An Intrinsic Calculation For Lamb Weston Holdings, Inc. (NYSE:LW) Suggests It's 45% Undervalued

Simply Wall St.11-10

Key Insights Lamb Weston Holdings' estimated fair value is US$148 based on 2 Stage Free Cash Flow to Equity Current share price of US$81.20 suggests Lamb Weston Holdings is potentially 45% ...

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(NYSE:LW) Suggests It's 45% Undervalued","media":"Simply Wall St.","content":"<div>\n<p>Key Insights\n\n Lamb Weston Holdings' estimated fair value is US$148 based on 2 Stage Free Cash Flow to Equity \n Current share price of US$81.20 suggests Lamb Weston Holdings is potentially 45% ...</p>\n\n<a href=\"https://finance.yahoo.com/news/intrinsic-calculation-lamb-weston-holdings-123321482.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>An Intrinsic Calculation For Lamb Weston Holdings, Inc. 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(NYSE:LW) Suggests It's 45% Undervalued\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-10 20:33 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://finance.yahoo.com/news/intrinsic-calculation-lamb-weston-holdings-123321482.html><strong>Simply Wall St.</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Key Insights\n\n Lamb Weston Holdings' estimated fair value is US$148 based on 2 Stage Free Cash Flow to Equity \n Current share price of US$81.20 suggests Lamb Weston Holdings is potentially 45% ...</p>\n\n<a href=\"https://finance.yahoo.com/news/intrinsic-calculation-lamb-weston-holdings-123321482.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":"DCF","symbol_name":"Dreyfus Alcentra Global Credit Income 2024 Target Term Fund, Inc","start_time":0,"source_url":"https://finance.yahoo.com/news/intrinsic-calculation-lamb-weston-holdings-123321482.html","article_id":"2482680622","we_media_id":null,"thumbnails":["https://s.yimg.com/uu/api/res/1.2/PfwIuCLz.FyUs9V2w7J.FQ--~B/aD00MzI7dz0xMTk0O2FwcGlkPXl0YWNoeW9u/https://media.zenfs.com/en/simply_wall_st__316/e15b0d88b0885067ee46b65c5e0ec0bd"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2482680622","pubTimestamp":1731242001,"sourceInfo":{"source_id":"yahoofinance","name":"雅虎金融"},"weMediaInfo":null,"summary":"Lamb Weston Holdings' estimated fair value is US$148 based on 2 Stage Free Cash Flow to Equity. Current share price of US$81.20 suggests Lamb Weston Holdings is potentially 45% undervalued. The US$80.26 analyst price target for LW is 46% less than our estimate of fair value. Does the November share price for Lamb Weston Holdings, Inc.  reflect what it's really worth?Today, we will estimate the stock's intrinsic value by taking the expected 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!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 want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model.","collect":0,"end_time":0,"defaultTopTitle":"yahoo.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"DCF":"Dreyfus Alcentra Global Credit Income 2024 Target Term Fund, Inc","LU1878469433.USD":"THREADNEEDLE (LUX) - AMERICAN SMALLER COMPANIES \"A\" (USD) ACC","BK4100":"有线和卫星","BK4585":"ETF&股票定投概念","BK4588":"碎股","NYSE":"纽交所","BK4212":"包装食品与肉类","TV":"墨西哥电视","LW":"Lamb Weston Holdings, Inc.","BK4211":"区域性银行","FCF":"第一联邦金融"},"translate_title":"Lamb Weston Holdings,Inc.（纽约证券交易所股票代码：LW）的内在计算表明其价值被低估了45%","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"DCF":1,"FCF":1,"LW":1,"NYSE":1,"TV":1},"content_text":"Key Insights\n\n Lamb Weston Holdings' estimated fair value is US$148 based on 2 Stage Free Cash Flow to Equity \n Current share price of US$81.20 suggests Lamb Weston Holdings is potentially 45% undervalued \n  The US$80.26 analyst price target for LW is 46% less than our estimate of fair value \n\n Does the November share price for Lamb Weston Holdings, Inc. (NYSE:LW) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by taking the expected future cash flows and discounting them to their present value. We will use the Discounted Cash Flow (DCF) model on this occasion. It may sound complicated, but actually it is quite simple! \n We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model. \n See our latest analysis for Lamb Weston Holdings \n Crunching The Numbers \n We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. To start off with, we need to estimate the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. \n A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we need to discount the sum of these future cash flows to arrive at a present value estimate: \n 10-year free cash flow (FCF) estimate \n\n\n\n\n2025\n2026\n2027\n2028\n2029\n2030\n2031\n2032\n2033\n2034\n\n\n Levered FCF ($, Millions) \nUS$248.6m\nUS$466.1m\nUS$498.4m\nUS$618.0m\nUS$698.0m\nUS$758.2m\nUS$809.9m\nUS$854.9m\nUS$894.9m\nUS$931.2m\n\n\nGrowth Rate Estimate Source\nAnalyst x4\nAnalyst x4\nAnalyst x3\nAnalyst x1\nAnalyst x1\nEst @ 8.62%\nEst @ 6.82%\nEst @ 5.56%\nEst @ 4.68%\nEst @ 4.06%\n\n\n Present Value ($, Millions) Discounted @ 5.9% \nUS$235\nUS$415\nUS$419\nUS$491\nUS$524\nUS$537\nUS$542\nUS$540\nUS$533\nUS$524\n\n\n\n(\"Est\" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = US$4.8b\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. 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 2.6%. We discount the terminal cash flows to today's value at a cost of equity of 5.9%. \nTerminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = US$931m× (1 + 2.6%) ÷ (5.9%– 2.6%) = US$29b\nPresent Value of Terminal Value (PVTV)= TV / (1 + r)10= US$29b÷ ( 1 + 5.9%)10= US$16b\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 US$21b. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Relative to the current share price of US$81.2, the company appears quite undervalued at a 45% discount to where the stock price trades currently. Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out. \n\n\n\n  NYSE:LW Discounted Cash Flow November 10th 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. You don't have to agree with these inputs, I recommend redoing the calculations yourself and playing with them. 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 Lamb Weston Holdings 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 5.9%, which is based on a levered beta of 0.800. 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 Lamb Weston Holdings\n\n\nStrength\n\nDebt is well covered by earnings.\n\n\nBalance sheet summary for LW.\n\n\n\nWeakness\n\nEarnings declined over the past year.\n\n\nDividend is low compared to the top 25% of dividend payers in the Food market.\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\nDebt is not well covered by operating cash flow.\n\n\nPaying a dividend but company has no free cash flows.\n\n\n Annual earnings are forecast to grow slower than the American market.\n\n\nIs LW well equipped to handle threats?\n\n\n\n Moving On: \n Whilst important, the DCF calculation shouldn't be the only metric you look at when researching a company. It's not possible to obtain a foolproof valuation with a DCF model. Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation. If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different. What is the reason for the share price sitting below the intrinsic value? For Lamb Weston Holdings, there are three pertinent factors you should further examine: \n\n Risks: For instance, we've identified   4 warning signs for Lamb Weston Holdings (1 doesn't sit too well with us)  you should be aware of. \n Management:Have insiders been ramping up their shares to take advantage of the market's sentiment for LW's future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors. \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. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the NYSE 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":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"1","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":"4.29.2","shortVersion":"4.29.2","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/2482680622"}