Nordstrom Inc (NYSE:JWN)
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Does the September share price for Nordstrom, Inc. (NYSE:JWN) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by taking the expected future cash flows and discounting them to their present value. We will use the Discounted Cash Flow (DCF) model on this occasion. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow.
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.
View our latest analysis for Nordstrom
We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. To begin with, we have to get estimates of 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.
Generally we assume that a dollar today is more valuable than a dollar in the future, so we need to discount the sum of these future cash flows to arrive at a present value estimate:
10-year free cash flow (FCF) forecast
|Levered FCF ($, Millions)||US$462.5m||US$434.6m||US$365.5m||US$623.0m||US$612.0m||US$608.6m||US$609.9m||US$614.5m||US$621.3m||US$629.9m|
|Growth Rate Estimate Source||Analyst x4||Analyst x5||Analyst x2||Analyst x1||Analyst x1||Est @ -0.55%||Est @ 0.21%||Est @ 0.74%||Est @ 1.12%||Est @ 1.38%|
|Present Value ($, Millions) Discounted @ 8.0%||US$428||US$373||US$290||US$459||US$417||US$384||US$357||US$333||US$312||US$293|
("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$3.6b
We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.0%. We discount the terminal cash flows to today's value at a cost of equity of 8.0%.
Terminal Value (TV)= FCF2031 × (1 + g) ÷ (r – g) = US$630m× (1 + 2.0%) ÷ (8.0%– 2.0%) = US$11b
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$11b÷ ( 1 + 8.0%)10= US$5.0b
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$8.6b. In the final step we divide the equity value by the number of shares outstanding. Relative to the current share price of US$29.8, the company appears quite undervalued at a 45% discount to where the stock price trades currently. Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind.
Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows. Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own assumptions. 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 Nordstrom 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 8.0%, which is based on a levered beta of 1.265. 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.
Whilst important, the DCF calculation is only one of many factors that you need to assess for a company. The DCF model is not a perfect stock valuation tool. Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. 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. What is the reason for the share price sitting below the intrinsic value? For Nordstrom, we've put together three important items you should further examine:
- Risks: Case in point, we've spotted 2 warning signs for Nordstrom you should be aware of, and 1 of them is concerning.
- Future Earnings: How does JWN's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.
- Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!
PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the NYSE every day. If you want to find the calculation for other stocks just search here.
This 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.
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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NordstromNYSE:JWN Stock Report
Nordstrom, Inc., a fashion retailer, provides apparels, shoes, beauty, accessories, and home goods for women, men, young adults, and children.
Price History & Performance
|Historical stock prices|
|Current Share Price||US$27.18|
|52 Week High||US$11.88|
|52 Week Low||US$46.45|
|1 Month Change||0.59%|
|3 Month Change||-18.31%|
|1 Year Change||105.75%|
|3 Year Change||-55.01%|
|5 Year Change||-49.13%|
|Change since IPO||186.11%|
Recent News & UpdatesOct 07
Nordstrom's Upside Is Limited, Not Worth Taking The Risk
Recent share pullback has put Nordstrom in line with the other retailers. Nordstrom is trading at 18x earnings for 2021 and only 12.5 for 2022, just under the historical average of 15x. Nordstrom should see a gradual increase in profits in the next couple of years. The stock is highly sensitive to market news.
Nordstrom, Inc.'s (NYSE:JWN) Intrinsic Value Is Potentially 82% Above Its Share Price
Does the September share price for Nordstrom, Inc. ( NYSE:JWN ) reflect what it's really worth? Today, we will estimate...
Some Investors May Be Worried About Nordstrom's (NYSE:JWN) Returns On Capital
When we're researching a company, it's sometimes hard to find the warning signs, but there are some financial metrics...
