Dillard's, Inc. (NYSE:DDS) Shares Could Be 33% Below Their Intrinsic Value Estimate
Dillard's, Inc. (NYSE:DDS) Shares Could Be 33% Below Their Intrinsic Value Estimate
Key Insights
- Dillard's' estimated fair value is US$630 based on 2 Stage Free Cash Flow to Equity
- Current share price of US$424 suggests Dillard's is potentially 33% undervalued
- Analyst price target for DDS is US$311 which is 51% below our fair value estimate
Does the March share price for Dillard's, Inc. (NYSE:DDS) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by taking the expected future cash flows and discounting them to their present value. This will be done using the Discounted Cash Flow (DCF) model. Before you think you won't be able to understand it, just read on! It's actually much less complex than you'd imagine.
Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.
Step By Step Through The Calculation
We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. To begin with, we have to get estimates of the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we discount the value of these future cash flows to their estimated value in today's dollars:
10-year free cash flow (FCF) estimate
2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | |
Levered FCF ($, Millions) | US$969.0m | US$873.0m | US$575.0m | US$545.5m | US$529.7m | US$522.5m | US$521.2m | US$523.9m | US$529.3m | US$536.8m |
Growth Rate Estimate Source | Analyst x1 | Analyst x1 | Analyst x1 | Est @ -5.13% | Est @ -2.90% | Est @ -1.35% | Est @ -0.25% | Est @ 0.51% | Est @ 1.04% | Est @ 1.42% |
Present Value ($, Millions) Discounted @ 7.1% | US$905 | US$761 | US$468 | US$415 | US$376 | US$346 | US$323 | US$303 | US$286 | US$270 |
("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$4.5b
We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (2.3%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 7.1%.
Terminal Value (TV)= FCF2033 × (1 + g) ÷ (r – g) = US$537m× (1 + 2.3%) ÷ (7.1%– 2.3%) = US$11b
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$11b÷ ( 1 + 7.1%)10= US$5.8b
The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is US$10b. The last step is to then divide the equity value by the number of shares outstanding. Compared to the current share price of US$424, the company appears quite good value at a 33% discount to where the stock price trades currently. Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind.
The Assumptions
The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows. You don't have to agree with these inputs, I recommend redoing the calculations yourself and playing with them. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Dillard's as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 7.1%, which is based on a levered beta of 1.045. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.
SWOT Analysis for Dillard's
- Debt is not viewed as a risk.
- Dividends are covered by earnings and cash flows.
- Dividend is in the top 25% of dividend payers in the market.
- Dividend information for DDS.
- Earnings declined over the past year.
- Trading below our estimate of fair value by more than 20%.
- Annual earnings are forecast to decline for the next 3 years.
- What else are analysts forecasting for DDS?
Next Steps:
Although the valuation of a company is important, it is only one of many factors that you need to assess for a company. It's not possible to obtain a foolproof valuation with a DCF model. Rather it should be seen as a guide to "what assumptions need to be true for this stock to be under/overvalued?" If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different. What is the reason for the share price sitting below the intrinsic value? For Dillard's, we've compiled three further aspects you should explore:
