DCF Studio

    EL · NYQ · Consumer Defensive

    The Estée Lauder Companies Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 12.75

    Market price

    USD 93.43

    Implied upside

    -86.4%

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

    AdjustedCapital expenditure runs at 8.4% of revenue against depreciation of 5.3%. 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 12.75-86.4%
    Exit multiple
    USD 52.76-43.5%
    Market price
    USD 93.43

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0m389m778mFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayUSD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueUSD 14.8bnUSD 14.5bnUSD 14.2bnUSD 14.0bnUSD 13.7bn-1.8%
    EBITUSD 1.5bnUSD 1.5bnUSD 1.4bnUSD 1.4bnUSD 1.4bn-1.8%
    NOPATUSD 1.2bnUSD 1.2bnUSD 1.1bnUSD 1.1bnUSD 1.1bn-1.8%
    Add depreciation & amortisationUSD 777.0mUSD 762.7mUSD 748.7mUSD 734.9mUSD 721.4m-1.8%
    Less capital expenditureUSD -1.2bnUSD -1.2bnUSD -1.2bnUSD -1.2bnUSD -1.2bn-1.8%
    Less increase in working capitalUSD 75.3mUSD 73.9mUSD 72.5mUSD 71.2mUSD 69.9m+1.8%
    Free cashflow to firmUSD 778.4mUSD 764.1mUSD 750.1mUSD 736.3mUSD 722.8m-1.8%
    Discount factor0.95400.86820.79010.71900.6543-
    Present valueUSD 742.6mUSD 663.4mUSD 592.6mUSD 529.4mUSD 472.9m-10.7%
    Present Value Of The ForecastUSD 3.0bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.184Reported 1.274, pulled toward 1.0 (Blume)
    Cost of equity11.51%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 33.8bn78.5% of capital
    Total debtUSD 9.2bn21.5% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC9.88%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 12.75

    71% of EV

    Forecast FCFF, final year
    USD 722.8m
    Capex at depreciation, working capital in reinvestment
    USD 1.1bn
    Less reinvestment at g/ROIC (25.3% of NOPAT)
    USD -275.8m
    Capitalised
    USD 814.6m
    ROIC (WACC floor)
    9.9%
    Terminal value, undiscounted
    USD 11.3bn
    Terminal value, discounted
    USD 7.4bn
    Enterprise value
    USD 10.4bn
    Less net debt
    USD 5.7bn
    Equity value
    USD 4.7bn

    Exit at 16.0x EBITDA

    Value per shareUSD 52.76

    88% of EV

    Terminal value, undiscounted
    USD 33.6bn
    Terminal value, discounted
    USD 22.0bn
    Enterprise value
    USD 25.0bn
    Less net debt
    USD 5.7bn
    Equity value
    USD 19.2bn

    Spread between methods: 122%.

    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%
    7.88%21.4422.1522.9823.9525.11
    8.88%16.3816.6917.0417.4317.86
    9.88%12.5512.6512.7512.8512.95
    10.88%9.819.909.9910.0710.16
    11.88%7.547.627.707.777.85

    Outlined: this model. Green text: above today's price of 93.43. 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-1.8%41.1%+43.0pp
    EBIT margin10.1%34.9%+24.8pp
    Discount rate9.9%4.4%-5.5pp
    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.