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.
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Walmart Inc. pages available for free this week:
- Income Statement
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Profitability Ratios
- Analysis of Reportable Segments
- Return on Equity (ROE) since 2005
- Current Ratio since 2005
- Total Asset Turnover since 2005
- Price to Operating Profit (P/OP) since 2005
- Price to Sales (P/S) since 2005
- Analysis of Revenues
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Intrinsic Stock Value (Valuation Summary)
Year | Value | DPS_{t} or Terminal value (TV_{t}) | Calculation | Present value at |
---|---|---|---|---|
0 | DPS_{0}^{1} | |||
1 | DPS_{1} | = × (1 + ) | ||
2 | DPS_{2} | = × (1 + ) | ||
3 | DPS_{3} | = × (1 + ) | ||
4 | DPS_{4} | = × (1 + ) | ||
5 | DPS_{5} | = × (1 + ) | ||
5 | Terminal value (TV_{5}) | = × (1 + ) ÷ ( – ) | ||
Intrinsic value of Walmart Inc. common stock (per share) | ||||
Current share price |
Based on: 10-K (reporting date: 2022-01-31).
^{1} DPS_{0} = Sum of the last year dividends per share of Walmart Inc. 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)
Assumptions | ||
Rate of return on LT Treasury Composite^{1} | R_{F} | |
Expected rate of return on market portfolio^{2} | E(R_{M}) | |
Systematic risk of Walmart Inc. common stock | β_{WMT} | |
Required rate of return on Walmart Inc. common stock^{3} | r_{WMT} |
^{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} r_{WMT} = R_{F} + β_{WMT} [E(R_{M}) – R_{F}]
= + [ – ]
=
Dividend Growth Rate (g)
Based on: 10-K (reporting date: 2022-01-31), 10-K (reporting date: 2021-01-31), 10-K (reporting date: 2020-01-31), 10-K (reporting date: 2019-01-31), 10-K (reporting date: 2018-01-31), 10-K (reporting date: 2017-01-31).
2022 Calculations
^{1} Retention rate = (Consolidated net income attributable to Walmart – Cash dividends declared) ÷ Consolidated net income attributable to Walmart
= ( – ) ÷
=
^{2} Profit margin = 100 × Consolidated net income attributable to Walmart ÷ Net sales
= 100 × ÷
=
^{3} Asset turnover = Net sales ÷ Total assets
= ÷
=
^{4} Financial leverage = Total assets ÷ Total Walmart shareholders’ equity
= ÷
=
^{5} g = Retention rate × Profit margin × Asset turnover × Financial leverage
= × × ×
=
Dividend growth rate (g) implied by Gordon growth model
g = 100 × (P_{0} × r – D_{0}) ÷ (P_{0} + D_{0})
= 100 × ( × – ) ÷ ( + )
=
where:
P_{0} = current price of share of Walmart Inc. common stock
D_{0} = the last year dividends per share of Walmart Inc. common stock
r = required rate of return on Walmart Inc. common stock
Year | Value | g_{t} |
---|---|---|
1 | g_{1} | |
2 | g_{2} | |
3 | g_{3} | |
4 | g_{4} | |
5 and thereafter | g_{5} |
where:
g_{1} is implied by PRAT model
g_{5} is implied by Gordon growth model
g_{2}, g_{3} and g_{4} are calculated using linear interpoltion between g_{1} and g_{5}
Calculations
g_{2} = g_{1} + (g_{5} – g_{1}) × (2 – 1) ÷ (5 – 1)
= + ( – ) × (2 – 1) ÷ (5 – 1)
=
g_{3} = g_{1} + (g_{5} – g_{1}) × (3 – 1) ÷ (5 – 1)
= + ( – ) × (3 – 1) ÷ (5 – 1)
=
g_{4} = g_{1} + (g_{5} – g_{1}) × (4 – 1) ÷ (5 – 1)
= + ( – ) × (4 – 1) ÷ (5 – 1)
=