Stock Analysis on Net
Stock Analysis on Net

Air Products & Chemicals Inc. (NYSE:APD)

This company has been moved to the archive! The financial data has not been updated since August 9, 2021.

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)

Air Products & Chemicals Inc., 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 11.11%
01 FCFF0 822,429
1 FCFF1 856,530 = 822,429 × (1 + 4.15%) 770,896
2 FCFF2 904,163 = 856,530 × (1 + 5.56%) 732,408
3 FCFF3 967,238 = 904,163 × (1 + 6.98%) 705,168
4 FCFF4 1,048,398 = 967,238 × (1 + 8.39%) 687,921
5 FCFF5 1,151,201 = 1,048,398 × (1 + 9.81%) 679,856
5 Terminal value (TV5) 97,041,547 = 1,151,201 × (1 + 9.81%) ÷ (11.11% – 9.81%) 57,309,054
Intrinsic value of Air Products & Chemicals Inc. capital 60,885,303
Less: Debt (fair value) 8,286,100
Intrinsic value of Air Products & Chemicals Inc. common stock 52,599,203
 
Intrinsic value of Air Products & Chemicals Inc. common stock (per share) $237.61
Current share price $275.75

Based on: 10-K (reporting date: 2020-09-30).

1 See details »

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)

Air Products & Chemicals Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 61,041,305 0.88 12.40%
Debt (fair value) 8,286,100 0.12 1.56% = 1.98% × (1 – 21.05%)

Based on: 10-K (reporting date: 2020-09-30).

1 US$ in thousands

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 221,364,660 × $275.75
= $61,041,304,995.00

   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
= (19.70% + 19.10% + 17.60% + 18.40% + 27.50% + 24.00%) ÷ 6
= 21.05%

WACC = 11.11%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Air Products & Chemicals Inc., PRAT model

Microsoft Excel
Average Sep 30, 2020 Sep 30, 2019 Sep 30, 2018 Sep 30, 2017 Sep 30, 2016 Sep 30, 2015
Selected Financial Data (US$ in thousands)
Interest expense 109,300 137,000 130,500 120,600 115,500 103,500
Income (loss) from discontinued operations, net of tax (14,300) — 42,200 1,866,000 (884,200) —
Net income attributable to Air Products 1,886,700 1,760,000 1,497,800 3,000,400 631,100 1,277,900
 
Effective income tax rate (EITR)1 19.70% 19.10% 17.60% 18.40% 27.50% 24.00%
 
Interest expense, after tax2 87,768 110,833 107,532 98,410 83,738 78,660
Add: Dividends on common stock 1,144,100 1,008,300 931,800 808,500 733,700 687,900
Interest expense (after tax) and dividends 1,231,868 1,119,133 1,039,332 906,910 817,438 766,560
 
EBIT(1 – EITR)3 1,988,768 1,870,833 1,563,132 1,232,810 1,599,038 1,356,560
 
Short-term borrowings 7,700 58,200 54,300 144,000 935,800 1,494,300
Current portion of long-term debt 470,000 40,400 406,600 416,400 371,300 435,600
Long-term debt, excluding current portion 7,132,900 2,907,300 2,967,400 3,402,400 4,918,100 3,949,100
Long-term debt, related party 297,200 320,100 384,300 — — —
Total Air Products shareholders’ equity 12,079,800 11,053,600 10,857,500 10,086,200 7,079,600 7,249,000
Total capital 19,987,600 14,379,600 14,670,100 14,049,000 13,304,800 13,128,000
Financial Ratios
Retention rate (RR)4 0.38 0.40 0.34 0.26 0.49 0.43
Return on invested capital (ROIC)5 9.95% 13.01% 10.66% 8.78% 12.02% 10.33%
Averages
RR 0.38
ROIC 10.79%
 
FCFF growth rate (g)6 4.15%

Based on: 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30).

1 See details »

2020 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 109,300 × (1 – 19.70%)
= 87,768

3 EBIT(1 – EITR) = Net income attributable to Air Products – Income (loss) from discontinued operations, net of tax + Interest expense, after tax
= 1,886,700 – -14,300 + 87,768
= 1,988,768

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [1,988,768 – 1,231,868] ÷ 1,988,768
= 0.38

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 1,988,768 ÷ 19,987,600
= 9.95%

6 g = RR × ROIC
= 0.38 × 10.79%
= 4.15%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (69,327,405 × 11.11% – 822,429) ÷ (69,327,405 + 822,429)
= 9.81%

where:

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

FCFF growth rate (g) forecast

Air Products & Chemicals Inc., H-model

Microsoft Excel
Year Value gt
1 g1 4.15%
2 g2 5.56%
3 g3 6.98%
4 g4 8.39%
5 and thereafter g5 9.81%

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)
= 4.15% + (9.81% – 4.15%) × (2 – 1) ÷ (5 – 1)
= 5.56%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 4.15% + (9.81% – 4.15%) × (3 – 1) ÷ (5 – 1)
= 6.98%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 4.15% + (9.81% – 4.15%) × (4 – 1) ÷ (5 – 1)
= 8.39%