Uber Stock is a Strong Buy + Ackman's Top Position

AI-generated source summary

The analysis focuses on Uber's intrinsic value, projecting free cash flow per share to grow at 20% annually for the next 5 years, and 15% for the subsequent 5 years, with a terminal growth rate of 10%. Based on a 10% discount rate and a terminal multiple of 20, the intrinsic value per share is estimated at $118.81. The analysis also considers a base case with 25% growth for the first 5 years, leading to a higher intrinsic value of $267.97, and a worst-case scenario where the company fails to grow, resulting in a present value sum of $42.98. The current stock price of $76.44, relative to these scenarios, suggests a margin of safety in the base and normal cases, but a risk in the worst-case scenario. The stock-based compensation expense is highlighted as a significant factor, where accounting reflects $300 million, but the economic reality (actual cash outflow) is $750 million, due to the difference in share price at grant versus repurchase dates. Despite this, the company's financial performance, including revenue and non-GAAP operating income growth, is positive, and the stock's forward P/E of 19x, is near its lowest valuation.

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