Is Beacon Roofing Supply, Inc. (NASDAQ:BECN) Trading At A 24% Discount?

In This Article:

Key Insights

  • Beacon Roofing Supply's estimated fair value is US$144 based on 2 Stage Free Cash Flow to Equity

  • Current share price of US$109 suggests Beacon Roofing Supply is potentially 24% undervalued

  • Analyst price target for BECN is US$116 which is 19% below our fair value estimate

Does the November share price for Beacon Roofing Supply, Inc. (NASDAQ:BECN) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by estimating the company's future cash flows and discounting them to their present value. We will use the Discounted Cash Flow (DCF) model on this occasion. 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. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.

View our latest analysis for Beacon Roofing Supply

The Model

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. In the first stage we need to estimate the cash flows to the business over the next ten years. 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$505.2m

US$511.5m

US$519.6m

US$529.5m

US$540.7m

US$552.9m

US$566.0m

US$579.9m

US$594.4m

US$609.4m

Growth Rate Estimate Source

Analyst x8

Analyst x7

Est @ 1.59%

Est @ 1.90%

Est @ 2.11%

Est @ 2.27%

Est @ 2.37%

Est @ 2.45%

Est @ 2.50%

Est @ 2.53%

Present Value ($, Millions) Discounted @ 8.1%

US$467

US$438

US$411

US$388

US$366

US$347

US$328

US$311

US$295

US$280

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$3.6b

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