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 Summary)
Weighted Average Cost of Capital (WACC)
FCFF Growth Rate (g)

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

US$ in millions, except per share data

Year	Value	FCFF_t or Terminal value (TV_t)	Calculation	Present value at 12.10%
0¹	FCFF₀	7,290
1	FCFF₁	8,677	= 7,290 × (1 + 19.02%)	7,740
2	FCFF₂	10,073	= 8,677 × (1 + 16.10%)	8,016
3	FCFF₃	11,400	= 10,073 × (1 + 13.17%)	8,093
4	FCFF₄	12,569	= 11,400 × (1 + 10.25%)	7,960
5	FCFF₅	13,491	= 12,569 × (1 + 7.33%)	7,622
5	Terminal value (TV₅)	303,886	= 13,491 × (1 + 7.33%) ÷ (12.10% – 7.33%)	171,685
Intrinsic value of Lowe’s Cos. Inc. capital				211,116
Less: Debt, including finance lease obligations (fair value)				33,268
Intrinsic value of Lowe’s Cos. Inc. common stock				177,848

Intrinsic value of Lowe’s Cos. Inc. common stock (per share)				$310.82
Current share price				$228.86

Based on: 10-K (reporting date: 2024-02-02).

¹ See details »

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.

Lowe’s Cos. Inc., cost of capital

	Value¹	Weight	Required rate of return²	Calculation
Equity (fair value)	130,950	0.80	14.43%
Debt, including finance lease obligations (fair value)	33,268	0.20	2.92%	= 3.96% × (1 – 26.32%)

Based on: 10-K (reporting date: 2024-02-02).

¹ US$ in millions

Equity (fair value) = No. shares of common stock outstanding × Current share price
= 572,184,243 × $228.86
= $130,950,085,852.98

Debt, including finance lease obligations (fair value). See details »

² Required rate of return on equity is estimated by using CAPM. See details »

Required rate of return on debt. See details »

Required rate of return on debt is after tax.

Estimated (average) effective income tax rate
= (24.10% + 28.80% + 24.70% + 24.60% + 23.90% + 31.80%) ÷ 6
= 26.32%

WACC = 12.10%

FCFF growth rate (g) implied by PRAT model

Lowe’s Cos. Inc., PRAT model

	Average	Feb 2, 2024	Feb 3, 2023	Jan 28, 2022	Jan 29, 2021	Jan 31, 2020	Feb 1, 2019
Selected Financial Data (US$ in millions)
Interest expense, net of amount capitalized		1,483)	1,160)	897)	872)	718)	652)
Net earnings		7,726)	6,437)	8,442)	5,835)	4,281)	2,314)

Effective income tax rate (EITR)¹		24.10%	28.80%	24.70%	24.60%	23.90%	31.80%

Interest expense, net of amount capitalized, after tax²		1,126)	826)	675)	657)	546)	445)
Add: Cash dividends declared		2,531)	2,466)	2,081)	1,724)	1,653)	1,500)
Interest expense (after tax) and dividends		3,657)	3,292)	2,756)	2,381)	2,199)	1,945)

EBIT(1 – EITR)³		8,852)	7,263)	9,117)	6,492)	4,827)	2,759)

Short-term borrowings		—)	499)	—)	—)	1,941)	722)
Current maturities of long-term debt		537)	585)	868)	1,112)	597)	1,110)
Long-term debt, excluding current maturities		35,384)	32,876)	23,859)	20,668)	16,768)	14,391)
Shareholders’ equity (deficit)		(15,050)	(14,254)	(4,816)	1,437)	1,972)	3,644)
Total capital		20,871)	19,706)	19,911)	23,217)	21,278)	19,867)
Financial Ratios
Retention rate (RR)⁴		0.59	0.55	0.70	0.63	0.54	0.30
Return on invested capital (ROIC)⁵		42.41%	36.86%	45.79%	27.96%	22.69%	13.89%
Averages
RR	0.60
ROIC	31.60%

FCFF growth rate (g)⁶	19.02%

Based on: 10-K (reporting date: 2024-02-02), 10-K (reporting date: 2023-02-03), 10-K (reporting date: 2022-01-28), 10-K (reporting date: 2021-01-29), 10-K (reporting date: 2020-01-31), 10-K (reporting date: 2019-02-01).

¹ See details »

2024 Calculations

² Interest expense, net of amount capitalized, after tax = Interest expense, net of amount capitalized × (1 – EITR)
= 1,483 × (1 – 24.10%)
= 1,126

³ EBIT(1 – EITR) = Net earnings + Interest expense, net of amount capitalized, after tax
= 7,726 + 1,126
= 8,852

⁴ RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [8,852 – 3,657] ÷ 8,852
= 0.59

⁵ ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 8,852 ÷ 20,871
= 42.41%

⁶ g = RR × ROIC
= 0.60 × 31.60%
= 19.02%

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

g = 100 × (Total capital, fair value₀ × WACC – FCFF₀) ÷ (Total capital, fair value₀ + FCFF₀)
= 100 × (164,218 × 12.10% – 7,290) ÷ (164,218 + 7,290)
= 7.33%

where:

Total capital, fair value₀ = current fair value of Lowe’s Cos. Inc. debt and equity (US$ in millions)
FCFF₀ = the last year Lowe’s Cos. Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Lowe’s Cos. Inc. capital

FCFF growth rate (g) forecast

Lowe’s Cos. Inc., H-model

Year	Value	g_t
1	g₁	19.02%
2	g₂	16.10%
3	g₃	13.17%
4	g₄	10.25%
5 and thereafter	g₅	7.33%

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 + (g₅ – g₁) × (2 – 1) ÷ (5 – 1)
= 19.02% + (7.33% – 19.02%) × (2 – 1) ÷ (5 – 1)
= 16.10%

g₃ = g₁ + (g₅ – g₁) × (3 – 1) ÷ (5 – 1)
= 19.02% + (7.33% – 19.02%) × (3 – 1) ÷ (5 – 1)
= 13.17%

g₄ = g₁ + (g₅ – g₁) × (4 – 1) ÷ (5 – 1)
= 19.02% + (7.33% – 19.02%) × (4 – 1) ÷ (5 – 1)
= 10.25%

Lowe’s Cos. Inc. (NYSE:LOW)

Present Value of Free Cash Flow to the Firm (FCFF)

Intrinsic Stock Value (Valuation Summary)

Weighted Average Cost of Capital (WACC)

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

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

FCFF growth rate (g) forecast