Stock Analysis on Net
Stock Analysis on Net

Danaher Corp. (NYSE:DHR)

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Danaher Corp., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 11.56%
01 FCFF0 5,447
1 FCFF1 5,776 = 5,447 × (1 + 6.04%) 5,178
2 FCFF2 6,162 = 5,776 × (1 + 6.68%) 4,951
3 FCFF3 6,613 = 6,162 × (1 + 7.31%) 4,763
4 FCFF4 7,138 = 6,613 × (1 + 7.95%) 4,609
5 FCFF5 7,750 = 7,138 × (1 + 8.58%) 4,486
5 Terminal value (TV5) 282,758 = 7,750 × (1 + 8.58%) ÷ (11.56% – 8.58%) 163,659
Intrinsic value of Danaher Corp. capital 187,647
Less: 4.75% Mandatory Convertible Preferred Stock, Series A (fair value) 0
Less: 5.00% Mandatory Convertible Preferred Stock, Series B (fair value) 0
Less: Notes payable and long-term debt (fair value) 16,087
Intrinsic value of Danaher Corp. common stock 171,560
 
Intrinsic value of Danaher Corp. common stock (per share) $231.62
Current share price $246.58

Based on: 10-K (reporting date: 2023-12-31).

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Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Weighted Average Cost of Capital (WACC)

Danaher Corp., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 182,638 0.92 12.43%
4.75% Mandatory Convertible Preferred Stock, Series A (fair value) 0 0.00 0.00%
5.00% Mandatory Convertible Preferred Stock, Series B (fair value) 0 0.00 0.00%
Notes payable and long-term debt (fair value) 16,087 0.08 1.59% = 1.95% × (1 – 18.24%)

Based on: 10-K (reporting date: 2023-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 740,686,541 × $246.58
= $182,638,487,279.78

   Notes payable and long-term debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (16.30% + 13.10% + 16.50% + 18.90% + 26.40%) ÷ 5
= 18.24%

WACC = 11.56%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Danaher Corp., PRAT model

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Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Interest expense 286 211 238 275 109
Earnings from discontinued operations, net of income taxes 543 — 86 — 576
Net earnings 4,764 7,209 6,433 3,646 3,008
 
Effective income tax rate (EITR)1 16.30% 13.10% 16.50% 18.90% 26.40%
 
Interest expense, after tax2 239 183 199 223 80
Add: Mandatory Convertible Preferred Stock dividends declared 21 106 164 136 68
Add: Common stock dividends declared 773 725 601 509 484
Interest expense (after tax) and dividends 1,033 1,014 964 868 633
 
EBIT(1 – EITR)3 4,460 7,392 6,546 3,869 2,512
 
Notes payable and current portion of long-term debt 1,695 591 8 11 212
Long-term debt, excluding current portion 16,707 19,086 22,168 21,193 21,517
Total Danaher stockholders’ equity 53,486 50,082 45,167 39,766 30,271
Total capital 71,888 69,759 67,343 60,970 52,000
Financial Ratios
Retention rate (RR)4 0.77 0.86 0.85 0.78 0.75
Return on invested capital (ROIC)5 6.20% 10.60% 9.72% 6.35% 4.83%
Averages
RR 0.80
ROIC 7.54%
 
FCFF growth rate (g)6 6.04%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

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2023 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 286 × (1 – 16.30%)
= 239

3 EBIT(1 – EITR) = Net earnings – Earnings from discontinued operations, net of income taxes + Interest expense, after tax
= 4,764 – 543 + 239
= 4,460

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [4,460 – 1,033] ÷ 4,460
= 0.77

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 4,460 ÷ 71,888
= 6.20%

6 g = RR × ROIC
= 0.80 × 7.54%
= 6.04%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (198,725 × 11.56% – 5,447) ÷ (198,725 + 5,447)
= 8.58%

where:

Total capital, fair value0 = current fair value of Danaher Corp. debt and equity (US$ in millions)
FCFF0 = the last year Danaher Corp. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Danaher Corp. capital

FCFF growth rate (g) forecast

Danaher Corp., H-model

Microsoft Excel
Year Value gt
1 g1 6.04%
2 g2 6.68%
3 g3 7.31%
4 g4 7.95%
5 and thereafter g5 8.58%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 6.04% + (8.58% – 6.04%) × (2 – 1) ÷ (5 – 1)
= 6.68%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 6.04% + (8.58% – 6.04%) × (3 – 1) ÷ (5 – 1)
= 7.31%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 6.04% + (8.58% – 6.04%) × (4 – 1) ÷ (5 – 1)
= 7.95%