Hewlett-Packard Company (HPQ)

Discount cash flow analysis

Buy Undervalued by 280.9%

5% margin of safety What's this?

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How does this work?

This is an interactive analyst report for Hewlett-Packard Company, based on a discounted cash flow valuation approach.

You can modify the assumptions and the valuation will be updated automatically. You can also save and share your valuation.

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Values in $ millions
2007 2008 2009 2010 2011 2012 2013 2014
 
                 
               
 

What will the revenues be in the future?

Growth beyond year three is driven by the terminal growth rate.

Price history

Sensitivity matrix

   
-1%
Discount Rate %
0%

1%
  -1% $55.91 $55.11 $54.33
Terminal Growth% 0 $56.19 $55.38 $54.59
  +1% $56.47 $55.65 $54.85

How does a change in discount rate or terminal growth affect valuation?

This table shows the sensitivity of the valuation to two key variables - the discount rate and the terminal growth rate

Valuations and comments

  • Valuecruncher created a new valuation of $53.26 (undervalued by 266.3%) - 12 months ago
  • ameys created a new valuation of $55.07 (undervalued by 2.21%) - over 7 years ago
  • SethWellbourne created a new valuation of $39.23 (undervalued by 22.14%) - over 8 years ago
  • GordonGekko created a new valuation of $31.93 (undervalued by 18.35%) - over 8 years ago
  • dweis created a new valuation of $39.08 (undervalued by 16.34%) - almost 9 years ago
  • TheCrunchBlog created a new valuation of $55.38 (undervalued by 24.56%) - 9 years ago
  • GordonGekko created a new valuation of $45.06 (overvalued by 3.94%) - over 9 years ago

Comments

Running The Numbers – Hewlett-Packard (HPQ) Looks Cheap

This valuation is part of this blog post:

http://blog.valuecruncher.com/2008/09/running-the-numbers-hewlett-packard-hpq-looks-cheap/

HPQ grew revenues from US$79.9 billion in 2004 to US$104.3 billion in 2007 – a 9.0% compound annual growth rate. Our assumptions of revenues for the next three years are US$115.0 billion in 2008 growing to US$135.0 billion in 2010 – a 9.3% compound annual growth rate. We have projected EBITDA margins to grow from 12.5% in 2008 to 13.0% in 2010. We have used a terminal growth rate of 3.5%. We used a terminal capital expenditure number of US$4.0 billion. We have used a WACC (discount rate) of 10%.

Key assumptions as we see them are:

HPQ terminal growth rate of 3.5%. We believe this long-term growth rate could be anywhere between 3% and 4-4.5%. We have taken 3.5% as a mid-point terminal growth rate.

HPQ WACC of 10%. We believe that HPQ’s WACC (discount rate) is in the 9-11% range. Again we have taken a mid-point.

By TheCrunchBlog, about 9 years ago

The boring details

All amounts in millions Figures
Enterprise Value: 32,596
Net Debt (Long-term borrowings less cash): -3,262
Equity Value: 109,646
Number of Shares Outstanding: 2,466,000,000
Calculated value per share: $55.38

Enterprise Value is the present value of the post-tax cash flows for a business into the future.


Calcuation of EV

Where:

  • C1, C2, C3 - the cash flow in period 1, 2, 3, ...
  • r - the discount rate

To capture the cash flows into the future a terminal value is calculated via a perpetuity calculation -
based on the final years forecast post-tax free cash flow.


Perpetuity

Where:

  • Cn - the cash flow in the final forecast period.
  • LTG - the long-term growth rate
  • r - the discount rate
  • g - the terminal growth rate

The Capital Asset Pricing Model (CAPM) is used to determine the equity component in the discount rate.


CAPM model

Where:

  • rt - the risk free rate
  • t - the tax rate
  • B - the beta of the company
  • MRP - the Market Risk Premium

Valuecruncher uses an estimate of Weighted Average Cost of Capital (WACC) to determine the discount rate in the calculation.