Stock Analysis on Net
Stock Analysis on Net

Time Warner Cable Inc. (NYSE:TWC)

This company has been moved to the archive! The financial data has not been updated since April 28, 2016.

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)

Time Warner Cable Inc., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 13.29%
01 FCFE0 1,035
1 FCFE1 1,185 = 1,035 × (1 + 14.54%) 1,046
2 FCFE2 1,348 = 1,185 × (1 + 13.75%) 1,051
3 FCFE3 1,523 = 1,348 × (1 + 12.95%) 1,048
4 FCFE4 1,708 = 1,523 × (1 + 12.16%) 1,037
5 FCFE5 1,902 = 1,708 × (1 + 11.37%) 1,020
5 Terminal value (TV5) 110,307 = 1,902 × (1 + 11.37%) ÷ (13.29% – 11.37%) 59,119
Intrinsic value of Time Warner Cable Inc. common stock 64,320
 
Intrinsic value of Time Warner Cable Inc. common stock (per share) $225.92
Current share price $210.79

Based on: 10-K (reporting date: 2015-12-31).

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.

Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.68%
Expected rate of return on market portfolio2 E(RM) 13.77%
Systematic risk of Time Warner Cable Inc. common stock βTWC 0.95
 
Required rate of return on Time Warner Cable Inc. common stock3 rTWC 13.29%

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 rTWC = RF + βTWC [E(RM) – RF]
= 4.68% + 0.95 [13.77% – 4.68%]
= 13.29%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Time Warner Cable Inc., PRAT model

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Average Dec 31, 2015 Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011
Selected Financial Data (US$ in millions)
Cash dividends declared 1,081 857 758 700 643
Net income attributable to TWC shareholders 1,844 2,031 1,954 2,155 1,665
Revenue 23,697 22,812 22,120 21,386 19,675
Total assets 49,277 48,501 48,273 49,809 48,276
Total TWC shareholders’ equity 8,995 8,013 6,943 7,279 7,530
Financial Ratios
Retention rate1 0.41 0.58 0.61 0.68 0.61
Profit margin2 7.78% 8.90% 8.83% 10.08% 8.46%
Asset turnover3 0.48 0.47 0.46 0.43 0.41
Financial leverage4 5.48 6.05 6.95 6.84 6.41
Averages
Retention rate 0.58
Profit margin 8.81%
Asset turnover 0.45
Financial leverage 6.35
 
FCFE growth rate (g)5 14.54%

Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).

2015 Calculations

1 Retention rate = (Net income attributable to TWC shareholders – Cash dividends declared) ÷ Net income attributable to TWC shareholders
= (1,844 – 1,081) ÷ 1,844
= 0.41

2 Profit margin = 100 × Net income attributable to TWC shareholders ÷ Revenue
= 100 × 1,844 ÷ 23,697
= 7.78%

3 Asset turnover = Revenue ÷ Total assets
= 23,697 ÷ 49,277
= 0.48

4 Financial leverage = Total assets ÷ Total TWC shareholders’ equity
= 49,277 ÷ 8,995
= 5.48

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.58 × 8.81% × 0.45 × 6.35
= 14.54%

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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (60,012 × 13.29% – 1,035) ÷ (60,012 + 1,035)
= 11.37%

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

FCFE growth rate (g) forecast

Time Warner Cable Inc., H-model

Microsoft Excel
Year Value gt
1 g1 14.54%
2 g2 13.75%
3 g3 12.95%
4 g4 12.16%
5 and thereafter g5 11.37%

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)
= 14.54% + (11.37% – 14.54%) × (2 – 1) ÷ (5 – 1)
= 13.75%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 14.54% + (11.37% – 14.54%) × (3 – 1) ÷ (5 – 1)
= 12.95%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 14.54% + (11.37% – 14.54%) × (4 – 1) ÷ (5 – 1)
= 12.16%