Interactive DCF Framework
Model Overview & Assumptions
This DCF model utilizes a 10-year unlevered free cash flow projection method. By forecasting the cash available to all capital providers, we isolate the fundamental operating performance of the business from its capital structure. Align's business is debt free so I did not have to weigh debt costs into the WACC calculation.
Key Methodology Inputs:
- WACC (Weighted Average Cost of Capital): For this DCF, the discount rate is driven by a CAPM-derived cost of equity. As Align maintains a zero-debt position, the weighted average cost of capital reflects an unlevered capital structure.
- Terminal Growth Rate: I used a long-term risk-free rate growth assumption of 2.25% to ensure conservative perpetual value for a mature business.
- Revenue Progression: Based on a limited growth assumption coming off of the Covid stimulus boost in revenue and subsequent resetting of historical benchmarks. My aim is to remain very conservative with the growth assumptions to reduce the risk of overvaluation.
How to Use This Model
The embedded sheet is in Read-Only mode. To interact with the variables, you can toggle between tabs at the bottom of the frame. I've provided a sensitivity analysis table to define the ranges of an appropriate valuation based on changes to WACC and Terminal Growth Rate. Based on my assumptions I believe the stock is currently undervalued with a fair value estimate at $168 a share.