Weekly Valuation — Valutico | January 12, 2024

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Sky Shocker

A routine Alaska Airlines flight escalated into a high-altitude drama when a Boeing 737 Max 9’s cabin panel detached at 16,000 feet. While the incident resulted in no severe injuries, it has renewed the focus on the 737 Max series’ history of safety issues.

Market Turbulence

Boeing’s shares experienced a significant drop of 10.5% in response to the incident, reflecting deep investor concerns stemming from the 737 Max’s history. Similarly, Spirit AeroSystems, responsible for the jet’s fuselage, also saw a decline in its stock value.

Trouble in the Air

More than just an isolated incident, this event is part of a series of challenges for Boeing, including technical issues and major accidents in the past. This history has led to extended groundings and substantial financial settlements for Boeing, affecting its public image and financial standing.

“We’re gonna approach this, number one, acknowledging our mistake. We are gonna approach it with 100% and complete transparency every step of the way.”

— Dave Calhoun, CEO of Boeing on 737 Max 9 investigations

Valutico’s View

Valutico’s analysis post-incident offers a contrasting picture of Boeing’s valuation. The DCF valuation stands at USD 45 billion, while Trading Comparables suggest a range of USD 50-90 billion, indicating a potential market overvaluation. This variance highlights Boeing’s market share as a significant factor in its market valuation.

Conclusion

The recent incident with the Alaska Airlines Boeing 737 Max 9 goes beyond temporary disruption, posing significant questions about Boeing’s commitment to safety and its long-term market position. The company’s response to this situation, particularly in light of the financial insights provided by Valutico, will be crucial in defining Boeing’s role in the competitive aerospace market.

Disclaimer 

This article is for informational purposes only and does not constitute investment advice. None of the information contained herein constitutes a solicitation, offer or recommendation to sell or buy any financial instrument.

The post Boeing 737 MAX: A new crisis sparks market turbulence appeared first on Valutico.

Weekly Valuation — Valutico | January 03, 2024

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Inside Visa

The origin of Visa Inc. goes back to the launch of the BankAmericard, a consumer credit program by Bank of America in 1958. The program was led by Mr. Dee Hock’s vision to bring together various banks as members of a “non-stock, for profit membership corporation” and operate credit cards under the ‘Visa’ franchise. Visa Inc. became a publicly traded corporation in 2008. Today, Visa has emerged as a global payments technology company that facilitates money movement and transactions across more than 200 countries and territories through VisaNet. The Company’s core products include credit, debit and prepaid cards. These cards are issued by the affiliated financial institutions and not by Visa itself since the Company is not a financial institution.

Diving into Visa’s Business Model & Competitive Landscape

Visa operates on an open-loop payment system. An open-loop system refers to a financial transaction network where transactions can occur between various parties, including consumers, merchants, financial institutions, and other service providers. Visa generates revenue through transaction processing fees, service fees, licensing, and other charges. Issuers, typically banks, provide Visa-branded cards to consumers, who use them to make purchases at merchants that accept Visa worldwide. The Visa network plays a crucial role in authorizing, clearing, and settling transactions, ensuring the seamless transfer of funds. 

As per the statistics published by Nilson Report in May 2023, the market share of Visa in the total purchase transactions on global general card networks for 2022 was 39% whereas the shares of Mastercard and UnionPay were 24% and 34% respectively.

Financial Outlook

Visa closed FY2023 (ending September 30) with a revenue of $32.7 billion (up 11% y-o-y) and GAAP net income of $17.3 billion (up 15% y-o-y). This growth has been driven by resilient consumer spending and post pandemic travel rebound as evidenced by 9% growth in global payment volumes and 20% growth in cross border volumes during the fiscal year. The Company expects FY2024 to be a normal year as the impact of Ukraine-Russia war and COVID-19 pandemic have been majorly mitigated. Moreover, the operating margins have been stable in the range of 68-70% over the past three years and are expected to remain in a similar range.

