Stock Analysis on Net
Stock Analysis on Net

Constellation Brands Inc. (NYSE:STZ)

This company has been moved to the archive! The financial data has not been updated since January 5, 2023.

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)

Constellation Brands 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 12.20%
01 FCFF0 1,679,781
1 FCFF1 1,778,811 = 1,679,781 × (1 + 5.90%) 1,585,455
2 FCFF2 1,895,217 = 1,778,811 × (1 + 6.54%) 1,505,592
3 FCFF3 2,031,535 = 1,895,217 × (1 + 7.19%) 1,438,456
4 FCFF4 2,190,836 = 2,031,535 × (1 + 7.84%) 1,382,631
5 FCFF5 2,376,840 = 2,190,836 × (1 + 8.49%) 1,336,967
5 Terminal value (TV5) 69,588,762 = 2,376,840 × (1 + 8.49%) ÷ (12.20% – 8.49%) 39,143,501
Intrinsic value of Constellation Brands Inc. capital 46,392,602
Less: Total borrowings (fair value) 10,668,300
Intrinsic value of Constellation Brands Inc. common stock 35,724,302
 
Intrinsic value of Constellation Brands Inc. common stock (per share) $193.57
Current share price $208.68

Based on: 10-K (reporting date: 2022-02-28).

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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)

Constellation Brands Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 38,512,083 0.78 14.75%
Total borrowings (fair value) 10,668,300 0.22 2.99% = 3.60% × (1 – 16.92%)

Based on: 10-K (reporting date: 2022-02-28).

1 US$ in thousands

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 184,550,904 × $208.68
= $38,512,082,646.72

   Total borrowings (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
= (99.70% + 20.10% + 21.00% + 16.50% + 0.50% + 26.50%) ÷ 6
= 16.92%

WACC = 12.20%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Constellation Brands Inc., PRAT model

Microsoft Excel
Average Feb 28, 2022 Feb 28, 2021 Feb 29, 2020 Feb 28, 2019 Feb 28, 2018 Feb 28, 2017
Selected Financial Data (US$ in thousands)
Interest expense 356,400 385,700 428,700 367,100 332,000 333,300
Net income (loss) attributable to CBI (40,400) 1,998,000 (11,800) 3,435,900 2,318,900 1,535,100
 
Effective income tax rate (EITR)1 99.70% 20.10% 21.00% 16.50% 0.50% 26.50%
 
Interest expense, after tax2 1,069 308,174 338,673 306,529 330,340 244,976
Add: Dividends declared 572,000 575,500 569,100 558,900 400,700 315,600
Interest expense (after tax) and dividends 573,069 883,674 907,773 865,429 731,040 560,576
 
EBIT(1 – EITR)3 (39,331) 2,306,174 326,873 3,742,429 2,649,240 1,780,076
 
Short-term borrowings 323,000 — 238,900 791,500 746,800 606,500
Current maturities of long-term debt 605,300 29,200 734,900 1,065,200 22,300 910,900
Long-term debt, less current maturities 9,488,200 10,413,100 11,210,800 11,759,800 9,417,600 7,720,700
Total CBI stockholders’ equity 11,731,900 13,598,900 12,131,800 12,551,000 8,046,100 6,891,200
Total capital 22,148,400 24,041,200 24,316,400 26,167,500 18,232,800 16,129,300
Financial Ratios
Retention rate (RR)4 — 0.62 -1.78 0.77 0.72 0.69
Return on invested capital (ROIC)5 -0.18% 9.59% 1.34% 14.30% 14.53% 11.04%
Averages
RR 0.70
ROIC 8.44%
 
FCFF growth rate (g)6 5.90%

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

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2022 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 356,400 × (1 – 99.70%)
= 1,069

3 EBIT(1 – EITR) = Net income (loss) attributable to CBI + Interest expense, after tax
= -40,400 + 1,069
= -39,331

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [-39,331 – 573,069] ÷ -39,331
= —

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × -39,331 ÷ 22,148,400
= -0.18%

6 g = RR × ROIC
= 0.70 × 8.44%
= 5.90%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (49,180,383 × 12.20% – 1,679,781) ÷ (49,180,383 + 1,679,781)
= 8.49%

where:

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

FCFF growth rate (g) forecast

Constellation Brands Inc., H-model

Microsoft Excel
Year Value gt
1 g1 5.90%
2 g2 6.54%
3 g3 7.19%
4 g4 7.84%
5 and thereafter g5 8.49%

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)
= 5.90% + (8.49% – 5.90%) × (2 – 1) ÷ (5 – 1)
= 6.54%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 5.90% + (8.49% – 5.90%) × (3 – 1) ÷ (5 – 1)
= 7.19%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 5.90% + (8.49% – 5.90%) × (4 – 1) ÷ (5 – 1)
= 7.84%