An Intrinsic Calculation For Baidu, Inc. (NASDAQ:BIDU) Suggests It's 40% Undervalued

Simply Wall St.08-24

Key Insights Using the 2 Stage Free Cash Flow to Equity, Baidu fair value estimate is US$142 Current share price of US$85.70 suggests Baidu is potentially 40% undervalued Our fair value estimate...

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(NASDAQ:BIDU) Suggests It's 40% Undervalued","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$142 \n Current share price of US$85.70 suggests Baidu is potentially 40% undervalued \n Our fair value estimate...</p>\n\n<a href=\"https://finance.yahoo.com/news/intrinsic-calculation-baidu-inc-nasdaq-120616223.html\">Source Link</a>\n\n</div>\n","source":"yahoofinance_sg","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>An Intrinsic Calculation For Baidu, Inc. (NASDAQ:BIDU) Suggests It's 40% Undervalued</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\">\nAn Intrinsic Calculation For Baidu, Inc. (NASDAQ:BIDU) Suggests It's 40% Undervalued\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-08-24 20:06 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://finance.yahoo.com/news/intrinsic-calculation-baidu-inc-nasdaq-120616223.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$142 \n Current share price of US$85.70 suggests Baidu is potentially 40% undervalued \n Our fair value estimate...</p>\n\n<a href=\"https://finance.yahoo.com/news/intrinsic-calculation-baidu-inc-nasdaq-120616223.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":"PSQ","symbol_name":"纳指反向ETF","start_time":0,"source_url":"https://finance.yahoo.com/news/intrinsic-calculation-baidu-inc-nasdaq-120616223.html","article_id":"2461347506","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":{"source":"yahoofinance_sg","url":"https://finance.yahoo.com/news/intrinsic-calculation-baidu-inc-nasdaq-120616223.html","rn_cache_url":null,"customStyle":"","selectors":"article, body","filters":"","directOrigin":true},"url":"https://stock-news.laohu8.com/highlight/detail?id=2461347506","pubTimestamp":1724501176,"columns":[],"sourceInfo":{"source_id":"yahoofinance_sg","name":"Yahoo Finance"},"weMediaInfo":null,"summary":"Using the 2 Stage Free Cash Flow to Equity, Baidu fair value estimate is US$142. Current share price of US$85.70 suggests Baidu is potentially 40% undervalued. Our fair value estimate is 7.9% higher than Baidu's analyst price target of CN132. Today we'll do a simple run through of a valuation method used to estimate the attractiveness of Baidu, Inc.  as an investment opportunity by taking the expected future cash flows and discounting them to today's value. We will use the Discounted Cash Flow  model on this occasion. Believe it or not, it's not too difficult to follow, as you'll see from our example!We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model.","collect":0,"end_time":0,"defaultTopTitle":"yahoo.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"PSQ":"纳指反向ETF","QLD":"纳指两倍做多ETF","NDAQ":"纳斯达克OMX交易所","BK4112":"金融交易所和数据","BK4548":"巴美列捷福持仓","BK4514":"搜索引擎","IE00B0JY6N72.USD":"PINEBRIDGE GLOBAL EMERGING MARKETS FOCUS EQUITY \"A\" (USD) ACC","LU0640798160.USD":"EASTSPRING INVESTMENTS GLOBAL EMERGING MARKET DYNAMIC \"A\" (USD) ACC","LU2095319765.USD":"Natixis Thematics Subscription Economy R/A USD","LU1115378108.SGD":"Eastspring Investments - Global Emerging Markets Dynamic AS SGD","LU2210150020.SGD":"Natixis Thematics Subscription Economy R/A SGD","FCF":"第一联邦金融","BK4531":"中概回港概念","SQQQ":"纳指三倍做空ETF","LU2210149790.SGD":"Natixis Thematics Subscription Economy R/A SGD-H","BK4585":"ETF&股票定投概念","K3SD.SI":"u BIDU ADR US$+","BIDU":"百度","IE00BKPKM429.USD":"NEUBERGER BERMAN GLOBAL SUSTAINABLE EQUITY \"A\" (USD) ACC","QQQ":"纳指100ETF","BK4211":"区域性银行","BK4100":"有线和卫星","BK4587":"ChatGPT概念","BK4535":"淡马锡持仓","LU0287142896.SGD":"Fidelity China Focus A-SGD","BK4077":"互动媒体与服务","BAIDF":"Baidu, Inc.","QID":"纳指两倍做空ETF",".IXIC":"NASDAQ Composite","BK4526":"热门中概股","BK4588":"碎股","DCF":"Dreyfus Alcentra Global Credit Income 2024 Target Term