Stock Analysis on Net
Stock Analysis on Net

Trane Technologies plc (NYSE:TT)

This company has been moved to the archive! The financial data has not been updated since May 3, 2023.

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)

Trane Technologies plc, 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 14.07%
01 FCFE0 1,404,900
1 FCFE1 1,577,336 = 1,404,900 × (1 + 12.27%) 1,382,838
2 FCFE2 1,762,932 = 1,577,336 × (1 + 11.77%) 1,354,970
3 FCFE3 1,961,421 = 1,762,932 × (1 + 11.26%) 1,321,636
4 FCFE4 2,172,304 = 1,961,421 × (1 + 10.75%) 1,283,242
5 FCFE5 2,394,837 = 2,172,304 × (1 + 10.24%) 1,240,255
5 Terminal value (TV5) 69,095,418 = 2,394,837 × (1 + 10.24%) ÷ (14.07% – 10.24%) 35,783,630
Intrinsic value of Trane Technologies plc common stock 42,366,571
 
Intrinsic value of Trane Technologies plc common stock (per share) $185.78
Current share price $177.74

Based on: 10-K (reporting date: 2022-12-31).

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 4.79%
Expected rate of return on market portfolio2 E(RM) 13.79%
Systematic risk of Trane Technologies plc common stock βTT 1.03
 
Required rate of return on Trane Technologies plc common stock3 rTT 14.07%

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 rTT = RF + βTT [E(RM) – RF]
= 4.79% + 1.03 [13.79% – 4.79%]
= 14.07%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Trane Technologies plc, PRAT model

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Average Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018
Selected Financial Data (US$ in thousands)
Cash dividends declared 620,700 561,800 507,700 509,500 480,800
Net earnings attributable to Trane Technologies plc 1,756,500 1,423,400 854,900 1,410,900 1,337,600
Net revenues 15,991,700 14,136,400 12,454,700 16,598,900 15,668,200
Total assets 18,081,600 18,059,800 18,156,700 20,492,300 17,914,900
Total Trane Technologies plc shareholders’ equity 6,088,600 6,255,900 6,407,700 7,267,600 7,022,700
Financial Ratios
Retention rate1 0.65 0.61 0.41 0.64 0.64
Profit margin2 10.98% 10.07% 6.86% 8.50% 8.54%
Asset turnover3 0.88 0.78 0.69 0.81 0.87
Financial leverage4 2.97 2.89 2.83 2.82 2.55
Averages
Retention rate 0.59
Profit margin 8.99%
Asset turnover 0.81
Financial leverage 2.88
 
FCFE growth rate (g)5 12.27%

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

2022 Calculations

1 Retention rate = (Net earnings attributable to Trane Technologies plc – Cash dividends declared) ÷ Net earnings attributable to Trane Technologies plc
= (1,756,500 – 620,700) ÷ 1,756,500
= 0.65

2 Profit margin = 100 × Net earnings attributable to Trane Technologies plc ÷ Net revenues
= 100 × 1,756,500 ÷ 15,991,700
= 10.98%

3 Asset turnover = Net revenues ÷ Total assets
= 15,991,700 ÷ 18,081,600
= 0.88

4 Financial leverage = Total assets ÷ Total Trane Technologies plc shareholders’ equity
= 18,081,600 ÷ 6,088,600
= 2.97

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.59 × 8.99% × 0.81 × 2.88
= 12.27%

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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (40,533,934 × 14.07% – 1,404,900) ÷ (40,533,934 + 1,404,900)
= 10.24%

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

FCFE growth rate (g) forecast

Trane Technologies plc, H-model

Microsoft Excel
Year Value gt
1 g1 12.27%
2 g2 11.77%
3 g3 11.26%
4 g4 10.75%
5 and thereafter g5 10.24%

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)
= 12.27% + (10.24% – 12.27%) × (2 – 1) ÷ (5 – 1)
= 11.77%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 12.27% + (10.24% – 12.27%) × (3 – 1) ÷ (5 – 1)
= 11.26%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 12.27% + (10.24% – 12.27%) × (4 – 1) ÷ (5 – 1)
= 10.75%