The projected fair value for Cleanaway Waste Management is AU$4.49 based on 2 Stage Free Cash Flow to Equity
Current share price of AU$2.37 suggests Cleanaway Waste Management is potentially 47% undervalued
Analyst price target for CWY is AU$3.09 which is 31% below our fair value estimate
How far off is Cleanaway Waste Management Limited (ASX:CWY) from its intrinsic value? Using the most recent financial data, we’ll take a look at whether the stock is fairly priced by taking the forecast future cash flows of the company and discounting them back to today’s value. One way to achieve this is by employing the Discounted Cash Flow (DCF) model. Believe it or not, it’s not too difficult to follow, as you’ll see from our example!
We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you.
We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company’s cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. To start off with, we need to estimate the next ten years of cash flows. Where possible we use analyst estimates, but when these aren’t available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we discount the value of these future cash flows to their estimated value in today’s dollars:
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
Levered FCF (A$, Millions)
AU$196.4m
AU$286.9m
AU$338.7m
AU$378.3m
AU$413.2m
AU$444.2m
AU$472.1m
AU$497.8m
AU$522.0m
AU$545.1m
Growth Rate Estimate Source
Analyst x3
Analyst x4
Analyst x3
Est @ 11.69%
Est @ 9.22%
Est @ 7.50%
Est @ 6.29%
Est @ 5.44%
Est @ 4.85%
Est @ 4.44%
Present Value (A$, Millions) Discounted @ 7.3%
AU$183
AU$249
AU$274
AU$286
AU$291
AU$292
AU$289
AU$284
AU$278
AU$270
(“Est” = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = AU$2.7b
Story Continues
After calculating the present value of future cash flows in the initial 10-year period, we need to calculate the Terminal Value, which accounts for all future cash flows beyond the first stage. 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 (3.5%) 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 7.3%.
Terminal Value (TV)= FCF2035 × (1 + g) ÷ (r – g) = AU$545m× (1 + 3.5%) ÷ (7.3%– 3.5%) = AU$15b
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= AU$15b÷ ( 1 + 7.3%)10= AU$7.4b
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 AU$10b. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Compared to the current share price of AU$2.4, the company appears quite undervalued at a 47% 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.
ASX:CWY Discounted Cash Flow February 15th 2026
We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows. Part of investing is coming up with your own evaluation of a company’s future performance, so try the calculation yourself and check your own 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 Cleanaway Waste Management 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 7.3%, which is based on a levered beta of 0.897. 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.
View our latest analysis for Cleanaway Waste Management
Strength
Weakness
Opportunity
Threat
Although the valuation of a company is important, it is only one of many factors that you need to assess for a company. It’s not possible to obtain a foolproof valuation with a DCF model. Rather it should be seen as a guide to “what assumptions need to be true for this stock to be under/overvalued?” 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 Cleanaway Waste Management, there are three important elements you should consider:
Risks: Every company has them, and we’ve spotted 1 warning sign for Cleanaway Waste Management you should know about.
Future Earnings: How does CWY’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.
Other Solid Businesses: 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!
PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the ASX every day. If you want to find the calculation for other stocks just search here.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.