Alphabet's Earnings-Based DCF Values Shares at $315.37 with 1.14% Safety
Earnings-based DCF analysis values Alphabet at $315.37 per share versus its $311.76 price, implying a 1.14% safety margin and fair valuation. A free-cash-flow DCF model pegs intrinsic value at $191.66, indicating a 62.66% overvaluation based on trailing 12-month free cash flow per share.
1. Earnings-Based DCF Valuation
Using EPS without non-recurring items of $9.17, a 10% discount rate and a 25.20% annual growth rate over ten years, Alphabet’s discounted earnings DCF calculates an intrinsic value of $315.37, yielding a 1.14% margin of safety versus its current share price of $311.76.
2. Free Cash Flow DCF Valuation
The traditional free cash flow DCF model, based on trailing twelve-month free cash flow per share, produces an intrinsic value of $191.66, implying the stock is overvalued by 62.66% relative to current market price.
3. Key Assumptions
The earnings-based model applies a two-stage growth approach: 25.20% growth for ten years followed by a 4% terminal growth rate over the subsequent ten years. The discount rate combines a 4% risk-free rate with a 6% market risk premium.