Are Buyers Undervaluing Booz Allen Hamilton Holding Company (NYSE:BAH) By 23%?

Key Insights

  • Booz Allen Hamilton Holding’s estimated honest worth is US$115 primarily based on 2 Stage Free Money Stream to Fairness
  • Booz Allen Hamilton Holding is estimated to be 23% undervalued primarily based on present share worth of US$88.51
  • Our honest worth estimate is 2.4% decrease than Booz Allen Hamilton Holding’s analyst worth goal of US$113

Does the March share worth for Booz Allen Hamilton Holding Company (NYSE:BAH) replicate what it is actually value? As we speak, we are going to estimate the inventory’s intrinsic worth by taking the anticipated future money flows and discounting them to right this moment’s worth. We are going to reap the benefits of the Discounted Money Stream (DCF) mannequin for this objective. It might sound difficult, however really it’s fairly easy!

Corporations could be valued in a variety of methods, so we might level out {that a} DCF is just not good for each state of affairs. When you nonetheless have some burning questions on one of these valuation, check out the Merely Wall St evaluation mannequin.

View our newest evaluation for Booz Allen Hamilton Holding

Is Booz Allen Hamilton Holding Pretty Valued?

We’re utilizing the 2-stage progress mannequin, which merely means we absorb account two levels of firm’s progress. Within the preliminary interval the corporate might have a better progress charge and the second stage is often assumed to have a steady progress charge. Within the first stage we have to estimate the money flows to the enterprise over the following ten years. The place potential we use analyst estimates, however when these aren’t accessible we extrapolate the earlier free money circulate (FCF) from the final estimate or reported worth. We assume corporations with shrinking free money circulate will gradual their charge of shrinkage, and that corporations with rising free money circulate will see their progress charge gradual, over this era. We do that to replicate that progress tends to gradual extra within the early years than it does in later years.

A DCF is all about the concept a greenback sooner or later is much less precious than a greenback right this moment, so we have to low cost the sum of those future money flows to reach at a gift worth estimate:

10-year free money circulate (FCF) estimate

2023 2024 2025 2026 2027 2028 2029 2030 2031 2032
Levered FCF ($, Hundreds of thousands) US$527.2m US$579.6m US$735.0m US$814.0m US$872.6m US$921.9m US$964.1m US$1.00b US$1.03b US$1.06b
Development Fee Estimate Supply Analyst x6 Analyst x6 Analyst x3 Analyst x1 Est @ 7.19% Est @ 5.66% Est @ 4.58% Est @ 3.83% Est @ 3.30% Est @ 2.93%
Current Worth ($, Hundreds of thousands) Discounted @ 7.5% US$490 US$501 US$591 US$609 US$607 US$597 US$581 US$561 US$539 US$516

(“Est” = FCF progress charge estimated by Merely Wall St)
Current Worth of 10-year Money Stream (PVCF) = US$5.6b

The second stage is often known as Terminal Worth, that is the enterprise’s money circulate after the primary stage. For plenty of causes a really conservative progress charge is used that can’t exceed that of a rustic’s GDP progress. On this case now we have used the 5-year common of the 10-year authorities bond yield (2.1%) to estimate future progress. In the identical means as with the 10-year ‘progress’ interval, we low cost future money flows to right this moment’s worth, utilizing a value of fairness of seven.5%.

Terminal Worth (TV)= FCF2032 × (1 + g) ÷ (r – g) = US$1.1b× (1 + 2.1%) ÷ (7.5%– 2.1%) = US$20b

Current Worth of Terminal Worth (PVTV)= TV / (1 + r)10= US$20b÷ ( 1 + 7.5%)10= US$9.7b

The whole worth, or fairness worth, is then the sum of the current worth of the longer term money flows, which on this case is US$15b. Within the remaining step we divide the fairness worth by the variety of shares excellent. Relative to the present share worth of US$88.5, the corporate seems a contact undervalued at a 23% low cost to the place the inventory worth trades at present. The assumptions in any calculation have a huge impact on the valuation, so it’s higher to view this as a tough estimate, not exact all the way down to the final cent.

NYSE:BAH Discounted Money Stream March 18th 2023

Essential Assumptions

Now a very powerful inputs to a reduced money circulate are the low cost charge, and naturally, the precise money flows. You do not have to agree with these inputs, I like to recommend redoing the calculations your self and enjoying with them. The DCF additionally doesn’t contemplate the potential cyclicality of an trade, or an organization’s future capital necessities, so it doesn’t give a full image of an organization’s potential efficiency. On condition that we’re taking a look at Booz Allen Hamilton Holding as potential shareholders, the price of fairness is used because the low cost charge, quite than the price of capital (or weighted common price of capital, WACC) which accounts for debt. On this calculation we have used 7.5%, which is predicated on a levered beta of 0.917. Beta is a measure of a inventory’s volatility, in comparison with the market as a complete. We get our beta from the trade common beta of worldwide comparable corporations, with an imposed restrict between 0.8 and a pair of.0, which is an inexpensive vary for a steady enterprise.

SWOT Evaluation for Booz Allen Hamilton Holding


  • Debt is effectively coated by earnings and cashflows.
  • Dividends are coated by earnings and money flows.
Weak spot

  • Earnings declined over the previous yr.
  • Dividend is low in comparison with the highest 25% of dividend payers within the Skilled Companies market.

  • Annual earnings are forecast to develop sooner than the American market.
  • Good worth primarily based on P/E ratio and estimated honest worth.

  • Annual income is forecast to develop slower than the American market.

Wanting Forward:

While necessary, the DCF calculation ideally will not be the only piece of study you scrutinize for a corporation. It isn’t potential to acquire a foolproof valuation with a DCF mannequin. As a substitute the perfect use for a DCF mannequin is to check sure assumptions and theories to see if they might result in the corporate being undervalued or overvalued. If an organization grows at a distinct charge, or if its price of fairness or threat free charge adjustments sharply, the output can look very completely different. What’s the motive for the share worth sitting under the intrinsic worth? For Booz Allen Hamilton Holding, we have put collectively three additional components you need to additional analysis:

  1. Dangers: As an illustration, we have recognized 3 warning indicators for Booz Allen Hamilton Holding that you ought to be conscious of.
  2. Future Earnings: How does BAH’s progress charge examine to its friends and the broader market? Dig deeper into the analyst consensus quantity for the upcoming years by interacting with our free analyst progress expectation chart.
  3. Different Stable Companies: Low debt, excessive returns on fairness and good previous efficiency are elementary to a powerful enterprise. Why not discover our interactive record of shares with stable enterprise fundamentals to see if there are different corporations you could not have thought-about!

PS. Merely Wall St updates its DCF calculation for each American inventory daily, so if you wish to discover the intrinsic worth of some other inventory simply search right here.

Valuation is complicated, however we’re serving to make it easy.

Discover out whether or not Booz Allen Hamilton Holding is probably over or undervalued by trying out our complete evaluation, which incorporates honest worth estimates, dangers and warnings, dividends, insider transactions and monetary well being.

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This text by Merely Wall St is common in nature. We offer commentary primarily based on historic information and analyst forecasts solely utilizing an unbiased methodology and our articles are usually not meant to be monetary recommendation. It doesn’t represent a suggestion to purchase or promote any inventory, and doesn’t take account of your goals, or your monetary state of affairs. We intention to deliver you long-term targeted evaluation pushed by elementary information. Word that our evaluation might not issue within the newest price-sensitive firm bulletins or qualitative materials. Merely Wall St has no place in any shares talked about.

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