Stock Analysis on Net
Stock Analysis on Net

Warner Bros. Discovery Inc. (NASDAQ:WBD)

This company has been moved to the archive! The financial data has not been updated since November 4, 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)

Warner Bros. Discovery Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 10.87%
01 FCFF0 2,983
1 FCFF1 3,091 = 2,983 × (1 + 3.62%) 2,788
2 FCFF2 3,203 = 3,091 × (1 + 3.63%) 2,606
3 FCFF3 3,319 = 3,203 × (1 + 3.63%) 2,436
4 FCFF4 3,440 = 3,319 × (1 + 3.64%) 2,277
5 FCFF5 3,565 = 3,440 × (1 + 3.64%) 2,129
5 Terminal value (TV5) 51,137 = 3,565 × (1 + 3.64%) ÷ (10.87% – 3.64%) 30,531
Intrinsic value of Warner Bros. Discovery Inc. capital 42,767
Less: Total debt and finance lease liabilities (fair value) 17,455
Intrinsic value of Warner Bros. Discovery Inc. common stock 25,312
 
Intrinsic value of Warner Bros. Discovery Inc. common stock (per share) $10.42
Current share price $10.43

Based on: 10-K (reporting date: 2021-12-31).

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)

Warner Bros. Discovery Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 25,328 0.59 16.13%
Total debt and finance lease liabilities (fair value) 17,455 0.41 3.22% = 4.13% × (1 – 22.00%)

Based on: 10-K (reporting date: 2021-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 2,428,396,015 × $10.43
= $25,328,170,436.45

   Total debt and finance lease liabilities (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
= (16.00% + 22.00% + 4.00% + 33.00% + 35.00%) ÷ 5
= 22.00%

WACC = 10.87%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Warner Bros. Discovery Inc., PRAT model

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Average Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017
Selected Financial Data (US$ in millions)
Interest expense, net 633 648 677 729 475
Net income (loss) available to Discovery, Inc. 1,006 1,219 2,069 594 (337)
 
Effective income tax rate (EITR)1 16.00% 22.00% 4.00% 33.00% 35.00%
 
Interest expense, net, after tax2 532 505 650 488 309
Interest expense (after tax) and dividends 532 505 650 488 309
 
EBIT(1 – EITR)3 1,538 1,724 2,719 1,082 (28)
 
Finance lease liabilities, current 58 57 47 — —
Current portion of debt 339 335 609 1,860 30
Noncurrent portion of debt 14,420 15,069 14,810 15,185 14,755
Finance lease liabilities, noncurrent 197 184 203 — —
Total Discovery, Inc. stockholders’ equity 11,599 10,464 9,891 8,386 4,610
Total capital 26,613 26,109 25,560 25,431 19,395
Financial Ratios
Retention rate (RR)4 0.65 0.71 0.76 0.55 —
Return on invested capital (ROIC)5 5.78% 6.60% 10.64% 4.26% -0.15%
Averages
RR 0.67
ROIC 5.43%
 
FCFF growth rate (g)6 3.62%

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

1 See details »

2021 Calculations

2 Interest expense, net, after tax = Interest expense, net × (1 – EITR)
= 633 × (1 – 16.00%)
= 532

3 EBIT(1 – EITR) = Net income (loss) available to Discovery, Inc. + Interest expense, net, after tax
= 1,006 + 532
= 1,538

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [1,538 – 532] ÷ 1,538
= 0.65

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 1,538 ÷ 26,613
= 5.78%

6 g = RR × ROIC
= 0.67 × 5.43%
= 3.62%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (42,783 × 10.87% – 2,983) ÷ (42,783 + 2,983)
= 3.64%

where:

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

FCFF growth rate (g) forecast

Warner Bros. Discovery Inc., H-model

Microsoft Excel
Year Value gt
1 g1 3.62%
2 g2 3.63%
3 g3 3.63%
4 g4 3.64%
5 and thereafter g5 3.64%

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)
= 3.62% + (3.64% – 3.62%) × (2 – 1) ÷ (5 – 1)
= 3.63%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 3.62% + (3.64% – 3.62%) × (3 – 1) ÷ (5 – 1)
= 3.63%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 3.62% + (3.64% – 3.62%) × (4 – 1) ÷ (5 – 1)
= 3.64%