Stock Analysis on Net
Stock Analysis on Net

lululemon athletica inc. (NASDAQ:LULU)

Present Value of Free Cash Flow to Equity (FCFE) 

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 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)

lululemon athletica inc., free cash flow to equity (FCFE) forecast

US$ in thousands, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 16.91%
01 FCFE0 1,644,299
1 FCFE1 2,180,780 = 1,644,299 × (1 + 32.63%) 1,865,275
2 FCFE2 2,779,555 = 2,180,780 × (1 + 27.46%) 2,033,469
3 FCFE3 3,399,040 = 2,779,555 × (1 + 22.29%) 2,126,913
4 FCFE4 3,980,869 = 3,399,040 × (1 + 17.12%) 2,130,602
5 FCFE5 4,456,491 = 3,980,869 × (1 + 11.95%) 2,040,087
5 Terminal value (TV5) 100,442,767 = 4,456,491 × (1 + 11.95%) ÷ (16.91% – 11.95%) 45,980,567
Intrinsic value of lululemon athletica inc. common stock 56,176,913
 
Intrinsic value of lululemon athletica inc. common stock (per share) $457.55
Current share price $301.85

Based on: 10-K (reporting date: 2024-01-28).

1 See details »

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)

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.67%
Expected rate of return on market portfolio2 E(RM) 13.79%
Systematic risk of lululemon athletica inc. common stock βLULU 1.34
 
Required rate of return on lululemon athletica inc. common stock3 rLULU 16.91%

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 rLULU = RF + βLULU [E(RM) – RF]
= 4.67% + 1.34 [13.79% – 4.67%]
= 16.91%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

lululemon athletica inc., PRAT model

Microsoft Excel
Average Jan 28, 2024 Jan 29, 2023 Jan 30, 2022 Jan 31, 2021 Feb 2, 2020 Feb 3, 2019
Selected Financial Data (US$ in thousands)
Net income 1,550,190 854,800 975,322 588,913 645,596 483,801
Net revenue 9,619,278 8,110,518 6,256,617 4,401,879 3,979,296 3,288,319
Total assets 7,091,941 5,607,038 4,942,478 4,185,215 3,281,354 2,084,711
Stockholders’ equity 4,232,081 3,148,799 2,740,046 2,558,566 1,952,218 1,445,975
Financial Ratios
Retention rate1 1.00 1.00 1.00 1.00 1.00 1.00
Profit margin2 16.12% 10.54% 15.59% 13.38% 16.22% 14.71%
Asset turnover3 1.36 1.45 1.27 1.05 1.21 1.58
Financial leverage4 1.68 1.78 1.80 1.64 1.68 1.44
Averages
Retention rate 1.00
Profit margin 14.43%
Asset turnover 1.32
Financial leverage 1.72
 
FCFE growth rate (g)5 32.63%

Based on: 10-K (reporting date: 2024-01-28), 10-K (reporting date: 2023-01-29), 10-K (reporting date: 2022-01-30), 10-K (reporting date: 2021-01-31), 10-K (reporting date: 2020-02-02), 10-K (reporting date: 2019-02-03).

2024 Calculations

1 Company does not pay dividends

2 Profit margin = 100 × Net income ÷ Net revenue
= 100 × 1,550,190 ÷ 9,619,278
= 16.12%

3 Asset turnover = Net revenue ÷ Total assets
= 9,619,278 ÷ 7,091,941
= 1.36

4 Financial leverage = Total assets ÷ Stockholders’ equity
= 7,091,941 ÷ 4,232,081
= 1.68

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 1.00 × 14.43% × 1.32 × 1.72
= 32.63%

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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (37,060,090 × 16.91% – 1,644,299) ÷ (37,060,090 + 1,644,299)
= 11.95%

where:
Equity market value0 = current market value of lululemon athletica inc. common stock (US$ in thousands)
FCFE0 = the last year lululemon athletica inc. free cash flow to equity (US$ in thousands)
r = required rate of return on lululemon athletica inc. common stock

FCFE growth rate (g) forecast

lululemon athletica inc., H-model

Microsoft Excel
Year Value gt
1 g1 32.63%
2 g2 27.46%
3 g3 22.29%
4 g4 17.12%
5 and thereafter g5 11.95%

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 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 32.63% + (11.95% – 32.63%) × (2 – 1) ÷ (5 – 1)
= 27.46%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 32.63% + (11.95% – 32.63%) × (3 – 1) ÷ (5 – 1)
= 22.29%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 32.63% + (11.95% – 32.63%) × (4 – 1) ÷ (5 – 1)
= 17.12%