When someone looks at Colgate-Palmolive Company ( CL ) only through the products it sells, it is easy to underestimate it. Toothpaste, body wash, dish liquid. It all seems very basic. But when we looked deeper into how the business actually moves, especially how it connectsThere are many ways sell-side analysts try to find a company’s “fair” value — some useful, others pure illusion. The DCF method is like a massive LEGO set: every tiny assumption has to fit just right, and it opens the door to bias — overc ...

When someone looks at Colgate-Palmolive Company ( CL ) only through the products it sells, it is easy to underestimate it. Toothpaste, body wash, dish liquid. It all seems very basic. But when we looked deeper into how the business actually moves, especially how it connectsThere are many ways sell-side analysts try to find a company’s “fair” value — some useful, others pure illusion. The DCF method is like a massive LEGO set: every tiny assumption has to fit just right, and it opens the door to bias — overc ...

Core Insights - The current market perception of company earnings may be overly pessimistic compared to the actual financial situation as indicated by deeper analysis of earnings reports [1] Valuation Methods - Various methods exist for sell-side analysts to determine a company's fair value, including DCF, multiples approach, and reverse valuation, each with its own strengths and weaknesses [1] - The DCF method requires precise assumptions, which can introduce bias, while the multiples approach relies on the assumption that peer companies are fairly priced, a notion that is often not supported by historical data [1] - Reverse valuation starts from the market price and discount rate, working backward to reveal the free cash flow assumptions embedded in the price, providing a more straightforward assessment of market beliefs [1] Free Cash Flow Analysis - A Free Cash Flow to Equity (FCFE) model is utilized to determine the actual value belonging to shareholders, calculated as Earnings + Amortization – CAPEX – average acquisition cost [1] - The analysis disregards working capital and debt changes, focusing instead on three key figures: earnings, amortization, and investments [1] Forecasting Approach - The H-model is applied for forecasts, which involves a 10-year two-stage growth fade, with terminal growth aligned to the risk-free rate, specifically the yield of 10-year government bonds [1] - All cash flows are discounted using the cost of equity, calculated as RFR × beta + 5% ERP, resulting in a clear and noise-free valuation of the business [1]

Core Viewpoint - Oatly Group AB is perceived as being in a vulnerable position, akin to "swimming naked," as it faces scrutiny regarding its valuation and financial health [1]. Valuation Methods - Various methods exist for sell-side analysts to determine a company's fair value, including DCF, multiples approach, and reverse valuation, each with its own strengths and weaknesses [1]. - The DCF method is complex and can introduce biases, while the multiples approach relies on the assumption that peer companies are fairly priced, which is often not the case [1]. - Reverse valuation starts from the market price and discount rate, revealing the free cash flow assumptions embedded in the price, providing a more straightforward assessment of market beliefs [1]. Free Cash Flow Analysis - A Free Cash Flow to Equity (FCFE) model is utilized to assess what belongs to shareholders, calculated as Earnings + Amortization – CAPEX – average acquisition cost = FCFE [1]. - The analysis disregards working capital and debt changes, focusing instead on three key figures: earnings, amortization, and investments [1]. Forecasting Approach - The H-model is applied for forecasts, featuring a 10-year two-stage growth fade, with terminal growth aligned to the risk-free rate, specifically the 10-year government bond yield [1]. - All cash flows are discounted using the cost of equity, calculated as RFR × beta + 5% ERP, resulting in a clear picture of the business's true worth [1].

Core Insights - Emerson Electric Co. has experienced poor momentum over the last three months, receiving a D+ momentum grade for the period [1] Valuation Methods - Various methods exist for sell-side analysts to determine a company's "fair" value, including DCF, multiples approach, and reverse valuation [1] - The DCF method requires precise assumptions, which can lead to biases, while the multiples approach assumes peer companies are fairly priced, a notion often unsupported by historical data [1] - Reverse valuation starts from the market price and discount rate, revealing the free cash flow assumptions embedded in the price, providing a direct reality check on market beliefs [1] Free Cash Flow Analysis - A Free Cash Flow to Equity (FCFE) model is utilized to assess what truly belongs to shareholders, calculated as Earnings + Amortization – CAPEX – average acquisition cost = FCFE [1] - The analysis disregards working capital and debt changes, focusing on three key numbers: earnings, amortization, and investments [1] Forecasting Approach - The H-model is applied for forecasts, featuring a 10-year two-stage growth fade with terminal growth equal to the risk-free rate, represented by the 10-year government bond yield [1] - All cash flows are discounted using the cost of equity, calculated as RFR × beta + 5% ERP, resulting in a clear picture of the business's true worth [1]