Fund, Inc","BK4579":"人工智能","TV":"墨西哥电视","BK4552":"Archegos爆仓风波概念","BK4574":"无人驾驶","TQQQ":"纳指三倍做多ETF","LU0173614495.USD":"富达中国焦点A","LU0359201612.USD":"贝莱德中国基金A2","LU0359202008.SGD":"Blackrock China Fund A2 SGD-H","LU1023057109.AUD":"BGF CHINA \"A2\" (AUDHDG) ACC","BK4504":"桥水持仓"},"translate_title":"百度公司（纳斯达克股票代码：BIDU）的内在计算表明其价值被低估了40%","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"BAIDF":1,"TV":1,"NDAQ":1,"FCF":1,"DCF":1,".IXIC":1,"BIDU":1,"K3SD.SI":0.9,"SQQQ":0.6,"TQQQ":0.6,"PSQ":0.6,"QID":0.6,"QLD":0.6,"QQQ":0.6,"MNQmain":0.6,"NQmain":0.6},"content_text":"Key Insights\n\n Using the 2 Stage Free Cash Flow to Equity, Baidu fair value estimate is US$142 \n Current share price of US$85.70 suggests Baidu is potentially 40% undervalued \n Our fair value estimate is 7.9% higher than Baidu's analyst price target of CN¥132 \n\n Today we'll do a simple run through of a valuation method used to estimate the attractiveness of Baidu, Inc. (NASDAQ:BIDU) as an investment opportunity by taking the expected future cash flows and discounting them to today's value. We will use the Discounted Cash Flow (DCF) model on this occasion. Believe it or not, it's not too difficult to follow, as you'll see from our example! \n We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model. \n See our latest analysis for Baidu \n The Model \n We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. 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) estimate \n\n\n\n\n2025\n2026\n2027\n2028\n2029\n2030\n2031\n2032\n2033\n2034\n\n\n Levered FCF (CN¥, Millions) \nCN¥26.2b\nCN¥25.3b\nCN¥24.9b\nCN¥24.8b\nCN¥24.9b\nCN¥25.2b\nCN¥25.6b\nCN¥26.0b\nCN¥26.5b\nCN¥27.1b\n\n\nGrowth Rate Estimate Source\nAnalyst x5\nAnalyst x5\nEst @ -1.61%\nEst @ -0.38%\nEst @ 0.49%\nEst @ 1.09%\nEst @ 1.51%\nEst @ 1.81%\nEst @ 2.02%\nEst @ 2.16%\n\n\n Present Value (CN¥, Millions) Discounted @ 8.8% \nCN¥24.1k\nCN¥21.4k\nCN¥19.3k\nCN¥17.7k\nCN¥16.3k\nCN¥15.2k\nCN¥14.1k\nCN¥13.2k\nCN¥12.4k\nCN¥11.7k\n\n\n\n(\"Est\" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = CN¥165b\n After calculating the present value of future cash flows in the initial 10-year period, we need to calculate the Terminal Value, which accounts for all future cash flows beyond the first stage. 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 (2.5%) 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 8.8%. \nTerminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = CN¥27b× (1 + 2.5%) ÷ (8.8%– 2.5%) = CN¥440b\nPresent Value of Terminal Value (PVTV)= TV / (1 + r)10= CN¥440b÷ ( 1 + 8.8%)10= CN¥189b\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 CN¥355b. The last step is to then divide the equity value by the number of shares outstanding. Relative to the current share price of US$85.7, the company appears quite undervalued at a 40% 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 August 24th 2024\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. If you don't agree with these result, have a go at the calculation yourself and play with the 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 8.8%, which is based on a levered beta of 1.268. 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 its 5-year average.\n\n\nDebt is not viewed as a risk.\n\n\nBalance sheet summary for BIDU.\n\n\n\nWeakness\n\nEarnings growth over the past year underperformed the Interactive Media and Services industry.\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 Looking Ahead: \n Valuation is only one side of the coin in terms of building your investment thesis, and it ideally won't be the sole piece of analysis you scrutinize for a company. DCF models are not the be-all and end-all of investment valuation. 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 instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result. Can we work out why the company is trading at a discount to intrinsic value? For Baidu, there are three essential aspects you should further examine: \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. Simply Wall St has no position in any stocks mentioned.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2461347506"}