# FedEx Corp. (NYSE:FDX)

## 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)

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.

US\$ in millions, except per share data

Year Value FCFFt or Terminal value (TVt) Calculation Present value at 11.58%
01 FCFF0 -237
1 FCFF1 = -237 × (1 + 0.00%)
2 FCFF2 = × (1 + 0.00%)
3 FCFF3 = × (1 + 0.00%)
4 FCFF4 = × (1 + 0.00%)
5 FCFF5 = × (1 + 0.00%)
5 Terminal value (TV5) = × (1 + 0.00%) ÷ (11.58%0.00%)
Intrinsic value of FedEx Corp.’s capital
Less: Long-term debt (fair value) 23,285
Intrinsic value of FedEx Corp.’s common stock

Intrinsic value of FedEx Corp.’s common stock (per share) \$—
Current share price \$286.58

Based on: 10-K (filing date: 2020-07-20).

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) 76,042 0.77 14.36%
Long-term debt (fair value) 23,285 0.23 2.51% = 3.60% × (1 – 30.20%)

Based on: 10-K (filing date: 2020-07-20).

1 US\$ in millions

Equity (fair value) = No. shares of common stock outstanding × Current share price
= 265,342,075 × \$286.58
= \$76,041,731,853.50

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
= (23.00% + 28.40% + 26.10% + 34.60% + 33.60% + 35.50%) ÷ 6
= 30.20%

WACC = 11.58%

### FCFF Growth Rate (g)

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

FedEx Corp., PRAT model

Average May 31, 2020 May 31, 2019 May 31, 2018 May 31, 2017 May 31, 2016 May 31, 2015
Selected Financial Data (US\$ in millions)
Interest expense 672  588  558  512  336  235
Net income 1,286  540  4,572  2,997  1,820  1,050

Effective income tax rate (EITR)1 23.00% 28.40% 26.10% 34.60% 33.60% 35.50%

Interest expense, after tax2 517  421  412  335  223  152
Add: Cash dividends declared 679  683  535  426  277  227
Interest expense (after tax) and dividends 1,196  1,104  947  761  500  379

EBIT(1 – EITR)3 1,803  961  4,984  3,332  2,043  1,202

Current portion of long-term debt 51  964  1,342  22  29  19
Long-term debt, less current portion 21,952  16,617  15,243  14,909  13,838  7,249
Common stockholders’ investment 18,295  17,757  19,416  16,073  13,784  14,993
Total capital 40,298  35,338  36,001  31,004  27,651  22,261
Financial Ratios
Retention rate (RR)4 0.34 -0.15 0.81 0.77 0.76 0.68
Return on invested capital (ROIC)5 4.48% 2.72% 13.85% 10.75% 7.39% 5.40%
Averages
RR 0.53
ROIC 7.43%

FCFF growth rate (g)6 0.00%

Based on: 10-K (filing date: 2020-07-20), 10-K (filing date: 2019-07-16), 10-K (filing date: 2018-07-16), 10-K (filing date: 2017-07-17), 10-K (filing date: 2016-07-18), 10-K (filing date: 2015-07-14).

2020 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 672 × (1 – 23.00%)
= 517

3 EBIT(1 – EITR) = Net income + Interest expense, after tax
= 1,286 + 517
= 1,803

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [1,8031,196] ÷ 1,803
= 0.34

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 1,803 ÷ 40,298
= 4.48%

6 g = RR × ROIC
= 0.53 × 7.43%
= 0.00%

#### FCFF growth rate (g) forecast

FedEx Corp., H-model

Year Value gt
1 g1 0.00%
2 g2 0.00%
3 g3 0.00%
4 g4 0.00%
5 and thereafter g5 0.00%

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)
= 0.00% + (0.00%0.00%) × (2 – 1) ÷ (5 – 1)
= 0.00%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 0.00% + (0.00%0.00%) × (3 – 1) ÷ (5 – 1)
= 0.00%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 0.00% + (0.00%0.00%) × (4 – 1) ÷ (5 – 1)
= 0.00%