Stock Analysis on Net

Vertex Pharmaceuticals Inc. (NASDAQ:VRTX)

This company has been moved to the archive! The financial data has not been updated since February 15, 2024.

Present Value of Free Cash Flow to Equity (FCFE)

Microsoft Excel

Intrinsic Stock Value (Valuation Summary)

Vertex Pharmaceuticals Inc., free cash flow to equity (FCFE) forecast

US$ in thousands, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 7.83%
01 FCFE0 3,292,000
1 FCFE1 4,071,363 = 3,292,000 × (1 + 23.67%) 3,775,801
2 FCFE2 4,842,083 = 4,071,363 × (1 + 18.93%) 4,164,575
3 FCFE3 5,528,985 = 4,842,083 × (1 + 14.19%) 4,410,148
4 FCFE4 6,051,026 = 5,528,985 × (1 + 9.44%) 4,476,165
5 FCFE5 6,335,286 = 6,051,026 × (1 + 4.70%) 4,346,229
5 Terminal value (TV5) 211,908,865 = 6,335,286 × (1 + 4.70%) ÷ (7.83%4.70%) 145,376,926
Intrinsic value of Vertex Pharmaceuticals Inc. common stock 166,549,845
 
Intrinsic value of Vertex Pharmaceuticals Inc. common stock (per share) $644.77
Current share price $426.29

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

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.


Required Rate of Return (r)

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.55%
Expected rate of return on market portfolio2 E(RM) 13.83%
Systematic risk of Vertex Pharmaceuticals Inc. common stock βVRTX 0.35
 
Required rate of return on Vertex Pharmaceuticals Inc. common stock3 rVRTX 7.83%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rVRTX = RF + βVRTX [E(RM) – RF]
= 4.55% + 0.35 [13.83%4.55%]
= 7.83%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Vertex Pharmaceuticals Inc., PRAT model

Microsoft Excel
Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in thousands)
Net income 3,619,600 3,322,000 2,342,100 2,711,647 1,176,810
Revenues 9,869,200 8,930,700 7,574,400 6,205,683 4,162,821
Total assets 22,730,200 18,150,900 13,432,500 11,751,808 8,318,465
Shareholders’ equity 17,580,400 13,912,700 10,100,000 8,686,815 6,085,244
Financial Ratios
Retention rate1 1.00 1.00 1.00 1.00 1.00
Profit margin2 36.68% 37.20% 30.92% 43.70% 28.27%
Asset turnover3 0.43 0.49 0.56 0.53 0.50
Financial leverage4 1.29 1.30 1.33 1.35 1.37
Averages
Retention rate 1.00
Profit margin 35.35%
Asset turnover 0.50
Financial leverage 1.33
 
FCFE growth rate (g)5 23.67%

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).

2023 Calculations

1 Company does not pay dividends

2 Profit margin = 100 × Net income ÷ Revenues
= 100 × 3,619,600 ÷ 9,869,200
= 36.68%

3 Asset turnover = Revenues ÷ Total assets
= 9,869,200 ÷ 22,730,200
= 0.43

4 Financial leverage = Total assets ÷ Shareholders’ equity
= 22,730,200 ÷ 17,580,400
= 1.29

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 1.00 × 35.35% × 0.50 × 1.33
= 23.67%


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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (110,114,039 × 7.83%3,292,000) ÷ (110,114,039 + 3,292,000)
= 4.70%

where:
Equity market value0 = current market value of Vertex Pharmaceuticals Inc. common stock (US$ in thousands)
FCFE0 = the last year Vertex Pharmaceuticals Inc. free cash flow to equity (US$ in thousands)
r = required rate of return on Vertex Pharmaceuticals Inc. common stock


FCFE growth rate (g) forecast

Vertex Pharmaceuticals Inc., H-model

Microsoft Excel
Year Value gt
1 g1 23.67%
2 g2 18.93%
3 g3 14.19%
4 g4 9.44%
5 and thereafter g5 4.70%

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)
= 23.67% + (4.70%23.67%) × (2 – 1) ÷ (5 – 1)
= 18.93%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 23.67% + (4.70%23.67%) × (3 – 1) ÷ (5 – 1)
= 14.19%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 23.67% + (4.70%23.67%) × (4 – 1) ÷ (5 – 1)
= 9.44%