Title: E.W. Scripps Company’s Intrinsic Value Suggests Slight Overvaluation, According to Discounted Cash Flow Analysis
Introduction:
A recent analysis using the Discounted Cash Flow (DCF) model has revealed that The E.W. Scripps Company (NASDAQ:SSP) may be slightly overvalued. By discounting the expected future cash flows to today’s value, the projected fair value for E.W. Scripps is estimated to be $8.07, while the current share price stands at $10.47. This suggests a potential overvaluation of approximately 30%. However, it is important to note that valuations can be imprecise and subject to various factors.
Calculating the Valuation:
The analysis employed a 2-stage growth model, considering two stages of company growth. In the first stage, cash flows for the next ten years were estimated using analyst forecasts or extrapolation of previous free cash flows. The growth rate of free cash flow was assumed to slow over time, reflecting the typical pattern of growth. The cash flows were then discounted to their present value using a discount rate of 14%.
Results:
The projected 10-year free cash flows for E.W. Scripps were estimated to be $588 million. Additionally, the Terminal Value, which accounts for all future cash flows beyond the initial stage, was calculated to be $348 million. Taking the sum of these cash flows, the Total Equity Value was determined to be $682 million. Dividing this value by the total number of shares outstanding, the intrinsic value per share was calculated.
Conclusion:
When compared to the current share price of $10.47, the intrinsic value analysis suggests that E.W. Scripps is slightly overvalued. However, it is important to recognize that valuations are not definitive and can be affected by various factors. The DCF model used in this analysis is just one tool among many that can be employed to assess a company’s valuation.
Assumptions and Limitations:
The accuracy of the analysis is dependent on two key assumptions: the discount rate and the cash flows. If these assumptions are disagreed with, the results may differ. Additionally, the DCF model does not account for industry cyclicality or a company’s future capital requirements, which can impact its performance. The analysis used a discount rate of 14%, based on a levered beta of 2.000.
SWOT Analysis:
A SWOT analysis revealed no major strengths for E.W. Scripps. Weaknesses included interest payments on debt not being well covered. However, opportunities were identified, such as the forecasted reduction of losses next year and a good value based on the price-to-sales ratio. A threat was identified in the debt not being well covered by operating cash flow.
Moving Forward:
While the DCF model provides valuable insights, it should not be the sole metric used when researching a company. The model is best used to test assumptions and theories regarding a company’s valuation. In the case of E.W. Scripps, further exploration of risks, future earnings growth, and alternative investment options is recommended.
Disclaimer:
This article by Simply Wall St provides a general analysis based on historical data and analyst forecasts, using an unbiased methodology. It is not intended to serve as financial advice and does not take into account individual objectives or financial situations. Readers are encouraged to conduct their own research and seek professional advice before making investment decisions. Simply Wall St has no position in any stocks mentioned.
Original Story at simplywall.st – 2023-08-09 12:23:38
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