Alphabet’s EPS-Based DCF at $286.41 with 4.21% Safety, FCF Model $174.24
Alphabet Inc’s EPS-based DCF model yields an intrinsic value of $286.41, implying a 4.21% margin of safety versus its market price of $274.34. A traditional free cash flow DCF model values shares at $174.24, indicating a -57.45% margin of safety.
1. EPS-Based Discounted Earnings Valuation
Alphabet’s EPS-based DCF model applies an 11% discount rate across a two-stage growth framework, projecting a growth-stage value of $188.51 and a terminal-stage value of $217.23. Combined, these stages yield an intrinsic value of $286.41 and a 4.21% margin of safety relative to current share trading.
2. Free Cash Flow DCF Valuation
The traditional DCF model using trailing twelve-month free cash flow per share calculates an intrinsic value of $174.24. This result implies a -57.45% margin of safety, suggesting the company may appear modestly overvalued on a cash flow basis.
3. Model Assumptions and Methodology
The analysis uses EPS without NRI of $9.17, a discount rate derived from a 5% risk-free rate plus a 6% equity risk premium, a 25.20% annual EPS growth over ten years, and a 4% terminal growth rate for the subsequent decade to ensure convergence.
4. Investor Takeaways
With the earnings-based model indicating fair valuation and the cash flow model signaling overvaluation, investors should consider the historical correlation between earnings and stock price when reconciling differing intrinsic value estimates for Alphabet.