DCF Studio

    KR · NYQ · Consumer Defensive

    The Kroger Co.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 44.28

    Market price

    USD 60.00

    Implied upside

    -26.2%

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

    Value Per Share

    Perpetuity growth
    USD 44.28-26.2%
    Exit multiple
    USD 62.48+4.1%
    Market price
    USD 60.00

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn3bnFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayUSD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueUSD 147.4bnUSD 147.2bnUSD 147.0bnUSD 146.8bnUSD 146.6bn-0.1%
    EBITUSD 3.2bnUSD 3.2bnUSD 3.2bnUSD 3.2bnUSD 3.2bn-0.1%
    NOPATUSD 2.5bnUSD 2.5bnUSD 2.5bnUSD 2.5bnUSD 2.5bn-0.1%
    Add depreciation & amortisationUSD 3.8bnUSD 3.7bnUSD 3.7bnUSD 3.7bnUSD 3.7bn-0.1%
    Less capital expenditureUSD -3.7bnUSD -3.7bnUSD -3.7bnUSD -3.7bnUSD -3.7bn-0.1%
    Less increase in working capitalUSD -71.1mUSD -71.0mUSD -70.9mUSD -70.8mUSD -70.7m-0.1%
    Free cashflow to firmUSD 2.5bnUSD 2.5bnUSD 2.5bnUSD 2.5bnUSD 2.5bn-0.1%
    Discount factor0.96890.90950.85380.80150.7523-
    Present valueUSD 2.5bnUSD 2.3bnUSD 2.2bnUSD 2.0bnUSD 1.9bn-6.3%
    Present Value Of The ForecastUSD 10.8bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.602Reported 0.406, pulled toward 1.0 (Blume)
    Cost of equity8.31%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 35.8bn59.2% of capital
    Total debtUSD 24.7bn40.8% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC6.53%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 44.28

    78% of EV

    Forecast FCFF, final year
    USD 2.5bn
    Capex at depreciation, working capital in reinvestment
    USD 2.5bn
    Less reinvestment at g/ROIC (21.0% of NOPAT)
    USD -532.2m
    Capitalised
    USD 2.0bn
    ROIC (reported)
    11.9%
    Terminal value, undiscounted
    USD 50.9bn
    Terminal value, discounted
    USD 38.3bn
    Enterprise value
    USD 49.1bn
    Less net debt
    USD 20.1bn
    Equity value
    USD 29.0bn

    Exit at 9.6x EBITDA

    Value per shareUSD 62.48

    82% of EV

    Terminal value, undiscounted
    USD 66.7bn
    Terminal value, discounted
    USD 50.2bn
    Enterprise value
    USD 61.0bn
    Less net debt
    USD 20.1bn
    Equity value
    USD 40.9bn

    Spread between methods: 34%.

    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%
    4.53%79.3792.89113.02146.23211.62
    5.53%53.0359.1867.3378.6595.49
    6.53%37.1440.3344.2849.3255.98
    7.53%26.5128.2730.3732.9036.04
    8.53%18.8819.8921.0522.3923.98

    Outlined: this model. Green text: above today's price of 60.00. 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-0.1%2.1%+2.2pp
    EBIT margin2.2%2.6%+0.5pp
    Discount rate6.5%5.8%-0.7pp
    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.