Stock Analysis on Net
Stock Analysis on Net

Time Warner Cable Inc. (NYSE:TWC)

This company has been moved to the archive! The financial data has not been updated since April 28, 2016.

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.

Intrinsic Stock Value (Valuation Summary)

Time Warner Cable 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 10.43%
01 FCFF0 2,957
1 FCFF1 3,057 = 2,957 × (1 + 3.41%) 2,769
2 FCFF2 3,187 = 3,057 × (1 + 4.23%) 2,613
3 FCFF3 3,347 = 3,187 × (1 + 5.04%) 2,486
4 FCFF4 3,543 = 3,347 × (1 + 5.85%) 2,383
5 FCFF5 3,779 = 3,543 × (1 + 6.66%) 2,301
5 Terminal value (TV5) 107,017 = 3,779 × (1 + 6.66%) ÷ (10.43% – 6.66%) 65,170
Intrinsic value of Time Warner Cable Inc. capital 77,722
Less: Debt (fair value) 23,713
Intrinsic value of Time Warner Cable Inc. common stock 54,009
 
Intrinsic value of Time Warner Cable Inc. common stock (per share) $189.70
Current share price $210.79

Based on: 10-K (reporting date: 2015-12-31).

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.

Weighted Average Cost of Capital (WACC)

Time Warner Cable Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 60,012 0.72 12.97%
Debt (fair value) 23,713 0.28 3.99% = 6.22% × (1 – 35.81%)

Based on: 10-K (reporting date: 2015-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 284,701,320 × $210.79
= $60,012,191,242.80

   Debt (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
= (38.29% + 37.47% + 35.70% + 35.28% + 32.29%) ÷ 5
= 35.81%

WACC = 10.43%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Time Warner Cable Inc., PRAT model

Microsoft Excel
Average Dec 31, 2015 Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011
Selected Financial Data (US$ in millions)
Interest expense 1,402 1,419 1,555 1,614 1,524
Net income attributable to TWC shareholders 1,844 2,031 1,954 2,155 1,665
 
Effective income tax rate (EITR)1 38.29% 37.47% 35.70% 35.28% 32.29%
 
Interest expense, after tax2 865 887 1,000 1,045 1,032
Add: Cash dividends declared 1,081 857 758 700 643
Interest expense (after tax) and dividends 1,946 1,744 1,758 1,745 1,675
 
EBIT(1 – EITR)3 2,709 2,918 2,954 3,200 2,697
 
Current maturities of long-term debt 5 1,017 1,767 1,518 2,122
Long-term debt, excluding current maturities 22,497 22,701 23,285 25,171 24,320
Total TWC shareholders’ equity 8,995 8,013 6,943 7,279 7,530
Total capital 31,497 31,731 31,995 33,968 33,972
Financial Ratios
Retention rate (RR)4 0.28 0.40 0.40 0.45 0.38
Return on invested capital (ROIC)5 8.60% 9.20% 9.23% 9.42% 7.94%
Averages
RR 0.38
ROIC 8.88%
 
FCFF growth rate (g)6 3.41%

Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).

1 See details »

2015 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 1,402 × (1 – 38.29%)
= 865

3 EBIT(1 – EITR) = Net income attributable to TWC shareholders + Interest expense, after tax
= 1,844 + 865
= 2,709

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [2,709 – 1,946] ÷ 2,709
= 0.28

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 2,709 ÷ 31,497
= 8.60%

6 g = RR × ROIC
= 0.38 × 8.88%
= 3.41%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (83,725 × 10.43% – 2,957) ÷ (83,725 + 2,957)
= 6.66%

where:

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

FCFF growth rate (g) forecast

Time Warner Cable Inc., H-model

Microsoft Excel
Year Value gt
1 g1 3.41%
2 g2 4.23%
3 g3 5.04%
4 g4 5.85%
5 and thereafter g5 6.66%

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)
= 3.41% + (6.66% – 3.41%) × (2 – 1) ÷ (5 – 1)
= 4.23%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 3.41% + (6.66% – 3.41%) × (3 – 1) ÷ (5 – 1)
= 5.04%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 3.41% + (6.66% – 3.41%) × (4 – 1) ÷ (5 – 1)
= 5.85%