Stock Market Implications

The financial performance of Visa is strongly affected by macroeconomic factors. At the start of the COVID-19 pandemic in March 2020, the Visa’s stock fell by 15% year to date due to an uncertain economic environment. As the overall market recovered and digital payments replaced cash, Visa’s stock grew by almost 50% in July 2021 from the lows of March 2020. 

The Russia-Ukraine war that broke out in early 2022 led to global economies suffering from rising inflation and caused a hit to overall consumer spending. As a result, the stock fell by 15% year to date by September 2022 along with an overall market decline. With a gradual recovery in Visa’s revenue growth and increasing cross border transactions led by recovery of international travel trends, the stock price has again reached to $250 levels in December 2023. Visa is currently the 11th most valuable company globally in terms of market capitalization.

https://yhoo.it/4assXgt

Valutico Analysis

We conducted a thorough analysis of Visa employing the Discounted Cash Flow (DCF) methodology, particularly leveraging our DCF WACC approach, alongside a Trading Comparables analysis. The DCF analysis yielded a valuation of USD 367 billion, predicated on a WACC of 8.6%.

Additionally, the Trading Comparables analysis generated a valuation range of USD 220 billion to USD 290 billion, by utilizing observed metrics such as EV/EBITDA, EV/EBIT, and P/E ratios. For a robust comparative landscape, we enlisted similar market players like Mastercard Incorporated, American Express Company and Paypal Holdings, Inc. Based on our analysis, Visa is currently overvalued considering both the intrinsic value and valuation of its peers. However, higher valuation multiples of Visa versus its peers can be attributed to its higher market share and higher operating margins.

Visa is working towards strengthening its payment infrastructure as evidenced by its recent acquisitions of fintech companies such as Pismo, Currencycloud and Tink. Instant payment platforms such as UPI (India), Pix (Brazil) and FedNow (US) are set to compete with giants such as Visa and Mastercard with their growing and faster payment processing capabilities. Going forward, it shall be exciting to see if these new technologies will reduce Visa’s share in the global payments pie or in turn increase the overall pie size with increased adoption of digital payments, making Visa an even stronger player in the market?

Disclaimer

This article is for informational purposes only and does not constitute investment advice. None of the information contained herein constitutes a solicitation, offer or recommendation to sell or buy any financial instrument.

The post Visa: Dominating the Global Payments Industry appeared first on Valutico.

Weekly Valuation — Valutico | December 01, 2023

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Inside Netflix

Founded in 1997, Netflix, initially a DVD rental service, evolved into a streaming giant by 2007. With over 12,000 employees and 200 million subscribers worldwide, it has significantly influenced global entertainment consumption through its user-friendly platform, accessible on various devices. Netflix continues to lead in the evolving entertainment industry.

What’s happening with the company

Netflix has just experienced its largest rise of new subscribers since the COVID-19 lockdowns in 2020. Last quarter, Netflix managed to add 8.8 million global subscribers. In addition to this, their profit also increased as Netflix has become more strict with their password sharing. This surge in users, however, came hand-in-hand with a price increase. Netflix has just announced that its add-free plan will increase from $20 to $23 per month while their basic plan will go from $10 to $12 per month. The outcome of Netflix’s price hike is uncertain: it may boost profits with rising subscribers or risk customer dissatisfaction.

Financial Outlook

Netflix’s Q3 results showed immense growth and expansion. Due to their higher than expected subscription growth this most recent quarter, their revenue grew by 8% year-over-year which was more than anticipated. Netflix’s operating income in Q3 was $1.9B which is a 25% increase from 2022 Q3. Since Netflix has been experiencing higher engagement and is second in percentage of screen time usage behind YouTube, they have high expectations for Q4 and beyond. Many Netflix originals prove to be performing well which is part of the reason why they expect their Q4 revenue to be $8.7B, up 11% year-over-year. Netflix’s analysis and expectations are going in the right direction as they look to close out the year strongly.

