Stock Analysis on Net
Stock Analysis on Net

Walmart Inc. (NYSE:WMT)

Present Value of Free Cash Flow to Equity (FCFE)

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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)

Walmart 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 8.68%
01 FCFE0 16,632
1 FCFE1 18,111 = 16,632 × (1 + 8.89%) 16,665
2 FCFE2 19,598 = 18,111 × (1 + 8.21%) 16,592
3 FCFE3 21,071 = 19,598 × (1 + 7.52%) 16,415
4 FCFE4 22,511 = 21,071 × (1 + 6.83%) 16,136
5 FCFE5 23,894 = 22,511 × (1 + 6.14%) 15,759
5 Terminal value (TV5) 1,000,045 = 23,894 × (1 + 6.14%) ÷ (8.68% – 6.14%) 659,582
Intrinsic value of Walmart Inc. common stock 741,149
 
Intrinsic value of Walmart Inc. common stock (per share) $92.20
Current share price $86.60

Based on: 10-K (reporting date: 2024-01-31).

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 4.65%
Expected rate of return on market portfolio2 E(RM) 13.79%
Systematic risk of Walmart Inc. common stock βWMT 0.44
 
Required rate of return on Walmart Inc. common stock3 rWMT 8.68%

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 rWMT = RF + βWMT [E(RM) – RF]
= 4.65% + 0.44 [13.79% – 4.65%]
= 8.68%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Walmart Inc., PRAT model

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Average Jan 31, 2024 Jan 31, 2023 Jan 31, 2022 Jan 31, 2021 Jan 31, 2020 Jan 31, 2019
Selected Financial Data (US$ in millions)
Cash dividends declared 6,140 6,114 6,152 6,116 6,048 6,102
Consolidated net income attributable to Walmart 15,511 11,680 13,673 13,510 14,881 6,670
Net sales 642,637 605,881 567,762 555,233 519,926 510,329
Total assets 252,399 243,197 244,860 252,496 236,495 219,295
Total Walmart shareholders’ equity 83,861 76,693 83,253 80,925 74,669 72,496
Financial Ratios
Retention rate1 0.60 0.48 0.55 0.55 0.59 0.09
Profit margin2 2.41% 1.93% 2.41% 2.43% 2.86% 1.31%
Asset turnover3 2.55 2.49 2.32 2.20 2.20 2.33
Financial leverage4 3.01 3.17 2.94 3.12 3.17 3.02
Averages
Retention rate 0.55
Profit margin 2.23%
Asset turnover 2.35
Financial leverage 3.07
 
FCFE growth rate (g)5 8.89%

Based on: 10-K (reporting date: 2024-01-31), 10-K (reporting date: 2023-01-31), 10-K (reporting date: 2022-01-31), 10-K (reporting date: 2021-01-31), 10-K (reporting date: 2020-01-31), 10-K (reporting date: 2019-01-31).

2024 Calculations

1 Retention rate = (Consolidated net income attributable to Walmart – Cash dividends declared) ÷ Consolidated net income attributable to Walmart
= (15,511 – 6,140) ÷ 15,511
= 0.60

2 Profit margin = 100 × Consolidated net income attributable to Walmart ÷ Net sales
= 100 × 15,511 ÷ 642,637
= 2.41%

3 Asset turnover = Net sales ÷ Total assets
= 642,637 ÷ 252,399
= 2.55

4 Financial leverage = Total assets ÷ Total Walmart shareholders’ equity
= 252,399 ÷ 83,861
= 3.01

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.55 × 2.23% × 2.35 × 3.07
= 8.89%

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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (696,113 × 8.68% – 16,632) ÷ (696,113 + 16,632)
= 6.14%

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

FCFE growth rate (g) forecast

Walmart Inc., H-model

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Year Value gt
1 g1 8.89%
2 g2 8.21%
3 g3 7.52%
4 g4 6.83%
5 and thereafter g5 6.14%

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)
= 8.89% + (6.14% – 8.89%) × (2 – 1) ÷ (5 – 1)
= 8.21%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 8.89% + (6.14% – 8.89%) × (3 – 1) ÷ (5 – 1)
= 7.52%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 8.89% + (6.14% – 8.89%) × (4 – 1) ÷ (5 – 1)
= 6.83%