Walt Disney Co. (NYSE:DIS)

Present Value of Free Cash Flow to the Firm (FCFF)

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)

Walt Disney Co., free cash flow to the firm (FCFF) forecast

US\$ in millions, except per share data

Year Value FCFFt or Terminal value (TVt) Calculation Present value at 11.29%
01 FCFF0 4,046
1 FCFF1 4,313 = 4,046 × (1 + 6.60%) 3,876
2 FCFF2 4,633 = 4,313 × (1 + 7.42%) 3,741
3 FCFF3 5,014 = 4,633 × (1 + 8.23%) 3,638
4 FCFF4 5,468 = 5,014 × (1 + 9.04%) 3,565
5 FCFF5 6,007 = 5,468 × (1 + 9.86%) 3,519
5 Terminal value (TV5) 460,684 = 6,007 × (1 + 9.86%) ÷ (11.29%9.86%) 269,876
Intrinsic value of Walt Disney Co. capital 288,215
Less: Borrowings and finance lease liabilities (fair value) 60,611
Intrinsic value of Walt Disney Co. common stock 227,604

Intrinsic value of Walt Disney Co. common stock (per share) \$125.22
Current share price \$137.38

Based on: 10-K (reporting date: 2021-10-02).

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)

Value1 Weight Required rate of return2 Calculation
Equity (fair value) 249,710 0.80 13.44%
Borrowings and finance lease liabilities (fair value) 60,611 0.20 2.43% = 3.04% × (1 – 20.22%)

Based on: 10-K (reporting date: 2021-10-02).

1 US\$ in millions

Equity (fair value) = No. shares of common stock outstanding × Current share price
= 1,817,655,948 × \$137.38
= \$249,709,574,136.24

Borrowings and finance lease liabilities (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
= (1.00% + 21.00% + 21.70% + 11.30% + 32.10% + 34.20%) ÷ 6
= 20.22%

WACC = 11.29%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Walt Disney Co., PRAT model

Average Oct 2, 2021 Oct 3, 2020 Sep 28, 2019 Sep 29, 2018 Sep 30, 2017 Oct 1, 2016
Selected Financial Data (US\$ in millions)
Interest expense 1,546  1,647  1,246  682  507  354
Income (loss) from discontinued operations, net of income tax (expense) benefit (29) (32) 671  —  —  —
Net income (loss) attributable to The Walt Disney Company (Disney) 1,995  (2,864) 11,054  12,598  8,980  9,391

Effective income tax rate (EITR)1 1.00% 21.00% 21.70% 11.30% 32.10% 34.20%

Interest expense, after tax2 1,531  1,301  976  605  344  233
Add: Dividends —  1,587  2,895  2,515  2,445  2,313
Interest expense (after tax) and dividends 1,531  2,888  3,871  3,120  2,789  2,546

EBIT(1 – EITR)3 3,555  (1,531) 11,359  13,203  9,324  9,624

Short-term finance lease liabilities 41  37  12  12  20
Current portion of borrowings 5,866  5,711  8,857  3,790  6,172  3,687
Borrowings, excluding current portion 48,540  52,917  38,129  17,084  19,119  16,483
Long-term finance lease liabilities 246  271  146  142  129  174
Total Disney Shareholder’s equity 88,553  83,583  88,877  48,773  41,315  43,265
Total capital 143,246  142,519  136,014  69,801  66,747  63,629
Financial Ratios
Retention rate (RR)4 0.57 0.66 0.76 0.70 0.74
Return on invested capital (ROIC)5 2.48% -1.07% 8.35% 18.92% 13.97% 15.13%
Averages
RR 0.69
ROIC 9.63%

FCFF growth rate (g)6 6.60%

Based on: 10-K (reporting date: 2021-10-02), 10-K (reporting date: 2020-10-03), 10-K (reporting date: 2019-09-28), 10-K (reporting date: 2018-09-29), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-10-01).

2021 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 1,546 × (1 – 1.00%)
= 1,531

3 EBIT(1 – EITR) = Net income (loss) attributable to The Walt Disney Company (Disney) – Income (loss) from discontinued operations, net of income tax (expense) benefit + Interest expense, after tax
= 1,995-29 + 1,531
= 3,555

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [3,5551,531] ÷ 3,555
= 0.57

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 3,555 ÷ 143,246
= 2.48%

6 g = RR × ROIC
= 0.69 × 9.63%
= 6.60%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (310,321 × 11.29%4,046) ÷ (310,321 + 4,046)
= 9.86%

where:

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

FCFF growth rate (g) forecast

Walt Disney Co., H-model

Year Value gt
1 g1 6.60%
2 g2 7.42%
3 g3 8.23%
4 g4 9.04%
5 and thereafter g5 9.86%

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)
= 6.60% + (9.86%6.60%) × (2 – 1) ÷ (5 – 1)
= 7.42%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 6.60% + (9.86%6.60%) × (3 – 1) ÷ (5 – 1)
= 8.23%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 6.60% + (9.86%6.60%) × (4 – 1) ÷ (5 – 1)
= 9.04%