A Financial Analysis of Fresenius Medical Care AG (ETR:FME)
Overview of Discount Cash Flow (DCF) Analysis
Our source conducted a detailed analysis using the Discounted Cash Flow (DCF) model to determine the fair value of Fresenius Medical Care AG (ETR:FME). The results revealed that the assessed value of the company is 15% lower than the price target set by financial analysts, which stands at €40.63.
DCF Analysis and Its Insights
The DCF model is a widely-accepted method in financial valuation that calculates a company’s intrinsic value by using future cash flows discounted to their present value. In our specific analysis, dividends per share (DPS) were used as a stand-in for free cash flow. The Gordon Growth Model was utilized in order to factor in an estimated constant dividend growth rate of 0.6%. This estimate syncs with the 5-year average yield reported by the 10-year government bond.
We’ve set the equity cost at 4.2%, which was used as the discount rate, reflecting a levered beta of 0.800. According to our DCF model, Fresenius’s valuation seems to hover around its fair price at the current share price of €35.6.
Considerations to Note
It’s important to highlight the limitations of the DCF model. Its accuracy and output are highly sensitive to input assumptions such as the discount and growth rate. Moreover, it doesn’t fully account for periodic business cycle fluctuations or future capital requirements.
As a reminder, therefore, while DCF analysis is valuable, it shouldn’t be the only evaluation method used when making investment decisions. It’s crucial to incorporate a holistic view of a company’s financial health and prospects into your assessment.