Stock Market Implications

In the recent past, most notably in 2020 and 2021, Netflix experienced considerable growth in the stock market. Due to the COVID-19 shutdowns in 2020, new subscriptions increased dramatically. This positive influx persisted until 2022 when Netflix began to crack down on password sharing. As a result of more stringent rules on password sharing, many customers became unhappy and Netflix experienced a drop in their stock. After this dramatic shift downward, Netflix was able to regain some consumer confidence and they have started to reclaim some of their lost ground. After this most recent successful quarter, expectations are high and many believe Netflix is on the path to even greater success.

https://yhoo.it/3BbRwPf

Valutico Analysis

Link to the valuation

We conducted a thorough analysis of Netflix employing the Discounted Cash Flow (DCF) methodology, particula

rly leveraging our

DCF WACC approach, alongside a Trading Comparables analysis. The DCF analysis yielded an equity value of USD 125 billion, predicated on a WACC of 10.1%.

Additionally, the Trading Comparables analysis generated a valuation range of USD 85.4 billion to USD 150 billion, by utilizing observed metrics such as EV/EBITDA, EV/EBIT, and P/E ratios. For a robust comparative landscape, we enlisted similar market players like Alphabet Inc.(Youtube), Apple Inc. (Apple TV) and Amazon.com Inc. (Amazon Prime Video). Netflix is currently trading at a market capitalization of $209 billion which is significantly higher than the valuation range based on the trading multiples of the peers.

The higher trading multiples of the company can be partly attributed to the higher operating margins and sales growth forecasts compared to the median of the peers based on our analysis. However, we still believe the company to be overvalued considering the lower valuation ($125 billion versus the current market cap of $209 billion) from our DCF WACC Approach which is based on the analyst’s consensus estimates of the Company’s financial performance.

As we move ahead, there are questions about how well Netflix earnings will hold up and if the stock price is expected to undergo market correction?

Disclaimer 

This article is for informational purposes only and does not constitute investment advice. None of the information contained herein constitutes a solicitation, offer or recommendation to sell or buy any financial instrument.

The post Netflix hikes up prices after successful quarter appeared first on Valutico.

Small and Medium-sized Enterprises (SMEs) are key players in driving economic growth, fostering innovation, and creating jobs. Recognized as firms with under 250 employees, their accurate valuation is highly important for many finance professionals. In this article, we’ll unravel how to value SMEs, including what you need to consider to do so accurately. 

How do I value an SME? Valuing a Small and Medium-sized Enterprise (SME) involves assessing the company’s financial performance, assets, market position, and growth potential. Key methods include the Income Approach, which estimates future cash flows, the Market Approach, comparing with similar businesses, and the Asset Approach, valuing tangible and intangible assets. Since SMEs often have distinct characteristics like varying cash flows and limited resources, these factors must be carefully considered to arrive at an accurate valuation.

Key Takeaways:

• Valuing Small and Medium-sized Enterprises (SMEs) is crucial for various financial decisions like mergers and acquisitions, investments, and reporting. It determines the economic worth of a company and is essential for informed decision-making.
• SMEs have distinct challenges that impact their valuation, such as unpredictable cash flows, reliance on limited clients, and restricted access to capital. A tailored approach is needed to account for these complexities.
• Common steps in SME valuation include gathering financial data, understanding the industry, choosing a valuation method, and calculating the value using chosen methodology and financial data.
• The three main methods for SME valuation are the Income Approach (e.g. Discounted Cash Flow analysis), Market Approach (e.g. Comparable Companies Analysis), and Asset-based Approach (e.g. net asset value calculation).
• SME valuation also considers factors like owner dependence, client concentration, market position, competitive advantage, and the quality of financial statements.
• The Discounted Cash Flow (DCF) is a leading valuation method that calculates value based on future cash flows, considering time value of money. Free Cash Flow (FCF) and discount rate (often determined using CAPM) are crucial components of this approach.
• SMEs can present challenges with DCF due to limited historical financial data, unreliable information, inadequate financial forecasts, and difficulty in determining terminal value. Approximations, negotiations, and considering illiquidity premiums help mitigate these challenges.
• SME valuation involves understanding different valuation methods and their narratives, tailoring approaches to SME characteristics, and using various components to arrive at an accurate depiction of the business’s value.

