Is Danaos (DAC) Still Attractive After Strong Multi‑Year Share Price Gains

• If you are wondering whether Danaos is still good value after its recent run, you are in the right place. This article focuses squarely on what you are paying for each dollar of the business.
• The stock last closed at US$111.57, with returns of 4.0% over 7 days, 10.8% over 30 days, 17.1% year to date, 41.5% over 1 year and 116.4% over 3 years. These figures naturally raise questions about how much upside or risk is now priced in.
• Recent coverage of Danaos has highlighted its role in the container shipping sector and how sentiment around shipping capacity and charter markets is feeding into investor expectations. This context helps explain why the share price has been active recently and sets the scene for a closer look at what those expectations imply about valuation today.
• On Simply Wall St's valuation checks, Danaos earns a value score of 5 out of 6. Next we will walk through the key valuation methods behind that result while also pointing you to an even better way to think about value at the end of the article.

Danaos delivered 41.5% returns over the last year. See how this stacks up to the rest of the Shipping industry.

Approach 1: Danaos Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a company might be worth by projecting its future cash flows and then discounting those back to today to get a present value per share.

For Danaos, Simply Wall St uses a 2 Stage Free Cash Flow to Equity model. The latest twelve month free cash flow is about US$223.6 million. Looking ahead, the model uses analyst estimates where available, then extrapolates further free cash flow projections out to 2035. By 2035, projected free cash flow is US$323.0 million, with each year between now and then discounted back to today.

Putting those discounted cash flows together, the DCF model points to an estimated intrinsic value of US$171.77 per share. Against the recent share price of US$111.57, this implies that on this measure the stock is 35.0% undervalued.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Danaos is undervalued by 35.0%. Track this in your watchlist or portfolio, or discover 51 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Danaos.

Approach 2: Danaos Price vs Earnings

For a profitable company like Danaos, the P/E ratio is a straightforward way to relate what you pay for each share to the earnings that the business is currently generating. Investors typically accept a higher or lower P/E depending on what they expect for future earnings growth and how much risk they see in the business.

Danaos currently trades on a P/E of 4.13x. That sits well below the Shipping industry average P/E of 10.63x and also below the broader peer group average of 15.70x. On those simple comparisons, the stock screens as inexpensive relative to both its sector and peers.

Simply Wall St’s Fair Ratio for Danaos is 6.85x. This is a proprietary estimate of what a reasonable P/E might be after weighing factors such as the company’s earnings growth profile, profit margins, industry, market cap and identified risks. Because it adjusts for these company specific drivers, the Fair Ratio can be more informative than a basic comparison with industry or peer averages alone.

Setting the current P/E of 4.13x against the Fair Ratio of 6.85x suggests that Danaos trades below what Simply Wall St’s model would view as a fair level.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Danaos Narrative

Earlier we mentioned that there is an even better way to understand valuation. On Simply Wall St you can use Narratives, where you and other investors turn your view on Danaos into a clear story that links assumptions about future revenue, earnings, margins and fair value to the current price. Your Narrative lives on the Community page used by millions of investors and updates automatically when new information such as news, earnings or revised analyst targets like the US$104.00 fair value comes in. It can also differ meaningfully from one person to the next. For example, one investor might build a cautious Danaos Narrative around analysts expecting revenue to contract about 3.7% a year, margins near 38.5% and a P/E of 6.73x, while another leans on the same backlog, charter coverage and liquidity data to justify a higher or lower fair value, helping each decide whether the share price looks high, low or close to their own estimate.

Do you think there's more to the story for Danaos? Head over to our Community to see what others are saying!

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.

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