Offshore

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⁠Dimitry Nakhla | Babylon Capital®
Last month, after reporting strong quarterly results, $META traded down to an attractive level of valuation.

Since then, $META shares increased +12.70% 🟢

As I stated in my analysis:

“As you can see, $META appears to have double-digit CAGR potential if we assume >23x earnings, a multiple slightly below what it’s trading for today and a multiple below what may be justified given its mid-teens earnings growth rate

I also believe that Mark Zuckerberg will continue to execute exceptionally well

Additionally, the increased investment in future growth and necessary AI development has the potential to drive better growth prospects, which could serve as a bullish catalyst for the next several years

Today at $476💵 $META appears to be a good consideration for investment

$META appears to be an excellent deal closer to $450💵 where it has ~11% CAGR potential assuming 2026E and a 22x multiple (an added layer of margin of safety)”
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#stocks #investing"

A sober valuation analysis on $META 🧘🏽‍♂️

•NTM P/E Ratio: 23.17x
•10-Year Mean: 26.61x

•NTM FCF Yield: 3.77%
•10-Year Mean: 3.30%

As you can see, $META appears to be slightly undervalued

Going forward, investors can expect to receive ~14% MORE in earnings per share & ~14% MORE in FCF per share🧠***

Before we get into valuation, let’s take a look at why $META is a quality business

BALANCE SHEET✅
•Cash & Equivalents: $58.12B
•Long-Term Debt: $18.39B

$META has an excellent balance sheet, an AA- S&P Credit Rating & 147x FFO Interest Coverage Ratio

RETURN ON CAPITAL✅
•2019: 26.0%
•2020: 23.5%
•2021: 33.7%
•2022: 22.0%
•2023: 26.3%
•LTM: 30.1%

RETURN ON EQUITY✅
•2019: 20.0%
•2020: 25.4%
•2021: 31.1%
•2022: 18.5%
•2023: 28.0%
•LTM: 33.4%

$META has great return metrics, highlighting the financial efficiency of the business

REVENUES✅
•2018: $55.84B
•2023: $134.90B
•CAGR: 19.29%

FREE CASH FLOW✅
•2018: $15.36B
•2023: $43.85B
•CAGR: 23.34%

NORMALIZED EPS✅
•2018: $7.57
•2023: $14.87
•CAGR: 14.45%

SHARE BUYBACKS✅
•2018 Shares Outstanding: 2.92B
•LTM Shares Outstanding: 2.64B

By reducing its shares outstanding ~9.5%, $META increased its EPS by ~10.5% (assuming 0 growth)

MARGINS✅
•LTM Gross Margins: 81.5%
•LTM Operating Margins: 39.5%
•LTM Net Income Margins: 32.1%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~14% MORE in EPS & ~14% MORE in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $META has to grow earnings at an 11.60% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2024 - 2026 EPS growth over the next few years to be greater than the (11.60%) required growth rate:

2024E: $20.14 (35.4% YoY)
2025E: $23.05 (14.5% YoY)
2026E: $26.32 (14.2% YoY)

$META has a decent track record of meeting analyst estimates ~2 years out, so let’s assume $META ends 2026 with $26.32 in EPS & see its CAGR potential assuming different multiples

24x P/E: $631.68💵 … ~12.5% CAGR

23x P/E: $605.36💵 … ~10.5% CAGR

22x P/E: $579.04💵 … ~8.5% CAGR

As you can see, $META appears to have double-digit CAGR potential if we assume >23x earnings, a multiple slightly below what it’s trading for today and a multiple below what may be justified given its mid-teens earnings growth rate

I also believe that Mark Zuckerberg will continue to execute exceptionally well

Additionally, the increased investment in future growth and necessary AI development has the potential to drive better growth prospects, which could serve as a bullish catalyst for the next several years

Today at $476💵 $META appears to be a good consideration for investment

$META appears to be an excellent deal closer to $450💵 where it has ~11% CAGR potential assuming 20[...]

1 view20:31