What is the Basic Idea behind an SME Valuation?

In its essence, business valuation is the process of determining a company’s economic worth, crucial for various scenarios like mergers and acquisitions, investment analysis, capital budgeting, financial reporting, or even litigation matters.

Why Are SME Valuations So Unique and Challenging?

SMEs, with their unique structures, present specific challenges that can significantly influence their value. These challenges could be unpredictable cash flows, reliance on a limited client base, or restricted access to capital. Thus, SME valuation requires a customized approach, acknowledging these intricacies.

What are the Main Ways to Value an SME?

Broadly speaking, you can value an SME by using one of three methodological approaches.

One common approach is considering the profits it makes and the money it’s expected to make in the future. This is known as the Income Approach, the main method of which is known as a Discounted Cash Flow analysis, which we detail below.

Another approach is comparing it to similar businesses that have been sold recently, similar to how real estate is appraised. This is known as the Market Approach and a common method within this approach is called Comparable Companies Analysis, for example.

The third broad approach involves looking at the assets the SME possesses, like equipment and property, minus any debts it owes. This is known as the Asset Approach.

Sometimes, the business’s reputation or special qualities can also play a role in its value. Experts might even combine a few methods to get a more accurate valuation. One common way might be to run the DCF as the leading technique to value the company, but then support this by running a Comparable Companies Analysis as well. 

As well as the three broad categories of valuation methods just described, there are a few steps that are usually required regardless of what type of approach you take. We outline these next.

Key Steps to Follow To Value an SME

As well as choosing the valuation method, there are some steps in valuing an SME that a valuation professional might take regardless of which valuation method they decide upon. These steps might look something like the following:

Gather Financial Information: Collect the company’s financial statements, tax records, cash flow statements, and any other relevant financial information. This will help you understand the company’s historical financial performance.

Understand the Industry: Research and gain a deep understanding of the industry in which the SME operates. Industry dynamics, trends, and growth prospects can impact the company’s valuation.

Choose a Valuation Method: There are several methods used to value SMEs, which we explore in more detail below. 

Calculate Valuation: Apply the chosen valuation method to the normalized financial data. For example, in the income approach, calculate the present value of future cash flows, or in the market approach, compare the SME’s ratios to those of comparable companies.

What are the Key Valuation Methods Used for SMEs?

As touched upon above, there are three primary methodologies used to value SMEs: the Asset-based Approach, Income Approach, and Market Approach. These methods offer unique insights and serve different purposes.

• Income Approach: This method focuses on the future, seeking to determine the profit a company can generate moving forward. The most popular technique under this approach is the Discounted Cash Flow (DCF) analysis, which projects future cash flows and discounts them to their present value. This method can be compared to farming, where the worth is estimated based on potential future harvests.
• Market Approach: This approach embodies the principle that ‘something is worth what someone is willing to pay for it‘. It estimates a company’s value by comparing it to similar companies that have been sold in the market. Alongside the DCF described above, the Market Approach is a widely adopted approach used by valuation practitioners. When valuing SMEs one challenge with this approach can sometimes be finding comparable businesses due to the SMEs unique characteristics.
• Asset-based Approach: This method functions like an inventory check, summing up a company’s tangible and intangible assets and subtracting liabilities, resulting in the company’s net asset value. It’s akin to estimating a house’s value by calculating the cost of bricks, cement, paint, and then subtracting any existing mortgages or debts.

What Additional Factors are Considered in SME Valuation?

