DCF Studio

    DLTR · NMS · Consumer Defensive

    Dollar Tree, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 132.58

    Market price

    USD 111.96

    Implied upside

    +18.4%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedCapital expenditure runs at 6.1% of revenue against depreciation of 2.8%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Value Per Share

    Perpetuity growth
    USD 132.58+18.4%
    Exit multiple
    USD 159.85+42.8%
    Market price
    USD 111.96

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn2bnFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayUSD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueUSD 21.0bnUSD 22.6bnUSD 24.5bnUSD 26.4bnUSD 28.5bn+8.0%
    EBITUSD 2.2bnUSD 2.3bnUSD 2.5bnUSD 2.7bnUSD 2.9bn+8.0%
    NOPATUSD 1.7bnUSD 1.8bnUSD 2.0bnUSD 2.1bnUSD 2.3bn+8.0%
    Add depreciation & amortisationUSD 581.4mUSD 627.9mUSD 678.1mUSD 732.3mUSD 790.8m+8.0%
    Less capital expenditureUSD -1.3bnUSD -1.4bnUSD -1.5bnUSD -1.6bnUSD -1.7bn+8.0%
    Less increase in working capitalUSD 661.4mUSD 714.3mUSD 771.4mUSD 833.1mUSD 899.7m-8.0%
    Free cashflow to firmUSD 1.7bnUSD 1.8bnUSD 1.9bnUSD 2.1bnUSD 2.3bn+8.0%
    Discount factor0.96260.89200.82650.76590.7097-
    Present valueUSD 1.6bnUSD 1.6bnUSD 1.6bnUSD 1.6bnUSD 1.6bn+0.1%
    Present Value Of The ForecastUSD 8.0bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.774Reported 0.662, pulled toward 1.0 (Blume)
    Cost of equity9.25%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 21.0bn74.9% of capital
    Total debtUSD 7.1bn25.1% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC7.92%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 132.58

    76% of EV

    Forecast FCFF, final year
    USD 2.3bn
    Capex at depreciation, working capital in reinvestment
    USD 2.3bn
    Less reinvestment at g/ROIC (17.1% of NOPAT)
    USD -395.5m
    Capitalised
    USD 1.9bn
    ROIC (reported)
    14.6%
    Terminal value, undiscounted
    USD 36.2bn
    Terminal value, discounted
    USD 25.7bn
    Enterprise value
    USD 33.7bn
    Less net debt
    USD 6.3bn
    Equity value
    USD 27.4bn

    Exit at 11.9x EBITDA

    Value per shareUSD 159.85

    80% of EV

    Terminal value, undiscounted
    USD 44.2bn
    Terminal value, discounted
    USD 31.3bn
    Enterprise value
    USD 39.3bn
    Less net debt
    USD 6.3bn
    Equity value
    USD 33.0bn

    Spread between methods: 19%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    5.92%188.05204.08224.70252.29291.17
    6.92%148.19157.23168.24181.99199.68
    7.92%120.75126.19132.58140.22149.53
    8.92%100.70104.11108.01112.53117.83
    9.92%85.4187.6090.0492.8195.97

    Outlined: this model. Green text: above today's price of 111.96. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year8.0%5.5%-2.5pp
    EBIT margin10.3%9.0%-1.3pp
    Discount rate7.9%8.7%+0.8pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.