Stock Analysis on Net
Stock Analysis on Net

Hewlett Packard Enterprise Co. (NYSE:HPE)

This company has been moved to the archive! The financial data has not been updated since June 5, 2024.

Present Value of Free Cash Flow to the Firm (FCFF)

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 the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Hewlett Packard Enterprise Co., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 11.95%
01 FCFF0 2,817
1 FCFF1 2,892 = 2,817 × (1 + 2.68%) 2,583
2 FCFF2 2,980 = 2,892 × (1 + 3.04%) 2,378
3 FCFF3 3,081 = 2,980 × (1 + 3.40%) 2,196
4 FCFF4 3,198 = 3,081 × (1 + 3.77%) 2,036
5 FCFF5 3,330 = 3,198 × (1 + 4.13%) 1,894
5 Terminal value (TV5) 44,350 = 3,330 × (1 + 4.13%) ÷ (11.95% – 4.13%) 25,222
Intrinsic value of Hewlett Packard Enterprise Co. capital 36,309
Less: Short-term and long-term debt (fair value) 12,200
Intrinsic value of Hewlett Packard Enterprise Co. common stock 24,109
 
Intrinsic value of Hewlett Packard Enterprise Co. common stock (per share) $18.55
Current share price $19.48

Based on: 10-K (reporting date: 2023-10-31).

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.

Weighted Average Cost of Capital (WACC)

Hewlett Packard Enterprise Co., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 25,318 0.67 15.80%
Short-term and long-term debt (fair value) 12,200 0.33 3.96% = 4.73% × (1 – 16.25%)

Based on: 10-K (reporting date: 2023-10-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 1,299,673,270 × $19.48
= $25,317,635,299.60

   Short-term and long-term debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (9.20% + 0.90% + 4.50% + 27.10% + 32.50% + 23.30%) ÷ 6
= 16.25%

WACC = 11.95%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Hewlett Packard Enterprise Co., PRAT model

Microsoft Excel
Average Oct 31, 2023 Oct 31, 2022 Oct 31, 2021 Oct 31, 2020 Oct 31, 2019 Oct 31, 2018
Selected Financial Data (US$ in millions)
Interest expense 326 260 289 332 311 353
Net loss from discontinued operations — — — — — (104)
Net earnings (loss) attributable to HPE 2,025 868 3,427 (322) 1,049 1,908
 
Effective income tax rate (EITR)1 9.20% 0.90% 4.50% 27.10% 32.50% 23.30%
 
Interest expense, after tax2 296 258 276 242 210 271
Add: Cash dividends declared 619 621 625 464 601 733
Interest expense (after tax) and dividends 915 879 901 706 811 1,004
 
EBIT(1 – EITR)3 2,321 1,126 3,703 (80) 1,259 2,283
 
Notes payable and short-term borrowings 4,868 4,612 3,552 3,755 4,425 2,005
Long-term debt 7,487 7,853 9,896 12,186 9,395 10,136
Total HPE stockholders’ equity 21,182 19,864 19,971 16,049 17,098 21,239
Total capital 33,537 32,329 33,419 31,990 30,918 33,380
Financial Ratios
Retention rate (RR)4 0.61 0.22 0.76 — 0.36 0.56
Return on invested capital (ROIC)5 6.92% 3.48% 11.08% -0.25% 4.07% 6.84%
Averages
RR 0.50
ROIC 5.36%
 
FCFF growth rate (g)6 2.68%

Based on: 10-K (reporting date: 2023-10-31), 10-K (reporting date: 2022-10-31), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-31), 10-K (reporting date: 2019-10-31), 10-K (reporting date: 2018-10-31).

1 See details »

2023 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 326 × (1 – 9.20%)
= 296

3 EBIT(1 – EITR) = Net earnings (loss) attributable to HPE – Net loss from discontinued operations + Interest expense, after tax
= 2,025 – 0 + 296
= 2,321

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [2,321 – 915] ÷ 2,321
= 0.61

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 2,321 ÷ 33,537
= 6.92%

6 g = RR × ROIC
= 0.50 × 5.36%
= 2.68%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (37,518 × 11.95% – 2,817) ÷ (37,518 + 2,817)
= 4.13%

where:

Total capital, fair value0 = current fair value of Hewlett Packard Enterprise Co. debt and equity (US$ in millions)
FCFF0 = the last year Hewlett Packard Enterprise Co. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Hewlett Packard Enterprise Co. capital

FCFF growth rate (g) forecast

Hewlett Packard Enterprise Co., H-model

Microsoft Excel
Year Value gt
1 g1 2.68%
2 g2 3.04%
3 g3 3.40%
4 g4 3.77%
5 and thereafter g5 4.13%

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)
= 2.68% + (4.13% – 2.68%) × (2 – 1) ÷ (5 – 1)
= 3.04%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 2.68% + (4.13% – 2.68%) × (3 – 1) ÷ (5 – 1)
= 3.40%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 2.68% + (4.13% – 2.68%) × (4 – 1) ÷ (5 – 1)
= 3.77%