Stock Analysis on Net
Stock Analysis on Net

Ross Stores Inc. (NASDAQ:ROST)

This company has been moved to the archive! The financial data has not been updated since December 7, 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)

Ross Stores 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 13.42%
01 FCFF0 1,256,399
1 FCFF1 1,634,874 = 1,256,399 × (1 + 30.12%) 1,441,492
2 FCFF2 2,045,707 = 1,634,874 × (1 + 25.13%) 1,590,374
3 FCFF3 2,457,608 = 2,045,707 × (1 + 20.13%) 1,684,597
4 FCFF4 2,829,699 = 2,457,608 × (1 + 15.14%) 1,710,219
5 FCFF5 3,116,798 = 2,829,699 × (1 + 10.15%) 1,660,917
5 Terminal value (TV5) 105,001,382 = 3,116,798 × (1 + 10.15%) ÷ (13.42% – 10.15%) 55,954,404
Intrinsic value of Ross Stores Inc. capital 64,042,002
Less: Senior Notes (fair value) 2,600,000
Intrinsic value of Ross Stores Inc. common stock 61,442,002
 
Intrinsic value of Ross Stores Inc. common stock (per share) $178.42
Current share price $115.36

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

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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)

Ross Stores Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 39,726,640 0.94 14.14%
Senior Notes (fair value) 2,600,000 0.06 2.39% = 3.25% × (1 – 26.55%)

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
= 344,371,009 × $115.36
= $39,726,639,598.24

   Senior Notes (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
= (23.70% + 19.70% + 23.30% + 22.60% + 33.00% + 37.00%) ÷ 6
= 26.55%

WACC = 13.42%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Ross Stores Inc., PRAT model

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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 75,161 88,064 9,740 16,407 18,847 19,569
Net earnings 1,722,589 85,382 1,660,928 1,587,457 1,362,753 1,117,654
 
Effective income tax rate (EITR)1 23.70% 19.70% 23.30% 22.60% 33.00% 37.00%
 
Interest expense, after tax2 57,348 70,715 7,471 12,699 12,627 12,328
Add: Dividends declared 405,123 101,404 369,793 337,189 247,526 214,640
Interest expense (after tax) and dividends 462,471 172,119 377,264 349,888 260,153 226,968
 
EBIT(1 – EITR)3 1,779,937 156,097 1,668,399 1,600,156 1,375,380 1,129,982
 
Current portion of long-term debt — 64,910 — — 84,973 —
Long-term debt, excluding current portion 2,452,325 2,448,175 312,891 312,440 311,994 396,493
Stockholders’ equity 4,060,050 3,290,640 3,359,249 3,305,746 3,049,308 2,748,017
Total capital 6,512,375 5,803,725 3,672,140 3,618,186 3,446,275 3,144,510
Financial Ratios
Retention rate (RR)4 0.74 -0.10 0.77 0.78 0.81 0.80
Return on invested capital (ROIC)5 27.33% 2.69% 45.43% 44.23% 39.91% 35.94%
Averages
RR 0.78
ROIC 38.57%
 
FCFF growth rate (g)6 30.12%

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).

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2022 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 75,161 × (1 – 23.70%)
= 57,348

3 EBIT(1 – EITR) = Net earnings + Interest expense, after tax
= 1,722,589 + 57,348
= 1,779,937

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [1,779,937 – 462,471] ÷ 1,779,937
= 0.74

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 1,779,937 ÷ 6,512,375
= 27.33%

6 g = RR × ROIC
= 0.78 × 38.57%
= 30.12%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (42,326,640 × 13.42% – 1,256,399) ÷ (42,326,640 + 1,256,399)
= 10.15%

where:

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

FCFF growth rate (g) forecast

Ross Stores Inc., H-model

Microsoft Excel
Year Value gt
1 g1 30.12%
2 g2 25.13%
3 g3 20.13%
4 g4 15.14%
5 and thereafter g5 10.15%

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)
= 30.12% + (10.15% – 30.12%) × (2 – 1) ÷ (5 – 1)
= 25.13%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 30.12% + (10.15% – 30.12%) × (3 – 1) ÷ (5 – 1)
= 20.13%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 30.12% + (10.15% – 30.12%) × (4 – 1) ÷ (5 – 1)
= 15.14%