Stock Analysis on Net
Stock Analysis on Net

Estée Lauder Cos. Inc. (NYSE:EL)

This company has been moved to the archive! The financial data has not been updated since August 18, 2023.

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)

Estée Lauder Cos. Inc., 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 13.48%
01 FCFE0 1,140
1 FCFE1 1,323 = 1,140 × (1 + 16.03%) 1,166
2 FCFE2 1,519 = 1,323 × (1 + 14.83%) 1,179
3 FCFE3 1,726 = 1,519 × (1 + 13.62%) 1,181
4 FCFE4 1,940 = 1,726 × (1 + 12.42%) 1,170
5 FCFE5 2,158 = 1,940 × (1 + 11.22%) 1,147
5 Terminal value (TV5) 106,082 = 2,158 × (1 + 11.22%) ÷ (13.48% – 11.22%) 56,366
Intrinsic value of Estée Lauder Cos. Inc. common stock 62,209
 
Intrinsic value of Estée Lauder Cos. Inc. common stock (per share) $173.92
Current share price $156.69

Based on: 10-K (reporting date: 2023-06-30).

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 4.90%
Expected rate of return on market portfolio2 E(RM) 13.55%
Systematic risk of Estée Lauder Cos. Inc. common stock βEL 0.99
 
Required rate of return on Estée Lauder Cos. Inc. common stock3 rEL 13.48%

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 rEL = RF + βEL [E(RM) – RF]
= 4.90% + 0.99 [13.55% – 4.90%]
= 13.48%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Estée Lauder Cos. Inc., PRAT model

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Average Jun 30, 2023 Jun 30, 2022 Jun 30, 2021 Jun 30, 2020 Jun 30, 2019 Jun 30, 2018
Selected Financial Data (US$ in millions)
Common stock dividends 923 840 754 502 612 552
Net earnings attributable to The Estée Lauder Companies Inc. 1,006 2,390 2,870 684 1,785 1,108
Net sales 15,910 17,737 16,215 14,294 14,863 13,683
Total assets 23,415 20,910 21,971 17,781 13,156 12,567
Stockholders’ equity, The Estée Lauder Companies Inc. 5,585 5,590 6,057 3,935 4,386 4,688
Financial Ratios
Retention rate1 0.08 0.65 0.74 0.27 0.66 0.50
Profit margin2 6.32% 13.47% 17.70% 4.79% 12.01% 8.10%
Asset turnover3 0.68 0.85 0.74 0.80 1.13 1.09
Financial leverage4 4.19 3.74 3.63 4.52 3.00 2.68
Averages
Retention rate 0.48
Profit margin 10.40%
Asset turnover 0.88
Financial leverage 3.63
 
FCFE growth rate (g)5 16.03%

Based on: 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30).

2023 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.
= (1,006 – 923) ÷ 1,006
= 0.08

2 Profit margin = 100 × Net earnings attributable to The Estée Lauder Companies Inc. ÷ Net sales
= 100 × 1,006 ÷ 15,910
= 6.32%

3 Asset turnover = Net sales ÷ Total assets
= 15,910 ÷ 23,415
= 0.68

4 Financial leverage = Total assets ÷ Stockholders’ equity, The Estée Lauder Companies Inc.
= 23,415 ÷ 5,585
= 4.19

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.48 × 10.40% × 0.88 × 3.63
= 16.03%

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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (56,047 × 13.48% – 1,140) ÷ (56,047 + 1,140)
= 11.22%

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

FCFE growth rate (g) forecast

Estée Lauder Cos. Inc., H-model

Microsoft Excel
Year Value gt
1 g1 16.03%
2 g2 14.83%
3 g3 13.62%
4 g4 12.42%
5 and thereafter g5 11.22%

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)
= 16.03% + (11.22% – 16.03%) × (2 – 1) ÷ (5 – 1)
= 14.83%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 16.03% + (11.22% – 16.03%) × (3 – 1) ÷ (5 – 1)
= 13.62%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 16.03% + (11.22% – 16.03%) × (4 – 1) ÷ (5 – 1)
= 12.42%