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Comcast Corp. (CMCSA)


Present Value of Free Cash Flow to Equity (FCFE)

Intermediate level

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 equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company’s asset base.


Intrinsic Stock Value (Valuation Summary)

Comcast Corp., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

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Year Value FCFEt or Terminal value (TVt) Calculation Present value at 11.86%
01 FCFE0 48,950 
1 FCFE1 56,134  = 48,950 × (1 + 14.68%) 50,180 
2 FCFE2 60,906  = 56,134 × (1 + 8.50%) 48,671 
3 FCFE3 62,324  = 60,906 × (1 + 2.33%) 44,522 
4 FCFE4 59,926  = 62,324 × (1 + -3.85%) 38,269 
5 FCFE5 53,922  = 59,926 × (1 + -10.02%) 30,782 
5 Terminal value (TV5) 221,700  = 53,922 × (1 + -10.02%) ÷ (11.86%-10.02%) 126,561 
Intrinsic value of Comcast Corp.’s common stock 338,985 
 
Intrinsic value of Comcast Corp.’s common stock (per share) $74.51
Current share price $44.24

Based on: 10-K (filing date: 2019-01-31).

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.


Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 2.21%
Expected rate of return on market portfolio2 E(RM) 11.47%
Systematic risk of Comcast Corp.’s common stock βCMCSA 1.04
 
Required rate of return on Comcast Corp.’s common stock3 rCMCSA 11.86%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rCMCSA = RF + βCMCSA [E(RM) – RF]
= 2.21% + 1.04 [11.47%2.21%]
= 11.86%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Comcast Corp., PRAT model

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Average Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (US$ in millions)
Dividends declared 3,499  2,975  2,656  2,483  2,320 
Net income attributable to Comcast Corporation 11,731  22,714  8,695  8,163  8,380 
Revenue 94,507  84,526  80,403  74,510  68,775 
Total assets 251,684  186,949  180,500  166,574  159,339 
Total Comcast Corporation shareholders’ equity 71,613  68,606  53,943  52,269  52,711 
Financial Ratios
Retention rate1 0.70 0.87 0.69 0.70 0.72
Profit margin2 12.41% 26.87% 10.81% 10.96% 12.18%
Asset turnover3 0.38 0.45 0.45 0.45 0.43
Financial leverage4 3.51 2.72 3.35 3.19 3.02
Averages
Retention rate 0.74
Profit margin 14.65%
Asset turnover 0.43
Financial leverage 3.16
 
FCFE growth rate (g)5 14.68%

Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-01-31), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-02-05), 10-K (filing date: 2015-02-27).

2018 Calculations

1 Retention rate = (Net income attributable to Comcast Corporation – Dividends declared) ÷ Net income attributable to Comcast Corporation
= (11,7313,499) ÷ 11,731 = 0.70

2 Profit margin = 100 × Net income attributable to Comcast Corporation ÷ Revenue
= 100 × 11,731 ÷ 94,507 = 12.41%

3 Asset turnover = Revenue ÷ Total assets
= 94,507 ÷ 251,684 = 0.38

4 Financial leverage = Total assets ÷ Total Comcast Corporation shareholders’ equity
= 251,684 ÷ 71,613 = 3.51

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.74 × 14.65% × 0.43 × 3.16 = 14.68%


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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (201,259 × 11.86%48,950) ÷ (201,259 + 48,950) = -10.02%

where:
Equity market value0 = current market value of Comcast Corp.’s common stock (US$ in millions)
FCFE0 = the last year Comcast Corp.’s free cash flow to equity (US$ in millions)
r = required rate of return on Comcast Corp.’s common stock


FCFE growth rate (g) forecast

Comcast Corp., H-model

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Year Value gt
1 g1 14.68%
2 g2 8.50%
3 g3 2.33%
4 g4 -3.85%
5 and thereafter g5 -10.02%

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)
= 14.68% + (-10.02%14.68%) × (2 – 1) ÷ (5 – 1) = 8.50%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 14.68% + (-10.02%14.68%) × (3 – 1) ÷ (5 – 1) = 2.33%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 14.68% + (-10.02%14.68%) × (4 – 1) ÷ (5 – 1) = -3.85%