Stock Analysis on Net
Stock Analysis on Net

Express Scripts Holding Co. (NASDAQ:ESRX)

This company has been moved to the archive! The financial data has not been updated since October 31, 2018.

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)

Express Scripts Holding Co., free cash flow to the firm (FCFF) forecast

US$ in thousands, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 10.50%
01 FCFF0 5,631,256
1 FCFF1 6,109,334 = 5,631,256 × (1 + 8.49%) 5,528,622
2 FCFF2 6,534,796 = 6,109,334 × (1 + 6.96%) 5,351,533
3 FCFF3 6,890,196 = 6,534,796 × (1 + 5.44%) 5,106,235
4 FCFF4 7,159,811 = 6,890,196 × (1 + 3.91%) 4,801,687
5 FCFF5 7,330,748 = 7,159,811 × (1 + 2.39%) 4,449,012
5 Terminal value (TV5) 92,477,907 = 7,330,748 × (1 + 2.39%) ÷ (10.50% – 2.39%) 56,124,611
Intrinsic value of Express Scripts Holding Co. capital 81,361,700
Less: Debt (fair value) 16,361,200
Intrinsic value of Express Scripts Holding Co. common stock 65,000,500
 
Intrinsic value of Express Scripts Holding Co. common stock (per share) $115.28
Current share price $96.97

Based on: 10-K (reporting date: 2017-12-31).

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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)

Express Scripts Holding Co., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 54,677,504 0.77 12.82%
Debt (fair value) 16,361,200 0.23 2.77% = 3.81% × (1 – 27.20%)

Based on: 10-K (reporting date: 2017-12-31).

1 US$ in thousands

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 563,860,000 × $96.97
= $54,677,504,200.00

   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
= (8.10% + 22.60% + 35.30% + 33.60% + 36.40%) ÷ 5
= 27.20%

WACC = 10.50%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Express Scripts Holding Co., PRAT model

Microsoft Excel
Average Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Selected Financial Data (US$ in thousands)
Interest expense and other 607,900 694,800 500,300 582,900 596,100
Net loss from discontinued operations, net of tax — — — — (53,600)
Net income attributable to Express Scripts 4,517,400 3,404,400 2,476,400 2,007,600 1,844,600
 
Effective income tax rate (EITR)1 8.10% 22.60% 35.30% 33.60% 36.40%
 
Interest expense and other, after tax2 558,660 537,775 323,694 387,046 379,120
Interest expense (after tax) and dividends 558,660 537,775 323,694 387,046 379,120
 
EBIT(1 – EITR)3 5,076,060 3,942,175 2,800,094 2,394,646 2,277,320
 
Short-term debt and current maturities of long-term debt 1,032,900 722,300 1,646,400 2,555,300 1,584,000
Long-term debt, excluding current maturities 14,981,500 14,846,000 13,946,300 11,012,700 12,363,000
Total Express Scripts stockholders’ equity 18,119,600 16,236,000 17,372,800 20,054,200 21,837,400
Total capital 34,134,000 31,804,300 32,965,500 33,622,200 35,784,400
Financial Ratios
Retention rate (RR)4 0.89 0.86 0.88 0.84 0.83
Return on invested capital (ROIC)5 14.87% 12.40% 8.49% 7.12% 6.36%
Averages
RR 0.86
ROIC 9.85%
 
FCFF growth rate (g)6 8.49%

Based on: 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), 10-K (reporting date: 2013-12-31).

1 See details »

2017 Calculations

2 Interest expense and other, after tax = Interest expense and other × (1 – EITR)
= 607,900 × (1 – 8.10%)
= 558,660

3 EBIT(1 – EITR) = Net income attributable to Express Scripts – Net loss from discontinued operations, net of tax + Interest expense and other, after tax
= 4,517,400 – 0 + 558,660
= 5,076,060

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [5,076,060 – 558,660] ÷ 5,076,060
= 0.89

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 5,076,060 ÷ 34,134,000
= 14.87%

6 g = RR × ROIC
= 0.86 × 9.85%
= 8.49%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (71,038,704 × 10.50% – 5,631,256) ÷ (71,038,704 + 5,631,256)
= 2.39%

where:

Total capital, fair value0 = current fair value of Express Scripts Holding Co. debt and equity (US$ in thousands)
FCFF0 = the last year Express Scripts Holding Co. free cash flow to the firm (US$ in thousands)
WACC = weighted average cost of Express Scripts Holding Co. capital

FCFF growth rate (g) forecast

Express Scripts Holding Co., H-model

Microsoft Excel
Year Value gt
1 g1 8.49%
2 g2 6.96%
3 g3 5.44%
4 g4 3.91%
5 and thereafter g5 2.39%

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)
= 8.49% + (2.39% – 8.49%) × (2 – 1) ÷ (5 – 1)
= 6.96%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 8.49% + (2.39% – 8.49%) × (3 – 1) ÷ (5 – 1)
= 5.44%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 8.49% + (2.39% – 8.49%) × (4 – 1) ÷ (5 – 1)
= 3.91%