Previously Valuecruncher has looked at Home Depot ($HD) the home improvement retailer. Today we look at Lowe’s ($LOW) a competitor in the home improvement retailing space. So how does the current share price of $LOW look from an intrinsic value perspective?

Valuecruncher valuation model of $LOW with interactive assumptions

Valuecruncher produces a valuation of US$16.41 for $LOW. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 13.6% below the current share price of US$19.05.

Assumptions

• Revenue: Reuters aggregates 20 analysts covering $LOW and these analysts have mean estimates of 2009 and 2010 revenues of US$48.6 billion and US$50.7 billion respectively. For our analysis we have used US$48.5 billion in 2009, US$48.85 billion in 2010 and US$53.5 billion in 2011.
• Profitability: We have used an EBITDA margin of 11.0% in 2009 and 2010 rising to 12.0% in 2011. Reuters has $LOW‘s EBITD margin at 12.1% last year and averaging 12.8% over the last five-years.
• Capital Expenditure: We have assumed capital expenditures of US$3.5 billion in 2009 then US$3.0 billion per annum moving forward.
• Discount Rate: 9.0%.
• Terminal Growth Rate: 2.5%.

Our analysis incorporates the cash and debt on the $LOW balance sheet – Valuecruncher calculates a net debt number.

Play with our assumptions – what does your analysis say?

Disclosure: None