Stock Analysis on Net

Lowe’s Cos. Inc. (NYSE:LOW)

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)

Lowe’s Cos. Inc., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

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Year Value FCFEt or Terminal value (TVt) Calculation Present value at 16.28%
01 FCFE0 7,153
1 FCFE1 26,148 = 7,153 × (1 + 265.55%) 22,488
2 FCFE2 78,885 = 26,148 × (1 + 201.69%) 58,347
3 FCFE3 187,612 = 78,885 × (1 + 137.83%) 119,344
4 FCFE4 326,394 = 187,612 × (1 + 73.97%) 178,564
5 FCFE5 359,406 = 326,394 × (1 + 10.11%) 169,103
5 Terminal value (TV5) 6,423,798 = 359,406 × (1 + 10.11%) ÷ (16.28%10.11%) 3,022,432
Intrinsic value of Lowe’s Cos. Inc. common stock 3,570,276
 
Intrinsic value of Lowe’s Cos. Inc. common stock (per share) $6,378.84
Current share price $228.42

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

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 4.64%
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%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Lowe’s Cos. Inc., PRAT model

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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
 
FCFE 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%


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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (127,848 × 16.28%7,153) ÷ (127,848 + 7,153)
= 10.11%

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


FCFE growth rate (g) forecast

Lowe’s Cos. Inc., H-model

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Year Value gt
1 g1 265.55%
2 g2 201.69%
3 g3 137.83%
4 g4 73.97%
5 and thereafter g5 10.11%

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

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 265.55% + (10.11%265.55%) × (2 – 1) ÷ (5 – 1)
= 201.69%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 265.55% + (10.11%265.55%) × (3 – 1) ÷ (5 – 1)
= 137.83%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 265.55% + (10.11%265.55%) × (4 – 1) ÷ (5 – 1)
= 73.97%