# Lowe's Cos. Inc. (LOW) | Present Value of Free Cash Flow to the Firm (FCFF)

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

## Intrinsic Stock Value (Valuation Summery)

Lowe's Cos. Inc., free cash flow to the firm (FCFF) forecast

USD \$ in millions, except per share data

Year Value FCFFt or Terminal value (TVt) Calculation Present value at %
01 FCFF0
1 FCFF1 = × (1 + %)
2 FCFF2 = × (1 + %)
3 FCFF3 = × (1 + %)
4 FCFF4 = × (1 + %)
5 FCFF5 = × (1 + %)
5 Terminal value (TV5) = × (1 + %) ÷ (% – %)
Intrinsic value of 's capital
Less: Debt (fair value)
Intrinsic value of 's common stock

Intrinsic value of 's common stock (per share) \$
Current share price \$

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

## Weighted Average Cost of Capital (WACC)

Lowe's Cos. Inc., cost of capital

Value1 Weight Required rate of return2 Calculation
Equity (fair value) %
Debt (fair value) % = % × (1 – %)

1 USD \$ in millions

2 Required rate of return on debt is after tax (estimated effective tax rate is %)

WACC = %

## FCFF Growth Rate (g)

### FCFF growth rate (g) implied by PRAT model

Lowe's Cos. Inc., PRAT model

Average Feb 1, 2013 Feb 3, 2012 Jan 28, 2011 Jan 29, 2010 Jan 30, 2009 Feb 1, 2008
Selected Financial Data (USD \$ in millions)
Income tax provision
Net earnings
Tax rate1   % % % % % %

Interest expense
Interest expense, after tax2
Interest expense (after tax) and dividends

EBIT(1 – Tax Rate)3

Short-term borrowings
Current maturities of long-term debt
Long-term debt, excluding current maturities
Shareholders' equity
Total capital
Ratios
Retention rate (RR)4
Return on invested capital (ROIC)5   % % % % % %
Averages
RR
ROIC %

Growth rate of FCFF (g)6 %

2013 Calculations

1 Tax rate = 100 × Income tax provision ÷ (Net earnings + Income tax provision)
= 100 × ÷ ( + ) = %

2 Interest expense, after tax = Interest expense × (1 – Tax rate)
= × (1 – %) =

3 EBIT(1 – Tax Rate) = Net earnings + Interest expense, after tax
= + =

4 RR = [EBIT(1 – Tax Rate) – Interest expense (after tax) and dividends] ÷ EBIT(1 – Tax Rate)
= [] ÷ =

5 ROIC = 100 × EBIT(1 – Tax Rate) ÷ Total capital
= 100 × ÷ = %

6 g = RR × ROIC
= × % = %

### FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × ( × % – ) ÷ ( + ) = %

where:
Total capital, fair value0 = current fair value of 's debt and equity (USD \$ in millions)
FCFF0 = last year 's free cash flow to the firm (USD \$ in millions)
WACC = weighted average cost of 's capital

### FCFF growth rate (g) forecast

Lowe's Cos. Inc., H-model

Year Value gt
1 g1 %
2 g2 %
3 g3 %
4 g4 %
5 and thereafter g5 %

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= % + (% – %) × (2 – 1) ÷ (5 – 1) = %

g2 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= % + (% – %) × (3 – 1) ÷ (5 – 1) = %

g2 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= % + (% – %) × (4 – 1) ÷ (5 – 1) = %