Calculating The Intrinsic Value Of Applied Industrial Technologies, Inc. (NYSE:AIT)

In This Article:

Key Insights

  • Applied Industrial Technologies' estimated fair value is US$233 based on 2 Stage Free Cash Flow to Equity

  • With US$223 share price, Applied Industrial Technologies appears to be trading close to its estimated fair value

  • Analyst price target for AIT is US$229 which is 1.9% below our fair value estimate

In this article we are going to estimate the intrinsic value of Applied Industrial Technologies, Inc. (NYSE:AIT) by taking the forecast future cash flows of the company and discounting them back to today's value. We will use the Discounted Cash Flow (DCF) model on this occasion. Don't get put off by the jargon, the math behind it is actually quite straightforward.

Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.

View our latest analysis for Applied Industrial Technologies

Step By Step Through The Calculation

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, 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$392.5m

US$400.5m

US$414.0m

US$425.9m

US$437.7m

US$449.5m

US$461.4m

US$473.3m

US$485.5m

US$497.8m

Growth Rate Estimate Source

Analyst x2

Analyst x2

Analyst x1

Est @ 2.89%

Est @ 2.77%

Est @ 2.69%

Est @ 2.63%

Est @ 2.59%

Est @ 2.56%

Est @ 2.55%

Present Value ($, Millions) Discounted @ 6.9%

US$367

US$350

US$339

US$326

US$313

US$301

US$289

US$277

US$266

US$255

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$3.1b