Dell Inc. (DELL)

Discount cash flow analysis

5% margin of safety What's this?

Buy Undervalued by 34.9%

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How does this work?

This is an interactive analyst report for Dell Inc., 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
2008 2009 2010 2011 2012 2013 2014 2015
 
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What will the revenues be in the future?

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

Sensitivity matrix

   
-1%
Discount Rate %
0%

1%
  -1% $19.39 $19.20 $19.00
Terminal Growth% 0 $19.44 $19.24 $19.05
  +1% $19.49 $19.29 $19.09

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 $14.20 (overvalued by 0.42%) - 9 hours ago
  • GordonGekko created a new valuation of $15.80 (undervalued by 15.84%) - 1 month ago
  • diegovillagran created a new valuation of $24.24 (undervalued by 83.92%) - 2 months ago
  • diegovillagran created a new valuation of $10.61 (overvalued by 19.5%) - 2 months ago
  • macalex12 created a new valuation of $12.70 (overvalued by 11.31%) - 3 months ago
  • macalex12 created a new valuation of $11.71 (overvalued by 18.23%) - 3 months ago
  • jdlong43 created a new valuation of $9.70 (overvalued by 26.96%) - 8 months ago
  • SethWellbourne created a new valuation of $11.59 (undervalued by 22.13%) - 11 months ago
  • GordonGekko created a new valuation of $9.21 (overvalued by 0.97%) - 1 year ago
  • TheCrunchBlog created a new valuation of $19.24 (undervalued by 26.16%) - 1 year ago
  • GordonGekko created a new valuation of $19.09 (undervalued by 25.18%) - 1 year ago
  • KiwiEMH created a new valuation of $19.36 (undervalued by 14.35%) - 1 year ago
  • GordonGekko created a new valuation of $16.23 (overvalued by 2.41%) - 1 year ago
  • GordonGekko created a new valuation of $17.41 (overvalued by 3.22%) - 1 year ago
  • GordonGekko created a new valuation of $25.84 (undervalued by 0.82%) - 1 year ago
  • TheCrunchBlog created a new valuation of $23.94 (undervalued by 3.82%) - 1 year ago
  • TheCrunchBlog created a new valuation of $24.24 (undervalued by 27.04%) - 1 year ago
  • GordonGekko created a new valuation of $20.69 (undervalued by 8.44%) - 1 year ago
  • BudFox1987 created a new valuation of $18.42 (overvalued by 3.31%) - 1 year ago

Comments

Running The Numbers – Dell ($DELL) Has Fallen Too Far

This valuation is part of this blog post:

http://blog.valuecruncher.com/2008/10/running-the-numbers-dell-has-fallen-too-far/

Our assumptions are revenues of US$65.0 billion in 2009 growing to US$70.0 billion in 2011. We have used a flat EBITDA margin of 6.5% to 2010 and then 7% in 2011. Our terminal growth rate is 3.0%. We used a terminal capital expenditure number of US$800 million. Our WACC (discount rate) is 12.0%. All of these assumptions can be amended in the Valuecruncher on-line valuation model to adjust the valuation. Our analysis incorporates the cash and debt on the $DELL balance sheet – Valuecruncher calculates a net debt number.

We believe that our assumptions are reasonably conservative. The near-term revenues and profitability are very achievable. The terminal growth rate is about the US economic long-term growth rate. The discount rate of 12% is reasonably high reflecting the uncertainty around $DELL.

By TheCrunchBlog, about 1 year ago

The boring details

All amounts in millions Figures
Enterprise Value: 20,541
Net Debt (Long-term borrowings less cash): -7,385
Equity Value: 29,864
Number of Shares Outstanding: 1,958,000,000
Calculated value per share: $19.24

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.