Valuations

HCA Holdings (NASDAQ: HCA)


Assumptions:
  • EPS is expected to grow at CAGR of 11% during 2015-2019. 0% growth is assumed in perpetuity.
  • Retained earnings are projected to turn positive during 2018
  • CAPM is used to calculate the cost of equity. NASDAQ composite is assumed to reflect the return on market.


Observation: The stock lost around 6% of its value  during the last month. However, the EVA based valuation  indicates that the market may be over reacting. The stock has the ability to touch $100, translating into a 15% upside. 


Silicon Image (NASDAQ: SIMG)

Assumptions:
  • Cash-flows are expected to grow at CAGR of 15% during 2016 to 2019. For 2014, cash flow TTM is used. Cash flow of 2015 is derived from Cash flow/Income relation in order to reflect the 10% revenue decline expected in 2015. 1% growth is assumed in perpetuity.
  • Capital expenditure is assumed to remain flat going forward.
  • CAPM is used to calculate the cost of equity. NASDAQ composite is assumed to reflect the return on market.


Observation: The stock lost around 25% of its value due to revenue fears. However, the adjusted cash flow based valuation  indicates that the market may be over reacting. The stock has the ability to bounce back to $6.2, translating into a 20% upside. 


Synopsys (NASDAQ: SNPS)

Assumptions:
  • Cash-flows are expected to grow at CAGR of 7.7% over the next five years. 0% growth is assumed in perpetuity.
  • Capital expenditure is assumed to grow in line with historic growth.
  • CAPM is used to calculate the cost of equity. NASDAQ composite is assumed to reflect the return on market.

Observation: Despite a decent run in the past couple of months, Synopsys seems undervalued, and there is an upside potential of around 18%. IP business growth and Coverity acquisition make Synopsys a compelling pick.


United Continental Holdings (NYSE: UAL)

Assumptions:
  • Cash-flows are expected to grow at CAGR of 10% over the next five years. 2% growth is assumed in perpetuity. Note that earnings of UAL are expected to grow in excess of 30% during the next five years.
  • Capital expenditure is assumed to grow in line with historic growth.
  • CAPM is used to calculate the cost of equity. NYSE composite is assumed to reflect the return on market.
Observation: United Continental seems undervalued, and there is an upside potential of around 45%. Ebola fears present a decent buying opportunity.




Nokia Corporation (NYSE: NOK)

Assumptions:

  • Cash-flows are expected to grow at CAGR of 27% over the next five years. 2% growth is assumed in perpetuity. Note that earnings of Nokia are expected to grow at CAGR of 30% during the next five years.
  • Capital expenditure is expected to remain flat during the next five years.
  • CAPM is used to calculate the cost of equity. NASDAQ composite is assumed to reflect the return on market.


Observation: Nokia seems undervalued, and there is an upside potential of around 25%. However, the valuation is based on slightly generous estimates and requires perfect execution from Nokia.