Bristol-Myers Squibb Co. (NYSE:BMY)

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

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)

Bristol-Myers Squibb Co., free cash flow to the firm (FCFF) forecast

US\$ in millions, except per share data

Year Value FCFFt or Terminal value (TVt) Calculation Present value at 6.47%
01 FCFF0 14,563
1 FCFF1 14,433 = 14,563 × (1 + -0.89%) 13,557
2 FCFF2 14,310 = 14,433 × (1 + -0.86%) 12,624
3 FCFF3 14,191 = 14,310 × (1 + -0.83%) 11,759
4 FCFF4 14,079 = 14,191 × (1 + -0.79%) 10,957
5 FCFF5 13,971 = 14,079 × (1 + -0.76%) 10,213
5 Terminal value (TV5) 191,753 = 13,971 × (1 + -0.76%) ÷ (6.47%-0.76%) 140,171
Intrinsic value of Bristol-Myers Squibb Co. capital 199,281
Less: Debt (fair value) 58,840
Intrinsic value of Bristol-Myers Squibb Co. common stock 140,441

Intrinsic value of Bristol-Myers Squibb Co. common stock (per share) \$63.27
Current share price \$63.54

Based on: 10-K (reporting date: 2020-12-31).

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)

Bristol-Myers Squibb Co., cost of capital

Value1 Weight Required rate of return2 Calculation
Equity (fair value) 141,036 0.71 8.12%
Debt (fair value) 58,840 0.29 2.51% = 3.33% × (1 – 24.68%)

Based on: 10-K (reporting date: 2020-12-31).

1 US\$ in millions

Equity (fair value) = No. shares of common stock outstanding × Current share price
= 2,219,644,935 × \$63.54
= \$141,036,239,169.90

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
= (21.00% + 30.50% + 18.00% + 30.10% + 23.80%) ÷ 5
= 24.68%

WACC = 6.47%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Bristol-Myers Squibb Co., PRAT model

Average Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016
Selected Financial Data (US\$ in millions)
Interest expense 1,420  656  183  196  167
Net earnings (loss) attributable to BMS (9,015) 3,439  4,920  1,007  4,457

Effective income tax rate (EITR)1 21.00% 30.50% 18.00% 30.10% 23.80%

Interest expense, after tax2 1,122  456  150  137  127
Add: Cash dividends declared 4,178  3,035  2,630  2,573  2,557
Interest expense (after tax) and dividends 5,300  3,491  2,780  2,710  2,684

EBIT(1 – EITR)3 (7,893) 3,895  5,070  1,144  4,584

Short-term debt obligations 2,340  3,346  1,703  987  992
Long-term debt, excluding current portion 48,336  43,387  5,646  6,975  5,716
Total Bristol-Myers Squibb Company shareholders’ equity 37,822  51,598  14,031  11,741  16,177
Total capital 88,498  98,331  21,380  19,703  22,885
Financial Ratios
Retention rate (RR)4 0.10 0.45 -1.37 0.41
Return on invested capital (ROIC)5 -8.92% 3.96% 23.71% 5.81% 20.03%
Averages
RR -0.10
ROIC 8.92%

FCFF growth rate (g)6 -0.89%

Based on: 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31).

2020 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 1,420 × (1 – 21.00%)
= 1,122

3 EBIT(1 – EITR) = Net earnings (loss) attributable to BMS + Interest expense, after tax
= -9,015 + 1,122
= -7,893

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [-7,8935,300] ÷ -7,893
=

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × -7,893 ÷ 88,498
= -8.92%

6 g = RR × ROIC
= -0.10 × 8.92%
= -0.89%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (199,876 × 6.47%14,563) ÷ (199,876 + 14,563)
= -0.76%

where:

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

FCFF growth rate (g) forecast

Bristol-Myers Squibb Co., H-model

Year Value gt
1 g1 -0.89%
2 g2 -0.86%
3 g3 -0.83%
4 g4 -0.79%
5 and thereafter g5 -0.76%

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)
= -0.89% + (-0.76%-0.89%) × (2 – 1) ÷ (5 – 1)
= -0.86%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= -0.89% + (-0.76%-0.89%) × (3 – 1) ÷ (5 – 1)
= -0.83%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= -0.89% + (-0.76%-0.89%) × (4 – 1) ÷ (5 – 1)
= -0.79%