Stock Analysis on Net
Stock Analysis on Net
Microsoft Excel LibreOffice Calc

Abbott Laboratories (NYSE:ABT)

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

Intermediate level

Intrinsic Stock Value (Valuation Summary)

Abbott Laboratories, free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

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Year Value FCFFt or Terminal value (TVt) Calculation Present value at 9.24%
01 FCFF0 6,221
1 FCFF1 6,143 = 6,221 × (1 + -1.25%) 5,623
2 FCFF2 6,186 = 6,143 × (1 + 0.69%) 5,183
3 FCFF3 6,348 = 6,186 × (1 + 2.62%) 4,869
4 FCFF4 6,636 = 6,348 × (1 + 4.55%) 4,659
5 FCFF5 7,067 = 6,636 × (1 + 6.48%) 4,542
5 Terminal value (TV5) 272,430 = 7,067 × (1 + 6.48%) ÷ (9.24%6.48%) 175,084
Intrinsic value of Abbott Laboratories’s capital 199,960
Less: Debt (fair value) 23,022
Intrinsic value of Abbott Laboratories’s common stock 176,938
 
Intrinsic value of Abbott Laboratories’s common stock (per share) $99.88
Current share price $122.38

Based on: 10-K (filing date: 2021-02-19).

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)

Abbott Laboratories, cost of capital

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Value1 Weight Required rate of return2 Calculation
Equity (fair value) 216,800 0.90 9.93%
Debt (fair value) 23,022 0.10 2.77% = 3.28% × (1 – 15.44%)

Based on: 10-K (filing date: 2021-02-19).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 1,771,529,358 × $122.38
= $216,799,762,832.04

   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
= (9.50% + 11.70% + 12.50% + 18.70% + 24.80%) ÷ 5
= 15.44%

WACC = 9.24%


FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Abbott Laboratories, PRAT model

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Average Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016
Selected Financial Data (US$ in millions)
Interest expense 546  670  826  904  431 
Net earnings from discontinued operations, net of taxes 24  —  34  124  337 
Net earnings 4,495  3,687  2,368  477  1,400 
 
Effective income tax rate (EITR)1 9.50% 11.70% 12.50% 18.70% 24.80%
 
Interest expense, after tax2 494  592  723  735  324 
Add: Cash dividends declared on common shares 2,722  2,343  2,047  1,947  1,547 
Interest expense (after tax) and dividends 3,216  2,935  2,770  2,682  1,871 
 
EBIT(1 – EITR)3 4,965  4,279  3,057  1,088  1,387 
 
Short-term borrowings 213  201  200  206  1,322 
Current portion of long-term debt 1,277  508 
Long-term debt, excluding current portion 18,527  16,661  19,359  27,210  20,681 
Total Abbott shareholders’ investment 32,784  31,088  30,524  30,897  20,538 
Total capital 51,531  49,227  50,090  58,821  42,544 
Financial Ratios
Retention rate (RR)4 0.35 0.31 0.09 -1.47 -0.35
Return on invested capital (ROIC)5 9.64% 8.69% 6.10% 1.85% 3.26%
Averages
RR -0.21
ROIC 5.91%
 
FCFF growth rate (g)6 -1.25%

Based on: 10-K (filing date: 2021-02-19), 10-K (filing date: 2020-02-21), 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-16), 10-K (filing date: 2017-02-17).

1 See details »

2020 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 546 × (1 – 9.50%)
= 494

3 EBIT(1 – EITR) = Net earnings – Net earnings from discontinued operations, net of taxes + Interest expense, after tax
= 4,49524 + 494
= 4,965

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [4,9653,216] ÷ 4,965
= 0.35

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 4,965 ÷ 51,531
= 9.64%

6 g = RR × ROIC
= -0.21 × 5.91%
= -1.25%


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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (239,822 × 9.24%6,221) ÷ (239,822 + 6,221)
= 6.48%

where:

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


FCFF growth rate (g) forecast

Abbott Laboratories, H-model

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Year Value gt
1 g1 -1.25%
2 g2 0.69%
3 g3 2.62%
4 g4 4.55%
5 and thereafter g5 6.48%

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)
= -1.25% + (6.48%-1.25%) × (2 – 1) ÷ (5 – 1)
= 0.69%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= -1.25% + (6.48%-1.25%) × (3 – 1) ÷ (5 – 1)
= 2.62%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= -1.25% + (6.48%-1.25%) × (4 – 1) ÷ (5 – 1)
= 4.55%