- Risks: For instance, we've identified 2 warning signs for Dillard's (1 shouldn't be ignored) you should be aware of.
- Future Earnings: How does DDS's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.
- Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered!
PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the NYSE every day. If you want to find the calculation for other stocks just search here.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
關鍵見解
- 根據兩階段的股本自由現金流,迪拉德的公允價值估計爲630美元
- 目前424美元的股價表明迪拉德的估值可能低估了33%
- 分析師對DDS的目標股價爲311美元,比我們的公允價值估計低51%
迪拉德公司(紐約證券交易所代碼:DDS)3月份的股價是否反映了其真正價值?今天,我們將通過採用預期的未來現金流並將其折現爲現值來估算股票的內在價值。這將使用折扣現金流 (DCF) 模型來完成。在你認爲自己無法理解之前,請繼續閱讀!實際上,它沒有你想象的那麼複雜。
公司可以在很多方面得到估值,因此我們要指出,DCF並不適合所有情況。任何有興趣進一步了解內在價值的人都應該讀一讀 Simply Wall St 分析模型。
逐步進行計算
我們將使用兩階段的DCF模型,顧名思義,該模型考慮了兩個增長階段。第一階段通常是較高的增長期,在第二個 “穩步增長” 時期逐漸趨於平穩,最終值是第二個 “穩定增長” 時期。首先,我們必須估算出未來十年的現金流。在可能的情況下,我們會使用分析師的估計值,但是當這些估計值不可用時,我們會從最新的估計值或報告的價值中推斷出之前的自由現金流(FCF)。我們假設自由現金流萎縮的公司將減緩其萎縮速度,而自由現金流不斷增長的公司在此期間的增長率將放緩。我們這樣做是爲了反映早期增長的放緩幅度往往比後來的幾年更大。
差價合約就是關於未來一美元的價值低於今天一美元的概念,因此我們將這些未來現金流的價值折現爲以今天的美元計算的估計價值:
10 年自由現金流 (FCF) 估計
2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | |
Levered FCF(美元,百萬) | 9.690 億美元 | 873.0 億美元 | 5.75 億美元 | 545.5 億美元 | 5.297 億美元 | 522.5 億美元 | 521.2 億美元 | 5239 億美元 | 529.3 億美元 | 536.8 億美元 |
增長率估算來源 | 分析師 x1 | 分析師 x1 | 分析師 x1 | 美國東部標準時間 @ -5.13% | 美國東部標準時間 @ -2.90% | 美國東部標準時間 @ -1.35% | 東部時間 @ -0.25% | Est @ 0.51% | 東部標準時間 @ 1.04% | Est @ 1.42% |
現值(美元,百萬)折扣 @ 7.1% | 905 美元 | 761 美元 | 468 美元 | 415 美元 | 376 美元 | 346 美元 | 323 美元 | 303 美元 | 286 美元 | 270 美元 |
(“Est” = Simply Wall St估計的FCF增長率)
十年期現金流(PVCF)的現值 = 45億美元
我們現在需要計算終值,該值涵蓋了這十年之後的所有未來現金流。出於多種原因,使用的增長率非常保守,不能超過一個國家的GDP增長率。在這種情況下,我們使用10年期國債收益率的5年平均值(2.3%)來估計未來的增長。與10年 “增長” 期一樣,我們使用7.1%的股本成本將未來的現金流折現爲今天的價值。
終端價值 (TV) = FCF2033 × (1 + g) ÷ (r — g) = 5.37億美元× (1 + 2.3%) ÷ (7.1% — 2.3%) = 110億美元
終端價值的現值 (PVTV) = 電視/ (1 + r)10= 11b美元 ¥( 1 + 7.1%)10= 58億美元
總價值是未來十年的現金流總額加上貼現的終端價值,由此得出總權益價值,在本例中爲100億美元。最後一步是將股票價值除以已發行股票的數量。與目前的424美元股價相比,該公司看起來物有所值,與目前的股價相比折扣了33%。但是,估值是不精確的工具,就像望遠鏡一樣——移動幾度,最終進入另一個星系。請記住這一點。
假設
上面的計算在很大程度上取決於兩個假設。第一個是貼現率,另一個是現金流。你不必同意這些輸入,我建議你自己重做計算並使用它們。DCF也沒有考慮一個行業可能的週期性,也沒有考慮公司未來的資本需求,因此它沒有全面反映公司的潛在表現。鑑於我們將迪拉德視爲潛在股東,因此使用權益成本作爲貼現率,而不是構成債務的資本成本(或加權平均資本成本,WACC)。在此計算中,我們使用了7.1%,這是基於1.045的槓桿測試版。Beta是衡量股票與整個市場相比波動性的指標。我們的測試版來自全球可比公司的行業平均貝塔值,設定在0.8到2.0之間,這是一個穩定的業務的合理範圍。
迪拉德的 SWOT 分析
- 債務不被視爲風險。
- 股息由收益和現金流支付。
- 股息在市場上名列前25%的股息支付者。
- DDS 的股息信息。
- 在過去的一年中,收益有所下降。
- 交易價格比我們估計的公允價值低20%以上。
- 預計未來三年的年收入將下降。
- 分析師對DDS還有什麼預測?
後續步驟:
儘管公司的估值很重要,但它只是公司需要評估的衆多因素之一。使用DCF模型不可能獲得萬無一失的估值。相反,它應該被視爲 “需要哪些假設才能低估/高估這隻股票的價值?” 的指南如果一家公司以不同的速度增長,或者其股本成本或無風險利率急劇變化,則產出可能會大不相同。股價低於內在價值的原因是什麼?對於 Dillard's,我們整理了你應該探索的另外三個方面:
- 風險:例如,我們已經確定了兩個你應該注意的迪拉德氏症的警告信號(其中一個不容忽視)。
- 未來收益:與同行和整個市場相比,DDS的增長率如何?通過與我們的免費分析師增長預期圖表互動,更深入地了解未來幾年的分析師共識數字。
- 其他穩健的業務:低債務、高股本回報率和良好的過去表現是強大業務的基礎。爲什麼不瀏覽我們具有堅實業務基礎的股票互動清單,看看是否還有其他你可能沒有考慮過的公司!
PS。Simply Wall St應用程序每天對紐約證券交易所的每隻股票進行折扣現金流估值。如果您想找到其他股票的計算方法,請在此處搜索。
對這篇文章有反饋嗎?對內容感到擔憂?直接聯繫我們。 或者,給編輯團隊 (at) simplywallst.com 發送電子郵件。
Simply Wall St的這篇文章本質上是籠統的。我們僅使用公正的方法根據歷史數據和分析師的預測提供評論,我們的文章無意作爲財務建議。它不構成買入或賣出任何股票的建議,也沒有考慮到您的目標或財務狀況。我們的目標是爲您提供由基本數據驅動的長期重點分析。請注意,我們的分析可能不考慮最新的價格敏感型公司公告或定性材料。簡而言之,華爾街沒有持有任何上述股票的頭寸。
譯文內容由第三人軟體翻譯。
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