Calculating The Fair Value Of The Home Depot, Inc. (NYSE:HD)
Calculating The Fair Value Of The Home Depot, Inc. (NYSE:HD)
Key Insights
- Home Depot's estimated fair value is US$369 based on 2 Stage Free Cash Flow to Equity
- Home Depot's US$336 share price indicates it is trading at similar levels as its fair value estimate
- The US$385 analyst price target for HD is 4.4% more than our estimate of fair value
Does the April share price for The Home Depot, Inc. (NYSE:HD) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by estimating the company's future cash flows and discounting them to their present value. We will take advantage of the Discounted Cash Flow (DCF) model for this purpose. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow.
We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you.
The Method
We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. To start off with, we need to estimate the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
Generally we assume that a dollar today is more valuable than a dollar in the future, so we need to discount the sum of these future cash flows to arrive at a present value estimate:
10-year free cash flow (FCF) forecast
2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | |
Levered FCF ($, Millions) | US$17.8b | US$16.2b | US$16.4b | US$17.8b | US$18.6b | US$19.9b | US$20.9b | US$21.8b | US$22.6b | US$23.4b |
Growth Rate Estimate Source | Analyst x10 | Analyst x11 | Analyst x10 | Analyst x7 | Analyst x3 | Analyst x3 | Est @ 5.11% | Est @ 4.26% | Est @ 3.67% | Est @ 3.26% |
Present Value ($, Millions) Discounted @ 7.3% | US$16.6k | US$14.1k | US$13.2k | US$13.4k | US$13.0k | US$13.0k | US$12.8k | US$12.4k | US$12.0k | US$11.5k |
("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$132b
We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. 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$23b× (1 + 2.3%) ÷ (7.3%– 2.3%) = US$474b
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$474b÷ ( 1 + 7.3%)10= US$233b
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$365b. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Compared to the current share price of US$336, the company appears about fair value at a 8.9% 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.
Important 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 Home Depot 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 1.096. 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 Home Depot
- Debt is well covered by earnings and cashflows.
- Dividends are covered by earnings and cash flows.
- Dividend information for HD.
- Earnings declined over the past year.
- 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.
- Good value based on P/E ratio and estimated fair value.
- Annual earnings are forecast to grow slower than the American market.
- What else are analysts forecasting for HD?
Looking Ahead:
Although the valuation of a company is important, it ideally won't be the sole piece of analysis you scrutinize for a company. The DCF model is not a perfect stock valuation tool. Rather it should be seen as a guide to "what assumptions need to be true for this stock to be under/overvalued?" For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. For Home Depot, we've put together three additional elements you should explore:
- Risks: Case in point, we've spotted 2 warning signs for Home Depot you should be aware of.
- Future Earnings: How does HD'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 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
根據兩階段的股本自由現金流,家得寶的公允價值估計爲369美元
家得寶的336美元股價表明其交易價格與其公允價值估計相似
分析師對HD的385美元目標股價比我們對公允價值的估計高出4.4%
家得寶公司(紐約證券交易所代碼:HD)4月份的股價是否反映了其真正價值?今天,我們將通過估算公司未來的現金流並將其折現爲現值來估算股票的內在價值。爲此,我們將利用折扣現金流 (DCF) 模型。像這樣的模型可能看起來超出外行人的理解,但它們很容易理解。
我們要提醒的是,對公司進行估值的方法有很多,就像DCF一樣,每種技術在某些情況下都有優點和缺點。對於那些熱衷於股票分析的人來說,你可能會對這裏的Simply Wall St分析模型感興趣。
該方法
我們使用的是兩階段增長模型,這只是意味着我們考慮了公司增長的兩個階段。在初始階段,公司的增長率可能更高,而第二階段通常被認爲具有穩定的增長率。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,因此我們需要對這些未來現金流的總和進行折價才能得出現值估計:
10 年自由現金流 (FCF) 預測
2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | |
Levered FCF ($, Millions) | US$17.8b | US$16.2b | US$16.4b | US$17.8b | US$18.6b | US$19.9b | US$20.9b | US$21.8b | US$22.6b | US$23.4b |
Growth Rate Estimate Source | Analyst x10 | Analyst x11 | Analyst x10 | Analyst x7 | Analyst x3 | Analyst x3 | Est @ 5.11% | Est @ 4.26% | Est @ 3.67% | Est @ 3.26% |
Present Value ($, Millions) Discounted @ 7.3% | US$16.6k | US$14.1k | US$13.2k | US$13.4k | US$13.0k | US$13.0k | US$12.8k | US$12.4k | US$12.0k | US$11.5k |
(“Est” = Simply Wall St估計的FCF增長率)
10 年期現金流 (PVCF) 的現值 = 132b 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。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) = 230億美元× (1 + 2.3%) ÷ (7.3% — 2.3%) = 4,740億美元
終端價值的現值 (PVTV) = 電視/ (1 + r)10= 4,740億美元÷ (1 + 7.3%)10= 233億美元
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3,650億美元。爲了得出每股內在價值,我們將其除以已發行股票總數。與目前的336美元股價相比,該公司的公允價值似乎比目前的股價折扣了8.9%。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。
紐約證券交易所:HD 貼現現金流 2024 年 4 月 23 日
重要假設
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然後試一試。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。鑑於我們將家得寶視爲潛在股東,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1.096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。
家得寶的 SWOT 分析
力量
收益和現金流足以彌補債務。
股息由收益和現金流支付。
HD 的股息信息。
弱點
在過去的一年中,收益有所下降。
與專業零售市場前25%的股息支付者相比,股息很低。
機會
預計未來三年的年收入將增長。
根據市盈率和估計的公允價值,物有所值。
威脅
預計年收益的增長速度將低於美國市場。
分析師對亨廷頓舞蹈症還有什麼預測?
展望未來:
儘管公司的估值很重要,但理想情況下,它不會是你仔細檢查公司的唯一分析內容。DCF模型不是完美的股票估值工具。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?” 的指南例如,公司權益成本或無風險利率的變化會對估值產生重大影響。對於家得寶,我們彙總了另外三個你應該探索的元素:
風險:舉個例子,我們發現了兩個你應該注意的家得寶警告信號。
未來收益:與同行和整個市場相比,HD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,深入了解未來幾年的分析師共識數字。
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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