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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Mattyice who wrote (76648)	12/7/2024 9:25:13 AM
From: E_K_S	Read Replies (2) \| Respond to of 78525

GuruFocus DCF Valuation : TGT vs other retailers and some other sectors significantly undervalued from this DCF analysis Discounted Cash Flow (DCF) valuation analysis is a financial method used to estimate the intrinsic value of an investment based on its expected future cash flows, which are adjusted for the time value of money. GuruFocus employs a DCF model that typically uses a two-stage approach: an initial high-growth phase followed by a terminal phase with a lower growth rate. This model relies on earnings per share (EPS) as its primary input, reflecting historical correlations between stock prices and earnings rather than free cash flow. The DCF calculation involves projecting future cash flows, applying a discount rate (often set at 12% by default), and determining the present value of these cash flows to evaluate whether a stock is undervalued or overvalued in the market. I was playing around with this last night and ran their model for TGT, KSS & WMT. Here are the results: TGT - Stock Price: $ 132.39 Fair Value: $ 145.14 Margin of Safety: 8.78% KSS- Stock Price $ 15.31 Fair Value $ 25.62 Margin of Safety 40.24% WMT- Stock Price $ 95.70 Fair Value $ 28.27 Margin of Safety -238.52% ----------------------------------------------------------------- Digging deeper into different sectors I found that consulting companies that focus on AI applications and/or have specific software to help different companies become more efficient rank significantly undervalued. This could be because of the large FCF they generate especially in the most recent few quarters: Genpact Ltd (G) DCF Valuation (this is one I have built a nice position in early 2024 at an avg cost now of $31.42) Stock Price $ 45.16 Fair Value $ 70.99 Margin of Safety 36.39% (I already sold 35% of the position and will hold the rest; probably way too soon on the selling) --------------------------------------------------------------- These are others that came up on my search and I added to my watch lists: On Assignment (ASGN) - 41,46% undervalued Dxc Technology Company (DXC) - 45.22% undervalued Concentrix Corp (CNXC) - 87.95% undervalued Celanese Corp (CE) at 65.46% undervalued but in a cyclical sector; plastic materials. I noticed that one fund was buying as of yesterday. The company is challenged and lowered their guidance; maybe too early for a turn around. Do not like their China sales and/or could be impacted by retaliatory tariffs. Lowered 2024 Earnings Guidance: In August 2024, Celanese revised its earnings forecast for 2024 down to a range of $10.25 to $10.75 per share, from a previous estimate of $11 to $12. This adjustment was primarily due to weak demand in critical sectors and significant supply chain challenges, particularly highlighted by contractions in manufacturing activity in China and the eurozone 1 . Disappointing Q3 Results: In November 2024, Celanese reported third-quarter earnings that fell short of expectations, with earnings per share (EPS) of $2.44 compared to an analyst consensus of $2.85. Revenue also dropped to $2.65 billion, down 2.8% from the previous year and below forecasts 2 4 . The company’s net income plummeted by 88% year-over-year, reflecting severe operational challenges 3 . Demand Weakness and Operational Challenges Persistent Demand Weakness: The company cited "persistent demand weakness" across key markets such as automotive and industrial sectors, which have faced rapid downturns. This led to significant destocking activities that further depressed sales figures 7 9 . Production Cuts and Dividend Reductions: In response to these challenges, Celanese announced plans to cut its quarterly dividend by 95% and temporarily reduce production across its facilities. This decision was made in light of ongoing demand declines, particularly in the automotive sector In Summary, DCF analysis has been a good tool for me to uncover undervalued stocks but important to look at other factors. I like the AI theme but at value. Two of those companies, CNXC (PE: 4.23x 2.4% div) & DXC (6.27x PE) have low PE's. Maybe others can post their undervalued candidates. I typically will give a company 12-18 months to move to fair value. This I learned from Paul Sr as in the past I hung on too long some over 36 months w/o out winning results. (NOTE: Long-Term Orientation: DCF is less effective for short-term investment strategies due to its reliance on long-term projections.)