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DuPont de Nemours Inc. (NYSE:DD)


Present Value of Free Cash Flow to Equity (FCFE)

Intermediate level

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 equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company’s asset base.


Intrinsic Stock Value (Valuation Summary)

DuPont de Nemours Inc., free cash flow to equity (FCFE) forecast

Stock valuation by this method is not possible because prior year FCFE is less than zero.

US$ in millions, except per share data

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Year Value FCFEt or Terminal value (TVt) Calculation Present value at 28.35%
01 FCFE0 (1,352)
1 FCFE1 = -1,352 × (1 + 0.00%)
2 FCFE2 = × (1 + 0.00%)
3 FCFE3 = × (1 + 0.00%)
4 FCFE4 = × (1 + 0.00%)
5 FCFE5 = × (1 + 0.00%)
5 Terminal value (TV5) = × (1 + 0.00%) ÷ (28.35%0.00%)
Intrinsic value of DuPont de Nemours Inc.’s common stock
 
Intrinsic value of DuPont de Nemours Inc.’s common stock (per share) $—
Current share price $31.87

Based on: 10-K (filing date: 2020-02-14).

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 1.14%
Expected rate of return on market portfolio2 E(RM) 12.11%
Systematic risk of DuPont de Nemours Inc.’s common stock βDD 2.48
 
Required rate of return on DuPont de Nemours Inc.’s common stock3 rDD 28.35%

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).

2 See details »

3 rDD = RF + βDD [E(RM) – RF]
= 1.14% + 2.48 [12.11%1.14%]
= 28.35%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

DuPont de Nemours Inc., PRAT model

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Average Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Selected Financial Data (US$ in millions)
Dividends declared on common stock 1,611  3,491  2,558  2,037  1,942 
Preferred stock dividends —  —  —  340  340 
Net income attributable to DuPont 498  3,844  1,460  4,318  7,685 
Net sales 21,512  85,977  62,484  48,158  48,778 
Total assets 69,396  188,030  192,164  79,511  68,026 
Total DuPont stockholders’ equity 40,987  94,571  100,330  25,987  25,374 
Financial Ratios
Retention rate1 -2.23 0.09 -0.75 0.49 0.74
Profit margin2 2.31% 4.47% 2.34% 8.26% 15.06%
Asset turnover3 0.31 0.46 0.33 0.61 0.72
Financial leverage4 1.69 1.99 1.92 3.06 2.68
Averages
Retention rate -0.33
Profit margin 6.49%
Asset turnover 0.48
Financial leverage 2.27
 
FCFE growth rate (g)5 0.00%

Based on: 10-K (filing date: 2020-02-14), 10-K (filing date: 2019-02-11), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-12).

2019 Calculations

1 Retention rate = (Net income attributable to DuPont – Dividends declared on common stock – Preferred stock dividends) ÷ (Net income attributable to DuPont – Preferred stock dividends)
= (4981,6110) ÷ (4980) = -2.23

2 Profit margin = 100 × (Net income attributable to DuPont – Preferred stock dividends) ÷ Net sales
= 100 × (4980) ÷ 21,512 = 2.31%

3 Asset turnover = Net sales ÷ Total assets
= 21,512 ÷ 69,396 = 0.31

4 Financial leverage = Total assets ÷ Total DuPont stockholders’ equity
= 69,396 ÷ 40,987 = 1.69

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= -0.33 × 6.49% × 0.48 × 2.27 = 0.00%


FCFE growth rate (g) forecast

DuPont de Nemours Inc., H-model

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Year Value gt
1 g1 0.00%
2 g2 0.00%
3 g3 0.00%
4 g4 0.00%
5 and thereafter g5 0.00%

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 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 0.00% + (0.00%0.00%) × (2 – 1) ÷ (5 – 1) = 0.00%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 0.00% + (0.00%0.00%) × (3 – 1) ÷ (5 – 1) = 0.00%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 0.00% + (0.00%0.00%) × (4 – 1) ÷ (5 – 1) = 0.00%