Estimating Share Value Using the DCF Model Following are forecasts of Home Depots sales, net operating profit after tax (NOPAT), and net operating assets (NOA) as of February 3, 2019, which the company labels fiscal 2018.
| | Forecast Horizon Period | | | | |
| Reported | | | | | Terminal |
$ millions | 2018 | 2019 | 2020 | 2021 | 2022 | Period |
Sales | $100,629 | $107,673 | $115,210 | $123,274 | $131,904 | $134,542 |
NOPAT | 11,228 | 12,059 | 12,904 | 13,807 | 14,773 | 15,069 |
NOA | 23,758 | 25,419 | 27,198 | 29,102 | 31,139 | 31,761 |
Answer the following requirements assuming a discount rate (WACC) of 7.85%, a terminal period growth rate of 2%, common shares outstanding of 1,105 million, net nonoperating obligations (NNO) of $25,504 million.
Required a. Estimate the value of a share of Home Depots common stock using the discounted cash flow (DCF) model as of February 3, 2019. Note: Do not round until your final answer; round your final answer to two decimal places. Stock price per share: $
Answer
0
b. Home Depot stock closed at $176.76 on March 28, 2019, the date the Form 10-K was filed with the SEC. How does your valuation estimate compare with this closing price?
Answer
Stock price is overvaluedStock price is undervaluedStock price is appropriately valued
