Stock Analysis on Net
Stock Analysis on Net

AstraZeneca PLC (NYSE:AZN)

This company has been moved to the archive! The financial data has not been updated since March 10, 2015.

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)

AstraZeneca PLC, 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 9.19%
01 FCFF0 5,132
1 FCFF1 5,094 = 5,132 × (1 + -0.74%) 4,666
2 FCFF2 5,111 = 5,094 × (1 + 0.33%) 4,287
3 FCFF3 5,182 = 5,111 × (1 + 1.39%) 3,981
4 FCFF4 5,310 = 5,182 × (1 + 2.46%) 3,735
5 FCFF5 5,497 = 5,310 × (1 + 3.52%) 3,541
5 Terminal value (TV5) 100,383 = 5,497 × (1 + 3.52%) ÷ (9.19% – 3.52%) 64,675
Intrinsic value of AstraZeneca PLC capital 84,886
Less: Interest-bearing loans and borrowings (fair value) 12,168
Intrinsic value of AstraZeneca PLC common stock 72,718
 
Intrinsic value of AstraZeneca PLC common stock (per share) $57.57
Current share price $64.57

Based on: 20-F (reporting date: 2014-12-31).

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)

AstraZeneca PLC, cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 81,561 0.87 9.99%
Interest-bearing loans and borrowings (fair value) 12,168 0.13 3.86% = 4.90% × (1 – 21.18%)

Based on: 20-F (reporting date: 2014-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 1,263,143,338 × $64.57
= $81,561,165,334.66

   Interest-bearing loans and borrowings (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
= (0.88% + 21.30% + 18.02% + 19.01% + 26.38%) ÷ 5
= 21.18%

WACC = 9.19%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

AstraZeneca PLC, PRAT model

Microsoft Excel
Average Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010
Selected Financial Data (US$ in millions)
Interest on debt and commercial paper 383 388 404 404 450
Profit attributable to owners of the Parent 1,233 2,556 6,297 9,983 8,053
Add: Net income attributable to noncontrolling interest 2 15 30 33 28
Add: Income tax expense 11 696 1,391 2,351 2,896
Earnings before tax (EBT) 1,246 3,267 7,718 12,367 10,977
 
Effective income tax rate (EITR)1 0.88% 21.30% 18.02% 19.01% 26.38%
 
Interest on debt and commercial paper, after tax2 380 305 331 327 331
Add: Dividends 3,532 3,499 3,619 3,752 3,494
Interest expense (after tax) and dividends 3,912 3,804 3,950 4,079 3,825
 
EBIT(1 – EITR)3 1,613 2,861 6,628 10,310 8,384
 
Current interest-bearing loans and borrowings 2,446 1,788 901 1,990 125
Non-current interest-bearing loans and borrowings 8,397 8,588 9,409 7,338 9,097
Capital and reserves attributable to equity holders of the Company 19,627 23,224 23,737 23,246 23,213
Total capital 30,470 33,600 34,047 32,574 32,435
Financial Ratios
Retention rate (RR)4 -1.43 -0.33 0.40 0.60 0.54
Return on invested capital (ROIC)5 5.29% 8.52% 19.47% 31.65% 25.85%
Averages
RR -0.04
ROIC 18.16%
 
FCFF growth rate (g)6 -0.74%

Based on: 20-F (reporting date: 2014-12-31), 20-F (reporting date: 2013-12-31), 20-F (reporting date: 2012-12-31), 20-F (reporting date: 2011-12-31), 20-F (reporting date: 2010-12-31).

2014 Calculations

1 EITR = 100 × Income tax expense ÷ EBT
= 100 × 11 ÷ 1,246
= 0.88%

2 Interest on debt and commercial paper, after tax = Interest on debt and commercial paper × (1 – EITR)
= 383 × (1 – 0.88%)
= 380

3 EBIT(1 – EITR) = Profit attributable to owners of the Parent + Interest on debt and commercial paper, after tax
= 1,233 + 380
= 1,613

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [1,613 – 3,912] ÷ 1,613
= -1.43

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 1,613 ÷ 30,470
= 5.29%

6 g = RR × ROIC
= -0.04 × 18.16%
= -0.74%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (93,729 × 9.19% – 5,132) ÷ (93,729 + 5,132)
= 3.52%

where:

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

FCFF growth rate (g) forecast

AstraZeneca PLC, H-model

Microsoft Excel
Year Value gt
1 g1 -0.74%
2 g2 0.33%
3 g3 1.39%
4 g4 2.46%
5 and thereafter g5 3.52%

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)
= -0.74% + (3.52% – -0.74%) × (2 – 1) ÷ (5 – 1)
= 0.33%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= -0.74% + (3.52% – -0.74%) × (3 – 1) ÷ (5 – 1)
= 1.39%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= -0.74% + (3.52% – -0.74%) × (4 – 1) ÷ (5 – 1)
= 2.46%