As part of a new series, each week we typically conduct a DCF on one of the companies in our screens. This week we thought we’d take a look at one of the stocks that is not currently in our screens, Walmart Inc. (WMT).
Profile
Walmart Inc. is the world’s largest retailer by revenue, operating a vast network of stores and ecommerce platforms across the U.S. and international markets. The company operates through three primary segments: Walmart U.S. (largest and most profitable), Walmart International, and Sam’s Club. Walmart has steadily increased its focus on omnichannel retail, combining its massive store footprint with growing ecommerce capabilities. It continues to invest in automation, logistics, and digital transformation, aiming to improve customer convenience and operational efficiency.
DCF Analysis
Inputs
- Discount Rate: 7%
- Terminal Growth Rate: 1%
- WACC: 7%
Forecasted Free Cash Flows (FCFs) in billions
| Year | FCF ($B) | Present Value ($B) |
|---|---|---|
| 2025 | 14.0 | 13.08 |
| 2026 | 15.5 | 13.54 |
| 2027 | 16.5 | 13.48 |
| 2028 | 17.5 | 13.30 |
| 2029 | 18.5 | 13.09 |
Total Present Value of FCFs = 66.49 billion
Terminal Value Calculation
Using the perpetuity growth model:
Terminal Value = (FCF_2029 × (1 + g)) / (r – g)
= (18.5 × 1.01) / (0.07 – 0.01)
= 18.685 / 0.06
= 311.42 billion
Present Value of Terminal Value
PV of Terminal Value = Terminal Value / (1 + WACC)^5
= 311.42 / (1.07)^5
= 221.90 billion
Enterprise Value Calculation
Enterprise Value = PV of FCFs + PV of Terminal Value
= 66.49 + 221.90
= 288.39 billion
Net Debt Calculation
Net Debt = Total Debt – Total Cash
= 60 – 9
= 51 billion
Equity Value Calculation
Equity Value = Enterprise Value – Net Debt
= 288.39 – 51
= 237.39 billion
Per-Share DCF Value
Shares Outstanding = 8.024 billion
Per-Share DCF Value = Equity Value / Shares Outstanding
= 237.39 / 8.024
= $29.59
Conclusion
| DCF Value | Current Price | Margin of Safety |
|---|---|---|
| $29.59 | $91.19 | -67.55% |
Based on the DCF valuation, Walmart appears overvalued. The estimated intrinsic value of $29.59 per share is significantly below the current market price of $91.19, resulting in a -67.55% Margin of Safety.
This suggests that Walmart may be trading at a premium to its fundamental valuation based on our discounted cash flow analysis.
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