How Much Is Vertiv Stock Really Worth? | VRT Stock Analysis | VRT Stock Price Prediction

Summary

In this video, the presenter performs a discounted cash flow (DCF) analysis of Verive Holdings, a company benefitting from the growing demand for AI infrastructure and digital data centers. The presenter walks through the process, using key data like the company’s free cash flow, debt, beta, and growth rates to estimate the intrinsic value of Verive’s stock. Based on the analysis, the stock is currently undervalued at $115 per share, with an intrinsic value of $134.78 per share, suggesting potential upside. The video also emphasizes the importance of conducting thorough due diligence before investing.

Takeaways

• 😀 Verive Holdings' stock price has surged to $115 per share, nearly 10 times its 2023 price of $15 per share.
• 😀 The company's rapid growth is driven by investments in digital infrastructure and AI-optimized data centers.
• 😀 Despite strong financial performance, the question remains: how much is Verive stock really worth?
• 😀 The speaker will use the discounted cash flow (DCF) model to calculate the intrinsic value of Verive Holdings' stock.
• 😀 Essential data for the valuation includes free cash flow, long-term debt, cash and short-term investments, and the number of shares outstanding.
• 😀 A key input for the DCF model is the company's 31.57% projected growth rate in earnings per share (EPS) over the next 5 years.
• 😀 The DCF model forecasts free cash flows growing at 31.57% for 5 years, slowing to 15.79% in the following 5 years, and settling at 5% in the long term.
• 😀 The estimated present value of Verive's free cash flows for the next 10 years is $2.92 billion.
• 😀 Using a terminal value estimate, the company’s long-term cash flows are valued at $13.5 billion, with a present value of $32.9 billion.
• 😀 After adjusting for debt and adding cash, the intrinsic value of Verive's equity is calculated at $51.8 billion, translating to an intrinsic value per share of $134.78.
• 😀 Comparing this intrinsic value to the current stock price of $115 suggests that Verive stock is undervalued by about 14.92%.
• 😀 The speaker rates Verive stock as a buy based on the DCF valuation, but warns that this is just one of many tools for investment decisions.
• 😀 The intrinsic value per share changes depending on the assumed long-term growth rate: a 4% growth rate suggests a value of $124 per share, and a 3% growth rate suggests a value of $116 per share, aligning closer to the current market price.

Q & A

What is the current stock price of Verve Holdings and how has it changed over the last year?

The current stock price of Verve Holdings is $115 per share, which is almost 10 times higher than the $15 per share it was trading at in 2023.

What factors are contributing to the increase in Verve Holdings' stock price?

Verve Holdings' stock price is soaring due to increased investments in developing digital infrastructure, AI data centers, and its optimized artificial intelligence capabilities.

What is the key valuation model used to estimate Verve Holdings' intrinsic stock value?

The key valuation model used to estimate the intrinsic stock value is the discounted cash flow (DCF) model.

What is Verve Holdings' trailing 12-month free cash flow, and why is this important for valuation?

Verve Holdings' trailing 12-month free cash flow is $1.79 billion. This figure is crucial as it forms the basis for forecasting future free cash flows and determining the company's intrinsic value.

How much debt does Verve Holdings have, and how does it impact the valuation process?

Verve Holdings has $2.93 billion in total long-term debt, which is an important factor to consider when calculating the company's equity value, as it is subtracted from the total value of operations.

What is the company's beta, and how does it affect the valuation?

Verve Holdings' beta is 1.59. The beta is used in calculating the weighted average cost of capital (WACC), which helps in discounting future cash flows to their present value.

What growth rate assumptions are used in the DCF model for Verve Holdings?

The DCF model uses a growth rate of 31.57% for the first five years, based on Wall Street analysts' expectations for the company's earnings per share (EPS) growth. This is followed by a 15.79% growth rate for the next five years, and a long-term growth rate of 5% thereafter.

What is the terminal value, and how is it calculated in the DCF model for Verve Holdings?

The terminal value represents the company's estimated value beyond the forecasted years. It is calculated by dividing the projected free cash flow for the next year by the WACC minus the long-term growth rate. For Verve Holdings, the terminal value is estimated at $13.5 billion.

What is the present value of Verve Holdings' future cash flows and terminal value?

The present value of Verve Holdings' future cash flows is $20.9 billion, and the present value of the terminal value is $32.9 billion.

What is the intrinsic value per share of Verve Holdings, and how does it compare to the current market price?

The intrinsic value per share of Verve Holdings, based on the DCF model, is $134.78. This is significantly higher than the current market price of $115, suggesting that the stock is undervalued.