Estimating The Intrinsic Value Of Citrix Systems Inc (NASDAQ:CTXS)

Today I will offer a simple analysis of a valuation method used to estimate the attractiveness of Citrix Systems Inc (NASDAQ: CTXS) as an investment opportunity by taking the expected future cash flows and discounting them from current value. This is done using the discounted cash flow (DCF) model. It may sound complicated, but it's actually quite simple! If you want more information about the discounted cash flow, the basis of my calculations can be read in detail in the analysis model Simply Wall St.

 The calculation

We are going to use a two-stage DCF model, which, as the name implies, takes into account two stages of growth. The first stage is generally a period of greater growth that is leveled towards the terminal value, captured in the second period of "constant growth". In the first stage, we need to estimate the cash flows for the business in the next five years. For this I used the consensus of the analysts who cover the actions, as you can see below. Next, I will deduct the sum of these cash flows to arrive at an estimate of the present value.

After calculating the present value of the future cash flows in the initial period of 5 years, we need to calculate the Terminal Value, which represents all future cash flows beyond the first stage. The Gordon Growth formula is used to calculate the Terminal Value at an annual growth rate equal to the 10-year government bond rate of 2.9%. We discount this at today's value at a capital cost of 10.2%.

The total value, or patrimonial value, is the sum of the present value of the cash flows, which in this case is US $ 14.81b. The last step is to divide the equity value by the number of shares outstanding. If the inventory is a deposit receipt (represents a specific amount of shares in a foreign corporation), then we use the equivalent number. This results in an intrinsic value of $ 109.26. In relation to the current price of the shares of $ 106.87, the shares are correct, perhaps slightly undervalued with a discount of 2.19% of what is available at this time.

The assumptions

Now the most important entries for a discounted cash flow are the discount rate and, of course, the actual cash flows. If you do not agree with my result, try the calculation yourself and play with the assumptions. Because we consider Citrix Systems as potential shareholders, the cost of capital is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) that the debt represents. In this calculation, I used 10.2%, which is based on a leveraged beta of 1.033. This is derived from the ascending Beta method based on comparable companies, with a tax cap between 0.8 and 2.0, which is a reasonable range for a stable business.
Next steps:

Valuation is just one side of the coin in terms of building your investment thesis, and it should not be the only metric you look at when researching a company. For CTXS, I have put together three essential aspects that you need to examine more thoroughly:

1.     Financial health: Does CTXS have a healthy balance? Take a look at our free balance analysis with six simple controls on key factors such as leverage and risk.
2.     Future earnings: How does the growth rate of CTXS compare with its peers and the market in general? Delve into the consensus number of analysts for the next few years interacting with our graph of growth expectations of free analysts.
3.     Other high-quality alternatives: are there other high-quality actions that you could have instead of CTXS? Explore our interactive list of high-quality actions to get an idea of ​​what else you may be missing!

P.S. Simply Wall St performs a DCF calculation for each US share. UU Every 6 hours, so if you want to find the intrinsic value of any other action, just look here.