Stock Analysis on Net
Stock Analysis on Net

Emerson Electric Co. (NYSE:EMR)

This company has been moved to the archive! The financial data has not been updated since April 24, 2020.

Present Value of Free Cash Flow to Equity (FCFE)

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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 asset base.

Intrinsic Stock Value (Valuation Summary)

Emerson Electric Co., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 16.29%
01 FCFE0 3,441
1 FCFE1 3,766 = 3,441 × (1 + 9.44%) 3,238
2 FCFE2 4,080 = 3,766 × (1 + 8.34%) 3,017
3 FCFE3 4,376 = 4,080 × (1 + 7.25%) 2,782
4 FCFE4 4,645 = 4,376 × (1 + 6.15%) 2,540
5 FCFE5 4,880 = 4,645 × (1 + 5.05%) 2,294
5 Terminal value (TV5) 45,599 = 4,880 × (1 + 5.05%) ÷ (16.29% – 5.05%) 21,439
Intrinsic value of Emerson Electric Co. common stock 35,310
 
Intrinsic value of Emerson Electric Co. common stock (per share) $59.10
Current share price $53.82

Based on: 10-K (reporting date: 2019-09-30).

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.

Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.86%
Expected rate of return on market portfolio2 E(RM) 13.52%
Systematic risk of Emerson Electric Co. common stock βEMR 1.32
 
Required rate of return on Emerson Electric Co. common stock3 rEMR 16.29%

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 rEMR = RF + βEMR [E(RM) – RF]
= 4.86% + 1.32 [13.52% – 4.86%]
= 16.29%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Emerson Electric Co., PRAT model

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Average Sep 30, 2019 Sep 30, 2018 Sep 30, 2017 Sep 30, 2016 Sep 30, 2015 Sep 30, 2014
Selected Financial Data (US$ in millions)
Dividends paid 1,209 1,229 1,239 1,227 1,269 1,210
Net earnings common stockholders 2,306 2,203 1,518 1,635 2,710 2,147
Net sales 18,372 17,408 15,264 14,522 22,304 24,537
Total assets 20,497 20,390 19,589 21,743 22,088 24,177
Common stockholders’ equity 8,233 8,947 8,718 7,568 8,081 10,119
Financial Ratios
Retention rate1 0.48 0.44 0.18 0.25 0.53 0.44
Profit margin2 12.55% 12.66% 9.94% 11.26% 12.15% 8.75%
Asset turnover3 0.90 0.85 0.78 0.67 1.01 1.01
Financial leverage4 2.49 2.28 2.25 2.87 2.73 2.39
Averages
Retention rate 0.39
Profit margin 11.22%
Asset turnover 0.87
Financial leverage 2.50
 
FCFE growth rate (g)5 9.44%

Based on: 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30), 10-K (reporting date: 2014-09-30).

2019 Calculations

1 Retention rate = (Net earnings common stockholders – Dividends paid) ÷ Net earnings common stockholders
= (2,306 – 1,209) ÷ 2,306
= 0.48

2 Profit margin = 100 × Net earnings common stockholders ÷ Net sales
= 100 × 2,306 ÷ 18,372
= 12.55%

3 Asset turnover = Net sales ÷ Total assets
= 18,372 ÷ 20,497
= 0.90

4 Financial leverage = Total assets ÷ Common stockholders’ equity
= 20,497 ÷ 8,233
= 2.49

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.39 × 11.22% × 0.87 × 2.50
= 9.44%

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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (32,156 × 16.29% – 3,441) ÷ (32,156 + 3,441)
= 5.05%

where:
Equity market value0 = current market value of Emerson Electric Co. common stock (US$ in millions)
FCFE0 = the last year Emerson Electric Co. free cash flow to equity (US$ in millions)
r = required rate of return on Emerson Electric Co. common stock

FCFE growth rate (g) forecast

Emerson Electric Co., H-model

Microsoft Excel
Year Value gt
1 g1 9.44%
2 g2 8.34%
3 g3 7.25%
4 g4 6.15%
5 and thereafter g5 5.05%

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)
= 9.44% + (5.05% – 9.44%) × (2 – 1) ÷ (5 – 1)
= 8.34%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 9.44% + (5.05% – 9.44%) × (3 – 1) ÷ (5 – 1)
= 7.25%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 9.44% + (5.05% – 9.44%) × (4 – 1) ÷ (5 – 1)
= 6.15%