I'm well versed in DCF, so assume I have zero questions regarding wacc, FCFn, terminal values, etc. in fact when share count is constant.. easy peasy.
It's specifically Charter (CHTR), I'm less here to debate stock good/bad but how to model. This is a company that can easily retire it's massive 93b in debt in the next 10 years, but absolutely will not bc it will be retiring an insane amount of shares instead (10 to 12 percent a year). Here's the problem...
-
Buybacks aren't free. Some sources say todays intrinsic value must be discounted back to present value of all fcf at today's share count (125m). Obviously 93b is subtracted from all the future cash flows. This makes charter look the least attractive.
-
Conversely, I can easily model, a scenario where effectively there is zero cash flow/zero debt bc debt is retiring along the next 10 years, then the terminal multiple is the overall value debt free; that scenario is far more value than 1. This makes charter far more attractive yet the underlying assumptions didn't change.
-
I can assume all free cash flow is retiring shares, and keeping the debt, in 10 years almost 2/3 of the shares are gone... But we never really "received" cash beyond the buybacks.. when you divide the net total enterprise value by shares, what shares, 125m or 45m, blended avg? (Forget the nonlinear problem of assuming share reductions at different prices, that's hard, just model X percent off the float each yr)
It's difficult, because I absolutely don't believe buybacks are irrelevant (see AutoZone or to a certain extent, aapl). But I see resources debating "no, buybacks are not to be modeled" or sometimes "yeah model them on the effective bump on the fcf each year" but then the terminal multiple gets funky.
It's sad bc I have an MBA but I emphasized brand marketing at the time like some loser. Haha. Anyone that can help these nuances much appreciated.