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29 minutes ago
- Yahoo
Estimating The Fair Value Of Tractor Supply Company (NASDAQ:TSCO)
Key Insights Using the 2 Stage Free Cash Flow to Equity, Tractor Supply fair value estimate is US$49.55 With US$57.63 share price, Tractor Supply appears to be trading close to its estimated fair value The US$62.41 analyst price target for TSCO is 26% more than our estimate of fair value Today we'll do a simple run through of a valuation method used to estimate the attractiveness of Tractor Supply Company (NASDAQ:TSCO) as an investment opportunity by taking the expected future cash flows and discounting them to today's value. This will be done using the Discounted Cash Flow (DCF) model. It may sound complicated, but actually it is quite simple! We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model. This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality. Crunching The Numbers We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. To start off with, we need to estimate the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we need to discount the sum of these future cash flows to arrive at a present value estimate: 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Levered FCF ($, Millions) US$972.5m US$1.16b US$1.29b US$1.39b US$1.49b US$1.57b US$1.65b US$1.72b US$1.79b US$1.85b Growth Rate Estimate Source Analyst x6 Analyst x3 Est @ 10.88% Est @ 8.50% Est @ 6.83% Est @ 5.66% Est @ 4.85% Est @ 4.27% Est @ 3.87% Est @ 3.59% Present Value ($, Millions) Discounted @ 8.1% US$899 US$991 US$1.0k US$1.0k US$1.0k US$984 US$954 US$920 US$884 US$846 ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = US$9.5b After calculating the present value of future cash flows in the initial 10-year period, we need to calculate the Terminal Value, which accounts for all future cash flows beyond the first stage. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (2.9%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 8.1%. Terminal Value (TV)= FCF2035 × (1 + g) ÷ (r – g) = US$1.9b× (1 + 2.9%) ÷ (8.1%– 2.9%) = US$37b Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$37b÷ ( 1 + 8.1%)10= US$17b The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is US$26b. The last step is to then divide the equity value by the number of shares outstanding. Relative to the current share price of US$57.6, the company appears around fair value at the time of writing. The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent. Important Assumptions We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows. You don't have to agree with these inputs, I recommend redoing the calculations yourself and playing with them. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Tractor Supply as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 8.1%, which is based on a levered beta of 1.201. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. See our latest analysis for Tractor Supply SWOT Analysis for Tractor Supply Strength Debt is well covered by earnings and cashflows. Dividends are covered by earnings and cash flows. Weakness Earnings declined over the past year. Dividend is low compared to the top 25% of dividend payers in the Specialty Retail market. Expensive based on P/E ratio and estimated fair value. Opportunity Annual earnings are forecast to grow for the next 3 years. Threat Annual earnings are forecast to grow slower than the American market. Next Steps: Although the valuation of a company is important, it shouldn't be the only metric you look at when researching a company. DCF models are not the be-all and end-all of investment valuation. Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation. If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different. For Tractor Supply, we've put together three further items you should look at: Risks: We feel that you should assess the 1 warning sign for Tractor Supply we've flagged before making an investment in the company. Management:Have insiders been ramping up their shares to take advantage of the market's sentiment for TSCO's future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors. Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered! PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the NASDAQGS every day. If you want to find the calculation for other stocks just search here. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Fehler beim Abrufen der Daten Melden Sie sich an, um Ihr Portfolio aufzurufen. 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Yahoo
35 minutes ago
- Yahoo
Report: Liverpool agree fee with Lyon as homegrown star heads for exit
Morton deal advances as Liverpool accept Lyon bid Liverpool have reached an agreement with Lyon for the transfer of midfielder Tyler Morton, with the player expected to finalise the move in the coming days. A five-year contract has already been agreed in principle, and Morton is due to travel to France to undergo a medical and sign his deal. Lyon will pay an initial €10 million, with a further €5 million available in performance-based add-ons. The structure of the deal reflects both Lyon's investment strategy and Liverpool's willingness to allow the player to pursue first-team football elsewhere. Although Morton has long been considered a promising graduate of Liverpool's academy, opportunities at senior level have been limited. His departure follows a series of similar exits this summer and further signals the club's ongoing reshaping of its homegrown core. Homegrown departures continue at Anfield Morton becomes the fourth homegrown player to leave Liverpool this transfer window, following the exits of three other academy-developed talents. That trend represents a shift in squad composition which raises questions over how the club intends to meet Premier League and UEFA squad requirements regarding locally trained players. Liverpool must maintain a balanced number of homegrown players within their squad to comply with regulations. Selling another one without an immediate replacement suggests the club are prepared to operate with a smaller registered squad – a strategy that offers financial efficiency but risks reducing depth. However, Morton was not expected to feature prominently in the upcoming campaign. While his technical quality and composure in midfield are valued, he faced stiff competition for places and did not feature heavily last season, even during injury crises. Lyon secure low-risk, high-upside signing For Lyon, the acquisition fits their long-standing model of recruiting talented young players who have yet to fulfil their potential. Despite Morton's limited recent playing time, the fee agreed is modest by modern standards, and the upside is considerable. Photo: IMAGO The French side believe Morton can flourish in a new environment and grow into a key part of their midfield. The club has been monitoring his progress for some time, and sources close to the negotiation have indicated that personal terms were swiftly agreed once Liverpool gave permission for talks. Morton's development in Ligue 1 could represent a turning point in his career, and his adaptability is viewed as a particular asset in a league known for producing and nurturing young talent. Liverpool's midfield plan remains fluid It remains to be seen whether Liverpool will move to replace Morton in the current window. The club have already made several high-profile additions and are believed to be satisfied with the current midfield options available to the manager. There is an understanding within the club that not every departing player needs to be directly replaced, particularly if they were not regular contributors. As such, Morton's exit may simply create space for emerging talents or tactical flexibility moving forward. Liverpool continue to explore options to fine-tune the squad, with further incomings and outgoings possible before the end of the window.
