Stock Analysis on Net
Stock Analysis on Net

Celgene Corp. (NASDAQ:CELG)

This company has been moved to the archive! The financial data has not been updated since October 31, 2019.

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)

Celgene 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 14.37%
01 FCFF0 5,411
1 FCFF1 6,066 = 5,411 × (1 + 12.09%) 5,304
2 FCFF2 6,741 = 6,066 × (1 + 11.14%) 5,154
3 FCFF3 7,428 = 6,741 × (1 + 10.18%) 4,965
4 FCFF4 8,113 = 7,428 × (1 + 9.23%) 4,742
5 FCFF5 8,785 = 8,113 × (1 + 8.28%) 4,490
5 Terminal value (TV5) 156,144 = 8,785 × (1 + 8.28%) ÷ (14.37% – 8.28%) 79,801
Intrinsic value of Celgene Corp. capital 104,456
Less: Debt (fair value) 19,300
Intrinsic value of Celgene Corp. common stock 85,156
 
Intrinsic value of Celgene Corp. common stock (per share) $119.65
Current share price $108.03

Based on: 10-K (reporting date: 2018-12-31).

1 See details »

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)

Celgene Corp., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 76,887 0.80 17.15%
Debt (fair value) 19,300 0.20 3.28% = 3.82% × (1 – 14.04%)

Based on: 10-K (reporting date: 2018-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 711,714,480 × $108.03
= $76,886,515,274.40

   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
= (17.20% + 2.40% + 15.70% + 20.80% + 14.10%) ÷ 5
= 14.04%

WACC = 14.37%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Celgene Corp., PRAT model

Microsoft Excel
Average Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (US$ in millions)
Interest expense 741 522 500 311 176
Net income 4,046 2,940 1,999 1,602 2,000
 
Effective income tax rate (EITR)1 17.20% 2.40% 15.70% 20.80% 14.10%
 
Interest expense, after tax2 614 509 422 246 151
Interest expense (after tax) and dividends 614 509 422 246 151
 
EBIT(1 – EITR)3 4,660 3,449 2,421 1,848 2,151
 
Short-term borrowings and current portion of long-term debt 501 — 501 — 606
Long-term debt, net of discount, excluding current portion 19,769 15,838 13,789 14,250 6,266
Stockholders’ equity 6,161 6,921 6,599 5,919 6,525
Total capital 26,431 22,759 20,889 20,169 13,396
Financial Ratios
Retention rate (RR)4 0.87 0.85 0.83 0.87 0.93
Return on invested capital (ROIC)5 17.63% 15.16% 11.59% 9.16% 16.06%
Averages
RR 0.87
ROIC 13.92%
 
FCFF growth rate (g)6 12.09%

Based on: 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31).

1 See details »

2018 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 741 × (1 – 17.20%)
= 614

3 EBIT(1 – EITR) = Net income + Interest expense, after tax
= 4,046 + 614
= 4,660

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [4,660 – 614] ÷ 4,660
= 0.87

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 4,660 ÷ 26,431
= 17.63%

6 g = RR × ROIC
= 0.87 × 13.92%
= 12.09%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (96,187 × 14.37% – 5,411) ÷ (96,187 + 5,411)
= 8.28%

where:

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

FCFF growth rate (g) forecast

Celgene Corp., H-model

Microsoft Excel
Year Value gt
1 g1 12.09%
2 g2 11.14%
3 g3 10.18%
4 g4 9.23%
5 and thereafter g5 8.28%

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)
= 12.09% + (8.28% – 12.09%) × (2 – 1) ÷ (5 – 1)
= 11.14%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 12.09% + (8.28% – 12.09%) × (3 – 1) ÷ (5 – 1)
= 10.18%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 12.09% + (8.28% – 12.09%) × (4 – 1) ÷ (5 – 1)
= 9.23%