Offshore

Dimitry Nakhla | Babylon Capital®
RT @DimitryNakhla: A quality valuation analysis on $META 🧘🏽‍♂️

•NTM P/E Ratio: 19.89x
•3-Year Mean: 22.75x

•NTM FCF Yield: 1.50%
•3-Year Mean: 3.20%

As you can see, $META appears to be trading below fair value on an earnings multiple

Going forward, investors can expect to receive ~14% MORE in EPS & ~53% LESS 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: $44.45B
•Long-Term Debt: $28.34B

$META has an excellent balance sheet, an AA- S&P Credit Rating & 112x FFO Interest Coverage Ratio

RETURN ON CAPITAL✅
•2021: 33.7%
•2022: 22.0%
•2023: 25.7%
•2024: 29.4%
•LTM: 32.9%

RETURN ON EQUITY✅
•2021: 31.1%
•2022: 18.5%
•2023: 28.0%
•2024: 37.1%
•LTM: 32.6%

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

REVENUES✅
•2020: $85.97B
•2025E: $199.46B
•CAGR: 18.33%

FREE CASH FLOW✅*
•2020: $23.58B
•2025E: $41.47B
•CAGR: 11.95%

•2028E: $74B*

NORMALIZED EPS✅
•2020: $10.09
•2025E: $25.99
•CAGR: 20.83%

SHARE BUYBACKS✅
•2019 Shares Outstanding: 2.88B
•LTM Shares Outstanding: 2.59B

By reducing its shares outstanding ~10%, $META increased its EPS by ~11% (assuming 0 growth)

MARGINS✅
•LTM Gross Margins: 82.0%
•LTM Operating Margins: 42.6%
•LTM Net Income Margins: 30.9%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~14% MORE in EPS & ~53% LESS in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $META has to grow earnings at a 9.95% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2026 - 2028 EPS growth over the next few years to be slightly less than the (9.95%) required growth rate:

2025E: $25.99 (9% YoY) *FY Dec

2026E: $30.31 (17% YoY)
2027E: $33.55 (11% YoY)
2028E: $35.02 (4% YoY)

$META has a decent track record of meeting analyst estimates ~2 years out, so let’s assume $META ends 2028 with $35.02 in EPS & see its CAGR potential assuming different multiples

24x P/E: $840💵 … ~12.2% CAGR

23x P/E: $805💵 … ~10.6% CAGR

22x P/E: $770💵 … ~9.1% CAGR

21x P/E: $735💵 … ~7.5% CAGR

20x P/E: $700💵 … ~5.8% CAGR

As you can see, $META appears to have double-digit CAGR potential if we assume >23x earnings, a multiple near its 3-year mean and a multiple that’s potentially justified given its growth rate, balance sheet, visionary leadership & AI-related investments

As I’ve mentioned before: “… the increased investment in future growth and necessary Al development, which has the potential to lead to better growth prospects, should be viewed with a bullish tone rather than a bearish one” — (which can lead to a sustainable re-rating over the next few years)

Today at $594💵 $META appears to be slightly undervalued, those buying today have a small margin of safety and will not need to rely on margin expansion

I consider $META a great buy ~$535💵, offering ~11% CAGR assuming a conservative 21x 2028 EPS est

#stocks #investing
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𝐁𝐚𝐛𝐲𝐥𝐨𝐧 𝐂𝐚𝐩𝐢𝐭𝐚𝐥® 𝐚𝐧𝐝 𝐢𝐭𝐬 𝐫𝐞𝐩𝐫𝐞𝐬𝐞𝐧𝐭𝐚𝐭𝐢𝐯𝐞𝐬 𝐦𝐚𝐲 𝐡𝐨𝐥𝐝 𝐩𝐨𝐬𝐢𝐭𝐢𝐨𝐧𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐬𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬 𝐝𝐢𝐬𝐜𝐮𝐬𝐬𝐞𝐝. 𝐀𝐧𝐲 𝐨𝐩𝐢𝐧𝐢𝐨𝐧𝐬 𝐞𝐱𝐩𝐫𝐞𝐬𝐬𝐞𝐝 𝐚𝐫𝐞 𝐚𝐬 𝐨𝐟 𝐭𝐡𝐞 𝐝𝐚𝐭𝐞 𝐨𝐟 𝐩𝐮𝐛𝐥𝐢𝐜𝐚𝐭𝐢𝐨𝐧 𝐚𝐧𝐝 𝐬𝐮𝐛𝐣𝐞𝐜𝐭 𝐭𝐨 𝐜𝐡𝐚𝐧𝐠𝐞 𝐰𝐢𝐭𝐡𝐨𝐮𝐭 𝐧𝐨𝐭𝐢𝐜𝐞.

𝐈𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐡𝐚𝐬 𝐛𝐞𝐞𝐧 𝐨𝐛𝐭𝐚𝐢𝐧𝐞𝐝 𝐟𝐫𝐨𝐦 𝐬𝐨𝐮𝐫𝐜𝐞𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞𝐝 𝐭𝐨 𝐛𝐞 𝐫𝐞𝐥𝐢𝐚𝐛𝐥𝐞 𝐛𝐮𝐭 𝐢𝐬 𝐧𝐨𝐭 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞𝐝 𝐚𝐬 𝐭𝐨 𝐚𝐜𝐜𝐮𝐫𝐚𝐜𝐲 𝐨𝐫 𝐜𝐨𝐦𝐩𝐥𝐞𝐭𝐞𝐧𝐞𝐬𝐬. 𝐏𝐚𝐬𝐭 𝐩𝐞𝐫𝐟𝐨𝐫[...]

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