Nordstrom: If You Don't Panic, You Will Make Dollars
The stock of American luxury department store chain Nordstrom, Inc. declined by more than 17% after the CEO made comments about the business. Without taking into consideration the detrimental words of the CEO about the company’s sales growth, I am not selling my shares at the current share price. The company expects to reduce its leverage, and perhaps return cash to shareholders by the end of 2021. It is music for my ears. In my opinion, the stock price is quite far from its fair price. I am assuming a free cash flow of approximately $490-$510 million, which also appears a bit more pessimistic than the expectations of other stock analysts.
|JWN||US Multiline Retail||US Market|
Return vs Industry: JWN exceeded the US Multiline Retail industry which returned 22.7% over the past year.
Return vs Market: JWN exceeded the US Market which returned 23.2% over the past year.
Stable Share Price: JWN is not significantly more volatile than the rest of US stocks over the past 3 months, typically moving +/- 8% a week.
Volatility Over Time: JWN's weekly volatility (8%) has been stable over the past year.
About the Company
Nordstrom, Inc., a fashion retailer, provides apparels, shoes, beauty, accessories, and home goods for women, men, young adults, and children. It offers a range of brand name and private label merchandise through various channels, such as Nordstrom branded stores and online at Nordstrom.com; TrunkClub.com; Nordstrom.ca; Nordstrom stores; Nordstrom Rack stores; Nordstrom Locals; Nordstromrack.com, and HauteLook; clearance stores under the Last Chance name; Trunk Club clubhouses; and Jeffrey boutiques. As of March 02, 2021, it operated 358 stores in the U.S. and Canada, including 100 Nordstrom stores, 249 Nordstrom Rack stores, 2 clearance stores, and 7 Nordstrom Local service hubs.
Nordstrom Fundamentals Summary
|JWN fundamental statistics|
Earnings & Revenue
|JWN income statement (TTM)|
|Cost of Revenue||US$8.74b|
Last Reported Earnings
Jul 31, 2021
|Earnings per share (EPS)||0|
|Net Profit Margin||0%|
How did JWN perform over the long term?See historical performance and comparison
Is Nordstrom undervalued compared to its fair value and its price relative to the market?
Undervalued compared to fair value
Share Price vs. Fair Value
Below Fair Value: JWN ($27.18) is trading below our estimate of fair value ($57.2)
Significantly Below Fair Value: JWN is trading below fair value by more than 20%.
Price To Earnings Ratio
PE vs Industry: Insufficient data to calculate JWN's PE Ratio to determine if it is good value compared to the US Multiline Retail industry average.
PE vs Market: Insufficient data to calculate JWN's PE Ratio to determine if it is good value compared to the US market.
Price to Earnings Growth Ratio
PEG Ratio: Insufficient data to calculate JWN's PEG Ratio to determine if it is good value.
Price to Book Ratio
PB vs Industry: JWN is overvalued based on its PB Ratio (16.1x) compared to the US Multiline Retail industry average (3x).
How is Nordstrom forecast to perform in the next 1 to 3 years based on estimates from 17 analysts?
Forecasted annual earnings growth
Earnings and Revenue Growth Forecasts
Analyst Future Growth Forecasts
Earnings vs Savings Rate: JWN is forecast to become profitable over the next 3 years, which is considered faster growth than the savings rate (2%).
Earnings vs Market: JWN is forecast to become profitable over the next 3 years, which is considered above average market growth.
High Growth Earnings: JWN's is expected to become profitable in the next 3 years.
Revenue vs Market: JWN's revenue (2.9% per year) is forecast to grow slower than the US market (9.9% per year).
High Growth Revenue: JWN's revenue (2.9% per year) is forecast to grow slower than 20% per year.
Earnings per Share Growth Forecasts
Future Return on Equity
Future ROE: JWN's Return on Equity is forecast to be very high in 3 years time (78.2%).
How has Nordstrom performed over the past 5 years?
Historical annual earnings growth
Earnings and Revenue History
Quality Earnings: JWN is currently unprofitable.
Growing Profit Margin: JWN is currently unprofitable.
Past Earnings Growth Analysis
Earnings Trend: JWN is unprofitable, and losses have increased over the past 5 years at a rate of 39.2% per year.
