# Danaher Corp. (NYSE:DHR)

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

Intermediate level

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)

Danaher Corp., 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 7.83%
01 FCFF0 5,694
1 FCFF1 5,978 = 5,694 × (1 + 4.98%) 5,544
2 FCFF2 6,274 = 5,978 × (1 + 4.95%) 5,396
3 FCFF3 6,582 = 6,274 × (1 + 4.91%) 5,250
4 FCFF4 6,903 = 6,582 × (1 + 4.88%) 5,106
5 FCFF5 7,237 = 6,903 × (1 + 4.84%) 4,965
5 Terminal value (TV5) 254,186 = 7,237 × (1 + 4.84%) ÷ (7.83%4.84%) 174,375
Intrinsic value of Danaher Corp.’s capital 200,635
Less: 4.75% Mandatory Convertible Preferred Stock, Series A (fair value) 2,504
Less: 5.00% Mandatory Convertible Preferred Stock, Series B (fair value) 2,238
Less: Notes payable and long-term debt (fair value) 23,015
Intrinsic value of Danaher Corp.’s common stock 172,878

Intrinsic value of Danaher Corp.’s common stock (per share) \$242.74
Current share price \$241.85

Based on: 10-K (filing date: 2021-02-25).

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)

Danaher Corp., cost of capital

Value1 Weight Required rate of return2 Calculation
Equity (fair value) 172,247 0.86 8.78%
4.75% Mandatory Convertible Preferred Stock, Series A (fair value) 2,504 0.01 4.75%
5.00% Mandatory Convertible Preferred Stock, Series B (fair value) 2,238 0.01 5.00%
Notes payable and long-term debt (fair value) 23,015 0.12 1.33% = 1.65% × (1 – 19.64%)

Based on: 10-K (filing date: 2021-02-25).

1 US\$ in millions

Equity (fair value) = No. shares of common stock outstanding × Current share price
= 712,204,198 × \$241.85
= \$172,246,585,286.30

Notes payable and long-term 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
= (18.90% + 26.40% + 19.30% + 16.10% + 17.50%) ÷ 5
= 19.64%

WACC = 7.83%

### FCFF Growth Rate (g)

#### FCFF growth rate (g) implied by PRAT model

Danaher Corp., 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 275  109  157  163  184
Earnings from discontinued operations, net of income taxes —  576  —  22  400
Net earnings 3,646  3,008  2,651  2,492  2,554

Effective income tax rate (EITR)1 18.90% 26.40% 19.30% 16.10% 17.50%

Interest expense, after tax2 223  80  127  137  152
Add: Mandatory Convertible Preferred Stock dividends declared 136  68  —  —  —
Add: Common stock dividends declared 509  484  449  390  394
Interest expense (after tax) and dividends 868  633  576  526  546

EBIT(1 – EITR)3 3,869  2,512  2,778  2,606  2,306

Notes payable and current portion of long-term debt 11  212  52  195  2,595
Long-term debt, excluding current portion 21,193  21,517  9,689  10,327  9,674
Total Danaher stockholders’ equity 39,766  30,271  28,214  26,358  23,003
Total capital 60,970  52,000  37,955  36,880  35,272
Financial Ratios
Retention rate (RR)4 0.78 0.75 0.79 0.80 0.76
Return on invested capital (ROIC)5 6.35% 4.83% 7.32% 7.07% 6.54%
Averages
RR 0.78
ROIC 6.42%

FCFF growth rate (g)6 4.98%

Based on: 10-K (filing date: 2021-02-25), 10-K (filing date: 2020-02-21), 10-K (filing date: 2019-02-21), 10-K (filing date: 2018-02-21), 10-K (filing date: 2017-02-22).

2020 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 275 × (1 – 18.90%)
= 223

3 EBIT(1 – EITR) = Net earnings – Earnings from discontinued operations, net of income taxes + Interest expense, after tax
= 3,6460 + 223
= 3,869

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [3,869868] ÷ 3,869
= 0.78

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 3,869 ÷ 60,970
= 6.35%

6 g = RR × ROIC
= 0.78 × 6.42%
= 4.98%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (200,004 × 7.83%5,694) ÷ (200,004 + 5,694)
= 4.84%

where:

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

#### FCFF growth rate (g) forecast

Danaher Corp., H-model

Year Value gt
1 g1 4.98%
2 g2 4.95%
3 g3 4.91%
4 g4 4.88%
5 and thereafter g5 4.84%

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)
= 4.98% + (4.84%4.98%) × (2 – 1) ÷ (5 – 1)
= 4.95%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 4.98% + (4.84%4.98%) × (3 – 1) ÷ (5 – 1)
= 4.91%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 4.98% + (4.84%4.98%) × (4 – 1) ÷ (5 – 1)
= 4.88%