Stock Analysis on Net
Stock Analysis on Net

Dollar General Corp. (NYSE:DG)

This company has been moved to the archive! The financial data has not been updated since August 31, 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)

Dollar General Corp., 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 7.32%
01 FCFF0 584,296
1 FCFF1 679,245 = 584,296 × (1 + 16.25%) 632,935
2 FCFF2 771,645 = 679,245 × (1 + 13.60%) 670,012
3 FCFF3 856,189 = 771,645 × (1 + 10.96%) 692,736
4 FCFF4 927,334 = 856,189 × (1 + 8.31%) 699,144
5 FCFF5 979,846 = 927,334 × (1 + 5.66%) 688,368
5 Terminal value (TV5) 62,591,174 = 979,846 × (1 + 5.66%) ÷ (7.32% – 5.66%) 43,972,001
Intrinsic value of Dollar General Corp. capital 47,355,196
Less: Long-term obligations, including current portion (fair value) 6,926,511
Intrinsic value of Dollar General Corp. common stock 40,428,685
 
Intrinsic value of Dollar General Corp. common stock (per share) $184.21
Current share price $138.50

Based on: 10-K (reporting date: 2023-02-03).

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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)

Dollar General Corp., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 30,397,495 0.81 8.23%
Long-term obligations, including current portion (fair value) 6,926,511 0.19 3.31% = 4.25% × (1 – 22.02%)

Based on: 10-K (reporting date: 2023-02-03).

1 US$ in thousands

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 219,476,497 × $138.50
= $30,397,494,834.50

   Long-term obligations, including current portion (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
= (22.50% + 21.70% + 22.00% + 22.20% + 21.70% + 35.60%) ÷ 6
= 22.02%

WACC = 7.32%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Dollar General Corp., PRAT model

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Average Feb 3, 2023 Jan 28, 2022 Jan 29, 2021 Jan 31, 2020 Feb 1, 2019 Feb 2, 2018
Selected Financial Data (US$ in thousands)
Interest expense 211,273 157,526 150,385 100,574 99,871 97,036
Net income 2,415,989 2,399,232 2,655,050 1,712,555 1,589,472 1,538,960
 
Effective income tax rate (EITR)1 22.50% 21.70% 22.00% 22.20% 21.70% 35.60%
 
Interest expense, after tax2 163,737 123,343 117,300 78,247 78,199 62,491
Add: Dividends paid 493,732 392,217 355,934 327,578 306,562 282,941
Interest expense (after tax) and dividends 657,469 515,560 473,234 405,825 384,761 345,432
 
EBIT(1 – EITR)3 2,579,726 2,522,575 2,772,350 1,790,802 1,667,671 1,601,451
 
Current portion of long-term obligations — — — 555 1,950 401,345
Long-term obligations, excluding current portion 7,009,399 4,172,068 4,130,975 2,911,438 2,862,740 2,604,613
Shareholders’ equity 5,541,772 6,261,986 6,661,238 6,702,500 6,417,393 6,125,774
Total capital 12,551,171 10,434,054 10,792,213 9,614,493 9,282,083 9,131,732
Financial Ratios
Retention rate (RR)4 0.75 0.80 0.83 0.77 0.77 0.78
Return on invested capital (ROIC)5 20.55% 24.18% 25.69% 18.63% 17.97% 17.54%
Averages
RR 0.78
ROIC 20.76%
 
FCFF growth rate (g)6 16.25%

Based on: 10-K (reporting date: 2023-02-03), 10-K (reporting date: 2022-01-28), 10-K (reporting date: 2021-01-29), 10-K (reporting date: 2020-01-31), 10-K (reporting date: 2019-02-01), 10-K (reporting date: 2018-02-02).

1 See details »

2023 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 211,273 × (1 – 22.50%)
= 163,737

3 EBIT(1 – EITR) = Net income + Interest expense, after tax
= 2,415,989 + 163,737
= 2,579,726

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [2,579,726 – 657,469] ÷ 2,579,726
= 0.75

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 2,579,726 ÷ 12,551,171
= 20.55%

6 g = RR × ROIC
= 0.78 × 20.76%
= 16.25%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (37,324,006 × 7.32% – 584,296) ÷ (37,324,006 + 584,296)
= 5.66%

where:

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

FCFF growth rate (g) forecast

Dollar General Corp., H-model

Microsoft Excel
Year Value gt
1 g1 16.25%
2 g2 13.60%
3 g3 10.96%
4 g4 8.31%
5 and thereafter g5 5.66%

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)
= 16.25% + (5.66% – 16.25%) × (2 – 1) ÷ (5 – 1)
= 13.60%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 16.25% + (5.66% – 16.25%) × (3 – 1) ÷ (5 – 1)
= 10.96%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 16.25% + (5.66% – 16.25%) × (4 – 1) ÷ (5 – 1)
= 8.31%