Valuation experts all know about the interplay of variables in a DCF. Sometimes it may appear that the various inputs are manipulated to come up with a desired result. That’s the perception swirling around the valuation of Snapchat by Morgan Stanley, which was the firm’s lead underwriter in the largest tech IPO in years.

Backed in? On March 28, Morgan Stanley issued a correction to an equity research note that put a $28 price target on the stock. The correction slashed almost $2 billion from projected EBITDA and free cash flow for certain years, but the $28 target price stayed the same—and so did the recommendation to buy Snapchat stock, which then saw a 4% rise in price. If the cash flow changes materially in a DCF, something else must change to keep the end result the same. In the corrected research note, Morgan Stanley says: “[W]e are lowering our SNAP equity risk premium from 5.59% (an estimated pre-IPO rate) to 4.29% (consistent with other companies in our group). This change lowers our WACC to 8% (from 10%). On an aggregate basis, our price target is unchanged at $28/share." Coincidence? "It almost feels that they're backing into the numbers," says Charles Lee, a professor at the Stanford Graduate School of Business, in an article in Business Insider.

Upon closer inspection, Morgan Stanley’s adjusted WACC corresponds with what it uses for other internet companies, such as Alphabet and Etsy (both 8%) and Amazon (7.7%). Also, it lowered the WACC for Priceline in January to 8% from 10%, and it made a similar move with Expedia, lowering it to 7% from 9%, the article points out. Even so, other banks involved in the Snapchat deal used significantly higher WACCs than Morgan Stanley, such as Deutsche Bank (~16%), Jefferies (12%), Credit Suisse (11%), and RBC Capital Markets (11%).

Of course, analysts make many assumptions about the different inputs, but, when material changes are made that do not affect the conclusion, questions arise as to the reliability of the entire process. Morgan Stanley declined to comment on all this, according to Business Insider.