Stock Analysis on Net
Stock Analysis on Net

Dollar Tree Inc. (NASDAQ:DLTR)

This company has been moved to the archive! The financial data has not been updated since November 22, 2022.

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

Microsoft Excel

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)

Dollar Tree Inc., free cash flow to the firm (FCFF) forecast

US$ in thousands, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 10.92%
01 FCFF0 554,541
1 FCFF1 613,909 = 554,541 × (1 + 10.71%) 553,463
2 FCFF2 677,467 = 613,909 × (1 + 10.35%) 550,627
3 FCFF3 745,216 = 677,467 × (1 + 10.00%) 546,055
4 FCFF4 817,113 = 745,216 × (1 + 9.65%) 539,785
5 FCFF5 893,064 = 817,113 × (1 + 9.30%) 531,871
5 Terminal value (TV5) 60,016,539 = 893,064 × (1 + 9.30%) ÷ (10.92% – 9.30%) 35,743,270
Intrinsic value of Dollar Tree Inc. capital 38,465,070
Less: Long-term debt (fair value) 3,564,900
Intrinsic value of Dollar Tree Inc. common stock 34,900,170
 
Intrinsic value of Dollar Tree Inc. common stock (per share) $157.79
Current share price $152.37

Based on: 10-K (reporting date: 2022-01-29).

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.

Weighted Average Cost of Capital (WACC)

Dollar Tree Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 33,701,879 0.90 11.79%
Long-term debt (fair value) 3,564,900 0.10 2.75% = 3.68% × (1 – 25.37%)

Based on: 10-K (reporting date: 2022-01-29).

1 US$ in thousands

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 221,184,479 × $152.37
= $33,701,879,065.23

   Long-term debt (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
= (18.60% + 22.90% + 24.70% + 21.00% + 32.40% + 32.60%) ÷ 6
= 25.37%

WACC = 10.92%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Dollar Tree Inc., PRAT model

Microsoft Excel
Average Jan 29, 2022 Jan 30, 2021 Feb 1, 2020 Feb 2, 2019 Feb 3, 2018 Jan 28, 2017
Selected Financial Data (US$ in thousands)
Interest expense, net 178,900 147,300 162,100 370,000 301,800 375,500
Net income (loss) 1,327,900 1,341,900 827,000 (1,590,800) 1,714,300 896,200
 
Effective income tax rate (EITR)1 18.60% 22.90% 24.70% 21.00% 32.40% 32.60%
 
Interest expense, net, after tax2 145,625 113,568 122,061 292,300 204,017 253,087
Interest expense (after tax) and dividends 145,625 113,568 122,061 292,300 204,017 253,087
 
EBIT(1 – EITR)3 1,473,525 1,455,468 949,061 (1,298,500) 1,918,317 1,149,287
 
Current portion of long-term debt — — 250,000 — 915,900 152,100
Long-term debt, net, excluding current portion 3,417,000 3,226,200 3,522,200 4,265,300 4,762,100 6,169,700
Shareholders’ equity 7,718,500 7,285,300 6,254,800 5,642,900 7,182,300 5,389,500
Total capital 11,135,500 10,511,500 10,027,000 9,908,200 12,860,300 11,711,300
Financial Ratios
Retention rate (RR)4 0.90 0.92 0.87 — 0.89 0.78
Return on invested capital (ROIC)5 13.23% 13.85% 9.47% -13.11% 14.92% 9.81%
Averages
RR 0.87
ROIC 12.25%
 
FCFF growth rate (g)6 10.71%

Based on: 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03), 10-K (reporting date: 2017-01-28).

1 See details »

2022 Calculations

2 Interest expense, net, after tax = Interest expense, net × (1 – EITR)
= 178,900 × (1 – 18.60%)
= 145,625

3 EBIT(1 – EITR) = Net income (loss) + Interest expense, net, after tax
= 1,327,900 + 145,625
= 1,473,525

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [1,473,525 – 145,625] ÷ 1,473,525
= 0.90

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 1,473,525 ÷ 11,135,500
= 13.23%

6 g = RR × ROIC
= 0.87 × 12.25%
= 10.71%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (37,266,779 × 10.92% – 554,541) ÷ (37,266,779 + 554,541)
= 9.30%

where:

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

FCFF growth rate (g) forecast

Dollar Tree Inc., H-model

Microsoft Excel
Year Value gt
1 g1 10.71%
2 g2 10.35%
3 g3 10.00%
4 g4 9.65%
5 and thereafter g5 9.30%

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)
= 10.71% + (9.30% – 10.71%) × (2 – 1) ÷ (5 – 1)
= 10.35%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 10.71% + (9.30% – 10.71%) × (3 – 1) ÷ (5 – 1)
= 10.00%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 10.71% + (9.30% – 10.71%) × (4 – 1) ÷ (5 – 1)
= 9.65%