Projected Yield: ~ .72%
Ross Stores is one of the largest offprice retailers of brandname apparel and home accessories. The company operates about 1,051 Ross Dress for Less stores and 95 dd's Discounts stores in the United States. Ross Dress for Less offers merchandise at prices that are 20%60% below the regular prices of most department and specialty stores; dd's Discounts is a similar concept with lowertier brands and prices that are 20% lower than those at Ross Dress for Less.
Estimated WACC for the firm today is 6.87% using the Capital Asset Pricing Model and the company's recent SEC filings.
Recent free cash flows and noted growth rates:
Year

FCF
$Millions

2003

199

2004

169

2005

149

2006

199

2007

283

2008

117

2009

359

2010

730

2011

474

2012

404

Average Annual Growth FCF: ~ 28%
CAGR FCF: ~ 8%
Consensus Forecast Industry 5Year Growth: ~ 14% per year
Consensus Forecast Company 5Year Growth: ~ 13% per year
Internal Growth Rate: ~ 21%
Sustainable Growth Rate: ~ 65%
Scenario 1
Average FCF (2012, 2011, 2010) is $536 million
Average FCF (2012, 2011, 2010) is $536 million
 Start at $536 million FCF
 Assume a 5year growth rate in FCF of 13% per year, then no growth or 0% growth in FCF per year forever:
Discounted Cash Flow Valuation
The firm's future cash flows, discounted at a WACC of 6.87%, give a present value for the entire firm (Debt + Equity) of $14841 million. If the firm's fair value of debt is estimated at $186 million, then the fair value of the firm's equity could be $14655 million. $14655 million / 226 million outstanding shares is approximately $65 per share and a 20% margin of safety is $52/share.
Year

FCF
$Millions

0

536

1

606

2

684

3

773

4

874

5

988

Terminal
Value

16254

The firm's future cash flows, discounted at a WACC of 6.87%, give a present value for the entire firm (Debt + Equity) of $14841 million. If the firm's fair value of debt is estimated at $186 million, then the fair value of the firm's equity could be $14655 million. $14655 million / 226 million outstanding shares is approximately $65 per share and a 20% margin of safety is $52/share.
Scenario 2
All else being equal,
 Assume a 5year growth rate in FCF of 8% per year, then 3% growth in FCF per year forever:
Discounted Cash Flow Valuation
Year

FCF
$Millions

0

536

1

579

2

625

3

675

4

729

5

788

Terminal
Value

22004

 Present Value of the entire firm (Debt + Equity): $18554 million
 Value of Equity: $18368 million or $81/share
 20% margin of safety is $65/share
Sources
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.