Stock Analysis on Net
Stock Analysis on Net

AbbVie Inc. (NYSE:ABBV)

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)

AbbVie Inc., 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 8.80%
01 FCFF0 23,988
1 FCFF1 23,357 = 23,988 × (1 + -2.63%) 21,467
2 FCFF2 23,005 = 23,357 × (1 + -1.50%) 19,434
3 FCFF3 22,918 = 23,005 × (1 + -0.38%) 17,795
4 FCFF4 23,089 = 22,918 × (1 + 0.75%) 16,477
5 FCFF5 23,522 = 23,089 × (1 + 1.87%) 15,428
5 Terminal value (TV5) 345,905 = 23,522 × (1 + 1.87%) ÷ (8.80% – 1.87%) 226,883
Intrinsic value of AbbVie Inc. capital 317,485
Less: Debt and finance lease obligations (fair value) 56,344
Intrinsic value of AbbVie Inc. common stock 261,141
 
Intrinsic value of AbbVie Inc. common stock (per share) $147.83
Current share price $167.80

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)

AbbVie Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 296,414 0.84 9.90%
Debt and finance lease obligations (fair value) 56,344 0.16 3.04% = 3.57% × (1 – 14.86%)

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
= 1,766,473,359 × $167.80
= $296,414,229,640.20

   Debt and finance lease obligations (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
= (22.00% + 12.10% + 11.10% + 21.00% + 8.10%) ÷ 5
= 14.86%

WACC = 8.80%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

AbbVie 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 millions)
Interest expense 2,224 2,230 2,423 2,454 1,784
Net earnings attributable to AbbVie Inc. 4,863 11,836 11,542 4,616 7,882
 
Effective income tax rate (EITR)1 22.00% 12.10% 11.10% 21.00% 8.10%
 
Interest expense, after tax2 1,735 1,960 2,154 1,939 1,639
Add: Dividends declared 10,647 10,179 9,470 8,278 6,533
Interest expense (after tax) and dividends 12,382 12,139 11,624 10,217 8,172
 
EBIT(1 – EITR)3 6,598 13,796 13,696 6,555 9,521
 
Short-term borrowings — 1 14 34 —
Current portion of long-term debt and finance lease obligations 7,191 4,135 12,481 8,468 3,753
Long-term debt and finance lease obligations, excluding current portion 52,194 59,135 64,189 77,554 62,975
Stockholders’ equity (deficit) 10,360 17,254 15,408 13,076 (8,172)
Total capital 69,745 80,525 92,092 99,132 58,556
Financial Ratios
Retention rate (RR)4 -0.88 0.12 0.15 -0.56 0.14
Return on invested capital (ROIC)5 9.46% 17.13% 14.87% 6.61% 16.26%
Averages
RR -0.20
ROIC 12.87%
 
FCFF growth rate (g)6 -2.63%

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).

1 See details »

2023 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 2,224 × (1 – 22.00%)
= 1,735

3 EBIT(1 – EITR) = Net earnings attributable to AbbVie Inc. + Interest expense, after tax
= 4,863 + 1,735
= 6,598

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [6,598 – 12,382] ÷ 6,598
= -0.88

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 6,598 ÷ 69,745
= 9.46%

6 g = RR × ROIC
= -0.20 × 12.87%
= -2.63%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (352,758 × 8.80% – 23,988) ÷ (352,758 + 23,988)
= 1.87%

where:

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

FCFF growth rate (g) forecast

AbbVie Inc., H-model

Microsoft Excel
Year Value gt
1 g1 -2.63%
2 g2 -1.50%
3 g3 -0.38%
4 g4 0.75%
5 and thereafter g5 1.87%

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)
= -2.63% + (1.87% – -2.63%) × (2 – 1) ÷ (5 – 1)
= -1.50%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= -2.63% + (1.87% – -2.63%) × (3 – 1) ÷ (5 – 1)
= -0.38%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= -2.63% + (1.87% – -2.63%) × (4 – 1) ÷ (5 – 1)
= 0.75%