Response for fdfd on valuation metrics Ok, I will give this one a shot for you fd.
EV/EBITDA is a measure that would bring CXR more in line with the market. P/E is good, but it doesn't adequately take into account a company's debt or leverage.
Enterprise value is the theoretical takeout value of a company. Basically how much it would cost at the moment for someone to buy the entire enterprise,
purchasing all stock at market price and paying off all net debt. So EV/EBITDA will penalize companies for taking on debt, and is probably a more accurate
estimation of the value of the company.
If we use the mid-point of guidance EBITDA 625M (610-640), estimate debt at 3.5B, and
use current market cap of 1.5B, we get a roughly forward EV/EBITDA of 8 (5B/625M).
When the stock price was at 41 USD, the forward EV/EBITDA was just over 9 (5.65B/0.625B)
By comparison, using the mid-point of company guidance of 6.53 EPS (6.29 - 6.77), the forward P/E at that price was roughly 6.3, and the current P/E is roughly 4.3.
Now a EV/EBITDA of 8 is not bad, but it is not as dramatically lower than other companies EV/EBITDA as the respective difference between their P/E.
For example Microsoft has a TTM EV/EBITDA of about 14.3 at the moment, Coca-Cola at 17.3, Johnson & Johnson of 12.7.
Now, an increase in forward EV/EBITDA from 8 to 9 adds about 625M to the market cap. So a 12.5% increase in this metric would result in a 41.6% increase in SP.
This is why the beta of CXR is so high.
Now for the bull case. CXR can grow market cap (and stock price) in a couple of ways.
1. They can pay down debt. If they pay down 300m in debt over the coming year, in EV/EBITDA terms, debt would decrease, so the stockprice should rise by the same amount all things being equal (about a 20% increase in one year).
2. They can grow EBITDA. Every dollar they increase EBITDA, at an EV/EBITDA of 8, and current 3.5B debt load, would increase the market cap by $8, all else being equal.
3. The market may decide that a higher EV/EBITDA ratio is warranted. In this case, if the market decides it should be worth 10% higher, the SP would probably go up by more than 30%.
Hopefully this gives you a bit of a better understanding of alternative measures than P/E that many in the market are probably using. By this metric CXR is still undervalued, but it also explains why bulls know this stock has so much upside.
Marcel