{"id":47,"date":"2015-12-19T13:08:30","date_gmt":"2015-12-19T18:08:30","guid":{"rendered":"https:\/\/www.stockcalc.com\/blog\/BrianD\/?p=47"},"modified":"2016-12-19T12:07:04","modified_gmt":"2016-12-19T17:07:04","slug":"how-sensitive-are-companies-to-rising-interest-rates","status":"publish","type":"post","link":"https:\/\/www.stockcalc.com\/blog\/BrianD\/2015\/12\/19\/how-sensitive-are-companies-to-rising-interest-rates\/","title":{"rendered":"How sensitive are companies to rising interest rates?"},"content":{"rendered":"

The talk of will they or won\u2019t they raise rates has been ongoing for more than 2 years now.\u00a0 We have to expect either rates get raised at some point, we stumble along on the current path or we end up in deflationary times.\u00a0 I want to explore the more optimistic of these scenarios and its impact on stock valuations: the economy improves and rates start to rise.<\/p>\n

To look at this in detail I am using www.stockcalc.com<\/a>\u00a0 (Disclaimer: I am the President of Patchell Brook Equity Analytics and we created Stockcalc.com precisely for this type of analysis and valuation)<\/p>\n

I will examine Caterpillar as it has with a 59\/41 Equity to Debt in the Capital Structure<\/p>\n

Using Stockcalc I first create and save a WACC for CAT:\u00a0 (Research Menu, Valuation, WACC). \u00a0Stockcalc does a first pass on WACC using default values which results in a WACC of 8.93.<\/p>\n

Cost of Equity (Ke) 13.63 (Using CAPM),\u00a0After Tax cost of Debt : 2.17, 59% Equity, 41% Debt<\/span><\/p>\n

 <\/p>\n

\"WACC<\/a><\/p>\n

Next I load the Quick DCF tool \u00a0so I can run the analysis (Research, Forecast, Analyst) (Note – the quick DCF is a testing and teaching tool, the other tools are more detailed in their analysis)<\/p>\n

It is available for free at www.stockcalc.com\/dcf.aspx<\/a> or inside the Stockcalc.Com website<\/p>\n

\"Quick<\/a><\/p>\n

Value Per Share ($) Calculations for Caterpillar (CAT:NYS) using the Quick DCF tool on Stockcalc.com<\/strong><\/p>\n

Each change in WACC (8.93 – 9.34 – 9.75) implies a 1 % change in Cost of Debt. \u00a0<\/strong>Growth rates are next 3 years and thereafter (5% and 3% in the first row for ex)<\/strong><\/p>\n\n\n\n\n\n\n
WACC<\/td>\n8.93<\/td>\n9.34<\/td>\n9.75<\/td>\n<\/tr>\n
Growth rates 5,3%<\/td>\n70.02<\/td>\n61.28<\/td>\n53.60<\/td>\n<\/tr>\n
Growth rates 6,4%<\/td>\n97.40<\/td>\n84.92<\/td>\n74.21<\/td>\n<\/tr>\n
Growth rates 4,2%<\/td>\n50.55<\/td>\n44.08<\/td>\n38.30<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

(Current Price at the time of valuation (October 2015) was $69.34)<\/p>\n

A 1% change in the Cost of Debt results in a 12.5% change in value per share. \u00a0A 1% change in Growth rates results in a 28% change in Value per Share. \u00a0A 1% change in WACC results in a similar 28% change in Value per Share.<\/p>\n

Message: if interest rates are rising, growth prospects need to be rising at half the rate to keep this share price holding steady.<\/p>\n

 <\/p>\n

If you want to explore the Stockcalc software simply create an account at www.stockcalc.com<\/a> and have a look around.\u00a0 Use the walk-throughs (click the walking man icon), videos (video icon on each page) and\u00a0 help menu to understand and navigate the site.\u00a0 The site contains a number of tools including screens, queries, backtests, forecasts and a variety of valuation methods.<\/p>\n

 <\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

The talk of will they or won\u2019t they raise rates has been ongoing for more than 2 years now.\u00a0 We have to expect either rates get raised at some point, we stumble along on the current path or we end up in deflationary times.\u00a0 I want to explore the more optimistic of these scenarios and … Continue reading How sensitive are companies to rising interest rates?<\/span> →<\/span><\/a><\/p>\n","protected":false},"author":15,"featured_media":57,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,3],"tags":[7,8,6,4,5],"class_list":["post-47","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized","category-valuation","tag-cat","tag-caterpillar","tag-interest-rates","tag-stockcalc","tag-valuation"],"jetpack_featured_media_url":"https:\/\/i0.wp.com\/www.stockcalc.com\/blog\/BrianD\/wp-content\/uploads\/sites\/15\/2015\/10\/dreamstime_s_18168934.jpg?fit=800%2C621&ssl=1","jetpack_likes_enabled":true,"jetpack-related-posts":[],"jetpack_shortlink":"https:\/\/wp.me\/p6Fvkg-L","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.stockcalc.com\/blog\/BrianD\/wp-json\/wp\/v2\/posts\/47","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.stockcalc.com\/blog\/BrianD\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.stockcalc.com\/blog\/BrianD\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.stockcalc.com\/blog\/BrianD\/wp-json\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/www.stockcalc.com\/blog\/BrianD\/wp-json\/wp\/v2\/comments?post=47"}],"version-history":[{"count":5,"href":"https:\/\/www.stockcalc.com\/blog\/BrianD\/wp-json\/wp\/v2\/posts\/47\/revisions"}],"predecessor-version":[{"id":55,"href":"https:\/\/www.stockcalc.com\/blog\/BrianD\/wp-json\/wp\/v2\/posts\/47\/revisions\/55"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.stockcalc.com\/blog\/BrianD\/wp-json\/wp\/v2\/media\/57"}],"wp:attachment":[{"href":"https:\/\/www.stockcalc.com\/blog\/BrianD\/wp-json\/wp\/v2\/media?parent=47"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.stockcalc.com\/blog\/BrianD\/wp-json\/wp\/v2\/categories?post=47"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.stockcalc.com\/blog\/BrianD\/wp-json\/wp\/v2\/tags?post=47"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}