Southern Copper (SCCO) Fair Value & DCF

SCCO fair value $130.22. Price $172.61. Price is 33% above fair value.

Worked example

Cash-flow value. Starting free cash flow is $6.56 a share. Year 1 is the first earnings forecast, so it has no growth rate of its own. The forecast then reaches 9.24%, and that pace fades in a straight line to 3% terminal growth by year 10. The discount rate is 10.65% (beta 1.16). It is beta-adjusted and capped at 12%. The cash-flow value is $104.17 a share.

Earnings value. Next-twelve-months earnings per share of $7.76 times 20.13 is $156.27. The peer group is Basic Materials, 41 companies worth at least $10 billion. Peer median 17.6. Own 10-year median 22.6. The multiple used is the average of the two, kept between 8 and 30, which is 20.13.

Fair value is the average of the two, $130.22. The price is $172.61, which is 32.5% above fair value.