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Calculating the intrinsic value of Broadwind, Inc. (NASDAQ: BWEN)

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Calculating the intrinsic value of Broadwind, Inc. (NASDAQ: BWEN)


Determining the Fair Value of Broadwind, Inc. (NASDAQ:BWEN),

Key Insights

  • Broadwind’s estimated fair value is US$1.97 based on 2 Stage Free Cash Flow to Equity

  • Current share price of US$2.33 suggests Broadwind is potentially trading close to its fair value

  • Analyst price target for BWEN is US$5.88, which is 198% above our fair value estimate

Today we’ll do a simple run through of a valuation method used to estimate the attractiveness of Broadwind, Inc. (NASDAQ:BWEN) as an investment opportunity by taking the expected future cash flows and discounting them to today’s value. Our analysis will employ the Discounted Cash Flow (DCF) model. Believe it or not, it’s not too difficult to follow, as you’ll see from our example!

We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you.


View our latest analysis for Broadwind

Is Broadwind Fairly Valued?

We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company’s cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. In the first stage we need to estimate the cash flows to the business over the next ten years. Where possible we use analyst estimates, but when these aren’t available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.

Generally we assume that a dollar today is more valuable than a dollar in the future, so we need to discount the sum of these future cash flows to arrive at a present value estimate:

10-year free cash flow (FCF) forecast

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

Levered FCF ($, Millions)

US$8.10m

US$3.40m

US$3.18m

US$3.06m

US$3.00m

US$2.98m

US$2.99m

US$3.01m

US$3.05m

US$3.10m

Growth Rate Estimate Source

Analyst x1

Analyst x2

Est @ -6.38%

Est @ -3.78%

Est @ -1.96%

Est @ -0.68%

Est @ 0.21%

Est @ 0.83%

Est @ 1.27%

Est @ 1.58%

Present Value ($, Millions) Discounted @ 9.4%

US$7.4

US$2.8

US$2.4

US$2.1

US$1.9

US$1.7

US$1.6

US$1.5

US$1.4

US$1.3

(“Est” = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$24m

We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.3%. We discount the terminal cash flows to today’s value at a cost of equity of 9.4%.

Terminal Value (TV)= FCF2033 × (1 + g) ÷ (r – g) = US$3.1m× (1 + 2.3%) ÷ (9.4%– 2.3%) = US$45m

Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$45m÷ ( 1 + 9.4%)10= US$18m

The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is US$42m. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Relative to the current share price of US$2.3, the company appears around fair value at the time of writing. Remember though, that this is just an approximate valuation, and like any complex formula – garbage in, garbage out.

dcf

The Assumptions

The calculation above is very 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 evaluation of a company’s future performance, so try the calculation yourself and check your own assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company’s future capital requirements, so it does not give a full picture of a company’s potential performance. Given that we are looking at Broadwind 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 accounts for debt. In this calculation we’ve used 9.4%, which is based on a levered beta of 1.538. Beta is a measure of a stock’s volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.

SWOT Analysis for Broadwind

Strength

Weakness

Opportunity

Threat

Moving On:

Valuation is only one side of the coin in terms of building your investment thesis, and it is only one of many factors that you need to assess for a company. It’s not possible to obtain a foolproof valuation with a DCF model. Preferably you’d apply different cases and assumptions and see how they would impact the company’s valuation. If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different. For Broadwind, there are three essential factors you should consider:

  1. Risks: For example, we’ve discovered 4 warning signs for Broadwind (2 can’t be ignored!) that you should be aware of before investing here.

  2. Future Earnings: How does BWEN’s growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.

  3. Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered!

PS. Simply Wall St updates its DCF calculation for every American stock every day, so if you want to find the intrinsic value of any other stock just search here.

Have feedback on this article? Concerned about the content? Get in touch
with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Frequently Asked Questions

  1. What is the Discounted Cash Flow (DCF) model?

    The DCF model is a valuation method used to estimate the attractiveness of an investment opportunity by taking the expected future cash flows of a company and discounting them to today’s value.

  2. How is the fair value of a company determined in the DCF model?

    The fair value is determined by calculating the present value of all expected future cash flows and the terminal value after a specified period, then dividing by the total number of shares outstanding to get the

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Claim Your Divine Gift

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Flags of Valor employs military veterans to create patriotic products

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Flags of Valor employs military veterans to create patriotic products


For Flags of Valor – a veteran-owned and operated business that has shipped more than 96,000 flags to doorsteps nationwide – the phrase “made in America” lies at the foundation of everything it stands for.

“For over 10 years, we’ve been saying the same thing – we build American products, on American wood, with American tools, made by American hands,” Flags of Valor founder and military veteran Brian Steorts told FOX Business. “And we do it while giving back to the causes that matter – supporting veterans, educating youth, and honoring service and sacrifice at every step.”

VETERANS SHARE PATRIOTISM, PRIDE AND PRODUCTIVITY WHILE ALSO PROMOTING ‘MILITARY WORK ETHIC’

Founded in Virginia in 2015, Flags of Valor is known for its handcrafted, wooden U.S. flags, as well as military and first responder flags. The business currently has 10 employees, the majority of whom are veterans and military spouses.

Flags of Valor currently has 10 employees, the majority of whom are veterans and military spouses.

Flags of Valor currently has 10 employees, the majority of whom are veterans and military spouses. (Flags of Valor)

Each material used by the Flags of Valor team – from the woodworking tools to the tape for the shipping boxes – is sourced from American companies, according to Steorts.

FROM BOMB SQUAD TO BAKER AND COFFEE MAKER: FORMER DEPUTY CRUSHES A NEW BUSINESS

“We believe that’s the only way it should be done,” Steorts said.

