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# FedEx Corp. (FDX)

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

Difficulty: Intermediate

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)

FedEx Corp., free cash flow to the firm (FCFF) forecast

Stock valuation by this method is not possible because prior year FCFF is less than zero.

USD \$ in millions, except per share data

Year Value FCFFt or Terminal value (TVt) Calculation Present value at %
01 FCFF0
1 FCFF1 = × (1 + %)
2 FCFF2 = × (1 + %)
3 FCFF3 = × (1 + %)
4 FCFF4 = × (1 + %)
5 FCFF5 = × (1 + %)
5 Terminal value (TV5) = × (1 + %) ÷ (% – %)
Intrinsic value of FedEx's capital
Less: Long-term debt (fair value)
Intrinsic value of FedEx's common stock
Intrinsic value of FedEx's common stock (per share) \$
Current share price \$

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)

FedEx Corp., cost of capital

Value1 Weight Required rate of return2 Calculation
Equity (fair value) %
Long-term debt (fair value) % = % × (1 – %)

1 USD \$ in millions

Equity (fair value) = No. shares of common stock outstanding × Current share price
= × \$ = \$

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
= (% + % + % + % + % + %) ÷ 6 = %

WACC = %

### FCFF Growth Rate (g)

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

FedEx Corp., PRAT model

Average May 31, 2018 May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014 May 31, 2013
Selected Financial Data (USD \$ in millions)
Interest expense
Net income
Effective income tax rate (EITR)1 % % % % % %
Interest expense, after tax2
Interest expense (after tax) and dividends
EBIT(1 – EITR)3
Current portion of long-term debt
Long-term debt, less current portion
Common stockholders' investment
Total capital
Ratios
Retention rate (RR)4
Return on invested capital (ROIC)5 % % % % % %
Averages
RR
ROIC %
Growth rate of FCFF (g)6 %

2018 Calculations

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

3 EBIT(1 – EITR) = Net income + Interest expense, after tax
= + =

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

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × ÷ = %

6 g = RR × ROIC
= × % = %

#### FCFF growth rate (g) forecast

FedEx Corp., H-model

Year Value gt
1 g1 %
2 g2 %
3 g3 %
4 g4 %
5 and thereafter g5 %

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)
= % + (% – %) × (2 – 1) ÷ (5 – 1) = %

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

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