Intuit Inc.'s (NASDAQ:INTU) Intrinsic Value Is Potentially 58% Above Its Share Price

In This Article:

Key Insights

  • The projected fair value for Intuit is US$969 based on 2 Stage Free Cash Flow to Equity

  • Intuit is estimated to be 37% undervalued based on current share price of US$614

  • The US$716 analyst price target for INTU is 26% less than our estimate of fair value

Today we will run through one way of estimating the intrinsic value of Intuit Inc. (NASDAQ:INTU) by projecting its future cash flows and then discounting them to today's value. This will be done using the Discounted Cash Flow (DCF) model. Before you think you won't be able to understand it, just read on! It's actually much less complex than you'd imagine.

We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model.

Check out our latest analysis for Intuit

What's The Estimated Valuation?

We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. To begin with, we have to get estimates of the next ten years of cash flows. 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.

Generally we assume that a dollar today is more valuable than a dollar in the future, and so the sum of these future cash flows is then discounted to today's value:

10-year free cash flow (FCF) forecast

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

Levered FCF ($, Millions)

US$5.95b

US$6.80b

US$7.80b

US$9.29b

US$11.0b

US$12.2b

US$13.3b

US$14.2b

US$15.0b

US$15.7b

Growth Rate Estimate Source

Analyst x12

Analyst x10

Analyst x4

Analyst x1

Analyst x1

Est @ 11.39%

Est @ 8.72%

Est @ 6.86%

Est @ 5.55%

Est @ 4.63%

Present Value ($, Millions) Discounted @ 6.7%

US$5.6k

US$6.0k

US$6.4k

US$7.2k

US$7.9k

US$8.3k

US$8.4k

US$8.4k

US$8.3k

US$8.2k

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$75b

The second stage is also known as Terminal Value, this is the business's cash flow after the first stage. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (2.5%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 6.7%.