Stock Analysis on Net
Stock Analysis on Net
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Walmart Inc. (NYSE:WMT)

Present Value of Free Cash Flow to Equity (FCFE)

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. 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’s asset base.


Intrinsic Stock Value (Valuation Summary)

Walmart Inc., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

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Year Value FCFEt or Terminal value (TVt) Calculation Present value at 5.75%
01 FCFE0 20,319
1 FCFE1 21,785 = 20,319 × (1 + 7.22%) 20,601
2 FCFE2 22,996 = 21,785 × (1 + 5.56%) 20,564
3 FCFE3 23,893 = 22,996 × (1 + 3.90%) 20,205
4 FCFE4 24,429 = 23,893 × (1 + 2.24%) 19,536
5 FCFE5 24,573 = 24,429 × (1 + 0.59%) 18,583
5 Terminal value (TV5) 479,035 = 24,573 × (1 + 0.59%) ÷ (5.75%0.59%) 362,263
Intrinsic value of Walmart Inc.’s common stock 461,752
 
Intrinsic value of Walmart Inc.’s common stock (per share) $163.91
Current share price $140.61

Based on: 10-K (filing date: 2021-03-19).

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 2.15%
Expected rate of return on market portfolio2 E(RM) 11.70%
Systematic risk of Walmart Inc.’s common stock βWMT 0.38
 
Required rate of return on Walmart Inc.’s common stock3 rWMT 5.75%

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 rWMT = RF + βWMT [E(RM) – RF]
= 2.15% + 0.38 [11.70%2.15%]
= 5.75%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Walmart Inc., PRAT model

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Average Jan 31, 2021 Jan 31, 2020 Jan 31, 2019 Jan 31, 2018 Jan 31, 2017 Jan 31, 2016
Selected Financial Data (US$ in millions)
Cash dividends declared 6,116  6,048  6,102  6,124  6,216  6,294 
Consolidated net income attributable to Walmart 13,510  14,881  6,670  9,862  13,643  14,694 
Net sales 555,233  519,926  510,329  495,761  481,317  478,614 
Total assets 252,496  236,495  219,295  204,522  198,825  199,581 
Total Walmart shareholders’ equity 80,925  74,669  72,496  77,869  77,798  80,546 
Financial Ratios
Retention rate1 0.55 0.59 0.09 0.38 0.54 0.57
Profit margin2 2.43% 2.86% 1.31% 1.99% 2.83% 3.07%
Asset turnover3 2.20 2.20 2.33 2.42 2.42 2.40
Financial leverage4 3.12 3.17 3.02 2.63 2.56 2.48
Averages
Retention rate 0.45
Profit margin 2.42%
Asset turnover 2.33
Financial leverage 2.83
 
FCFE growth rate (g)5 7.22%

Based on: 10-K (filing date: 2021-03-19), 10-K (filing date: 2020-03-20), 10-K (filing date: 2019-03-28), 10-K (filing date: 2018-03-30), 10-K (filing date: 2017-03-31), 10-K (filing date: 2016-03-30).

2021 Calculations

1 Retention rate = (Consolidated net income attributable to Walmart – Cash dividends declared) ÷ Consolidated net income attributable to Walmart
= (13,5106,116) ÷ 13,510
= 0.55

2 Profit margin = 100 × Consolidated net income attributable to Walmart ÷ Net sales
= 100 × 13,510 ÷ 555,233
= 2.43%

3 Asset turnover = Net sales ÷ Total assets
= 555,233 ÷ 252,496
= 2.20

4 Financial leverage = Total assets ÷ Total Walmart shareholders’ equity
= 252,496 ÷ 80,925
= 3.12

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.45 × 2.42% × 2.33 × 2.83
= 7.22%


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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (396,108 × 5.75%20,319) ÷ (396,108 + 20,319)
= 0.59%

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


FCFE growth rate (g) forecast

Walmart Inc., H-model

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Year Value gt
1 g1 7.22%
2 g2 5.56%
3 g3 3.90%
4 g4 2.24%
5 and thereafter g5 0.59%

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)
= 7.22% + (0.59%7.22%) × (2 – 1) ÷ (5 – 1)
= 5.56%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 7.22% + (0.59%7.22%) × (3 – 1) ÷ (5 – 1)
= 3.90%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 7.22% + (0.59%7.22%) × (4 – 1) ÷ (5 – 1)
= 2.24%