Yahoo
39 minutes ago
- Yahoo
Iceland under pressure as supermarket price war intensifies
Rapid growth at Iceland has ground to a halt as the frozen food chain comes under mounting pressure in the face of an intensifying supermarket price war. The retailer has told bondholders that underlying profits rose just 0.6pc to £317.6m in the year to the end of March, compared to a 24pc jump the prior year. Revenues were largely flat at £4.2bn over the year, although its 2024 financial year – when sales jumped 6.6pc – was boosted by an additional trading week. Stripping these figures out, sales were up 3pc this year on prior year. The slowdown is understood to have come as Iceland pushes to keep prices lower as supermarkets battle to attract and retain shoppers. Earlier this year, Asda kicked off a price war in an attempt to stem years of declines. Its new chairman, Allan Leighton, has vowed to use a 'war chest' to fund price cuts, improve availability of products and refresh tired stores. The company said this would mean profits would take a 'material hit'. Tesco responded by saying its profits would fall as much as 14pc this year with plans to invest £400m in price cuts. To avoid losing shoppers to rivals, Iceland has been stepping up its programme of multibuy promotions, where customers can buy bundles of products for less than if they bought them separately. This meant that while the number of items it sold last year increased by 5.3pc, it did not see an rise in the value of its sales. Credit rating agency, Fitch, said shoppers continued to turn to Iceland for value 'despite heightened competition'. Its market share has remained flat at between 2.3pc and 2.4pc over the past five years. Fitch added: 'We expect Iceland's product offering to remain competitive for UK food consumers with weaker spending power.' However, the credit ratings agency raised concerns over Iceland's profitability, suggesting the supermarket chain would have to invest in price cuts this year at a time when it is battling higher costs. It said the supermarket, which employs more than 30,000 people, would face 'momentary profit pressure', publishing forecasts suggesting underlying profits could dip this year. Fitch said: 'The company, along with other UK-based retailers, will be hit by the rise in National Insurance and minimum living wage contributions from [this year], which we estimate will result in an additional cost of £50m.' Iceland chairman, Richard Walker, said earlier this year the National Insurance raid had 'added greatly to the cost of business', ranking the Labour government a 'six out of 10' for its performance in office. It followed earlier efforts to downplay the hit. Last year, after Rachel Reeves's Budget, Mr Walker said companies should stop 'wallowing' and 'complaining' about the tax raid. Mr Walker, who had been a donor to the Tory party before switching allegiance to Labour, said last December: 'The Government isn't going to change its mind. It was a tough Budget, but we adapt.' The expected profit crunch comes after Iceland's chief executive, Tarsem Dhaliwal, in April said the company was bracing for surging food costs. Speaking to industry publication. The Grocer, Mr Dhaliwal said his biggest concern was rising prices being imposed by its suppliers. He said: 'The reality is that we have to be conscious of the fact our suppliers are going to pass the costs onto us, literally straight away. We can't absorb all that, I don't think any retailer can, so there's going to be food inflation.' At the time, Mr Dhaliwal said that Iceland would be battling to 'remain competitive', adding: 'Consumers might end up with less items in their basket, still spending £10 but on less items.' Already, food inflation is running at around 4pc, according to figures from the British Retail Consortium, with increases in the price of staples such as meat and tea fuelling the higher level. Iceland declined to comment. Broaden your horizons with award-winning British journalism. Try The Telegraph free for 1 month with unlimited access to our award-winning website, exclusive app, money-saving offers and more. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
