DCF Studio

    DOW · NYQ · Basic Materials

    Dow Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD -8.17

    Market price

    USD 28.73

    Implied upside

    -128.4%

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

    AdjustedFree cashflow is negative in at least one forecast year, so terminal value carries most of the valuation.

    Value Per Share

    Perpetuity growth
    USD -8.17-128.4%
    Exit multiple
    USD 8.69-69.8%
    Market price
    USD 28.73

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    -223595139-1117975700FY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 35.5bnUSD 31.6bnUSD 28.1bnUSD 25.0bnUSD 22.2bn-11.1%
    EBITUSD 1.7bnUSD 1.5bnUSD 1.4bnUSD 1.2bnUSD 1.1bn-11.1%
    NOPATUSD 1.4bnUSD 1.2bnUSD 1.1bnUSD 963.9mUSD 856.8m-11.1%
    Add depreciation & amortisationUSD 2.2bnUSD 1.9bnUSD 1.7bnUSD 1.5bnUSD 1.4bn-11.1%
    Less capital expenditureUSD -2.0bnUSD -1.8bnUSD -1.6bnUSD -1.4bnUSD -1.2bn-11.1%
    Less increase in working capitalUSD -1.8bnUSD -1.6bnUSD -1.4bnUSD -1.2bnUSD -1.1bn-11.1%
    Free cashflow to firmUSD -223.6mUSD -198.8mUSD -176.7mUSD -157.1mUSD -139.6m+11.1%
    Discount factor0.97030.91340.85990.80950.7620-
    Present valueUSD -216.9mUSD -181.5mUSD -151.9mUSD -127.1mUSD -106.4m+16.3%
    Present Value Of The ForecastUSD -783.9m

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.614Reported 0.424, pulled toward 1.0 (Blume)
    Cost of equity8.38%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 20.8bn51.4% of capital
    Total debtUSD 19.6bn48.6% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC6.23%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 -8.17

    108% of EV

    Forecast FCFF, final year
    USD -139.6m
    Capex at depreciation, working capital in reinvestment
    USD 856.8m
    Less reinvestment at g/ROIC (40.2% of NOPAT)
    USD -344.1m
    Capitalised
    USD 512.7m
    ROIC (WACC floor)
    6.2%
    Terminal value, undiscounted
    USD 14.1bn
    Terminal value, discounted
    USD 10.8bn
    Enterprise value
    USD 10.0bn
    Less net debt
    USD 15.8bn
    Equity value
    USD -5.8bn

    Exit at 12.2x EBITDA

    Value per shareUSD 8.69

    104% of EV

    Terminal value, undiscounted
    USD 29.9bn
    Terminal value, discounted
    USD 22.7bn
    Enterprise value
    USD 22.0bn
    Less net debt
    USD 15.8bn
    Equity value
    USD 6.2bn

    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%
    4.23%2.323.495.288.4415.83
    5.23%-4.71-4.61-4.52-4.43-4.34
    6.23%-8.32-8.25-8.17-8.10-8.03
    7.23%-10.90-10.84-10.78-10.72-10.66
    8.23%-12.83-12.78-12.72-12.67-12.62

    Outlined: this model. Green text: above today's price of 28.73. 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 year-11.1%4.6%+15.7pp
    EBIT margin4.9%13.1%+8.3pp
    Discount rate6.2%3.5%-2.7pp
    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.