Is Amkor Technology, Inc. trading (NASDAQ:AMKR) at a 26% discount?

In this article, we are going to estimate the intrinsic value of Amkor Technology, Inc. (NASDAQ:AMKR) by estimating the company’s future cash flows and discounting them to present value. One way to achieve this is by using the discounted cash flow (DCF) model. It may sound complicated, but it’s actually quite simple!

We want to warn you that there are many ways to value a company, and like DCF, each method has advantages and disadvantages in certain scenarios. For those who are keen on equity analysis, the Simply Wall St analysis model provided here may be of interest to you.

Check out our latest analysis for Amkor Technology

Collecting numbers

We use a 2-stage growth model, which simply means that we consider two stages of company growth. In the initial period, the company may have a higher growth rate, and in the second stage, a stable growth rate is usually expected. To begin with, we need to obtain cash flow estimates for the next ten years. Since no analytical estimates of free cash flow are available to us, we have extrapolated forward free cash flow (FCF) from the company’s most recent reported value. We hypothesize that companies with shrinking free cash flow will slow their rate of contraction, while companies with growing free cash flow will see their growth slow during this period. We do this to show that growth tends to be slower in the early years than in later years.

We typically assume that a dollar today is worth more than a dollar in the future, so we discount the value of these future cash flows to their estimated value in today’s dollars:

10-year free cash flow (FCF) forecast.

2023 year

2024 year

2025 year

2026 year

2027 year

2028 year


2030 year

2031 year

2032 year

Leveraged FCF ($, millions)

410.1 million US dollars

426.1 million US dollars

440.3 million US dollars

453.1 million US dollars

USD 465.0 million

476.2 million US dollars

USD 487.0 million

497.6 million US dollars

508.1 million US dollars

518.5 million US dollars

Source of estimation of growth rates

Yes @ 4.76%

Yes @ 3.92%

Yes @ 3.32%

Yes @ 2.91%

Yes @ 2.62%

Yes @ 2.41%

Yes @ 2.27%

Yes @ 2.17%

Yes @ 2.1%

Yes @ 2.05%

Current Value ($, Millions) Discounted @ 7.7%

381 USD

367 USD

353 USD

337 USD

321 USD

305 USD

290 USD

275 USD

261 USD

247 USD

(“Est” = FCF growth rate estimated by Simply Wall St)
Present value of 10-year cash flow (PVCF) = 3.1 billion US dollars

Now we need to calculate the terminal value, which takes into account all future cash flows after this ten-year period. Gordon’s growth formula is used to calculate the terminal value at a future annual growth rate equal to the 5-year average yield on a 10-year government bond of 1.9%. We discount the terminal cash flows to today’s value at a cost of equity of 7.7%.

Final cost (TV)= FCF2032 year × (1 + g) ÷ (r – g) = 518 million USD × (1 + 1.9%) ÷ (7.7%– 1.9%) = 9.2 billion USD

Present Value of Final Value (PVTV)= TV / (1 + r)10= $9.2 billion ÷ (1 + 7.7%)10= 4.4 billion US dollars

The total value is the sum of the cash flows over the next ten years plus the discounted terminal value, resulting in a total equity value of $7.5 billion in this case. In the last step, we divide the equity value by the number of shares outstanding. Compared to the current share price of $22.7, the company seems slightly undervalued at a 26% discount to the current share price. Assumptions in any calculation have a big impact on the estimate, so it’s best to think of it as a rough estimate rather than down to the last cent.


Important assumptions

The calculation above is highly dependent on two assumptions. The first is the discount rate and the other is the cash flows. Part of investing is coming up with your own estimate of a company’s future performance, so try to do the math yourself and test your assumptions. DCF also does not take into account possible industry cyclicality or a company’s future capital requirements, so it does not provide a complete picture of a company’s potential performance. Given that we view Amkor Technology as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC), which takes debt into account. In this calculation, we used 7.7% based on a leverage beta of 1.356. Beta is a measure of a stock’s volatility relative to the market as a whole. We derive our beta based on the industry average beta of comparable companies worldwide, with a limit of 0.8 to 2.0, which is a reasonable range for a sustainable business.

Looking ahead:

Valuation is only one side of the coin in terms of building your investment thesis, and ideally it won’t be the only part of the analysis you scrutinize for a company. The DCF model is not a perfect stock valuation tool. Instead, the best way to use a DCF model is to test certain assumptions and theories to see if they would lead to an undervalued or overvalued company. For example, changes in the company’s equity value or the risk-free rate can significantly affect the valuation. What is the reason that the stock price is below the intrinsic value? For Amkor Technology, we have put together three main points for you to consider:

  1. Financial health: Does AMKR have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors such as leverage and risk.

  2. Future earnings: What is AMKR’s growth rate compared to competitors and the broader market? Learn more about the analyst consensus for the coming years with our free analyst growth forecast chart.

  3. Other high-quality alternatives: Do you like a good station wagon? Check out our interactive list of high-quality promotions to get an idea of ​​what else you might be missing out on!

PS. The Simply Wall St app provides daily discounted cash flow estimates for each stock on the NASDAQGS. If you want to find a calculation for other promotions, just search here.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology, and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your goals or financial situation. We aim to provide you with long-term focused analysis based on fundamental data. Please note that our analysis may not take into account recent price announcements from companies or quality materials. Simply Wall St has no position in any of the stocks mentioned.

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