Stock Analysis on Net

Lowe’s Cos. Inc. (NYSE:LOW)

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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.

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Intrinsic Stock Value (Valuation Summary)

Lowe’s Cos. Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at
01 FCFF0
1 FCFF1 = × (1 + )
2 FCFF2 = × (1 + )
3 FCFF3 = × (1 + )
4 FCFF4 = × (1 + )
5 FCFF5 = × (1 + )
5 Terminal value (TV5) = × (1 + ) ÷ ()
Intrinsic value of Lowe’s Cos. Inc. capital
Less: Debt, including finance lease obligations (fair value)
Intrinsic value of Lowe’s Cos. Inc. common stock
 
Intrinsic value of Lowe’s Cos. Inc. common stock (per share)
Current share price

Based on: 10-K (reporting date: 2022-01-28).

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)

Lowe’s Cos. Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value)
Debt, including finance lease obligations (fair value) = × (1 – )

Based on: 10-K (reporting date: 2022-01-28).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= ×
=

   Debt, including finance lease obligations (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
= ( + + + + + ) ÷ 6
=

WACC =


FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Lowe’s Cos. Inc., PRAT model

Microsoft Excel
Average Jan 28, 2022 Jan 29, 2021 Jan 31, 2020 Feb 1, 2019 Feb 2, 2018 Feb 3, 2017
Selected Financial Data (US$ in millions)
Interest expense, net of amount capitalized
Net earnings
 
Effective income tax rate (EITR)1
 
Interest expense, net of amount capitalized, after tax2
Add: Cash dividends declared
Interest expense (after tax) and dividends
 
EBIT(1 – EITR)3
 
Short-term borrowings
Current maturities of long-term debt
Long-term debt, excluding current maturities
Shareholders’ equity (deficit)
Total capital
Financial Ratios
Retention rate (RR)4
Return on invested capital (ROIC)5
Averages
RR
ROIC
 
FCFF growth rate (g)6

Based on: 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), 10-K (reporting date: 2017-02-03).

1 See details »

2022 Calculations

2 Interest expense, net of amount capitalized, after tax = Interest expense, net of amount capitalized × (1 – EITR)
= × (1 – )
=

3 EBIT(1 – EITR) = Net earnings + Interest expense, net of amount capitalized, after tax
= +
=

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [] ÷
=

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × ÷
=

6 g = RR × ROIC
= ×
=


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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × ( × ) ÷ ( + )
=

where:

Total capital, fair value0 = current fair value of Lowe’s Cos. Inc. debt and equity (US$ in millions)
FCFF0 = the last year Lowe’s Cos. Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Lowe’s Cos. Inc. capital


FCFF growth rate (g) forecast

Lowe’s Cos. Inc., H-model

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

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)
= + () × (2 – 1) ÷ (5 – 1)
=

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

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