DCF Studio

    AOS · NYQ · Industrials

    A. O. Smith Corporation

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 44.70

    Market price

    USD 56.95

    Implied upside

    -21.5%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    Value Per Share

    Perpetuity growth
    USD 44.70-21.5%
    Exit multiple
    USD 50.69-11.0%
    Market price
    USD 56.95

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0m295m589mFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 3.9bnUSD 3.9bnUSD 3.9bnUSD 3.9bnUSD 4.0bn+0.7%
    EBITUSD 722.9mUSD 727.7mUSD 732.6mUSD 737.6mUSD 742.5m+0.7%
    NOPATUSD 571.1mUSD 574.9mUSD 578.8mUSD 582.7mUSD 586.6m+0.7%
    Add depreciation & amortisationUSD 80.7mUSD 81.2mUSD 81.7mUSD 82.3mUSD 82.8m+0.7%
    Less capital expenditureUSD -81.3mUSD -81.9mUSD -82.4mUSD -83.0mUSD -83.5m+0.7%
    Less increase in working capitalUSD 3.3mUSD 3.4mUSD 3.4mUSD 3.4mUSD 3.4m-0.7%
    Free cashflow to firmUSD 573.7mUSD 577.6mUSD 581.5mUSD 585.4mUSD 589.3m+0.7%
    Discount factor0.94950.85600.77170.69580.6273-
    Present valueUSD 544.8mUSD 494.4mUSD 448.8mUSD 407.3mUSD 369.7m-9.2%
    Present Value Of The ForecastUSD 2.3bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.103Reported 1.153, pulled toward 1.0 (Blume)
    Cost of equity11.06%Risk-free + beta x equity risk premium
    Cost of debt6.60%Interest expense / average total debt
    Market capitalisationUSD 7.7bn97.6% of capital
    Total debtUSD 192.1m2.4% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC10.92%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 44.70

    64% of EV

    Forecast FCFF, final year
    USD 589.3m
    Capex at depreciation, working capital in reinvestment
    USD 586.6m
    Less reinvestment at g/ROIC (9.0% of NOPAT)
    USD -52.5m
    Capitalised
    USD 534.1m
    ROIC (reported)
    27.9%
    Terminal value, undiscounted
    USD 6.5bn
    Terminal value, discounted
    USD 4.1bn
    Enterprise value
    USD 6.3bn
    Less net debt
    USD -1.1m
    Equity value
    USD 6.3bn

    Exit at 9.5x EBITDA

    Value per shareUSD 50.69

    69% of EV

    Terminal value, undiscounted
    USD 7.9bn
    Terminal value, discounted
    USD 4.9bn
    Enterprise value
    USD 7.2bn
    Less net debt
    USD -1.1m
    Equity value
    USD 7.2bn

    Spread between methods: 13%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    8.92%53.0855.1657.5660.3563.65
    9.92%47.1148.5950.2752.1854.38
    10.92%42.4043.4944.7046.0647.60
    11.92%38.5939.4140.3141.3042.41
    12.92%35.4536.0736.7537.5038.32

    Outlined: this model. Green text: above today's price of 56.95. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year0.7%6.2%+5.5pp
    EBIT margin18.7%23.9%+5.1pp
    Discount rate10.9%9.0%-1.9pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.