When it comes to SMEs, there are additional factors to consider:

• Owner Dependence: SMEs often heavily rely on their owners. Thus, assessing the impact of the owner’s departure on the business value is crucial.
• Client Concentration: If a significant portion of revenue is derived from a few clients, this introduces risk, which could decrease the company’s value.
• Market Position and Competitive Advantage: A strong market position or unique competitive advantage can increase an SME’s value.
• Quality of Financial Statements: High-quality, well-maintained financial records can increase confidence in an SME’s value.

A valuation professionals may well consider many more risk factors in addition to those above, when performing a thorough and carefully considered company valuation.

What is the Role of the Discounted Cash Flow (DCF) Method in SME Valuation?

This method calculates the value of an SME based on its future cash flows, which are adjusted to account for the time value of money. To define both income and risk appropriately, we focus on Free Cash Flow (FCF) and the discount rate.

Free Cash Flow (FCF) is the liquidity available in the company that the owner can use without jeopardizing the company’s financial equilibrium. To calculate FCF, we follow these steps:

The discount rate integrates the risk and mirrors the opportunity cost of the operation. This rate is typically determined using the Capital Asset Pricing Model (CAPM) methodology.

The DCF valuation formula is as follows:

What difficulties arise when using the DCF method on SMEs?

While the DCF method is widely applicable, implementing it to value SMEs often presents some hurdles due to their unique characteristics. These challenges primarily lie in the following areas:

1. Information availability: SMEs can lack historical financial information. When available, this data might have been prepared for legal obligations rather than economic analysis.
2. Reliability of data: The information at hand might lack credibility due to the absence of external audits, which are typically not required for SMEs.
3. Future projections: Financial forecasts are often inadequate, delayed, or even non-existent, making it tough to project future cash flows.

To counter these challenges, analysts must reconstruct past financial statements and make informed predictions about the future. This often involves separating personal and business assets, filtering personal expenses from company expenses, and distinguishing between company and owner investments.

The discount rate is another contentious area. It needs to incorporate both the project risk and the opportunity cost, typically done using the CAPM method. However, market information required for CAPM, such as beta coefficients and risk premiums, may not be available for SMEs. To solve this, approximations are used, and an illiquidity premium is added to the rate to account for the lack of market for SME shares.

Lastly, determining the continuity value (or terminal value) is a subjective process that often leads to disagreements. A common method is to use the company’s Price-to-Earnings Ratio (PER), but it can be challenging for SMEs due to the absence of a market. Therefore, negotiations often play a pivotal role in reaching a consensus.

Key Considerations

Valuing an SME isn’t about choosing one method over another. Instead, it’s about understanding the narrative each method tells about the business and blending these narratives to arrive at the most accurate depiction of the company’s worth.

While SME valuation might seem like a daunting task at first, breaking it down into understandable components makes it approachable. Whether you’re an entrepreneur preparing for the next funding round or a budding investor ready to dive into the dynamic SME market, we hope the above has opened a window into the intricate and important world of SME valuations. 

The post How to Value an SME—An Introductory Guide appeared first on Valutico.

Weekly Valuation — Valutico | July 25, 2023

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Inside Meta

Meta Platforms Inc., once known as Facebook Inc., is a colossal entity in the realm of global tech. Known for its wide array of services including renowned platforms like Facebook, Instagram, and WhatsApp, Meta has etched its presence into the fabric of the digital world. Through a strategy of «imitate, acquire, outperform,» Meta has steadily amplified its portfolio and extended its reach to over three billion users across its assorted applications. In its latest move, Meta introduced Threads, marking its entry into the territory predominantly occupied by Twitter.

Threads

Threads, Meta’s latest addition to the social media landscape, has experienced a rapid user growth since its launch, gaining over 100 million users within just five days. This growth trajectory makes it the fastest-growing social app in history. Threads’ close integration with Instagram, is a defining characteristic. Users need an Instagram account to join Threads, and eradicating Threads means eliminating their Instagram account too. This inherent interconnection has given the new platform a head start, providing a massive user base at the get-go.It adopts several features from Twitter, creating a competitive dynamic between the two platforms. The success of Threads will hinge on its ability to one-up Twitter.

