To calculate the intrinsic value of Alpha Metallurgical Resources Inc (AMR) using the discounted free cash flow (DCF) method, we need to follow the same steps as before. However, since you haven’t provided specific financial data for Alpha Metallurgical Resources, I’ll outline the steps and assumptions required, and you can plug in the actual numbers from the company’s financial statements (e.g., annual report or 10-K filing).
Steps to Calculate Intrinsic Value of Alpha Metallurgical Resources:
1. Estimate Free Cash Flow (FCF):
- Operating Cash Flow: Find Alpha Metallurgical Resources’ operating cash flow from its cash flow statement.
- Capital Expenditures (CapEx): Find Alpha Metallurgical Resources’ capital expenditures (also in the cash flow statement).
- Free Cash Flow Formula:FCF=Operating Cash Flow−CapExFCF=Operating Cash Flow−CapEx
2. Project Future Free Cash Flows:
- Growth Rate: Estimate a reasonable growth rate for Alpha Metallurgical Resources’ FCF. This could be based on historical growth, analyst estimates, or industry trends. For example, Alpha Metallurgical Resources’ FCF growth might be in the range of 5-10% for the next 5-10 years, slowing down afterward.
- Projection Period: Typically, projections are made for 5-10 years, after which a terminal value is calculated.
3. Calculate the Discounted Present Value of FCF:
- Discount Rate: Use an appropriate discount rate, such as the Weighted Average Cost of Capital (WACC). For Alpha Metallurgical Resources, the WACC might be around 10-12%, depending on your assumptions (higher discount rate to account for the cyclical nature of the coal industry and commodity price volatility).
- Discounting Formula:PV of FCFt=FCFt(1+r)tPV of FCFt=(1+r)tFCFtwhere rr is the discount rate and tt is the year.
4. Estimate Terminal Value:
- Terminal Growth Rate: Assume a perpetual growth rate (e.g., 2-3%) for FCF beyond the projection period.
- Terminal Value Formula:Terminal Value=FCFn×(1+g)r−gTerminal Value=r−gFCFn×(1+g)where gg is the terminal growth rate.
- Discount Terminal Value: Discount the terminal value back to present value.
5. Calculate Intrinsic Value:
- Add the present value of the projected FCF and the present value of the terminal value.
- Subtract net debt (if any) to arrive at the equity value.
6. Calculate Intrinsic Value per Share:
- Divide the equity value by the number of outstanding shares.
Example Calculation (Hypothetical Numbers):
Let’s assume the following hypothetical data for Alpha Metallurgical Resources:
- Free Cash Flow (FCF): $500 million (most recent year)
- FCF Growth Rate: 8% for the next 5 years, then 3% terminal growth
- Discount Rate (WACC): 11%
- Net Debt: $200 million (Alpha Metallurgical Resources has some debt)
- Shares Outstanding: 10 million
Step 1: Project FCF for 5 Years
FCFt=FCF×(1+g)tFCFt=FCF×(1+g)t
where g=8%g=8%.
| Year | FCF (in millions) |
|---|---|
| 1 | 500×1.081=540.00500×1.081=540.00 |
| 2 | 500×1.082=583.20500×1.082=583.20 |
| 3 | 500×1.083=629.86500×1.083=629.86 |
| 4 | 500×1.084=680.24500×1.084=680.24 |
| 5 | 500×1.085=734.66500×1.085=734.66 |
Step 2: Discount FCF to Present Value
PV of FCFt=FCFt(1+r)tPV of FCFt=(1+r)tFCFt
where r=11%r=11%.
| Year | FCF (in millions) | PV of FCF (in millions) |
|---|---|---|
| 1 | 540.00 | 540.001.111=486.491.111540.00=486.49 |
| 2 | 583.20 | 583.201.112=473.101.112583.20=473.10 |
| 3 | 629.86 | 629.861.113=460.001.113629.86=460.00 |
| 4 | 680.24 | 680.241.114=447.181.114680.24=447.18 |
| 5 | 734.66 | 734.661.115=434.631.115734.66=434.63 |
Total PV of FCF for 5 years:486.49+473.10+460.00+447.18+434.63=2,301.40 million486.49+473.10+460.00+447.18+434.63=2,301.40million
Step 3: Calculate Terminal Value
Terminal Value=FCF5×(1+g)r−g=734.66×1.030.11−0.03=756.700.08=9,458.75 millionTerminal Value=r−gFCF5×(1+g)=0.11−0.03734.66×1.03=0.08756.70=9,458.75million
PV of Terminal Value:PV of TV=9,458.75(1+0.11)5=9,458.751.6851=5,613.00 millionPV of TV=(1+0.11)59,458.75=1.68519,458.75=5,613.00million
Step 4: Calculate Intrinsic Value
Intrinsic Value=PV of FCF+PV of TV−Net Debt=2,301.40+5,613.00−200=7,714.40 millionIntrinsic Value=PV of FCF+PV of TV−Net Debt=2,301.40+5,613.00−200=7,714.40million
Step 5: Calculate Intrinsic Value per Share
Intrinsic Value per Share=Intrinsic ValueShares Outstanding=7,714.40 million10 million=771.44 per shareIntrinsic Value per Share=Shares OutstandingIntrinsic Value=10million7,714.40million=771.44per share
Final Intrinsic Value (Hypothetical):
771.44 per share771.44per share
Key Notes:
- This is a hypothetical example based on assumed numbers. You need to use Alpha Metallurgical Resources’ actual financial data for an accurate calculation.
- The intrinsic value is highly sensitive to the growth rate, discount rate, and terminal growth rate. Adjust these inputs based on your analysis of the company’s business and industry trends.
- Alpha Metallurgical Resources operates in the cyclical coal industry, which is subject to commodity price volatility. This may justify a higher discount rate. Adjust the discount rate accordingly based on your risk assessment.
- Net debt is subtracted from the intrinsic value. If the company had a net cash position, you would add it instead.
This article is a courtesy of AI.
Arrow of Performance 