<div id="readability-page-1"><div><h3>Key Insights</h3><ul><li> ACS Actividades de Construcción y Servicios' estimated fair value is €97.67 based on 2 Stage Free Cash Flow to Equity </li> <li> Current share price of €85.60 suggests ACS Actividades de Construcción y Servicios is potentially trading close to its fair value </li> <li>  Analyst price target for ACS is €80.53 which is 18% below our fair value estimate </li> </ul><p>Today we'll do a simple run through of a valuation method used to estimate the attractiveness of ACS, Actividades de Construcción y Servicios, S.A. (BME:ACS) as an investment opportunity  by estimating the company's future cash flows and discounting them to their present value.  We will use the Discounted Cash Flow (DCF) model on this occasion.  Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow.</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.  For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you. </p><p>This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.</p><h2> Step By Step Through The Calculation </h2> <p> We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period.  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> A DCF is all about the idea that a dollar in the future is less valuable than a dollar today,  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>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><td><strong>2035</strong></td></tr><tr><td><strong> Levered FCF (€, Millions) </strong></td><td>€1.36b</td><td>€1.62b</td><td>€2.04b</td><td>€2.34b</td><td>€2.61b</td><td>€2.83b</td><td>€3.02b</td><td>€3.18b</td><td>€3.32b</td><td>€3.45b</td></tr><tr><td><strong>Growth Rate Estimate Source</strong></td><td>Analyst x3</td><td>Analyst x3</td><td>Analyst x1</td><td>Est @ 14.93%</td><td>Est @ 11.17%</td><td>Est @ 8.54%</td><td>Est @ 6.69%</td><td>Est @ 5.40%</td><td>Est @ 4.50%</td><td>Est @ 3.87%</td></tr><tr><td><strong> Present Value (€, Millions) Discounted @ 12% </strong></td><td>€1.2k</td><td>€1.3k</td><td>€1.4k</td><td>€1.5k</td><td>€1.5k</td><td>€1.4k</td><td>€1.4k</td><td>€1.3k</td><td>€1.2k</td><td>€1.1k</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> = €13b</p><p> The second stage is also known as Terminal Value, this is the business's cash flow after the first stage.  The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.4%. We discount the terminal cash flows to today's value at a cost of equity of 12%. </p><p><strong>Terminal Value (TV)</strong>= FCF<sub>2035</sub> × (1 + g) ÷ (r – g) = €3.5b× (1 + 2.4%) ÷ (12%– 2.4%) = €37b</p><p><strong>Present Value of Terminal Value (PVTV)</strong>= TV / (1 + r)<sup>10</sup>= €37b÷ ( 1 + 12%)<sup>10</sup>= €12b</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 €25b.  In the final step we divide the equity value by the number of shares outstanding.  Relative to the current share price of €85.6, the company appears   about fair value    at a 12% discount to where the stock price trades currently.   Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind. </p><figure><img height="760" src="https://imageproxy.pbkrs.com/https://images.simplywall.st/asset/chart/780678-dcf-1-dark-2/1767514811848?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="1706" original-src="https://imageproxy.pbkrs.com/https://images.simplywall.st/asset/chart/780678-dcf-1-dark-2/1767514811848"/><figcaption>BME:ACS Discounted Cash Flow January 4th 2026</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.  You don't have to agree with these inputs, I recommend redoing the calculations yourself and playing with them.  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 ACS Actividades de Construcción y Servicios 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 12%, which is based on a levered beta of 1.473. 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> Check out our latest analysis for ACS Actividades de Construcción y Servicios </span></p><h3>SWOT Analysis for ACS Actividades de Construcción y Servicios</h3><div><div><p><strong>Strength</strong></p><ul><li>Debt is well covered by earnings.</li></ul> <ul><li>Dividends are covered by earnings and cash flows.</li></ul> <ul> Dividend information for ACS.</ul> </div><div><p><strong>Weakness</strong></p><ul><li>Earnings growth over the past year underperformed the Construction industry.</li></ul> <ul><li>Dividend is low compared to the top 25% of dividend payers in the Construction market.</li></ul></div><div><p><strong>Opportunity</strong></p><ul><li>Annual earnings are forecast to grow faster than the Spanish market.</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>Debt is not well covered by operating cash flow.</li></ul> <ul><li>Revenue is forecast to grow slower than 20% per year.</li></ul> <ul>Is ACS well equipped to handle threats?</ul> </div></div><h2> Next Steps: </h2><p> Although the valuation of a company is important, it  ideally won't be the sole piece of analysis you scrutinize for a company.  The DCF model is not a perfect stock valuation tool.  Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued.  For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation.  For ACS Actividades de Construcción y Servicios, there are three  additional  factors  you should look at: </p><ol> <li> <strong>Risks</strong>: For example, we've discovered <strong>3 warning signs for ACS Actividades de Construcción y Servicios</strong> (1 is significant!) that you should be aware of before investing here. </li> <li><strong>Future Earnings</strong>: How does ACS'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 High Quality Alternatives</strong>: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing! </li> </ol><p> PS. Simply Wall St updates its DCF calculation for every Spanish stock every day, so if you want to find the intrinsic value of any other stock just search here.</p><div><p>Mobile Infrastructure for Defense and Disaster</p><p>The next wave in robotics isn't humanoid. Its fully autonomous towers delivering 5G, ISR, and radar in under 30 minutes, anywhere.</p><p>Get the investor briefing before the next round of contracts</p><p><span>Sponsored On Behalf of CiTech</span></p></div></div></div>

<p>ACS Actividades de Construcción y Servicios' estimated fair value is €97.67, while the current share price is €85.60, indicating it is trading close to fair value. Analysts have a price target of €80.53, 18% below the fair value estimate. A two-stage Discounted Cash Flow (DCF) model was used for valuation, forecasting cash flows over ten years and calculating a terminal value. The total equity value is estimated at €25 billion, suggesting the stock is about fairly valued at a 12% discount to its current price.</p>

Calculating The Intrinsic Value Of ACS, Actividades de Construcción y Servicios, S.A. (BME:ACS)