Impact on Meta’s Financials

Despite potential legal issues with Twitter, the new social media platform shows promise for significantly boosting the company’s 2024 revenue. CEO Mark Zuckerberg anticipates that Threads could add 1-2 points to the revenue growth. With Threads expected to hit 250 million by 2024, it’s projected to yield a $2-3 billion revenue increase. Considering Meta’s proven monetization success, Wall Street may value Threads’ user revenue comparably or higher than Twitter’s $23 per user.

Stock Market Implications

Meta Platforms’ stock has been recovering steadily, now just 20% below its September 2021 peak. With Q2 2023 revenue forecasted at $31.0B, marking a ~7.6% YoY growth, and an EPS of USD 2.89 indicating a ~17% YoY growth, the company’s prospects seem promising. The share price, having grown by 159% in 2023, and a 250% rise from its 52-week low, suggests the market’s faith in a business turnaround. Yet, it would require a strong Q2 2023 earnings report, potentially boosted by the new high-margin revenue source, Meta Verified, to yield further rewards for shareholders.

Valutico Analysis

We analyzed Meta Platforms Inc by using the Discounted Cash Flow method, specifically our simplified DCF WACC approach, as well as a Trading Comparables analysis. The Discounted Cash Flow analysis produced a valuation range of USD 370 billion to USD 493 billion using a WACC of 12.9%.

The Trading Comparables analysis resulted in a valuation range of USD 503 billion to USD 812 billion by applying the observed trading multiples EV/Sales, EV/EBITDA, EV/EBIT and P/E. For our Trading Comparables we selected similar peers such as Alphabet Inc., Snap Inc., Microsoft Corporation.

Combining our DCF WACC and Trading Comparables analysis results in a valuation range of USD 506 billion to USD 769 billion. In comparison to Meta’s market capitalization of USD 730 billion we suggest that the company is fairly valued.

Link to the valuation

Disclaimer

This article is for informational purposes only and does not constitute investment advice. None of the information contained herein constitutes a solicitation, offer or recommendation to sell or buy any financial instrument.

The post Meta’s Threads: A New Rival to Twitter’s Throne appeared first on Valutico.

Weekly Valuation — Valutico | July 7, 2023

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Empty modern office building interior with sunlight . Blue toned .

About the company

Cameco Corporation, based in Canada, is one of the world’s largest uranium producers, accounting for about 9% of global production. Since its founding in 1988, it has become a major player in the nuclear energy sector, with significant mining operations in Canada and the US, and interests in Central Asia and Australia. In addition to uranium mining, Cameco offers refining, conversion, and fuel manufacturing services, providing a comprehensive fuel cycle for nuclear energy.

Nuclear-Powered Future

The U.S. Senate Environment and Public Works Committee approved a bill aimed at expediting the deployment of advanced nuclear reactors. The bill urges the U.S. Nuclear Regulatory Commission to streamline its licensing processes, facilitate international collaboration on nuclear power, and support foreign nuclear safety training. This could benefit uranium miners like Cameco, given the potential increased demand for uranium.

Recent Financial Performance

For this year’s first quarter, Cameco reported a substantial rise in net income, nearly tripling from USD 40 million during 2022’s initial quarter to the current USD 119 million. Simultaneously, revenues saw a 73% jump to USD 687 million over the same period. A key driving force behind this surge in revenue was an escalation in uranium sales, which grew from 5.9 million pounds in the first quarter of 2022 to 9.7 million pounds in the recent quarter.

Share Price Performance

As of June 22, 2023, Cameco’s closing stock price stands at USD 31.76 compared to an all-time high of USD 44.87 in 2007. The stock’s 52-week high is USD 33.00, just 6.9% above the current price, and its low is USD 20.34, significantly lower by 34.1%. The average stock price over the past year was approximately USD 25.74, indicating an increase in recent times.The company current share price stands at USD 31.33.

