DCF Studio

    CSGP · NMS · Real Estate

    CoStar Group, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 5.04

    Market price

    USD 29.09

    Implied upside

    -82.7%

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

    AdjustedFree cashflow is negative in at least one forecast year, so terminal value carries most of the valuation.
    AdjustedCapital expenditure runs at 11.4% of revenue against depreciation of 6.0%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Current EV/EBITDA of 59.4x sits outside a defensible 3-20x band, so the exit multiple is capped at 20.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    USD 5.04-82.7%
    Exit multiple
    USD 25.71-11.6%
    Market price
    USD 29.09

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    -369264870-1846324350FY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 3.7bnUSD 4.2bnUSD 4.8bnUSD 5.5bnUSD 6.3bn+14.2%
    EBITUSD 279.1mUSD 318.6mUSD 363.7mUSD 415.2mUSD 474.0m+14.2%
    NOPATUSD 220.5mUSD 251.7mUSD 287.4mUSD 328.0mUSD 374.5m+14.2%
    Add depreciation & amortisationUSD 224.2mUSD 255.9mUSD 292.2mUSD 333.5mUSD 380.8m+14.2%
    Less capital expenditureUSD -420.9mUSD -480.5mUSD -548.6mUSD -626.3mUSD -714.9m+14.2%
    Less increase in working capitalUSD -241.1mUSD -275.3mUSD -314.3mUSD -358.8mUSD -409.6m+14.2%
    Free cashflow to firmUSD -217.4mUSD -248.2mUSD -283.3mUSD -323.5mUSD -369.3m-14.2%
    Discount factor0.95700.87640.80250.73500.6731-
    Present valueUSD -208.1mUSD -217.5mUSD -227.4mUSD -237.7mUSD -248.5m-4.5%
    Present Value Of The ForecastUSD -1.1bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.830Reported 0.747, pulled toward 1.0 (Blume)
    Cost of equity9.57%Risk-free + beta x equity risk premium
    Cost of debt7.00%Assumed: risk-free + 2bp (interest expense not reported)
    Market capitalisationUSD 11.8bn90.9% of capital
    Total debtUSD 1.2bn9.1% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC9.20%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 5.04

    168% of EV

    Forecast FCFF, final year
    USD -369.3m
    Capex at depreciation, working capital in reinvestment
    USD 374.5m
    Less reinvestment at g/ROIC (27.2% of NOPAT)
    USD -101.8m
    Capitalised
    USD 272.7m
    ROIC (WACC floor)
    9.2%
    Terminal value, undiscounted
    USD 4.2bn
    Terminal value, discounted
    USD 2.8bn
    Enterprise value
    USD 1.7bn
    Less net debt
    USD -449.0m
    Equity value
    USD 2.1bn

    Exit at 20.0x EBITDA

    Value per shareUSD 25.71

    111% of EV

    Terminal value, undiscounted
    USD 17.1bn
    Terminal value, discounted
    USD 11.5bn
    Enterprise value
    USD 10.4bn
    Less net debt
    USD -449.0m
    Equity value
    USD 10.8bn

    Spread between methods: 134%.

    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%
    7.20%7.417.457.507.547.59
    8.20%6.036.066.106.146.18
    9.20%4.975.005.045.075.10
    10.20%4.154.174.204.234.26
    11.20%3.493.513.543.563.59

    Outlined: this model. Green text: above today's price of 29.09. 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
    EBIT margin7.5%26.7%+19.2pp
    Discount rate9.2%2.8%-6.4pp
    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.