Dimitry Nakhla | Babylon Capital®
A sober valuation analysis on $META 🧘🏽‍♂️

•NTM P/E Ratio: 21.61x
•5-Year Mean: 22.34x

•NTM FCF Yield: 4.39%
•5-Year Mean: 3.69%

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

Going forward, investors can expect to receive ~3% MORE in earnings per share & ~19% 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 & 171x FFO Interest Coverage Ratio

RETURN ON CAPITAL✅
•2018: 29.2%
•2019: 26.0%
•2020: 23.5%
•2021: 33.7%
•2022: 22.0%
•2023: 26.3%

RETURN ON EQUITY✅
•2018: 27.9%
•2019: 20.0%
•2020: 25.4%
•2021: 31.1%
•2022: 18.5%
•2023: 28.0%

$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: $15.35B
•2023: $43.84B
•CAGR: 23.35%

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

SHARE BUYBACKS✅
•2018 Shares Outstanding: 2.92B
•LTM Shares Outstanding: 2.63B

By reducing its shares outstanding ~9.9%, $META increased its EPS by ~10.9% (assuming 0 growth)

MARGINS✅
•LTM Gross Margins: 81.4%
•LTM Operating Margins: 39.8%
•LTM Net Income Margins: 32.1%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~3% MORE in EPS & ~19% MORE in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $META has to grow earnings at a 10.81% 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 (10.81%) required growth rate:

2024E: $19.98 (34.3% YoY)
2025E: $23.05 (15.4% YoY)
2026E: $26.66 (15.7% YoY)

$META has a decent track record of meeting analyst estimates ~2 years out, so let’s assume $META ends 2026 with $26.66 in EPS & see its CAGR potential assuming different multiples

24x P/E: $639.84💵 … ~15.4% CAGR

23x P/E: $613.18💵 … ~13.6% CAGR

22x P/E: $586.52💵 … ~11.7% CAGR

21x P/E: $559.86💵 … ~9.8% CAGR

As you can see, $META appears to have double-digit CAGR potential if we assume >21x earnings, a multiple below its 5-year average (22.34x) 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, as he has always done

Furthermore, 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

Today at $441💵 $META appears to be a good consideration for investment

#stocks #investing
___

𝐃𝐈𝐒𝐂𝐋𝐎𝐒𝐔𝐑𝐄‼️: 𝐓𝐡𝐢𝐬 𝐢𝐬 𝐍𝐎𝐓 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐀𝐝𝐯𝐢𝐜𝐞. 𝐁𝐚𝐛𝐲𝐥𝐨𝐧 𝐂𝐚𝐩𝐢𝐭𝐚𝐥® 𝐚𝐧𝐝 𝐢𝐭𝐬 𝐫𝐞𝐩𝐫𝐞𝐬𝐞𝐧𝐭𝐚𝐭𝐢𝐯𝐞𝐬 𝐦𝐚𝐲 𝐡𝐚𝐯𝐞 𝐩𝐨𝐬𝐢𝐭𝐢𝐨𝐧𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐬𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬 𝐝𝐢𝐬𝐜𝐮𝐬𝐬𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭.

𝐓𝐡𝐞 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐢𝐬 𝐢𝐧𝐭𝐞𝐧𝐝𝐞𝐝 𝐟𝐨𝐫 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐩𝐮𝐫𝐩𝐨𝐬𝐞𝐬 𝐨𝐧𝐥𝐲 𝐚𝐧𝐝 𝐬𝐡𝐨𝐮𝐥𝐝 𝐧𝐨𝐭 𝐛𝐞 𝐜𝐨𝐧𝐬𝐭𝐫𝐮𝐞𝐝 𝐚𝐬 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐚𝐝𝐯𝐢𝐜𝐞 𝐭𝐨 𝐦𝐞𝐞𝐭 𝐭𝐡𝐞 𝐬𝐩𝐞𝐜𝐢𝐟𝐢𝐜 𝐧𝐞𝐞𝐝𝐬 𝐨𝐟 𝐚𝐧𝐲 𝐢𝐧𝐝𝐢𝐯𝐢𝐝𝐮𝐚𝐥 𝐨𝐫 𝐬𝐢𝐭𝐮𝐚𝐭𝐢𝐨𝐧. 𝐏𝐚𝐬𝐭 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞 𝐢𝐬 𝐧𝐨 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞 𝐨𝐟 𝐟𝐮𝐭𝐮𝐫𝐞 𝐫𝐞𝐬𝐮𝐥𝐭𝐬.

𝐈𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐡𝐚𝐬 𝐛𝐞𝐞𝐧 𝐨𝐛𝐭𝐚𝐢𝐧𝐞𝐝 𝐟𝐫𝐨𝐦 𝐬𝐨𝐮𝐫𝐜𝐞𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞𝐝 𝐭𝐨 𝐛𝐞 𝐫𝐞𝐥𝐢𝐚𝐛𝐥𝐞, 𝐛𝐮𝐭 𝐢𝐬 𝐧𝐨𝐭 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞𝐝 𝐚𝐬 𝐭𝐨 𝐜𝐨𝐦𝐩𝐥𝐞𝐭𝐞𝐧𝐞𝐬𝐬 𝐨𝐫 𝐚𝐜𝐜𝐮𝐫𝐚𝐜𝐲.
tweet

Hidden Value Gems
$META reported 27% sales growth in Q1 and improved operating margin (38%) vs 25% a year ago. The stock drops 10.5%.

$GOOG sales +15%, operating margin 32% vs 25% last year (Q1 23). The stock jumps 11%.

Is it all about the narrative with Zuck talking about more investments, while GOOG focused on margins and cash flow? 😉
tweet

Antonio Linares
RT @SchraderClemens: @alc2022 Good taste in stocks 🤝 Good taste in cars
tweet

Brandon Beylo
RT @ToffCap: When BB drops a write-up on one of my top 3 watchlist companies

$SLP https://t.co/VDySeeW7N5

Here's my write-up on Sylvania Platinum $SLP.L.

It's a hated commodity in a hated industry in a hated country.

SLP has half its market cap in cash with no debt and a history of shareholder returns.

Could print 140%+ of EV at normalized PGM prices.👇
https://t.co/eu67o3joqY - Brandon Beylo
tweet

Giuliano
I have just published my conversation with Dave from @IFB_podcast.

Fascinating topics discussed, hope you enjoy it! https://t.co/jxjtsNFqJ1
tweet

Brandon Beylo
Me explaining to my wife why I bought junior mining stocks instead of $NVDA. https://t.co/1z1yghUgU8
tweet

Giuliano
RT @IFB_podcast: Giuliano asks the most thought-provoking questions! As always it was a pleasure to speak with him, and I hope people find it as useful as I have.

I have just published my conversation with Dave from @IFB_podcast.

Fascinating topics discussed, hope you enjoy it! https://t.co/jxjtsNFqJ1 - Giuliano
tweet

The Long Investor
$SPY 50 DAY MA is at $511

$QQQ 50 DAY MA is at $437

Both need to be tested from below
tweet

Brandon Beylo
Quartr is one of those companies/products where you forget what life was like before that product existed.

I can't imagine listening to earnings calls any other way now.

The @Quartr_App is still in the early innings of what it can be.

Proud to be an investor.

With earnings season heating up, make sure to be equipped with the Quartr mobile app.

Free and frictionless access to live calls, transcripts, slides, reports, and much more.

Available in both App Store and Google Play. https://t.co/LSoJIw0n83 - Quartr
tweet