Stock Analysis on Net
Stock Analysis on Net

FedEx Corp. (NYSE:FDX)

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)

FedEx Corp., 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 13.30%
01 FCFF0 3,245
1 FCFF1 3,390 = 3,245 × (1 + 4.47%) 2,992
2 FCFF2 3,581 = 3,390 × (1 + 5.62%) 2,790
3 FCFF3 3,824 = 3,581 × (1 + 6.77%) 2,629
4 FCFF4 4,126 = 3,824 × (1 + 7.92%) 2,504
5 FCFF5 4,501 = 4,126 × (1 + 9.07%) 2,410
5 Terminal value (TV5) 115,994 = 4,501 × (1 + 9.07%) ÷ (13.30% – 9.07%) 62,123
Intrinsic value of FedEx Corp. capital 75,449
Less: Long-term debt, including current maturities (fair value) 18,300
Intrinsic value of FedEx Corp. common stock 57,149
 
Intrinsic value of FedEx Corp. common stock (per share) $232.24
Current share price $265.52

Based on: 10-K (reporting date: 2023-05-31).

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)

FedEx Corp., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 65,339 0.78 16.29%
Long-term debt, including current maturities (fair value) 18,300 0.22 2.64% = 3.50% × (1 – 24.48%)

Based on: 10-K (reporting date: 2023-05-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 246,080,750 × $265.52
= $65,339,360,740.00

   Long-term debt, including current maturities (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
= (25.90% + 21.90% + 21.60% + 23.00% + 28.40% + 26.10%) ÷ 6
= 24.48%

WACC = 13.30%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

FedEx Corp., PRAT model

Microsoft Excel
Average May 31, 2023 May 31, 2022 May 31, 2021 May 31, 2020 May 31, 2019 May 31, 2018
Selected Financial Data (US$ in millions)
Interest expense 694 689 793 672 588 558
Net income 3,972 3,826 5,231 1,286 540 4,572
 
Effective income tax rate (EITR)1 25.90% 21.90% 21.60% 23.00% 28.40% 26.10%
 
Interest expense, after tax2 514 538 622 517 421 412
Add: Cash dividends declared 1,495 793 686 679 683 535
Interest expense (after tax) and dividends 2,009 1,331 1,308 1,196 1,104 947
 
EBIT(1 – EITR)3 4,486 4,364 5,853 1,803 961 4,984
 
Current portion of long-term debt 126 82 146 51 964 1,342
Long-term debt, less current portion 20,453 20,182 20,733 21,952 16,617 15,243
Common stockholders’ investment 26,088 24,939 24,168 18,295 17,757 19,416
Total capital 46,667 45,203 45,047 40,298 35,338 36,001
Financial Ratios
Retention rate (RR)4 0.55 0.69 0.78 0.34 -0.15 0.81
Return on invested capital (ROIC)5 9.61% 9.65% 12.99% 4.48% 2.72% 13.85%
Averages
RR 0.50
ROIC 8.88%
 
FCFF growth rate (g)6 4.47%

Based on: 10-K (reporting date: 2023-05-31), 10-K (reporting date: 2022-05-31), 10-K (reporting date: 2021-05-31), 10-K (reporting date: 2020-05-31), 10-K (reporting date: 2019-05-31), 10-K (reporting date: 2018-05-31).

1 See details »

2023 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 694 × (1 – 25.90%)
= 514

3 EBIT(1 – EITR) = Net income + Interest expense, after tax
= 3,972 + 514
= 4,486

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [4,486 – 2,009] ÷ 4,486
= 0.55

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 4,486 ÷ 46,667
= 9.61%

6 g = RR × ROIC
= 0.50 × 8.88%
= 4.47%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (83,639 × 13.30% – 3,245) ÷ (83,639 + 3,245)
= 9.07%

where:

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

FCFF growth rate (g) forecast

FedEx Corp., H-model

Microsoft Excel
Year Value gt
1 g1 4.47%
2 g2 5.62%
3 g3 6.77%
4 g4 7.92%
5 and thereafter g5 9.07%

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)
= 4.47% + (9.07% – 4.47%) × (2 – 1) ÷ (5 – 1)
= 5.62%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 4.47% + (9.07% – 4.47%) × (3 – 1) ÷ (5 – 1)
= 6.77%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 4.47% + (9.07% – 4.47%) × (4 – 1) ÷ (5 – 1)
= 7.92%