【what is a space maintainer for teeth】Which Model Should You Consider When Valuing CBRE Group, Inc. (NYSE:CBRE)?

Knowing which valuation model to use for financial analysis what is a space maintainer for teethcan be incredibly confusing for even the most seasoned of investors. In the case of CBRE Group, Inc.’s (

NYSE:CBRE

), my discounted cash flow (DCF) model tells me that CBRE Group, Inc.’s (

NYSE:CBRE

) is overvalued by 8.48%; however, my relative valuation metrics tell me that CBRE Group, Inc.’s (

NYSE:CBRE

) is overvalued by 21.15%. So, which model is more reliable and why?

View our latest analysis for CBRE Group

A closer look at intrinsic valuation

Since forecasting future free cash flows (FCFs) accurately into the future is often difficult and a highly subjective task, I’ve used analysts’ FCF forecasts as a starting point for my DCF. For those less familiar with valuation, the assumption behind the DCF is that a firm’s intrinsic value is equal to the sum of all its future FCFs, which is why quality forecasts are a high priority. Calculating the per share intrinsic value of CBRE involves two key steps. First, I discount the sum of CBRE’s future FCFs at 12%, which gives us an equity value of $US$12b, then 332.06k shares outstanding are divided through.

This results in an intrinsic value of $36.77

. Take a look at how I arrived at this

intrinsic value here.

,

Before we move on, let’s evaluate whether this number is accurate. Since it is generally impossible to forecast FCFs indefinitely, it is common for analysts to forecast for an explicit forecast horizon and then assume the company is mature by the end of that period and in a stable growth phase. At 3.43%, CBRE’s final year FCF growth is stable and sustainable. This check highlights that our model is currently using the correct forecast horizon for CBRE, which solidifies the target price of our DCF.

A closer look at relative valuation

While DCF models sum up future FCFs, relative valuation models are based on the idea that investors should pay the same price for two companies with identical risk and return profiles. Since the biggest dilemma is finding companies that are similar to CBRE, a viable proxy would be the overall Real Estate industry itself. To calculate the “true” value of CBRE, we multiply CBRE’s earnings by the industry’s P/E ratio to obtain a share price of $31.45, which means CBRE is overvalued. But is this a dependable conclusion?

To check the robustness of our relative valuation, let’s take a look at if CBRE shares a similar capital structure with the overall Real Estate industry. This is especially important since we are using the P/E ratio, which is ineffective when comparing two entities with dramatically differing capital structures. At 73.05, CBRE’s D/E ratio is significantly higher than the average firm in the Real Estate industry, which has a D/E ratio of 107.45%. In this case, rather than using a price multiple like P/E, we could resolve this issue by using an enterprise multiple like EV/EBITDA, which is immune from being influenced by differing capital structures.

Story continues

Which Model Is Superior?

Neither model is perfect despite the robust financial theory behind them. Relative valuation is straightforward but prone to overall market mispricing. Meanwhile, intrinsic valuation is independent from market tendencies; however, is highly exposed to human error. Ultimately, investors should derive their final valuation based off both models. I encourage you to weight each model depending on your preferences to calculate a weighted average target price.

Next Steps:

For CBRE, I’ve put together three fundamental factors you should further research:

Financial Health

: Does CBRE have a healthy balance sheet? Take a look at our

free balance sheet analysis with six simple checks

on key factors like leverage and risk.

Future Earnings

: How does CBRE’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

.

Other High Quality Alternatives

: Are there other high quality stocks you could be holding instead of CBRE? Explore

our interactive list of high quality stocks

to get an idea of what else is out there you may be missing!

PS. The Simply Wall St app conducts a discounted cash flow for every stock on the NYSE every 6 hours. If you want to find the calculation for other stocks just

search here

.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at

[email protected]

.

View comments

(责任编辑：Comprehensive)