An Intrinsic Calculation For F5 Networks, Inc. (NASDAQ:FFIV) Suggests It's 42% Undervalued

Simply Wall St
February 07, 2021

Does the February share price for F5 Networks, Inc. (NASDAQ:FFIV) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by estimating the company's future cash flows and discounting them to their present value. We will use the Discounted Cash Flow (DCF) model on this occasion. Believe it or not, it's not too difficult to follow, as you'll see from our example!


View our latest analysis for F5 Networks

What's the estimated valuation?



10-year free cash flow (FCF) forecast

2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Levered FCF ($, Millions) US$676.7m US$797.9m US$915.1m US$1.00b US$1.07b US$1.13b US$1.19b US$1.23b US$1.27b US$1.31b
Growth Rate Estimate Source Analyst x6 Analyst x6 Analyst x4 Est @ 9.43% Est @ 7.21% Est @ 5.66% Est @ 4.57% Est @ 3.81% Est @ 3.28% Est @ 2.91%
Present Value ($, Millions) Discounted @ 6.9% US$633 US$698 US$749 US$766 US$768 US$759 US$742 US$721 US$696 US$670

Present Value of 10-year Cash Flow (PVCF) = US$7.2b


Terminal Value (TV)= FCF2030 × (1 + g) ÷ (r – g) = US$1.3b× (1 + 2.0%) ÷ (6.9%– 2.0%) = US$27b

Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$27b÷ ( 1 + 6.9%)10= US$14b

The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is US$21b. In the final step we divide the equity value by the number of shares outstanding. Compared to the current share price of US$199, the company appears quite undervalued at a 42% discount to where the stock price trades currently. The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent.

NasdaqGS:FFIV Discounted Cash Flow February 7th 2021

The assumptions


Moving On:

Whilst important, the DCF calculation shouldn't be the only metric you look at when researching a company. It's not possible to obtain a foolproof valuation with a DCF model. Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation. For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. Can we work out why the company is trading at a discount to intrinsic value? For F5 Networks, we've compiled three further items you should assess:

  1. Risks: Case in point, we've spotted 1 warning sign for F5 Networks you should be aware of.
  2. Future Earnings: How does FFIV's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.



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