Accelerating Growth: Unable to compare JWN's earnings growth over the past year to its 5-year average as it is currently unprofitable
Earnings vs Industry: JWN is unprofitable, making it difficult to compare its past year earnings growth to the Multiline Retail industry (8.4%).
Return on Equity
High ROE: JWN has a negative Return on Equity (0%), as it is currently unprofitable.
How is Nordstrom's financial position?
Financial Position Analysis
Short Term Liabilities: JWN's short term assets ($3.5B) do not cover its short term liabilities ($3.9B).
Long Term Liabilities: JWN's short term assets ($3.5B) do not cover its long term liabilities ($5.1B).
Debt to Equity History and Analysis
Debt Level: JWN's debt to equity ratio (1063.1%) is considered high.
Reducing Debt: JWN's debt to equity ratio has increased from 297.4% to 1063.1% over the past 5 years.
Debt Coverage: JWN's debt is well covered by operating cash flow (27.7%).
Interest Coverage: JWN's interest payments on its debt are not well covered by EBIT (1.1x coverage).
What is Nordstrom current dividend yield, its reliability and sustainability?
Forecast Dividend Yield
Dividend Yield vs Market
Notable Dividend: Unable to evaluate JWN's dividend yield against the bottom 25% of dividend payers, as the company has not reported any recent payouts.
High Dividend: Unable to evaluate JWN's dividend yield against the top 25% of dividend payers, as the company has not reported any recent payouts.
Stability and Growth of Payments
Stable Dividend: Insufficient data to determine if JWN's dividends per share have been stable in the past.
Growing Dividend: Insufficient data to determine if JWN's dividend payments have been increasing.
Current Payout to Shareholders
Dividend Coverage: JWN is not paying a notable dividend for the US market.
Future Payout to Shareholders
Future Dividend Coverage: No need to calculate the sustainability of JWN's dividend in 3 years as they are not forecast to pay a notable one for the US market.
How experienced are the management team and are they aligned to shareholders interests?
Average management tenure
Mr. Erik B. Nordstrom serves as Chief Executive Officer of Nordstrom Inc. since January 10, 2019. He was Co-President of Mr. Nordstrom serves as a Member of Executive Team of Nordstrom Inc., and has been i...
CEO Compensation Analysis
Compensation vs Market: Erik's total compensation ($USD5.65M) is about average for companies of similar size in the US market ($USD5.18M).
Compensation vs Earnings: Erik's compensation has been consistent with company performance over the past year.
Experienced Management: JWN's management team is considered experienced (2.8 years average tenure).
Experienced Board: JWN's board of directors are considered experienced (3.7 years average tenure).
Who are the major shareholders and have insiders been buying or selling?
Insider Trading Volume
Insider Buying: Insufficient data to determine if insiders have bought more shares than they have sold in the past 3 months.
Recent Insider Transactions
Dilution of Shares: Shareholders have not been meaningfully diluted in the past year.
Nordstrom, Inc.'s employee growth, exchange listings and data sources
- Name: Nordstrom, Inc.
- Ticker: JWN
- Exchange: NYSE
- Founded: 1901
- Industry: Department Stores
- Sector: Retail
- Market Cap: US$4.320b
- Shares outstanding: 158.92m
- Website: https://press.nordstrom.com
Number of Employees
- Nordstrom, Inc.
- 1617 Sixth Avenue
- United States
Company Analysis and Financial Data Status
|Data||Last Updated (UTC time)|
|Company Analysis||2021/10/13 22:31|
|End of Day Share Price||2021/10/13 00:00|
Unless specified all financial data is based on a yearly period but updated quarterly. This is known as Trailing Twelve Month (TTM) or Last Twelve Month (LTM) Data. Learn more here.
Simply Wall Street Pty Ltd (ACN 600 056 611), is a Corporate Authorised Representative (Authorised Representative Number: 467183) of Sanlam Private Wealth Pty Ltd (AFSL No. 337927). Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situation or needs. You should not rely on any advice and/or information contained in this website and before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice. Please read our Financial Services Guide before deciding whether to obtain financial services from us.
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