Stock Analysis on Net

Warner Bros. Discovery Inc. (NASDAQ:WBD)

This company has been moved to the archive! The financial data has not been updated since November 4, 2022.

Present Value of Free Cash Flow to Equity (FCFE) 

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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 equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.


Intrinsic Stock Value (Valuation Summary)

Warner Bros. Discovery Inc., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 16.59%
01 FCFE0 1,851
1 FCFE1 2,024 = 1,851 × (1 + 9.33%) 1,736
2 FCFE2 2,209 = 2,024 × (1 + 9.16%) 1,625
3 FCFE3 2,408 = 2,209 × (1 + 8.99%) 1,519
4 FCFE4 2,620 = 2,408 × (1 + 8.82%) 1,418
5 FCFE5 2,847 = 2,620 × (1 + 8.65%) 1,321
5 Terminal value (TV5) 38,959 = 2,847 × (1 + 8.65%) ÷ (16.59%8.65%) 18,081
Intrinsic value of Warner Bros. Discovery Inc. common stock 25,701
 
Intrinsic value of Warner Bros. Discovery Inc. common stock (per share) $10.58
Current share price $10.43

Based on: 10-K (reporting date: 2021-12-31).

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.


Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.79%
Expected rate of return on market portfolio2 E(RM) 13.79%
Systematic risk of Warner Bros. Discovery Inc. common stock βWBD 1.31
 
Required rate of return on Warner Bros. Discovery Inc. common stock3 rWBD 16.59%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rWBD = RF + βWBD [E(RM) – RF]
= 4.79% + 1.31 [13.79%4.79%]
= 16.59%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Warner Bros. Discovery Inc., PRAT model

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Average Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017
Selected Financial Data (US$ in millions)
Net income (loss) available to Discovery, Inc. 1,006 1,219 2,069 594 (337)
Revenues 12,191 10,671 11,144 10,553 6,873
Total assets 34,427 34,087 33,735 32,550 22,555
Total Discovery, Inc. stockholders’ equity 11,599 10,464 9,891 8,386 4,610
Financial Ratios
Retention rate1 1.00 1.00 1.00 1.00 1.00
Profit margin2 8.25% 11.42% 18.57% 5.63% -4.90%
Asset turnover3 0.35 0.31 0.33 0.32 0.30
Financial leverage4 2.97 3.26 3.41 3.88 4.89
Averages
Retention rate 1.00
Profit margin 7.79%
Asset turnover 0.33
Financial leverage 3.68
 
FCFE growth rate (g)5 9.33%

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

2021 Calculations

1 Company does not pay dividends

2 Profit margin = 100 × Net income (loss) available to Discovery, Inc. ÷ Revenues
= 100 × 1,006 ÷ 12,191
= 8.25%

3 Asset turnover = Revenues ÷ Total assets
= 12,191 ÷ 34,427
= 0.35

4 Financial leverage = Total assets ÷ Total Discovery, Inc. stockholders’ equity
= 34,427 ÷ 11,599
= 2.97

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 1.00 × 7.79% × 0.33 × 3.68
= 9.33%


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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (25,328 × 16.59%1,851) ÷ (25,328 + 1,851)
= 8.65%

where:
Equity market value0 = current market value of Warner Bros. Discovery Inc. common stock (US$ in millions)
FCFE0 = the last year Warner Bros. Discovery Inc. free cash flow to equity (US$ in millions)
r = required rate of return on Warner Bros. Discovery Inc. common stock


FCFE growth rate (g) forecast

Warner Bros. Discovery Inc., H-model

Microsoft Excel
Year Value gt
1 g1 9.33%
2 g2 9.16%
3 g3 8.99%
4 g4 8.82%
5 and thereafter g5 8.65%

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)
= 9.33% + (8.65%9.33%) × (2 – 1) ÷ (5 – 1)
= 9.16%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 9.33% + (8.65%9.33%) × (3 – 1) ÷ (5 – 1)
= 8.99%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 9.33% + (8.65%9.33%) × (4 – 1) ÷ (5 – 1)
= 8.82%