<div id="readability-page-1"><div><h3>Key Insights</h3><ul><li> Using the 2 Stage Free Cash Flow to Equity, Flowers Foods fair value estimate is US$32.81 </li> <li> Current share price of US$18.88 suggests Flowers Foods is potentially 42% undervalued </li> <li>  Analyst price target for FLO is US$20.75 which is 37% below our fair value estimate </li> </ul><p>Does the March share price for Flowers Foods, Inc. (NYSE:FLO) reflect what it's really worth? Today, we will estimate the stock's intrinsic value  by taking the forecast future cash flows of the company and discounting them back to today's value.  This will be done using the Discounted Cash Flow (DCF) model.  Believe it or not, it's not too difficult to follow, as you'll see from our example!</p><p> We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws.  Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. </p><h2> The Model </h2> <p> We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase.  In the first stage we need to estimate the cash flows to the business over the next ten years.   Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.  </p><p> Generally we assume that a dollar today is more valuable than a dollar in the future,  and so the sum of these future cash flows is then discounted to today's value: </p><h4> 10-year free cash flow (FCF) forecast </h4><table><tbody><tr><td> </td><td><strong>2025</strong></td><td><strong>2026</strong></td><td><strong>2027</strong></td><td><strong>2028</strong></td><td><strong>2029</strong></td><td><strong>2030</strong></td><td><strong>2031</strong></td><td><strong>2032</strong></td><td><strong>2033</strong></td><td><strong>2034</strong></td></tr><tr><td><strong> Levered FCF ($, Millions) </strong></td><td>US$285.5m</td><td>US$299.8m</td><td>US$286.0m</td><td>US$279.7m</td><td>US$277.7m</td><td>US$278.5m</td><td>US$281.5m</td><td>US$285.8m</td><td>US$291.3m</td><td>US$297.6m</td></tr><tr><td><strong>Growth Rate Estimate Source</strong></td><td>Analyst x2</td><td>Analyst x2</td><td>Analyst x1</td><td>Est @ -2.21%</td><td>Est @ -0.72%</td><td>Est @ 0.32%</td><td>Est @ 1.05%</td><td>Est @ 1.56%</td><td>Est @ 1.92%</td><td>Est @ 2.17%</td></tr><tr><td><strong> Present Value ($, Millions) Discounted @ 6.2% </strong></td><td>US$269</td><td>US$266</td><td>US$239</td><td>US$220</td><td>US$205</td><td>US$194</td><td>US$185</td><td>US$176</td><td>US$169</td><td>US$163</td></tr></tbody></table><p><i>(&#34;Est&#34; = FCF growth rate estimated by Simply Wall St)</i><br/><strong>Present Value of 10-year Cash Flow (PVCF)</strong> = US$2.1b</p><p> We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period.  For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (2.8%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 6.2%. </p><p><strong>Terminal Value (TV)</strong>= FCF<sub>2034</sub> × (1 + g) ÷ (r – g) = US$298m× (1 + 2.8%) ÷ (6.2%– 2.8%) = US$8.8b</p><p><strong>Present Value of Terminal Value (PVTV)</strong>= TV / (1 + r)<sup>10</sup>= US$8.8b÷ ( 1 + 6.2%)<sup>10</sup>= US$4.8b</p><p> The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value,  which in this case is US$6.9b.  To get the intrinsic value per share, we divide this by the total number of shares outstanding.  Relative to the current share price of US$18.9, the company appears   quite undervalued    at a 42% discount to where the stock price trades currently.   Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out. </p><figure><img height="380" src="https://imageproxy.pbkrs.com/https://images.simplywall.st/asset/chart/972115-dcf-1-dark/1743258428166?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="853" original-src="https://imageproxy.pbkrs.com/https://images.simplywall.st/asset/chart/972115-dcf-1-dark/1743258428166"/><figcaption>NYSE:FLO Discounted Cash Flow March 29th 2025</figcaption></figure> <h2> The Assumptions </h2><p> Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows.  If you don't agree with these result, have a go at the calculation yourself and play with the assumptions.  The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance.  Given that we are looking at Flowers Foods as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt.  In this calculation we've used 6.2%, which is based on a levered beta of 0.800. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. </p> <p><span> See our latest analysis for Flowers Foods </span></p><h3>SWOT Analysis for Flowers Foods</h3><div><div><p><strong>Strength</strong></p><ul><li>Earnings growth over the past year exceeded the industry.</li></ul> <ul><li>Debt is well covered by earnings and cashflows.</li></ul> <ul><li>Dividends are covered by earnings and cash flows.</li></ul> <ul><li>Dividend is in the top 25% of dividend payers in the market.</li></ul> <ul> Dividend information for FLO.</ul> </div><div><p><strong>Weakness</strong></p><ul><li> No major weaknesses identified for FLO.</li></ul></div><div><p><strong>Opportunity</strong></p><ul><li>Annual earnings are forecast to grow for the next 3 years.</li></ul> <ul><li>Good value based on P/E ratio and estimated fair value.</li></ul> </div><div><p><strong>Threat</strong></p><ul><li> Annual earnings are forecast to grow slower than the American market.</li></ul> <ul> What else are analysts forecasting for FLO?</ul> </div></div><h2> Looking Ahead: </h2><p> Whilst important, the DCF calculation  ideally won't be the sole piece of analysis you scrutinize for a company.  DCF models are not the be-all and end-all of investment valuation.  Rather it should be seen as a guide to &#34;what assumptions need to be true for this stock to be under/overvalued?&#34;  For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation.   Can we work out why the company is trading at a discount to intrinsic value?   For Flowers Foods, we've put together three  fundamental  factors  you should consider: </p><ol> <li> <strong>Risks</strong>: Consider for instance, the ever-present spectre of investment risk.  <strong> We've identified 1 warning sign </strong> with Flowers Foods , and understanding it should be part of your investment process. </li> <li><strong>Future Earnings</strong>: How does FLO'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.</li><li> <strong>Other Solid Businesses</strong>: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered! </li> </ol><p>PS. Simply Wall St updates its DCF calculation for every American stock every day, so if you want to find the intrinsic value of any other stock just search here.</p></div></div>

<p>Flowers Foods, Inc. (NYSE:FLO) is estimated to be 42% undervalued, with a fair value of US$32.81 compared to its current share price of US$18.88. Analysts have set a price target of US$20.75, which is 37% below the fair value estimate. The valuation is based on a 2-stage Discounted Cash Flow (DCF) model, projecting future cash flows and discounting them to present value. The total equity value is calculated at US$6.9 billion, indicating significant potential for growth, although the DCF model has its limitations.</p>

Flowers Foods, Inc. (NYSE:FLO) Shares Could Be 42% Below Their Intrinsic Value Estimate