BT Share Price Is 34% Cheap, DCF Calculation Shows

Summary:

In this article, we explain why the BT share price seems about 35% cheao according to the DCF valuation method

The BT share price has struggled in the past few days as global stocks retreat. The stock is trading at 185p, which is slightly below the year-to-date high of 210p.

BT news. BT, the giant telecommunication company, has made headlines in the past few months. For example, the company has expressed its desire to exit its sports television business. Rupert Murdoch’s company has expressed interest in the company.

Second, the company has a new large shareholder in the name of Patrick Drahi, a popular investor who owns Altice. Third, the firm has announced plans to hire more workers in its bid to increase its Openreach business. All this has made its stock do relatively well. It has risen by almost 100% from its lowest level last year.

BT has also risen because of the rising probability that it could be an acquisition target. Recently, private equity firms have interestingly became more interested in UK firms. For example, there is an ongoing bidding war for Morrisons, the fourth-biggest UK retailer.

Analysts cite BT’s valuation as a reason why it could be acquired. For one, a Discounted Cash Flow (DCF) calculation shows that the stock is about 34.8% undervalued, as shown below. The company also has a trailing 12 months PE ratio of 13, which is significantly lower than the S&P 500 average of more than 40. Its price-to-sales and EV to EBITDA are also lower than that of its peers.

BT share price analysis

In my last article on the BT share price, I pointed that it has formed an Elliot Wave pattern on the daily chart. I wrote that there was a probability that it would drop to between 165p and 180p to complete the fifth wave of the pattern. This trend is continuing as I had predicted. It is also being supported by the 50-day moving average. Therefore, I suspect that the stock will likely drop slightly and then resume the upward trend in the next few days. If this happens, the next key resistance level to watch will be the YTD high at 210p.