Yahoo Finance Is bluebird bio Inc (NASDAQ:BLUE) Worth $182.8 Based On Intrinsic Value?
In this article I am going to calculate the intrinsic value of bluebird bio Inc (NASDAQ:BLUE) using the discounted cash flows (DCF) model. If you want to learn more about this method, the basis for my calculations can be found in detail in the Simply Wall St analysis model. If you are reading this after June 2018 then I highly recommend you check out the latest calculation for bluebird bio here.
Crunching the numbers
I use what is known as the 2-stage model, which takes into account the initial higher growth stage of a company’s life cycle and the steadier growth phase over the long run. To begin, I use the analyst consensus forecast of BLUE’s levered free cash flow (FCF) over the next five years and discounted these values at the rate of 10.71%. This resulted in a present value of 5-year cash flow of US$264.75M. Keen to understand how I arrived at this number? Check out our detailed analysis here.
Above is a visual representation of how BLUE’s top and bottom lines are expected to move in the future, which should give you an idea of BLUE’s outlook. Then, I calculate the terminal value, which is the business’s cash flow after the first stage. I think it’s suitable to use the 10-year government bond rate of 2.8% as the stable growth rate, which is rightly below GDP growth, but more towards the conservative side. The present value of the terminal value after discounting it back five years is US$6.78B.
The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is US$7.04B. To get the intrinsic value per share, we divide this by the total number of shares outstanding. This results in an intrinsic value of $140.55, which, compared to the current share price of $182.8, we see that bluebird bio is quite expensive at the time of writing.
Next Steps:
Although the valuation of a company is important, it shouldn’t be the only metric you look at when researching a company. What is the reason for the share price to differ from the intrinsic value? For BLUE, I’ve compiled three fundamental factors you should look at:
Financial Health: Does BLUE have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
Future Earnings: How does BLUE’s growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.
Other High Quality Alternatives: Are there other high quality stocks you could be holding instead of BLUE? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!
PS. Simply Wall St does a DCF calculation for every US stock every 6 hours, so if you want to find the intrinsic value of any other stock just search here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
