DCF Studio

    HPQ · NYQ · Technology

    HP Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 33.53

    Market price

    USD 34.40

    Implied upside

    -2.5%

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

    Value Per Share

    Perpetuity growth
    USD 33.53-2.5%
    Exit multiple
    USD 29.60-14.0%
    Market price
    USD 34.40

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn2bn3bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 53.0bnUSD 50.7bnUSD 48.6bnUSD 46.6bnUSD 44.6bn-4.2%
    EBITUSD 4.0bnUSD 3.9bnUSD 3.7bnUSD 3.5bnUSD 3.4bn-4.2%
    NOPATUSD 3.4bnUSD 3.3bnUSD 3.1bnUSD 3.0bnUSD 2.9bn-4.2%
    Add depreciation & amortisationUSD 798.3mUSD 764.7mUSD 732.5mUSD 701.7mUSD 672.1m-4.2%
    Less capital expenditureUSD -668.4mUSD -640.2mUSD -613.3mUSD -587.5mUSD -562.7m-4.2%
    Less increase in working capitalUSD -145.4mUSD -139.2mUSD -133.4mUSD -127.8mUSD -122.4m-4.2%
    Free cashflow to firmUSD 3.4bnUSD 3.2bnUSD 3.1bnUSD 3.0bnUSD 2.9bn-4.2%
    Discount factor0.95590.87330.79790.72900.6661-
    Present valueUSD 3.2bnUSD 2.8bnUSD 2.5bnUSD 2.2bnUSD 1.9bn-12.5%
    Present Value Of The ForecastUSD 12.6bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.137Reported 1.205, pulled toward 1.0 (Blume)
    Cost of equity11.25%Risk-free + beta x equity risk premium
    Cost of debt5.10%Interest expense / average total debt
    Market capitalisationUSD 31.0bn74.0% of capital
    Total debtUSD 10.9bn26.0% of capital, book value as a proxy
    Tax rate15.4%Effective, capped at statutory
    WACC9.45%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 33.53

    68% of EV

    Forecast FCFF, final year
    USD 2.9bn
    Capex at depreciation, working capital in reinvestment
    USD 2.9bn
    Less reinvestment at g/ROIC (5.9% of NOPAT)
    USD -168.5m
    Capitalised
    USD 2.7bn
    ROIC (reported)
    42.5%
    Terminal value, undiscounted
    USD 39.8bn
    Terminal value, discounted
    USD 26.5bn
    Enterprise value
    USD 39.1bn
    Less net debt
    USD 7.2bn
    Equity value
    USD 32.0bn

    Exit at 8.4x EBITDA

    Value per shareUSD 29.60

    64% of EV

    Terminal value, undiscounted
    USD 34.2bn
    Terminal value, discounted
    USD 22.8bn
    Enterprise value
    USD 35.4bn
    Less net debt
    USD 7.2bn
    Equity value
    USD 28.2bn

    Spread between methods: 12%.

    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%
    7.45%42.1145.1148.7153.1258.63
    8.45%35.4137.4639.8542.6746.06
    9.45%30.4031.8633.5335.4637.70
    10.45%26.4927.5728.7930.1731.74
    11.45%23.3724.1925.1026.1227.26

    Outlined: this model. Green text: above today's price of 34.40. 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-4.2%-3.8%+0.4pp
    EBIT margin7.6%7.8%+0.2pp
    Discount rate9.5%9.3%-0.2pp
    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.