POSCO (Ticker Symbol: PKX) is a South Korean company, which is also the 3rd largest steel producer in the world. In 2019, POSCO’s output was 49.2 million tons, and had a capacity utilization rate of 89.7%. POSCO’s major markets include construction, automobile, and electrical appliances. With the increase in government and infrastructure spending, POSCO is likely going to see an increase in sales since steel happens to be a raw material for many of these projects. This week, I fundamentally analyze POSCO’s stock. I review POSCO’s key ratios, derive the intrinsic value using Discounted Cash Flow (DCF) analysis, and look at expected rate of return from this investment. Since this is a long video, please feel free to use the time stamps in the video if you only wish to watch certain topics.
I review various key ratios such as Revenue, Net Income, Shares outstanding, Dividends, Payout Ratio, Free Cash Flows (FCF), Financial Leverage, Current Ratio, Debt to Equity Ratio, Return on Equity (ROE), Days Sales Outstanding (DSO), Days Inventory, Payable Period, Cash Conversion Cycle, Inventory Turnover, etc.
After taking into account 2019’s free cash flow of $2,896 million figure, a 2% growth rate of FCF (growth for the next 10 years), 10% discount rate, 1% long term growth rate (growth from 10 year mark to perpetuity), 319 million shares outstanding, and $10,811 million of long term debt, the DCF analysis yields us an intrinsic value of $71.87 per share. Using the current stock price of about $61.30 per share, and taking into the shares outstanding and future projects of free cash flows, we get the expected rate of return of 9.9%.
Timestamp
0:00 Introduction
1:01 Key Ratios Analysis
12:29 Discounted Cash Flow Analysis / Intrinsic Value
14:46 Expected Rate of Return Calculation
15:57 Summary / Conclusion
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References:
POSCO’s Website: here
Morningstar Key Ratios Link: here.
Useful Resources here.
POSCO is a South Korean steel-making company headquartered in Pohang, South Korea. It had an output of 42,000,000 metric tons of crude steel in 2015, making it the world’s fourth-largest steelmaker by this measure. In 2010, it was the world’s largest steel manufacturing company by market value.
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