Key Insights

• Live Nation Entertainment’s estimated honest worth is US$129 primarily based on 2 Stage Free Cash Flow to Equity
• Current share worth of US$70.7 suggests Live Nation Entertainment is 45% undervalued
• Analyst price target for LYV is US$101 which is 22% beneath our honest worth estimate

Today we’ll run by way of a technique of estimating the intrinsic worth of Live Nation Entertainment, Inc. (NYSE:LYV) by taking the forecast future money flows of the corporate and discounting them again to immediately’s worth. We will reap the benefits of the Discounted Cash Flow (DCF) mannequin for this goal. Don’t get postpone by the jargon, the maths behind it’s truly fairly simple.

We usually consider that an organization’s worth is the current worth of all the money it’ll generate sooner or later. However, a DCF is only one valuation metric amongst many, and it’s not with out flaws. For those that are eager learners of fairness evaluation, the Simply Wall St analysis model here could also be one thing of curiosity to you.

View our latest analysis for Live Nation Entertainment

The Calculation

We are going to make use of a two-stage DCF mannequin, which, because the identify states, takes under consideration two levels of development. The first stage is usually a better development interval which ranges off heading in direction of the terminal worth, captured within the second ‘regular development’ interval. To start with, we have now to get estimates of the following ten years of money flows. Where potential we use analyst estimates, however when these aren’t obtainable we extrapolate the earlier free money circulate (FCF) from the final estimate or reported worth. We assume firms with shrinking free money circulate will gradual their price of shrinkage, and that firms with rising free money circulate will see their development price gradual, over this era. We do that to replicate that development tends to gradual extra within the early years than it does in later years.

A DCF is all about the concept a greenback sooner or later is much less useful than a greenback immediately, so we have to low cost the sum of those future money flows to reach at a gift worth estimate:

10-year free money circulate (FCF) estimate

(“Est” = FCF development price estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$11b

The second stage is also referred to as Terminal Value, that is the enterprise’s money circulate after the primary stage. For quite a lot of causes a really conservative development price is used that can’t exceed that of a rustic’s GDP development. In this case we have now used the 5-year common of the 10-year authorities bond yield (2.0%) to estimate future development. In the identical manner as with the 10-year ‘development’ interval, we low cost future money flows to immediately’s worth, utilizing a value of fairness of 8.4%.

Terminal Value (TV)= FCF₂₀₃₂ × (1 + g) ÷ (r – g) = US$2.6b× (1 + 2.0%) ÷ (8.4%– 2.0%) = US$41b

Present Value of Terminal Value (PVTV)= TV / (1 + r)¹⁰= US$41b÷ ( 1 + 8.4%)¹⁰= US$18b

The complete worth is the sum of money flows for the following ten years plus the discounted terminal worth, which leads to the Total Equity Value, which on this case is US$29b. To get the intrinsic worth per share, we divide this by the full variety of shares excellent. Relative to the present share worth of US$70.7, the corporate seems fairly good worth at a forty five% low cost to the place the inventory worth trades presently. Remember although, that that is simply an approximate valuation, and like all advanced components – rubbish in, rubbish out.

The Assumptions

Now an important inputs to a reduced money circulate are the low cost price, and naturally, the precise money flows. You do not need to agree with these inputs, I like to recommend redoing the calculations your self and taking part in with them. The DCF additionally doesn’t think about the potential cyclicality of an business, or an organization’s future capital necessities, so it doesn’t give a full image of an organization’s potential efficiency. Given that we’re taking a look at Live Nation Entertainment as potential shareholders, the price of fairness is used because the low cost price, quite than the price of capital (or weighted common value of capital, WACC) which accounts for debt. In this calculation we have used 8.4%, which relies on a levered beta of 1.162. Beta is a measure of a inventory’s volatility, in comparison with the market as an entire. We get our beta from the business common beta of worldwide comparable firms, with an imposed restrict between 0.8 and a couple of.0, which is an affordable vary for a secure enterprise.

SWOT Analysis for Live Nation Entertainment

Next Steps:

Whilst necessary, the DCF calculation should not be the one metric you take a look at when researching an organization. It’s not potential to acquire a foolproof valuation with a DCF mannequin. Preferably you’d apply completely different circumstances and assumptions and see how they might affect the corporate’s valuation. For instance, adjustments within the firm’s value of fairness or the danger free price can considerably affect the valuation. Why is the intrinsic worth increased than the present share worth? For Live Nation Entertainment, there are three related features you need to discover:

1. Risks: Case in level, we have noticed 2 warning signs for Live Nation Entertainment you need to be conscious of.
2. Future Earnings: How does LYV’s development price examine to its friends and the broader market? Dig deeper into the analyst consensus quantity for the upcoming years by interacting with our free analyst growth expectation chart.
3. Other Solid Businesses: Low debt, excessive returns on fairness and good previous efficiency are elementary to a powerful enterprise. Why not discover our interactive list of stocks with solid business fundamentals to see if there are different firms you could not have thought-about!

PS. The Simply Wall St app conducts a reduced money circulate valuation for each inventory on the NYSE every single day. If you wish to discover the calculation for different shares simply search here.

Have suggestions on this text? Concerned in regards to the content material? Get in touch with us instantly. Alternatively, e-mail editorial-team (at) simplywallst.com.

This article by Simply Wall St is common in nature. We present commentary primarily based on historic information and analyst forecasts solely utilizing an unbiased methodology and our articles will not be supposed to be monetary recommendation. It doesn’t represent a advice to purchase or promote any inventory, and doesn’t take account of your targets, or your monetary state of affairs. We goal to deliver you long-term targeted evaluation pushed by elementary information. Note that our evaluation might not issue within the newest price-sensitive firm bulletins or qualitative materials. Simply Wall St has no place in any shares talked about.