Core Viewpoint - Centene Corporation (NYSE: CNC) is initiated with a Strong Buy rating, reflecting a positive outlook on the company's potential value and performance [1] Valuation Methodology - The article discusses various methods sell-side analysts use to determine a company's fair value, highlighting the limitations of traditional approaches like DCF and multiples [1] - A reverse valuation approach is proposed, which starts from the market price and discount rate to reveal the free cash flow assumptions already embedded in the price [1] - The Free Cash Flow to Equity (FCFE) model is utilized to assess what truly belongs to shareholders, focusing on earnings, amortization, and investments while ignoring working capital and debt changes [1] Forecasting Approach - The H-model is applied for forecasts, which incorporates a 10-year two-stage growth fade with terminal growth equal to the risk-free rate (RFR) [1] - All cash flows are discounted using the cost of equity, calculated as RFR multiplied by beta plus a 5% equity risk premium (ERP) [1] - This methodology aims to provide a clear and noise-free picture of the business's true worth [1]

Core Viewpoint - Centene Corporation (NYSE: CNC) is initiated with a Strong Buy rating, reflecting a positive outlook on the company's potential value and performance [1]. Valuation Methodology - The article discusses various methods sell-side analysts use to determine a company's fair value, highlighting the limitations of traditional approaches like DCF and multiples [1]. - A reverse valuation approach is proposed, which starts from the market price and discount rate to uncover the free cash flow assumptions embedded in the price, providing a more realistic assessment of the company's worth [1]. - The Free Cash Flow to Equity (FCFE) model is utilized to calculate what truly belongs to shareholders, focusing on earnings, amortization, and investments while ignoring working capital and debt changes [1]. Forecasting Approach - The H-model is applied for forecasts, which incorporates a 10-year two-stage growth fade, with terminal growth aligned to the risk-free rate, specifically the 10-year government bond yield [1]. - All cash flows are discounted using the cost of equity, calculated as the risk-free rate multiplied by beta plus a 5% equity risk premium (ERP), resulting in a clear picture of the business's intrinsic value [1].

Core Insights - The article discusses various methods for sell-side analysts to determine a company's fair value, highlighting the complexities and biases associated with each method [1] Valuation Methods - The DCF (Discounted Cash Flow) method is likened to building a complex LEGO set, where numerous assumptions can lead to biases such as overconfidence, hindsight bias, and anchoring [1] - The multiples-based approach compares a company with its peers, but it assumes that those peers are fairly priced, which historical data suggests is often not the case [1] - A mixed approach typically weights 70% DCF and 30% multiples, but may not provide a clear picture of value [1] Reverse Valuation - Reverse valuation starts with the market price and discount rate, working backward to uncover the free cash flow assumptions embedded in the current valuation [1] - This method serves as a reality check, allowing analysts to compare market-implied expectations with their own views, identifying whether stock prices are driven by optimism or skepticism [1] Free Cash Flow to Equity (FCFE) - The FCFE model simplifies the valuation process for equity shareholders, focusing on what shareholders can actually receive [1] - The formula for FCFE includes reported earnings (excluding one-time gains/losses), amortization costs, CAPEX, and average acquisition costs, while ignoring working capital changes and net borrowings [1] - The approach emphasizes three key numbers: earnings available for distribution, amortization costs, and CAPEX, which helps to eliminate noise in valuation [1] Forecasting FCFE - The H model is used for forecasting FCFE, which is a two-stage growth model assuming a normalization phase of 10 years with a decreasing growth rate [1] - The final growth rate is typically aligned with the risk-free rate (RFR), which is based on the 10-year yield of government bonds [1] - All cash flows are discounted using the Cost of Equity, calculated as RFR multiplied by a 5-year beta plus an equity risk premium (ERP) of 5% [1]