Stock Analysis on Net

Walt Disney Co. (NYSE:DIS)

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)

Walt Disney Co., 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 14.07%
01 FCFF0 6,657
1 FCFF1 6,913 = 6,657 × (1 + 3.84%) 6,060
2 FCFF2 7,307 = 6,913 × (1 + 5.70%) 5,616
3 FCFF3 7,858 = 7,307 × (1 + 7.55%) 5,295
4 FCFF4 8,597 = 7,858 × (1 + 9.40%) 5,078
5 FCFF5 9,565 = 8,597 × (1 + 11.26%) 4,953
5 Terminal value (TV5) 378,783 = 9,565 × (1 + 11.26%) ÷ (14.07%11.26%) 196,157
Intrinsic value of Walt Disney Co. capital 223,159
Less: Borrowings and finance lease liabilities (fair value) 41,699
Intrinsic value of Walt Disney Co. common stock 181,460
 
Intrinsic value of Walt Disney Co. common stock (per share) $98.93
Current share price $120.98

Based on: 10-K (reporting date: 2023-09-30).

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)

Walt Disney Co., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 221,914 0.84 15.96%
Borrowings and finance lease liabilities (fair value) 41,699 0.16 4.00% = 4.96% × (1 – 19.45%)

Based on: 10-K (reporting date: 2023-09-30).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 1,834,302,235 × $120.98
= $221,913,884,390.30

   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
= (28.90% + 32.80% + 1.00% + 21.00% + 21.70% + 11.30%) ÷ 6
= 19.45%

WACC = 14.07%


FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Walt Disney Co., PRAT model

Microsoft Excel
Average Sep 30, 2023 Oct 1, 2022 Oct 2, 2021 Oct 3, 2020 Sep 28, 2019 Sep 29, 2018
Selected Financial Data (US$ in millions)
Interest expense 1,973 1,549 1,546 1,647 1,246 682
Income (loss) from discontinued operations, net of income tax (48) (29) (32) 671
Net income (loss) attributable to The Walt Disney Company (Disney) 2,354 3,145 1,995 (2,864) 11,054 12,598
 
Effective income tax rate (EITR)1 28.90% 32.80% 1.00% 21.00% 21.70% 11.30%
 
Interest expense, after tax2 1,403 1,041 1,531 1,301 976 605
Add: Dividends 1,587 2,895 2,515
Interest expense (after tax) and dividends 1,403 1,041 1,531 2,888 3,871 3,120
 
EBIT(1 – EITR)3 3,757 4,234 3,555 (1,531) 11,359 13,203
 
Short-term finance lease liabilities 37 37 41 37 5 12
Current portion of borrowings 4,330 3,070 5,866 5,711 8,857 3,790
Borrowings, excluding current portion 42,101 45,299 48,540 52,917 38,129 17,084
Long-term finance lease liabilities 206 219 246 271 146 142
Total Disney Shareholder’s equity 99,277 95,008 88,553 83,583 88,877 48,773
Total capital 145,951 143,633 143,246 142,519 136,014 69,801
Financial Ratios
Retention rate (RR)4 0.63 0.75 0.57 0.66 0.76
Return on invested capital (ROIC)5 2.57% 2.95% 2.48% -1.07% 8.35% 18.92%
Averages
RR 0.67
ROIC 5.70%
 
FCFF growth rate (g)6 3.84%

Based on: 10-K (reporting date: 2023-09-30), 10-K (reporting date: 2022-10-01), 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).

1 See details »

2023 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 1,973 × (1 – 28.90%)
= 1,403

3 EBIT(1 – EITR) = Net income (loss) attributable to The Walt Disney Company (Disney) – Income (loss) from discontinued operations, net of income tax + Interest expense, after tax
= 2,3540 + 1,403
= 3,757

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [3,7571,403] ÷ 3,757
= 0.63

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 3,757 ÷ 145,951
= 2.57%

6 g = RR × ROIC
= 0.67 × 5.70%
= 3.84%


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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (263,613 × 14.07%6,657) ÷ (263,613 + 6,657)
= 11.26%

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

Microsoft Excel
Year Value gt
1 g1 3.84%
2 g2 5.70%
3 g3 7.55%
4 g4 9.40%
5 and thereafter g5 11.26%

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)
= 3.84% + (11.26%3.84%) × (2 – 1) ÷ (5 – 1)
= 5.70%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 3.84% + (11.26%3.84%) × (3 – 1) ÷ (5 – 1)
= 7.55%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 3.84% + (11.26%3.84%) × (4 – 1) ÷ (5 – 1)
= 9.40%