Stock Analysis on Net
Stock Analysis on Net

Baxter International Inc. (NYSE:BAX)

This company has been moved to the archive! The financial data has not been updated since August 4, 2016.

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)

Baxter International 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 8.43%
01 FCFF0 428
1 FCFF1 446 = 428 × (1 + 4.04%) 411
2 FCFF2 467 = 446 × (1 + 4.79%) 397
3 FCFF3 493 = 467 × (1 + 5.54%) 387
4 FCFF4 524 = 493 × (1 + 6.29%) 379
5 FCFF5 561 = 524 × (1 + 7.03%) 374
5 Terminal value (TV5) 42,976 = 561 × (1 + 7.03%) ÷ (8.43% – 7.03%) 28,675
Intrinsic value of Baxter International Inc. capital 30,622
Less: Debt and lease obligations (fair value) 6,682
Intrinsic value of Baxter International Inc. common stock 23,940
 
Intrinsic value of Baxter International Inc. common stock (per share) $44.02
Current share price $48.08

Based on: 10-K (reporting date: 2015-12-31).

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)

Baxter International Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 26,150 0.80 10.00%
Debt and lease obligations (fair value) 6,682 0.20 2.30% = 2.88% × (1 – 20.30%)

Based on: 10-K (reporting date: 2015-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 543,887,683 × $48.08
= $26,150,119,798.64

   Debt and 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
= (8.20% + 20.20% + 21.00% + 20.00% + 20.00%) ÷ 5
= 20.30%

WACC = 8.43%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Baxter International Inc., PRAT model

Microsoft Excel
Average Dec 31, 2015 Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011
Selected Financial Data (US$ in millions)
Interest expense 146 167 155 113 92
Income from discontinued operations, net of tax 575 551 — — —
Net income attributable to Baxter 968 2,497 2,012 2,326 2,224
 
Effective income tax rate (EITR)1 8.20% 20.20% 21.00% 20.00% 20.00%
 
Interest expense, after tax2 134 133 122 90 74
Add: Dividends declared on common stock 695 1,116 1,048 866 719
Interest expense (after tax) and dividends 829 1,249 1,170 956 793
 
EBIT(1 – EITR)3 527 2,079 2,134 2,416 2,298
 
Short-term debt 1,775 913 181 27 256
Current maturities of long-term debt and lease obligations 810 786 859 323 190
Long-term debt and lease obligations, excluding current maturities 3,935 7,606 8,126 5,580 4,749
Total Baxter shareholders’ equity 8,846 8,120 8,463 6,938 6,585
Total capital 15,366 17,425 17,629 12,868 11,780
Financial Ratios
Retention rate (RR)4 -0.57 0.40 0.45 0.60 0.66
Return on invested capital (ROIC)5 3.43% 11.93% 12.11% 18.78% 19.50%
Averages
RR 0.31
ROIC 13.15%
 
FCFF growth rate (g)6 4.04%

Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).

1 See details »

2015 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 146 × (1 – 8.20%)
= 134

3 EBIT(1 – EITR) = Net income attributable to Baxter – Income from discontinued operations, net of tax + Interest expense, after tax
= 968 – 575 + 134
= 527

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [527 – 829] ÷ 527
= -0.57

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 527 ÷ 15,366
= 3.43%

6 g = RR × ROIC
= 0.31 × 13.15%
= 4.04%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (32,832 × 8.43% – 428) ÷ (32,832 + 428)
= 7.03%

where:

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

FCFF growth rate (g) forecast

Baxter International Inc., H-model

Microsoft Excel
Year Value gt
1 g1 4.04%
2 g2 4.79%
3 g3 5.54%
4 g4 6.29%
5 and thereafter g5 7.03%

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)
= 4.04% + (7.03% – 4.04%) × (2 – 1) ÷ (5 – 1)
= 4.79%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 4.04% + (7.03% – 4.04%) × (3 – 1) ÷ (5 – 1)
= 5.54%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 4.04% + (7.03% – 4.04%) × (4 – 1) ÷ (5 – 1)
= 6.29%