An Intrinsic Calculation For USANA Health Sciences, Inc. (NYSE:USNA) Suggests It's 44% Undervalued

In This Article:

Key Insights

  • USANA Health Sciences' estimated fair value is US$71.73 based on 2 Stage Free Cash Flow to Equity

  • USANA Health Sciences is estimated to be 44% undervalued based on current share price of US$40.25

Does the November share price for USANA Health Sciences, Inc. (NYSE:USNA) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by taking the forecast future cash flows of the company and discounting them back to today's value. The Discounted Cash Flow (DCF) model is the tool we will apply to do this. Before you think you won't be able to understand it, just read on! It's actually much less complex than you'd imagine.

Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.

Check out our latest analysis for USANA Health Sciences

The Calculation

We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. 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.

Generally we assume that a dollar today is more valuable than a dollar in the future, and so the sum of these future cash flows is then discounted to today's value:

10-year free cash flow (FCF) estimate

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

Levered FCF ($, Millions)

US$59.3m

US$64.5m

US$63.0m

US$62.5m

US$62.7m

US$63.3m

US$64.2m

US$65.4m

US$66.7m

US$68.2m

Growth Rate Estimate Source

Analyst x2

Analyst x2

Est @ -2.21%

Est @ -0.76%

Est @ 0.25%

Est @ 0.96%

Est @ 1.46%

Est @ 1.81%

Est @ 2.05%

Est @ 2.22%

Present Value ($, Millions) Discounted @ 6.6%

US$55.6

US$56.7

US$52.0

US$48.3

US$45.4

US$43.0

US$40.9

US$39.1

US$37.4

US$35.8

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$454m

The second stage is also known as Terminal Value, this is the business's cash flow after 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 (2.6%) 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 6.6%.

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