Microsoft Excel LibreOffice Calc

Intuit Inc. (INTU)


Dividend Discount Model (DDM)

Difficulty: Intermediate

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.


Intrinsic Stock Value (Valuation Summary)

Intuit Inc., dividends per share (DPS) forecast

USD $

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Year Value DPSt or Terminal value (TVt) Calculation Present value at 13.64%
0 DPS01 1.56
1 DPS1 2.05 = 1.56 × (1 + 31.30%) 1.80
2 DPS2 2.60 = 2.05 × (1 + 26.71%) 2.01
3 DPS3 3.17 = 2.60 × (1 + 22.12%) 2.16
4 DPS4 3.73 = 3.17 × (1 + 17.54%) 2.23
5 DPS5 4.21 = 3.73 × (1 + 12.95%) 2.22
5 Terminal value (TV5) 691.86 = 4.21 × (1 + 12.95%) ÷ (13.64%12.95%) 365.08
Intrinsic value of Intuit Inc.’s common stock (per share) $375.50
Current share price $256.50

Based on: 10-K (filing date: 2018-08-31).

1 DPS0 = Sum of last year dividends per share of Intuit Inc.’s common stock. 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.


Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 2.45%
Expected rate of return on market portfolio2 E(RM) 11.83%
Systematic risk (β) of Intuit Inc.’s common stock βINTU 1.19
Required rate of return on Intuit Inc.’s common stock3 rINTU 13.64%

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).

Calculations

2 See Details »

3 rINTU = RF + βINTU [E(RM) – RF]
= 2.45% + 1.19 [11.83%2.45%]
= 13.64%


Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Intuit Inc., PRAT model

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Average Jul 31, 2018 Jul 31, 2017 Jul 31, 2016 Jul 31, 2015 Jul 31, 2014
Selected Financial Data (USD $ in millions)
Dividends and dividend rights declared 407  357  319  287  220 
Net income 1,211  971  979  365  907 
Net revenue 5,964  5,177  4,694  4,192  4,506 
Total assets 5,178  4,068  4,250  4,968  5,201 
Stockholders’ equity 2,354  1,354  1,161  2,332  3,078 
Ratios
Retention rate1 0.66 0.63 0.67 0.21 0.76
Profit margin2 20.31% 18.76% 20.86% 8.71% 20.13%
Asset turnover3 1.15 1.27 1.10 0.84 0.87
Financial leverage4 2.20 3.00 3.66 2.13 1.69
Averages
Retention rate 0.59
Profit margin 20.01%
Asset turnover 1.05
Financial leverage 2.54
Dividend growth rate (g)5 31.30%

Based on: 10-K (filing date: 2018-08-31), 10-K (filing date: 2017-09-01), 10-K (filing date: 2016-09-01), 10-K (filing date: 2015-09-01), 10-K (filing date: 2014-09-12).

2018 Calculations

1 Retention rate = (Net income – Dividends and dividend rights declared) ÷ Net income
= (1,211407) ÷ 1,211 = 0.66

2 Profit margin = 100 × Net income ÷ Net revenue
= 100 × 1,211 ÷ 5,964 = 20.31%

3 Asset turnover = Net revenue ÷ Total assets
= 5,964 ÷ 5,178 = 1.15

4 Financial leverage = Total assets ÷ Stockholders’ equity
= 5,178 ÷ 2,354 = 2.20

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.59 × 20.01% × 1.05 × 2.54 = 31.30%


Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × ($256.50 × 13.64% – $1.56) ÷ ($256.50 + $1.56) = 12.95%

where:
P0 = current price of share of Intuit Inc.’s common stock
D0 = last year dividends per share of Intuit Inc.’s common stock
r = required rate of return on Intuit Inc.’s common stock


Dividend growth rate (g) forecast

Intuit Inc., H-model

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Year Value gt
1 g1 31.30%
2 g2 26.71%
3 g3 22.12%
4 g4 17.54%
5 and thereafter g5 12.95%

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

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 31.30% + (12.95%31.30%) × (2 – 1) ÷ (5 – 1) = 26.71%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 31.30% + (12.95%31.30%) × (3 – 1) ÷ (5 – 1) = 22.12%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 31.30% + (12.95%31.30%) × (4 – 1) ÷ (5 – 1) = 17.54%