Valutico Analysis

We analyzed Cameco Corporation by using the Discounted Cash Flow method, specifically our DCF WACC simplified approach, as well as a Trading Comparables analysis. The Discounted Cash Flow analysis produced a value of CAD 14.7 billion using a WACC of 8.8%. 

The Trading Comparables analysis resulted in a valuation range of CAD 6.4 billion to CAD 28.1 billion by applying the observed trading multiples EV/Sales, EV/EBITDA, EV/EBIT, P/E and P/B. For our Trading Comparables we selected similar peers such as Uranium Energy Corp, Centrus Energy Corp. and Peninsula Energy Limited.

Combining our DCF WACC and Trading Comparables analysis results in a valuation range of CAD 10.1 billion to CAD 19 billion. In comparison to Cameco market capitalization of CAD 18.3 billion we suggest that the company is fairly valued.

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Disclaimer 

This article is for informational purposes only and does not constitute investment advice. None of the information contained herein constitutes a solicitation, offer or recommendation to sell or buy any financial instrument.

The post Cameco: Powering the Nuclear Future appeared first on Valutico.

Weekly Valuation — Valutico | June 26, 2023

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About the company

Devon Energy Corporation, based in Oklahoma City, is a prominent player in the energy industry known for its commitment to oil and natural gas exploration and production. With a strong track record and a global presence, Devon Energy has positioned itself as a leading company in the energy sector. The company is dedicated to responsibly harnessing natural resources to meet the energy demands of the modern world.

About the deal

This partnership marks a convergence of Devon’s over 50 years of innovation in oil and gas with Fervo’s advanced geothermal capabilities. Fervo is known for being the first geothermal company to successfully implement a horizontal well pair for commercial geothermal production, a technique pioneered by Devon for oil and gas production. Fervo’s innovative approach, including horizontal drilling and multi-stage well completion, makes geothermal power more accessible and reliable. The partnership is aligned with Devon’s new energy ventures strategy.

Recent Financial Performance

In Q1 2023, Devon Energy saw a marginal profit and sales growth with net income of USD 995 million and revenues of USD 3.82 billion. The company reported an 11% rise in production to 641K boe/day, driven by Eagle Ford assets. Despite a decline in realized prices for all commodities, the company upholds steady growth. It sustains its FY 2023 production and capital spending outlook. Based on the first-quarter financial performance, Devon declared a fixed-plus-variable dividend of $0.72 per share.

Share Price Performance

The company has a market capitalization of more than $32 billion, however, its share price is still down roughly 30% from highs set last year. Devon is having a tough year because of the decline in oil prices and related recession fears have caused the stock to fall roughly 13%. Devon shares are 30% below their 52-week high and 20% above their 52-week lows. Devon’s current share price stands at USD 47.15.

Valutico Analysis

We analyzed Devon Energy Corporation by using the Discounted Cash Flow method, specifically our DCF WACC simplified approach, as well as a Trading Comparables analysis. The Discounted Cash Flow analysis produced a value of USD 27.1 billion using a WACC of 11.7%. 

The Trading Comparables analysis resulted in a valuation range of USD 27.1 billion to USD 35.4 billion by applying the observed trading multiples EV/Sales, EV/EBITDA, EV/EBIT and P/E. For our Trading Comparables we selected similar peers such as Coterra Energy Inc., Earthstone Energy, Inc. and Northern Oil and Gas, Inc.

Combining our DCF WACC and Trading Comparables analysis results in a valuation range of USD 27 billion to USD 33 billion. In comparison to Devon Energy market capitalization of USD 31.7 billion we suggest that the company is fairly valued

Link to the valuation

Disclaimer 

This article is for informational purposes only and does not constitute investment advice. None of the information contained herein constitutes a solicitation, offer or recommendation to sell or buy any financial instrument.

The post Devon Energy: Diversifying into Geothermal appeared first on Valutico.