Steorts, a combat veteran who was deployed nine times, served in the U.S. Army as a paratrooper and later as an Air Force special operations pilot. 

In 2013, he got into woodworking after returning from one of his deployments injured and “mentally and physically” broken, he said. During that same time period, Steorts also lost four friends in combat and his sister to mental health struggles.

Founded in Winchester, Virginia in 2015, Flags of Valor is known for its handcrafted, wooden U.S. flags, as well as military and first responder flags.

Founded in Winchester, Virginia, in 2015, Flags of Valor is known for its handcrafted, wooden U.S. flags, as well as military and first responder flags. (Flags of Valor)

“I wanted something patriotic on the wall of my house – something that meant something,” Steorts said. “I found therapy in [woodworking], and I found philanthropy in it by donating my first couple of flags to the widows of my buddies that passed, and I just knew I wanted to do more.”

While Flags of Valor’s best-selling products today are its wooden U.S. flags, the business also sells patriotic home and office decor, awards, memorial displays, corporate gifts, employee recognition pieces, Christmas ornaments, clothing and accessories, and more, Steorts said. 

VETERAN-OWNED BREWING COMPANY PAYS TRIBUTE TO FALLEN HEROES: ‘GREAT AMERICAN BEER’ TO HONOR SACRIFICE

“One of the most important things we’re doing right now is building memorial flag cases – because our heroes deserve a final resting place for their flag that’s made by a veteran-owned American company, not mass-produced overseas,” he said.

Flags of Valor Founder Brian Steorts is pictured with Donald Trump

Flags of Valor Founder Brian Steorts is pictured with U.S. President Donald Trump at the White House in 2017. (Flags of Valor)

In addition to employing veterans, Flags of Valor has also given back by donating $1.7 million to veteran-operated nonprofits. 

During the COVID-19 pandemic, the company also launched a Kids Flag Building Kit, a hands-on activity to help educate children about the history and values the American flag represents. Each year, during the weeks of Veterans Day and Memorial Day, thousands of students across the nation use the kits to create their own American flags.  

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“We believe in educating our youth and passing freedom on to the next generation,” Steorts said. “It’s more than a project – it’s about patriotism, education and preserving what matters most.”



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Consumers may face higher beef prices from businesses

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Consumers may face higher beef prices from businesses


High beef prices have been weighing on U.S. businesses and consumers.

They have forced some businesses to make tough decisions about how to handle the increased costs, and some are passing the costs on to customers. 

Rob Passio, the owner of Lombardi’s Prime Meats in Philadelphia, told FOX Business correspondent Jeff Flock on “Varney & Co” that “there’s only so much you can absorb as far as the hit to your bottom line before you say to yourself you have to raise these prices.” 

The butcher shop, Passio said, hasn’t seen its customers balk at higher prices “because they see it.” 

EGGS ARE NOT THE ONLY EXPENSIVE FOOD: BEEF PRICES ARE ALSO ON THE RISE

ground beef

Organic ground beef Oct. 30, 2020, in Bavaria, Nuremberg (Daniel Karmann/picture alliance via Getty Images / Getty Images)

“They see the inflation. They see the pricing. You know, everything is up,” he told Flock.

Bureau of Labor Statistics inflation data measured by the consumer price index (CPI) showed prices for beef and veal were up 2.4% month-over-month and 7.6% year-over-year in February. 

The overall CPI posted a 0.2% increase month-over-month and a 2.8% jump year-over-year.

Courtney Schmidt, sector manager at Wells Fargo Agri-Food Institute, told FOX Business last month that high beef prices were driven by tighter U.S. beef production with consistent consumer demand.

The U.S. cattle herd is experiencing a down cycle, with cattle inventories at historically low levels in 2025, according to Schmidt.

Beef is more expensive

Demand for beef has remained strong since the pandemic, according to the American Farm Bureau Federation. (Kennedy Hayes/Fox News  / Fox News)

The U.S. Department of Agriculture (USDA) reported in late January that U.S. farms had 86.7 million head of cattle and calves. The count for beef cows specifically was 27.9 million, a decline of 1% compared to the same time last year, according to the USDA.

“I know they’re killing smaller cattle, so they’re trying, I guess, to kill them faster to create the supply that demand is needing,” Passio said. 

Some big companies source beef from Canada and Mexico, Flock reported on “Varney & Co.”

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President Donald Trump imposed 25% import tariffs on goods entering the U.S. from those two countries March 4 and, more recently, introduced exemptions for Mexico and Canada on goods under the United States-Mexico-Canada Agreement until early April.

Such a levy on imported beef would “increase the price,” according to Passio, adding that consumers “are going to pay for it.”

“My philosophy is to sell it as low as you can to show a savings, a value to the customer. And hopefully you have more customers to generate your revenue,” the Lombardi Prime Meats owner told Flock.  

beef in supermarket

Packages of beef are displayed for sale at a supermarket Jan. 12, 2023, in Foster City, Calif. (Liu Guanguan/China News Service/VCG via Getty Images / Getty Images)

In the U.S., ground beef averaged $5.63 per pound in February, while the per-pound price of boneless sirloin steak came in at $11.90, according to data from the Federal Reserve Bank of St. Louis. Those average prices were 9.6% and 1.6% higher, respectively, than the same month in 2024.

EGG PRICE SPIKE: WE ARE ‘PAST THE TOUGH PART,’ AGRICULTURE SECRETARY ROLLINS SAYS

The USDA projected in a report released this month that U.S. beef production is poised to amount to 26.685 billion pounds this year. 

Daniella Genovese contributed to this report.



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