Fair value calculation for Weatherford International plc (NASDAQ: WFRD)

Do the April shares of Weatherford International plc (NASDAQ: WFRD) reflect the actual value of the shares? Today we will estimate the intrinsic value of the stock, taking into account the expected future cash flows, discounting them to today’s value. Our analysis will use the Discounted Cash Flow (DCF) model. Just read before you think you can understand it. It’s actually a lot less complicated than you might think.

We warn that there are many ways to evaluate a company, և like DCF, each technique has advantages և disadvantages in certain scenarios. For those of you who are new to equity analysis, just look at the Wall Street Analytics model.

Check out our latest analysis from Weatherford International


We use a two-stage growth model, which simply means that we take into account the two stages of a company’s growth. Initially, the company may have a higher growth rate, while the second phase is usually assumed to be stable growth. In the first stage, we need to estimate the cash flow to the business over the next ten years. Whenever possible we use analytics ratings, but when they are not available, we extrapolate the previous free cash flow (FCF) from the last estimate or reporting value. We assume that companies with declining free cash flows will slow down their rates of decline, and that companies with increasing free cash flows will see their growth rates slow during this period. We do this to reflect that growth tends to slow down more slowly in the early years than it does in later years.

DCF is about the idea that in the future the dollar is less valuable than the dollar today, so the amount of this future cash flow is discounted at today.

10 year free cash flow forecast (FCF)











Lever FCF ($, millions)

$ 96.5 million

$ 191.0 million

$ 229.9 million

$ 264.0 million

$ 293.0 million

$ 317.1 million

$ 337.3 million

$ 354.2 million

$ 368.7 million

$ 381.4 million

Source for estimating growth rate

Analyst x2:

Analyst x2:

It is 20.37%

@ 14.84%

@ 10.96%

It is 8.25%

It is 6.35%

@ 5.02%

It is 4.09%

Is 3.44%

Current value ($, million) is 10% off

$ 87.4

$ 157

$ 171

$ 178

$ 179

$ 175

$ 169

$ 161

$ 151

$ 142

(“Est” = FCF growth rate estimated by Simply Wall St)
Present Value of 10-Year Cash Flow (PVCF) = $ 1.6 billion

The second stage is also known as the Terminal Value, this is the business cash flow after the first stage. For a number of reasons, a very conservative growth rate is used, which can not exceed the growth of the country’s GDP. In this case, we used the 5-year average yield (1.9%) of 10-year government bonds to estimate future growth. In the same way as in the 10-year “growth” period, we discount future cash flows at present value using 10% of equity.

Terminal value (TV)= FCF:2031 × (1 + c) ÷ (r – g) = $ 381 million × (1 + 1.9%) ÷ (10% – 1.9%) = $ 4.6 billion

Present value of terminal value (PVTV)= TV / (1 + r)10:= US $ 4.6b ÷ (1 + 10%)10:= $ 1.7 billion

Total value is the sum of cash flows for the next ten years, plus the discounted terminal value, which results in a total equity value of $ 3.3 billion. In the final step, we divide the value of equity by the number of shares outstanding. At the current stock price of $ 38.4, the company expects a 17% discount on the fair value where the stock is currently being sold. Estimates, however, are inaccurate instruments, rather like a telescope. move a few steps և appear in another galaxy. Keep this in mind.




The above calculation depends a lot on two assumptions. The first is the discount rate, the second is the cash flow. If you do not agree with these results, do the calculation yourself և play with the assumptions. DCF also does not take into account the potential cyclicality of the industry or the future capital requirements of the company, so it does not give a complete picture of the potential performance of the company. Given that we view Weatherford International as a potential shareholder, equity value is used as a discount rate rather than equity value (or weighted average value of capital, WACC), which calculates debt. In this calculation, we used 10% based on 2000 leverage beta. Beta is a measure of stock volatility relative to the general market. We get our beta from the industry average of the comparable companies in the industry with a limit of 0.8 to 2.0, which is a reasonable range for a sustainable business.

Looking ahead.

Valuation is only one side of the coin in terms of building your investment thesis, it’s ideally not the only piece of analysis you study in detail for a company. The DCF model is not a perfect stock valuation tool. Rather, it should be seen as a guide to “what assumptions must be true for this stock to be undervalued / overvalued.” For example, if the growth rate of the final value is slightly adjusted, it can dramatically change the overall result. For Weatherford International, we have gathered three other factors that you need to consider.

  1. Risks:: You need to be aware of this 1 warning sign we noticed with Weatherford International.

  2. Future income:How is WFRD growing compared to its partners և wider market? Analyze in depth the number of analysts of the coming years by communicating with our free analyst’s growth expectations chart.

  3. Other high quality alternatives– Do you like good versatility? Discover our interactive list of high quality stocks to get an idea of ​​what else you may be missing out on.

PS Wall St just updates its DCF calculation for each US stock every day, so if you want to find the intrinsic value of any other stock, just search here.

Do you have a comment on this article? Concerned about content? Get in touch directly with us. Alternatively, email the editorial team (at) simplewallst.com.

This Simply Wall St article is general in nature. We provide commentary based on historical data և analysts’ forecasts using only an unbiased methodology և our articles are not intended to be financial advice. It’s not an offer to buy or sell a stock, it does not take into account your goals or your financial situation. We aim to provide you with a long-term focused analysis based on basic data. Please note that our analysis may not take into account the latest announcements of a price sensitive company or quality materials. Simply Wall St has no position in the listed shares.

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