Previously, I had ran three different basic models to determine AMEX’s intrinsic value of $80/share.
Now, I will use the WACC discount rate instead of just relying on Cost of Equity (6.28%) alone (see this link for prior blog)
According to Investopedia, this is the entire formula of WACC:
Pretty complicated, and yes it is.
To outline and give number to these variables:
E=73,730 million USD
D=51,813 million USD
V= 125,543 million USD
*I believe this Youtube video by Matt Kermode best explains how to perform a WACC application to any company–so long as an investor is able to determine at what required rate of return a company’s debt has to offer (Rd). Link: https://www.youtube.com/watch?v=EZw-Ca0A37Q
Proceeding to a no growth (0%) rate with 10-year period. I arrived at $129/share.
Involving the previous three IVs calculated averaging them, I arrived at an intrinsic value of $92.25/share. Whereby, the current price of $72.42 is at a 27% discount—nearing my threshold of 30% margin of safety.
$92.25/share would give a current PE valuation of 16, which is a overvalued in terms of AMEX’s industry peers of 13 according to Yahoo Finance.
Disclosure: I do not have shares in any of the companies mentioned in this article and don’t plan to initiate purchase within the next 24 hours. I would not receive any compensation for doing this article. I am not a professional financial analyst. This is just a hobby. Lastly, my work is not error-free, but I strive for it to be. Do not consider as a buy or sell advice. Invest at your own risk.
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