I've made my first DCF model of the Mednax (MD) listed on the NYSE. I've used both the EBITDA multiple method and perpetuity method to calculated the share price.
The value I ended up with (after adjusting the growth in earnings to be a bit more realistic) seems to be way off, as shown in the attachment. EBITDA method shows $87.77 / share and perpetuity method shows $97.24 per share.
Analysts on yahoo finance shows that the range their price targets are between $63 - $77.
Is there something inherently wrong with my model?
I'm going to guess no, there's a ton of assumptions in a DCF it could be any one of them which you have as X and other models have as Y - its part art in that respect. By the way, I don't see any 'attachment' which you mentioned.
Thanks for the reply, please try https://www.wallstreetoasis.com/files/mednax.png
With regards to your comment, is there a better (more accurate) way to valuate companies?
Would it be a reasonable assumption that the DCF is primarily used during interviews?
I don't see any attachments?
try https://www.wallstreetoasis.com/files/mednax.png
I know nothing about this company, but it is possible that your discount rate is too low. That could be your problem assuming you are on par with analyst estimates for revenue growth, margins, etc...
Tons of assumptions that go into a DCF, so it is hard to tell with a 10 second glance.
Ya, so the reason why it's wildly different is because you're using almost a 12x TV multiple and -1% terminal growth. I've never seen anyone use 12x for terminal growth, that's absolutely insane for a medical company unless it's like Theranos but not a total scam.
You can calculate the implied multiple/terminal growth and see that that 12x is probably like 4-5% terminal growth and the -1% growth is like a 5x. I could be off since every model is different but I bet I'm close.
Thanks for the feedback, is there a method to come up with a reasonable long term growth rate for the terminal value?
As for the ebitda multiple, I'm dividing the enterprise value of 2016 by the ebitda of 2016. Is there a different way to come up with this multiple besides taking it from a comparable company?
Congrats, you either generated some alpha or your model is about as irrelevant as the pitch book I'm working on
Yeah, I'd agree with Greg Marmalard that the difference in values is largely driven by your terminal estimates. If you're assuming a 12x exit multiple, that's a pretty "sexy" industry by most standards. But it's odd to think such a "sexy" industry would have negative long-term growth... What would 2-3% long-term growth in the perpetuity method look like?
Here's a tip - what are the company's peers trading at in terms of multiples? How is the company trading at in terms of its own long-term multiple averages? I personally think those are a little more telling than DCF.
Finally, I'd say don't worry what analysts value a company at. They are wrong sometimes too.
Fixed that for you
The life of a sell-side analyst: Strong convictions loosely held (or strongly held despite all evidence to the contrary if the company they cover is a banking client).
None.
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