# Comcast Corp. (CMCSA)

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

Medium level of difficulty

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)

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

US\$ in millions, except per share data

Year Value FCFFt or Terminal value (TVt) Calculation Present value at 8.79%
01 FCFF0 14,842
1 FCFF1 15,627  = 14,842  × (1 + 5.28%) 14,365
2 FCFF2 16,399  = 15,627  × (1 + 4.94%) 13,857
3 FCFF3 17,154  = 16,399  × (1 + 4.60%) 13,324
4 FCFF4 17,885  = 17,154  × (1 + 4.26%) 12,770
5 FCFF5 18,586  = 17,885  × (1 + 3.92%) 12,199
5 Terminal value (TV5) 397,002  = 18,586  × (1 + 3.92%) ÷ (8.79%3.92%) 260,573
Intrinsic value of Comcast Corp.’s capital 327,088
Less: Debt (fair value) 114,100
Intrinsic value of Comcast Corp.’s common stock 212,988

Intrinsic value of Comcast Corp.’s common stock (per share) \$46.82
Current share price \$44.61

Based on: 10-K (filing date: 2019-01-31).

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)

Comcast Corp., cost of capital

Value1 Weight Required rate of return2 Calculation
Equity (fair value) 202,942  0.64 11.94%
Debt (fair value) 114,100  0.36 3.18% = 3.77% × (1 – 15.58%)

Based on: 10-K (filing date: 2019-01-31).

1 US\$ in millions

Equity (fair value) = No. shares of common stock outstanding × Current share price
= 4,549,250,254 × \$44.61 = \$202,942,053,830.94

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
= (22.18% + -49.46% + 36.98% + 37.08% + 31.10%) ÷ 5 = 15.58%

WACC = 8.79%

### FCFF Growth Rate (g)

#### FCFF growth rate (g) implied by PRAT model

Comcast Corp., PRAT model

Average Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (US\$ in millions)
Interest expense 3,542  3,086  2,942  2,702  2,617
Net income attributable to Comcast Corporation 11,731  22,714  8,695  8,163  8,380

Effective income tax rate (EITR)1 22.18% -49.46% 36.98% 37.08% 31.10%

Interest expense, after tax2 2,756  4,612  1,854  1,700  1,803
Add: Dividends declared 3,499  2,975  2,656  2,483  2,320
Interest expense (after tax) and dividends 6,255  7,587  4,510  4,183  4,123

EBIT(1 – EITR)3 14,487  27,326  10,549  9,863  10,183

Current portion of long-term debt 4,398  5,134  5,480  3,627  4,217
Long-term debt, less current portion 107,345  59,422  55,566  48,994  44,017
Total Comcast Corporation shareholders’ equity 71,613  68,606  53,943  52,269  52,711
Total capital 183,356  133,162  114,989  104,890  100,945
Financial Ratios
Retention rate (RR)4 0.57 0.72 0.57 0.58 0.60
Return on invested capital (ROIC)5 7.90% 20.52% 9.17% 9.40% 10.09%
Averages
RR 0.58
ROIC 9.14%

FCFF growth rate (g)6 5.28%

Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-01-31), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-02-05), 10-K (filing date: 2015-02-27).

2018 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 3,542 × (1 – 22.18%) = 2,756

3 EBIT(1 – EITR) = Net income attributable to Comcast Corporation + Interest expense, after tax
= 11,731 + 2,756 = 14,487

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [14,4876,255] ÷ 14,487 = 0.57

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 14,487 ÷ 183,356 = 7.90%

6 g = RR × ROIC
= 0.58 × 9.14% = 5.28%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (317,042 × 8.79%14,842) ÷ (317,042 + 14,842) = 3.92%

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

#### FCFF growth rate (g) forecast

Comcast Corp., H-model

Year Value gt
1 g1 5.28%
2 g2 4.94%
3 g3 4.60%
4 g4 4.26%
5 and thereafter g5 3.92%

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 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 5.28% + (3.92%5.28%) × (2 – 1) ÷ (5 – 1) = 4.94%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 5.28% + (3.92%5.28%) × (3 – 1) ÷ (5 – 1) = 4.60%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 5.28% + (3.92%5.28%) × (4 – 1) ÷ (5 – 1) = 4.26%