Titan Machinery Inc.'s (NASDAQ:TITN) Intrinsic Value Is Potentially 36% Above Its Share Price

In This Article:

Key Insights

  • Using the 2 Stage Free Cash Flow to Equity, Titan Machinery fair value estimate is US$18.68

  • Titan Machinery's US$13.73 share price signals that it might be 27% undervalued

  • Analyst price target for TITN is US$16.80 which is 10% below our fair value estimate

How far off is Titan Machinery Inc. (NASDAQ:TITN) from its intrinsic value? Using the most recent financial data, we'll take a look at whether the stock is fairly priced by estimating the company's future cash flows and discounting them to their present value. One way to achieve this is by employing the Discounted Cash Flow (DCF) model. Before you think you won't be able to understand it, just read on! It's actually much less complex than you'd imagine.

We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model.

View our latest analysis for Titan Machinery

Crunching The Numbers

We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. To begin with, we have to get estimates of 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) forecast

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

Levered FCF ($, Millions)

-US$17.9m

US$127.7m

US$95.2m

US$81.6m

US$45.3m

US$36.2m

US$31.4m

US$28.7m

US$27.2m

US$26.4m

Growth Rate Estimate Source

Analyst x1

Analyst x1

Analyst x1

Analyst x1

Analyst x1

Est @ -20.12%

Est @ -13.33%

Est @ -8.58%

Est @ -5.26%

Est @ -2.93%

Present Value ($, Millions) Discounted @ 11%

-US$16.2

US$104

US$70.1

US$54.3

US$27.2

US$19.6

US$15.4

US$12.7

US$10.8

US$9.5

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$308m

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