DCF analysis isn't matching with stock's analyst expectations

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 don't see any attachments?

Just an Undergrad trying to get a job. Something you disagree or dislike about my posts? Let me know by PM'ing me or commenting constructive criticism.
 

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.

 
Best Response

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.

 

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Voluptas quo itaque aut iure qui. Iusto cumque qui minima quisquam. Porro explicabo cumque commodi aut vero sint nihil inventore.

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