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Microsoft Excel LibreOffice Calc

Estée Lauder Cos. Inc. (EL)


Dividend Discount Model (DDM)

Difficulty: Intermediate

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.


Intrinsic Stock Value (Valuation Summary)

Estée Lauder Cos. Inc., dividends per share (DPS) forecast

US$

Microsoft Excel LibreOffice Calc
Year Value DPSt or Terminal value (TVt) Calculation Present value at hidden
0 DPS01 hidden
1 DPS1 hidden = hidden × (1 + hidden) hidden
2 DPS2 hidden = hidden × (1 + hidden) hidden
3 DPS3 hidden = hidden × (1 + hidden) hidden
4 DPS4 hidden = hidden × (1 + hidden) hidden
5 DPS5 hidden = hidden × (1 + hidden) hidden
5 Terminal value (TV5) hidden = hidden × (1 + hidden) ÷ (hiddenhidden) hidden
Intrinsic value of Estée Lauder Cos. Inc.’s common stock (per share) $hidden
Current share price $hidden

Based on: 10-K (filing date: 2019-08-23).

1 DPS0 = Sum of last year dividends per share of Estée Lauder Cos. Inc.’s common stock. 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)

Microsoft Excel LibreOffice Calc
Assumptions
Rate of return on LT Treasury Composite1 RF hidden
Expected rate of return on market portfolio2 E(RM) hidden
Systematic risk (β) of Estée Lauder Cos. Inc.’s common stock βEL hidden
Required rate of return on Estée Lauder Cos. Inc.’s common stock3 rEL hidden

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).

Calculations

2 See Details »

3 rEL = RF + βEL [E(RM) – RF]
= hidden + hidden [hiddenhidden]
= hidden


Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Estée Lauder Cos. Inc., PRAT model

Microsoft Excel LibreOffice Calc
Average Jun 30, 2019 Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014
Selected Financial Data (US$ in millions)
Common stock dividends hidden hidden hidden hidden hidden hidden
Net earnings attributable to The Estée Lauder Companies Inc. hidden hidden hidden hidden hidden hidden
Net sales hidden hidden hidden hidden hidden hidden
Total assets hidden hidden hidden hidden hidden hidden
Stockholders’ equity, The Estée Lauder Companies Inc. hidden hidden hidden hidden hidden hidden
Ratios
Retention rate1 hidden hidden hidden hidden hidden hidden
Profit margin2 hidden hidden hidden hidden hidden hidden
Asset turnover3 hidden hidden hidden hidden hidden hidden
Financial leverage4 hidden hidden hidden hidden hidden hidden
Averages
Retention rate hidden
Profit margin hidden
Asset turnover hidden
Financial leverage hidden
Dividend growth rate (g)5 hidden

Based on: 10-K (filing date: 2019-08-23), 10-K (filing date: 2018-08-24), 10-K (filing date: 2017-08-25), 10-K (filing date: 2016-08-24), 10-K (filing date: 2015-08-20), 10-K (filing date: 2014-08-20).

2019 Calculations

1 Retention rate = (Net earnings attributable to The Estée Lauder Companies Inc. – Common stock dividends) ÷ Net earnings attributable to The Estée Lauder Companies Inc.
= (hiddenhidden) ÷ hidden = hidden

2 Profit margin = 100 × Net earnings attributable to The Estée Lauder Companies Inc. ÷ Net sales
= 100 × hidden ÷ hidden = hidden

3 Asset turnover = Net sales ÷ Total assets
= hidden ÷ hidden = hidden

4 Financial leverage = Total assets ÷ Stockholders’ equity, The Estée Lauder Companies Inc.
= hidden ÷ hidden = hidden

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= hidden × hidden × hidden × hidden = hidden


Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × ($hidden × hidden – $hidden) ÷ ($hidden + $hidden) = hidden

where:
P0 = current price of share of Estée Lauder Cos. Inc.’s common stock
D0 = last year dividends per share of Estée Lauder Cos. Inc.’s common stock
r = required rate of return on Estée Lauder Cos. Inc.’s common stock


Dividend growth rate (g) forecast

Estée Lauder Cos. Inc., H-model

Microsoft Excel LibreOffice Calc
Year Value gt
1 g1 hidden
2 g2 hidden
3 g3 hidden
4 g4 hidden
5 and thereafter g5 hidden

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= hidden + (hiddenhidden) × (2 – 1) ÷ (5 – 1) = hidden

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= hidden + (hiddenhidden) × (3 – 1) ÷ (5 – 1) = hidden

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= hidden + (hiddenhidden) × (4 – 1) ÷ (5 – 1) = hidden