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CARLESMARX
What is HP Stock Value?
posted May 18 '12 by carlesmarx
Hi, I'm quite new to stock trading (done some basic information & reading but still new). I am not able to interpret the way we evaluate the "value of a stock". What is the difference between Rule#1 investors stock value for HPQ (at $6) and this analysis bellow done for HPQ at $39?
Thx!!Carlos
[
http://seekingalpha.com/article/601041-why-i-think-hp-is-undervalued] In this article I will run you through my DCF model. In particular I will be using free cash flow to the firm FCFF model to evaluate the stock. Feel free to share your opinion regarding the assumptions I made for this valuation.Let's start with the top line. The company recorded $127.24B revenue in 2011, which represented 1.24% growth Year/Year. In 2010 revenue grew by 9.72% compared with 2009. In 2012, however, I predict that the company will record lower $122.41B revenue, and modest 1.77% recovery in 2013. I predict 2% growth for the next 2 years and no growth for 2 years afterwards.Coming down to the cost side I predict COGS 74%, SG&A 13% and EBIT margin 7.5-8.5% of revenues for the projected period. Interest expense should stay at around 3% of the long-term debt. I forecast taxes to be 22% on average for the projected period.Then I subtract increases in working capital and capital expenditures. I model working capital to increase 10% of the revenue increase per annum. Capital expenditures should stay at 64% of the net income.This model uses WACC to discount FCFF backwards to find out the present value. Beta of this stock is 1.08. I project the WACC to be 6.99%. However, I believe in reality WACC could be higher on average in the long term so I will do further calculations with 10% WACC.To get the value of the firm we need to discount the projected FCFF by WACC and add the terminal value at the end of the 5-year period by calculating a perpetuity with contraction of 2% and 10% WACC.I get the value of equity by subtracting the market value of debt and adding back current cash and marketable securities.Equity value per share is $39.50, which means the stock is 79% undervalued.

ALEX
Re: What is HP Stock Value?
posted May 20 '12 by alex
Phil Town says: "The Sticker Price of any business is based on its future EPS and future PE. In other words, if we can figure out what a company's future EPS and PE numbers are going to be in, say, ten years, we can multiply those two numbers together and determine its future price in ten years and than, from that, work backwards to determine its Sticker Price today." (Read more in the Theory section). - this is the idea behind value price computation.
There are somewhat similar ideas in the article you mentioned and on stock2own - for example, growth rates analysis. But, in general, I do not think that author is using the same methodology. One thing in particular broght my attention - author of the article is saying:
Equity value per share is $39.50, which means the stock is 79% undervalued.
Perhaps a typo, because based on latest yearly statement available, BVPS for HPQ is $19.40 (you can check Raw Financial Data section - top line shows BVPS:
http://www.stock2own.com/StockAnalyzer.aspx?s=US:HPQ) Current market price is $21.46, which is above $19.40 and therefore we cannot say that stock is undervalued simply because its price is below its BVPS.

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