Stock Analysis on Net

Lowe’s Cos. Inc. (NYSE:LOW)

Dividend Discount Model (DDM)

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. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.


Intrinsic Stock Value (Valuation Summary)

Lowe’s Cos. Inc., dividends per share (DPS) forecast

US$

Microsoft Excel
Year Value DPSt or Terminal value (TVt) Calculation Present value at 16.28%
0 DPS01 4.55
1 DPS1 16.63 = 4.55 × (1 + 265.55%) 14.30
2 DPS2 50.34 = 16.63 × (1 + 202.66%) 37.23
3 DPS3 120.70 = 50.34 × (1 + 139.78%) 76.78
4 DPS4 213.51 = 120.70 × (1 + 76.89%) 116.81
5 DPS5 243.41 = 213.51 × (1 + 14.00%) 114.53
5 Terminal value (TV5) 12,219.85 = 243.41 × (1 + 14.00%) ÷ (16.28%14.00%) 5,749.51
Intrinsic value of Lowe’s Cos. Inc. common stock (per share) $6,109.16
Current share price $228.42

Based on: 10-K (reporting date: 2025-01-31).

1 DPS0 = Sum of the last year dividends per share of Lowe’s Cos. Inc. common stock. 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 4.64%
Expected rate of return on market portfolio2 E(RM) 14.89%
Systematic risk of Lowe’s Cos. Inc. common stock βLOW 1.13
 
Required rate of return on Lowe’s Cos. Inc. common stock3 rLOW 16.28%

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 rLOW = RF + βLOW [E(RM) – RF]
= 4.64% + 1.13 [14.89%4.64%]
= 16.28%


Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Lowe’s Cos. Inc., PRAT model

Microsoft Excel
Average Jan 31, 2025 Feb 2, 2024 Feb 3, 2023 Jan 28, 2022 Jan 29, 2021 Jan 31, 2020
Selected Financial Data (US$ in millions)
Cash dividends declared 2,578 2,531 2,466 2,081 1,724 1,653
Net earnings 6,957 7,726 6,437 8,442 5,835 4,281
Net sales 83,674 86,377 97,059 96,250 89,597 72,148
Total assets 43,102 41,795 43,708 44,640 46,735 39,471
Shareholders’ equity (deficit) (14,231) (15,050) (14,254) (4,816) 1,437 1,972
Financial Ratios
Retention rate1 0.63 0.67 0.62 0.75 0.70 0.61
Profit margin2 8.31% 8.94% 6.63% 8.77% 6.51% 5.93%
Asset turnover3 1.94 2.07 2.22 2.16 1.92 1.83
Financial leverage4 32.52 20.02
Averages
Retention rate 0.67
Profit margin 7.52%
Asset turnover 2.02
Financial leverage 26.27
 
Dividend growth rate (g)5 265.55%

Based on: 10-K (reporting date: 2025-01-31), 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).

2025 Calculations

1 Retention rate = (Net earnings – Cash dividends declared) ÷ Net earnings
= (6,9572,578) ÷ 6,957
= 0.63

2 Profit margin = 100 × Net earnings ÷ Net sales
= 100 × 6,957 ÷ 83,674
= 8.31%

3 Asset turnover = Net sales ÷ Total assets
= 83,674 ÷ 43,102
= 1.94

4 Financial leverage = Total assets ÷ Shareholders’ equity (deficit)
= 43,102 ÷ -14,231
=

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.67 × 7.52% × 2.02 × 26.27
= 265.55%


Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × ($228.42 × 16.28%$4.55) ÷ ($228.42 + $4.55)
= 14.00%

where:
P0 = current price of share of Lowe’s Cos. Inc. common stock
D0 = the last year dividends per share of Lowe’s Cos. Inc. common stock
r = required rate of return on Lowe’s Cos. Inc. common stock


Dividend growth rate (g) forecast

Lowe’s Cos. Inc., H-model

Microsoft Excel
Year Value gt
1 g1 265.55%
2 g2 202.66%
3 g3 139.78%
4 g4 76.89%
5 and thereafter g5 14.00%

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpolation between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 265.55% + (14.00%265.55%) × (2 – 1) ÷ (5 – 1)
= 202.66%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 265.55% + (14.00%265.55%) × (3 – 1) ÷ (5 – 1)
= 139.78%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 265.55% + (14.00%265.55%) × (4 – 1) ÷ (5 – 1)
= 76.89%