Ross Stores, Inc. (NASDAQ:ROST) Shares Could Be 29% Below Their Intrinsic Value Estimate
Ross Stores, Inc. (NASDAQ:ROST) Shares Could Be 29% Below Their Intrinsic Value Estimate
Key Insights
- Using the 2 Stage Free Cash Flow to Equity, Ross Stores fair value estimate is US$193
- Ross Stores is estimated to be 29% undervalued based on current share price of US$136
- Our fair value estimate is 20% higher than Ross Stores' analyst price target of US$161
In this article we are going to estimate the intrinsic value of Ross Stores, Inc. (NASDAQ:ROST) by estimating the company's future cash flows and discounting them to their present value. Our analysis will employ the Discounted Cash Flow (DCF) model. There's really not all that much to it, even though it might appear quite complex.
Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.
What's The Estimated Valuation?
We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. To start off with, we need to estimate the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
Generally we assume that a dollar today is more valuable than a dollar in the future, so we discount the value of these future cash flows to their estimated value in today's dollars:
10-year free cash flow (FCF) forecast
2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | |
Levered FCF ($, Millions) | US$1.52b | US$1.71b | US$1.99b | US$2.36b | US$2.70b | US$3.24b | US$3.63b | US$3.95b | US$4.23b | US$4.46b |
Growth Rate Estimate Source | Analyst x7 | Analyst x9 | Analyst x9 | Analyst x6 | Analyst x4 | Analyst x3 | Est @ 11.86% | Est @ 8.99% | Est @ 6.98% | Est @ 5.57% |
Present Value ($, Millions) Discounted @ 7.3% | US$1.4k | US$1.5k | US$1.6k | US$1.8k | US$1.9k | US$2.1k | US$2.2k | US$2.3k | US$2.2k | US$2.2k |
("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$19b
After calculating the present value of future cash flows in the initial 10-year period, we need to calculate the Terminal Value, which accounts for all future cash flows beyond the first stage. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.3%. We discount the terminal cash flows to today's value at a cost of equity of 7.3%.
Terminal Value (TV)= FCF2033 × (1 + g) ÷ (r – g) = US$4.5b× (1 + 2.3%) ÷ (7.3%– 2.3%) = US$92b
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$92b÷ ( 1 + 7.3%)10= US$45b
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$65b. In the final step we divide the equity value by the number of shares outstanding. Compared to the current share price of US$136, the company appears a touch undervalued at a 29% discount to where the stock price trades currently. The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent.
The Assumptions
We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows. Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own assumptions. 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 Ross Stores 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 7.3%, which is based on a levered beta of 1.084. 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 Ross Stores
- Earnings growth over the past year exceeded the industry.
- Debt is not viewed as a risk.
- Dividends are covered by earnings and cash flows.
- Dividend information for ROST.
- Dividend is low compared to the top 25% of dividend payers in the Specialty Retail market.
- Annual earnings are forecast to grow for the next 3 years.
- Trading below our estimate of fair value by more than 20%.
- Annual earnings are forecast to grow slower than the American market.
- What else are analysts forecasting for ROST?
Next Steps:
Whilst important, the DCF calculation ideally won't be the sole piece of analysis you scrutinize for a company. The DCF model is not a perfect stock valuation tool. Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation. 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. Why is the intrinsic value higher than the current share price? For Ross Stores, we've compiled three additional items you should look at:
- Risks: We feel that you should assess the 1 warning sign for Ross Stores we've flagged before making an investment in the company.
- Management:Have insiders been ramping up their shares to take advantage of the market's sentiment for ROST's future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors.
- Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!
PS. Simply Wall St updates its DCF calculation for every American stock every day, so if you want to find the intrinsic value of any other stock 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
- 使用兩階段自由現金流股本計算,羅斯百貨的公允價值估計爲193美元
- 根據目前136美元的股價,羅斯百貨的估值估計被低估了29%
- 我們的公允價值估計比羅斯·斯托爾斯的分析師目標股價161美元高出20%
在本文中,我們將通過估算羅斯百貨公司(納斯達克股票代碼:ROST)的未來現金流並將其折現爲現值來估算公司的內在價值。我們的分析將採用貼現現金流(DCF)模型。儘管它可能看起來很複雜,但實際上並沒有那麼多。
但請記住,估算公司價值的方法有很多,而差價合約只是一種方法。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。
估計估值是多少?
