Stock Analysis on Net
Stock Analysis on Net

Dollar General Corp. (NYSE:DG)

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)

Dollar General Corp., 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 8.27%
01 FCFE0 661,974
1 FCFE1 843,957 = 661,974 × (1 + 27.49%) 779,496
2 FCFE2 1,026,766 = 843,957 × (1 + 21.66%) 875,909
3 FCFE3 1,189,311 = 1,026,766 × (1 + 15.83%) 937,080
4 FCFE4 1,308,251 = 1,189,311 × (1 + 10.00%) 952,063
5 FCFE5 1,362,813 = 1,308,251 × (1 + 4.17%) 916,019
5 Terminal value (TV5) 34,634,752 = 1,362,813 × (1 + 4.17%) ÷ (8.27% – 4.17%) 23,279,860
Intrinsic value of Dollar General Corp. common stock 27,740,427
 
Intrinsic value of Dollar General Corp. common stock (per share) $126.14
Current share price $76.50

Based on: 10-K (reporting date: 2024-02-02).

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)

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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 Dollar General Corp. common stock βDG 0.39
 
Required rate of return on Dollar General Corp. common stock3 rDG 8.27%

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 rDG = RF + βDG [E(RM) – RF]
= 4.67% + 0.39 [13.79% – 4.67%]
= 8.27%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Dollar General Corp., PRAT model

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Average Feb 2, 2024 Feb 3, 2023 Jan 28, 2022 Jan 29, 2021 Jan 31, 2020 Feb 1, 2019
Selected Financial Data (US$ in thousands)
Dividends paid 517,999 493,732 392,217 355,934 327,578 306,562
Net income 1,661,274 2,415,989 2,399,232 2,655,050 1,712,555 1,589,472
Net sales 38,691,609 37,844,863 34,220,449 33,746,839 27,753,973 25,625,043
Total assets 30,795,591 29,083,367 26,327,371 25,862,624 22,825,084 13,204,038
Shareholders’ equity 6,749,119 5,541,772 6,261,986 6,661,238 6,702,500 6,417,393
Financial Ratios
Retention rate1 0.69 0.80 0.84 0.87 0.81 0.81
Profit margin2 4.29% 6.38% 7.01% 7.87% 6.17% 6.20%
Asset turnover3 1.26 1.30 1.30 1.30 1.22 1.94
Financial leverage4 4.56 5.25 4.20 3.88 3.41 2.06
Averages
Retention rate 0.82
Profit margin 6.73%
Asset turnover 1.28
Financial leverage 3.89
 
FCFE growth rate (g)5 27.49%

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

2024 Calculations

1 Retention rate = (Net income – Dividends paid) ÷ Net income
= (1,661,274 – 517,999) ÷ 1,661,274
= 0.69

2 Profit margin = 100 × Net income ÷ Net sales
= 100 × 1,661,274 ÷ 38,691,609
= 4.29%

3 Asset turnover = Net sales ÷ Total assets
= 38,691,609 ÷ 30,795,591
= 1.26

4 Financial leverage = Total assets ÷ Shareholders’ equity
= 30,795,591 ÷ 6,749,119
= 4.56

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.82 × 6.73% × 1.28 × 3.89
= 27.49%

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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (16,823,512 × 8.27% – 661,974) ÷ (16,823,512 + 661,974)
= 4.17%

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

FCFE growth rate (g) forecast

Dollar General Corp., H-model

Microsoft Excel
Year Value gt
1 g1 27.49%
2 g2 21.66%
3 g3 15.83%
4 g4 10.00%
5 and thereafter g5 4.17%

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)
= 27.49% + (4.17% – 27.49%) × (2 – 1) ÷ (5 – 1)
= 21.66%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 27.49% + (4.17% – 27.49%) × (3 – 1) ÷ (5 – 1)
= 15.83%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 27.49% + (4.17% – 27.49%) × (4 – 1) ÷ (5 – 1)
= 10.00%