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Newmont Corp. (NYSE:NEM)


Dividend Discount Model (DDM)

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. 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)

Newmont Corp., dividends per share (DPS) forecast

US$

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Year Value DPSt or Terminal value (TVt) Calculation Present value at 2.97%
0 DPS01 0.56
1 DPS1 0.57 = 0.56 × (1 + 1.63%) 0.55
2 DPS2 0.58 = 0.57 × (1 + 1.72%) 0.55
3 DPS3 0.59 = 0.58 × (1 + 1.81%) 0.54
4 DPS4 0.60 = 0.59 × (1 + 1.90%) 0.53
5 DPS5 0.61 = 0.60 × (1 + 1.99%) 0.53
5 Terminal value (TV5) 63.96 = 0.61 × (1 + 1.99%) ÷ (2.97%1.99%) 55.26
Intrinsic value of Newmont Corp.’s common stock (per share) $57.96
Current share price $58.47

Based on: 10-K (filing date: 2020-02-20).

1 DPS0 = Sum of the last year dividends per share of Newmont Corp.’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)

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Assumptions
Rate of return on LT Treasury Composite1 RF 1.32%
Expected rate of return on market portfolio2 E(RM) 11.84%
Systematic risk of Newmont Corp.’s common stock βNEM 0.16
 
Required rate of return on Newmont Corp.’s common stock3 rNEM 2.97%

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 rNEM = RF + βNEM [E(RM) – RF]
= 1.32% + 0.16 [11.84%1.32%]
= 2.97%


Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Newmont Corp., 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 895  301  134  67  52 
Net income (loss) attributable to Newmont stockholders 2,805  341  (98) (627) 220 
Sales 9,740  7,253  7,348  6,711  7,729 
Total assets 39,974  20,715  20,563  21,031  25,182 
Total Newmont stockholders’ equity 21,420  10,502  10,609  10,721  11,350 
Financial Ratios
Retention rate1 0.68 0.12 0.76
Profit margin2 28.80% 4.70% -1.33% -9.34% 2.85%
Asset turnover3 0.24 0.35 0.36 0.32 0.31
Financial leverage4 1.87 1.97 1.94 1.96 2.22
Averages
Retention rate 0.52
Profit margin 5.13%
Asset turnover 0.32
Financial leverage 1.93
 
Dividend growth rate (g)5 1.63%

Based on: 10-K (filing date: 2020-02-20), 10-K (filing date: 2019-02-21), 10-K (filing date: 2018-02-22), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-17).

2019 Calculations

1 Retention rate = (Net income (loss) attributable to Newmont stockholders – Dividends declared) ÷ Net income (loss) attributable to Newmont stockholders
= (2,805895) ÷ 2,805 = 0.68

2 Profit margin = 100 × Net income (loss) attributable to Newmont stockholders ÷ Sales
= 100 × 2,805 ÷ 9,740 = 28.80%

3 Asset turnover = Sales ÷ Total assets
= 9,740 ÷ 39,974 = 0.24

4 Financial leverage = Total assets ÷ Total Newmont stockholders’ equity
= 39,974 ÷ 21,420 = 1.87

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.52 × 5.13% × 0.32 × 1.93 = 1.63%


Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × ($58.47 × 2.97%$0.56) ÷ ($58.47 + $0.56) = 1.99%

where:
P0 = current price of share of Newmont Corp.’s common stock
D0 = the last year dividends per share of Newmont Corp.’s common stock
r = required rate of return on Newmont Corp.’s common stock


Dividend growth rate (g) forecast

Newmont Corp., H-model

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Year Value gt
1 g1 1.63%
2 g2 1.72%
3 g3 1.81%
4 g4 1.90%
5 and thereafter g5 1.99%

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)
= 1.63% + (1.99%1.63%) × (2 – 1) ÷ (5 – 1) = 1.72%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 1.63% + (1.99%1.63%) × (3 – 1) ÷ (5 – 1) = 1.81%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 1.63% + (1.99%1.63%) × (4 – 1) ÷ (5 – 1) = 1.90%