Is Austal Underpriced?

Hey there,

Was browsing through Simply Wall St undervalued stocks, and came across Austal. Based on their calculations ASB should be around $2.38 compared to the current $1.30. As with any news that something is underpriced I take it with the grain of salt, but nevertheless wanted to see how good Simply WS is, so did my own calculations.

So Austal designs and builds ships for RAN and US Navy, which to ordinary Joe like me seems quite impressive. They currently contracted by US to built ships for its LCS program worth around $3.1b, which had some issues of not being extended but now seems to be resolved with Senate bill being passed not to cut the program. Also it has another order with US Navy for JHS vessels worth $1.6b which got traction with Oman Navy which ordered Austal to build 2 ships using the same base. There was also talk about Saudi's contracting Austal to update its ageing fleet with LCS based ships, which to my understanding fell through. Most recently Australia awarded ASB with 19 ship order worth around $305m for patrol boats that it will donated to Pacific Nations for illegal-fishing protection. Only concern with this order is that it will be built using steel base, which will be first time for Austal as most of its fleet is built from aluminum. The learning curve might impact it's currently healthy Australian EBIT margins, but it does open up a new market with steel ships as it can show it can also tackle this material well. Also Austal is pretty big in ferry business now looking into European market and furthering its Asian presence. In summary. Austal currently has $3.3b order book in different stages of progression with contracts extending into 2023, which qualitatively all sounds great  but still does not tell me if stock is underpriced.

So i thought i will ran a DCF to see what numbers are like. In my worst case scenario I assumed 3 year time horizon, 9.2% WACC and terminal growth of 2.0%. I also assumed that Austal will continue to reduce its debt as it pledged to do which also is backed by its most recent interim results. EBIT was assumed to be $60m, $55.6m and $50.0m in FY16,17,18, respectively. CAPEX spending was left at it's current level and working capital approaching nil in FY18. As you can see I assumed that no new contracts are entered into at this stage as well as no improvement in EBIT margins. After all of this the share price still sits healthy at $1.99. Now, my back-of-envelope calculations are giving me a healthy upside, surely something must be wrong. So i thought let's see what good people at JPM think about this. Please see below a link to their research:
http://phx.corporate-ir.net/Externa...WxkSUQ9LTF8VHlwZT0z&t=1&cb=635886864402796787.

So someone at JPM also seem to think that Austal's target price is around $1.91. I double checked with NAB research (they use Reuters and Morningstar) and stock was also put at strong buy. So now, good people at HotCopper please tell me your thoughts as I am waiting for a obvious reason what am I missing?

Cheers.
Ed