compared to the top 25% of dividend payers in the Retail Distributors market.\n\n\n\nOpportunity\n\nAnnual earnings are forecast to grow for the next 3 years.\n\n\nTrading below our estimate of fair value by more than 20%.\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 GPC?\n\n\n\n Next Steps: \n Valuation is only one side of the coin in terms of building your investment thesis, and it shouldn't be the only metric you look at when researching a company. The DCF model is not a perfect stock valuation tool. Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. Can we work out why the company is trading at a discount to intrinsic value? For Genuine Parts, we've put together three fundamental items you should further research: \n\n Risks: You should be aware of the 1 warning sign for Genuine Parts we've uncovered before considering an investment in the company. \n Future Earnings: How does GPC'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 High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing! \n\n PS. Simply Wall St updates its DCF calculation for every American stock every day, so if you want to find the intrinsic value of any other stock 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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