Are Investors Undervaluing Gerresheimer AG (ETR:GXI) By 49%?

In This Article:

Key Insights

  • The projected fair value for Gerresheimer is €191 based on 2 Stage Free Cash Flow to Equity

  • Current share price of €96.60 suggests Gerresheimer is potentially 49% undervalued

  • Our fair value estimate is 45% higher than Gerresheimer's analyst price target of €132

Today we'll do a simple run through of a valuation method used to estimate the attractiveness of Gerresheimer AG (ETR:GXI) as an investment opportunity by taking the expected future cash flows and discounting them to today's value. We will use the Discounted Cash Flow (DCF) model on this occasion. There's really not all that much to it, even though it might appear quite complex.

We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you.

View our latest analysis for Gerresheimer

Is Gerresheimer Fairly Valued?

We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. In the first stage we need to estimate the cash flows to the business over the next ten years. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.

A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we need to discount the sum of these future cash flows to arrive at a present value estimate:

10-year free cash flow (FCF) estimate

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

Levered FCF (€, Millions)

€80.4m

€132.5m

€174.5m

€213.7m

€247.9m

€276.2m

€299.0m

€316.9m

€331.0m

€342.1m

Growth Rate Estimate Source

Analyst x4

Analyst x4

Est @ 31.76%

Est @ 22.47%

Est @ 15.97%

Est @ 11.42%

Est @ 8.24%

Est @ 6.01%

Est @ 4.45%

Est @ 3.36%

Present Value (€, Millions) Discounted @ 5.1%

€76.5

€120

€150

€175

€193

€204

€211

€212

€211

€207

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = €1.8b