DCF Valuation Guide: A Walkthrough With Best Buy and Sonic Healthcare
A note on authorship: The research, analysis, and opinions in this article are the author's own. Claude (Anthropic's AI) assisted with drafting and editing the prose.
Every number below is mechanical output — the KashVector DCF tool's free cash flow, discount rate, and growth inputs run through a fixed formula, not an opinion on either company's news, management, or competitive position. This article walks through those inputs and the resulting output for two real stocks, pulled live from the tool on 4 August 2026. It is not a recommendation on either stock.
The short version:
- Best Buy (BBY) — Base case intrinsic value $129.84 vs a $85.25 price, a 52.3% margin of safety.
- Sonic Healthcare (SHL.AX) — Base case intrinsic value A$34.06 vs an A$22.09 price, a 54.2% margin of safety.
- Both have sat on KashVector's live "Most Undervalued" screens for 5–6 weeks, and both are up roughly 10% since first flagged — reported below as a fact, not as evidence the model works.
- In both cases, more than 70% of the valuation is terminal value — the 2.5% terminal growth assumption matters more than the 5-year forecast itself.
Both are still sitting on the live screens
Best Buy first appeared on the S&P 500 "Most Undervalued" screen on 26 June 2026, priced at $76.89. Today it's $85.25 — up 10.9% over 39 days. Sonic Healthcare first appeared on the ASX 300 screen on 19 June 2026, priced at A$20.05. Today it's A$22.09 — up 10.2% over 46 days.
Two stocks, two price moves in the direction each DCF flagged, over five to six weeks. That is not evidence the model works. It's two data points, in a period when broader equity markets were also generally rising. The tool's own output reports expected annualised return over 1, 3, and 5 years, never over six weeks — so a short-term move toward the flagged value isn't something the model even claims to predict, and it says nothing about whether the same call on the next flagged stock plays out the same way. Nothing that follows is a signal to act on either stock, now or going forward.
The company snapshot
| Best Buy (BBY) | Sonic Healthcare (SHL.AX) | |
|---|---|---|
| Sector | Consumer Cyclical · Specialty Retail | Healthcare · Diagnostics & Research |
| Price | $85.25 | A$22.09 |
| Market cap | $17.97B | A$10.92B |
| Free cash flow (TTM) | $1.14B | A$597.8M |
| Revenue (TTM) | $41.86B | A$10.42B |
| Revenue growth | 1.9% | 16.6% |
| Net debt | $2.23B | A$5.39B |
| Beta | 1.32 | 0.59 |
| P/E (TTM) | 15.8x | 19.9x |
Building the discount rate
Both companies use standard DCF (neither is a bank or insurer). The discount rate — WACC — is built the same way for both: cost of equity via CAPM, blended with an estimated cost of debt, weighted by each company's own capital structure.
| Best Buy (BBY) | Sonic Healthcare (SHL.AX) | |
|---|---|---|
| Risk-free rate | 4.75% (US 10-yr Treasury) | 4.80% (AU 10-yr Govt Bond) |
| Beta | 1.32 | 0.59 |
| Equity risk premium | 5.50% | 6.00% |
| Cost of equity | 11.99% | 8.33% |
| Cost of debt (pre-tax, est.) | 5.00% | 5.00% |
| Tax rate (est.) | 25% | 25% |
| Capital structure (equity/debt) | 81% / 19% | 65% / 35% |
| Calculated WACC (Base) | 10.45% | 6.72% |
| Sector reference range | 7.5–8.5% (Retail & Apparel) | 8.5–10.0% (Healthcare & Biotech) |
The two WACCs land on opposite sides of their sector reference ranges, for opposite mechanical reasons. Best Buy's 10.45% sits above its 7.5–8.5% retail range — its beta of 1.32 pushes cost of equity to 11.99%, and a light 19% debt weighting doesn't pull the blend down much. Sonic Healthcare's 6.72% sits below its 8.5–10.0% healthcare range — its beta of 0.59 keeps cost of equity to 8.33%, and a heavier 35% debt weighting (debt is cheaper than equity here) pulls the blended rate down further still.
The scenarios and the output
Both run a 5-year projection with a 2.5% terminal growth rate in every scenario. Growth and WACC move together across Bear/Base/Bull — lower growth pairs with a higher discount rate, higher growth with a lower one.
| Best Buy (BBY) — price $85.25 | Growth | WACC | Intrinsic | vs price | Verdict |
|---|---|---|---|---|---|
| Bear | 9.9% | 11.45% | $73.38 | -13.9% | Fairly Valued |
| Base | 19.9% | 10.45% | $129.84 | +52.3% | Undervalued |
| Bull | 29.8% | 9.45% | $223.74 | +162.5% | Undervalued |
| Sonic Healthcare (SHL.AX) — price A$22.09 | Growth | WACC | Intrinsic | vs price | Verdict |
|---|---|---|---|---|---|
| Bear | 6.2% | 7.72% | A$17.01 | -23.0% | Overvalued |
| Base | 12.3% | 6.72% | A$34.06 | +54.2% | Undervalued |
| Bull | 18.5% | 5.72% | A$65.84 | +198.0% | Undervalued |
Note the spread: Best Buy's Bear case (-13.9%) lands inside the tool's Fairly Valued band, while Sonic Healthcare's Bear case (-23.0%) falls outside it into Overvalued. Only the Base and Bull cases agree with the "undervalued" read for both — the Bear case is where the two stocks actually disagree.
Where most of the number comes from
For both stocks, the tool flags terminal value over 70% of the total intrinsic value. That means the majority of both figures rests on a single assumption — cash flows growing at 2.5% forever after year five — not on the five-year forecast itself. A 2.5% terminal rate is in line with long-run economic growth, which is the standard sanity check for that input; the tool would flag a value of 4–5% as implying the company outgrows the entire economy indefinitely. Both scenarios pass that check, but it's worth naming explicitly, since it means the 5-year growth assumptions in the table above — however different they look between Bear, Base, and Bull — are doing less work than the fixed 2.5% figure repeated in every row.
Try it yourself Run the same DCF on any ticker → Discounted Cash Flow CalculatorFor the full mechanics behind every number above — how free cash flow is derived, why WACC is built the way it is, and when the tool switches to the Dividend Discount Model instead — see the companion explainer:
- How to Value a Stock: DCF and the Dividend Discount Model →
- Most Undervalued S&P 500 Stocks → — where Best Buy currently ranks
- Most Undervalued ASX 300 Stocks → — where Sonic Healthcare currently ranks