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,我們需要估計未來十年的現金流。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。
通常,我們假設今天的一美元比未來一美元更有價值,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) 預測
2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | |
Levered FCF(美元,百萬) | 152 億美元 | 17.1 億美元 | 19.9 億美元 | 2.36億美元 | 27.0 億美元 | 32.4 億美元 | 363 億美元 | 39.5 億美元 | 42.3 億美元 | 4.46億美元 |
增長率估算來源 | 分析師 x7 | 分析師 x9 | 分析師 x9 | 分析師 x6 | 分析師 x4 | 分析師 x3 | 美國東部標準時間 @ 11.86% | 美國東部時間 @ 8.99% | 東部標準時間 @ 6.98% | 美國東部標準時間 @ 5.57% |
現值(美元,百萬)折扣@ 7.3% | 140 萬美元 | 150 萬美元 | 160 萬美元 | 180 萬美元 | 19k 美元 | 2.1 萬美元 | 2.2 萬美元 | 2.3 萬美元 | 2.2 萬美元 | 2.2 萬美元 |
(“Est” = Simply Wall St估計的FCF增長率)
10 年期現金流 (PVCF) 的現值 = 190 億美元
在計算了最初10年期內未來現金流的現值之後,我們需要計算終值,該終值涵蓋了第一階段以後的所有未來現金流。戈登增長公式用於計算終值,其未來年增長率等於10年期國債收益率2.3%的5年平均水平。我們將終端現金流折現爲今天的價值,權益成本爲7.3%。
終端價值 (TV) = FCF2033 × (1 + g) ÷ (r — g) = 45億美元× (1 + 2.3%) ÷ (7.3% — 2.3%) = 920億美元
終端價值的現值 (PVTV) = 電視/ (1 + r)10= 920億美元÷ (1 + 7.3%)10= 450 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650億美元。在最後一步中,我們將股票價值除以已發行股票的數量。與目前的136美元股價相比,該公司的估值似乎略有低估,比目前的股價折扣了29%。任何計算中的假設都會對估值產生重大影響,因此最好將其視爲粗略的估計,而不是精確到最後一美分。
假設
我們要指出的是,貼現現金流的最重要投入是貼現率,當然還有實際的現金流。投資的一部分是自己對公司未來業績的評估,因此請自己嘗試計算並檢查自己的假設。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。鑑於我們將羅斯百貨視爲潛在股東,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7.3%,這是基於1.084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。
羅斯門店的 SWOT 分析
- 過去一年的收益增長超過了該行業。
- 債務不被視爲風險。
- 股息由收益和現金流支付。
- ROST 的股息信息。
- 與專業零售市場前25%的股息支付者相比,股息很低。
- 預計未來三年的年收入將增長。
- 交易價格比我們估計的公允價值低20%以上。
- 預計年收益的增長速度將低於美國市場。
- 分析師對ROST還有什麼預測?
後續步驟:
雖然重要,但理想情況下,DCF的計算不會是您爲公司仔細檢查的唯一分析內容。DCF模型不是完美的股票估值工具。最好你運用不同的案例和假設,看看它們將如何影響公司的估值。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。爲什麼內在價值高於當前股價?對於 Ross Stores,我們整理了另外三個值得關注的項目:
- 風險:我們認爲,在投資Ross Stores之前,您應該評估我們標記的Ross Stores的1個警告信號。
- 管理層:內部人士是否一直在增加股價以利用市場對ROST未來前景的情緒?查看我們的管理層和董事會分析,了解首席執行官薪酬和治理因素。
- 其他高質量的替代品:你喜歡一個優秀的全能選手嗎?瀏覽我們的高品質股票互動清單,了解您可能還會錯過什麼!
PS。Simply Wall St每天都會更新每隻美國股票的差價合約計算結果,因此,如果您想找到任何其他股票的內在價值,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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