What is the quantitative Fair Value Estimate for stocks?
The fair value is the outcome of the valuation models based on the discounted cash flow and is Morningstar’s estimate of the intrinsic value or fair value of a company per share.
Morningstar adapts its fair value to take into account obligations or assets a company might have that are not included in the balance sheet. For instance, Morningstar lowers the fair value of a company if it has issued too many stock options or if it has an under-financed pension scheme.
Morningstar’s estimate of the fair value differs in two aspects of a target price or profit target. First of all, it is an estimate of what the company is worth, whereas a target price usually reflects what other investors might pay for the share. And secondly it is a long-term estimate, whereas profit targets are usually aimed at the next 2 to 12 months.