Stock Analysis on Net
Stock Analysis on Net

HCA Healthcare Inc. (NYSE:HCA)

This company has been moved to the archive! The financial data has not been updated since May 3, 2022.

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)

HCA Healthcare Inc., 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 13.35%
01 FCFF0 6,561
1 FCFF1 7,338 = 6,561 × (1 + 11.85%) 6,474
2 FCFF2 8,110 = 7,338 × (1 + 10.52%) 6,312
3 FCFF3 8,855 = 8,110 × (1 + 9.19%) 6,080
4 FCFF4 9,551 = 8,855 × (1 + 7.86%) 5,785
5 FCFF5 10,175 = 9,551 × (1 + 6.53%) 5,437
5 Terminal value (TV5) 158,893 = 10,175 × (1 + 6.53%) ÷ (13.35% – 6.53%) 84,900
Intrinsic value of HCA Healthcare Inc. capital 114,987
Less: Long-term debt (fair value) 38,541
Intrinsic value of HCA Healthcare Inc. common stock 76,446
 
Intrinsic value of HCA Healthcare Inc. common stock (per share) $258.71
Current share price $216.30

Based on: 10-K (reporting date: 2021-12-31).

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)

HCA Healthcare Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 63,913 0.62 19.25%
Long-term debt (fair value) 38,541 0.38 3.58% = 4.60% × (1 – 22.12%)

Based on: 10-K (reporting date: 2021-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 295,484,400 × $216.30
= $63,913,275,720.00

   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
= (21.50% + 19.20% + 21.00% + 19.30% + 29.60%) ÷ 5
= 22.12%

WACC = 13.35%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

HCA Healthcare Inc., PRAT model

Microsoft Excel
Average Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017
Selected Financial Data (US$ in millions)
Interest expense 1,566 1,584 1,824 1,755 1,690
Net income attributable to HCA Healthcare, Inc. 6,956 3,754 3,505 3,787 2,216
 
Effective income tax rate (EITR)1 21.50% 19.20% 21.00% 19.30% 29.60%
 
Interest expense, after tax2 1,229 1,280 1,441 1,416 1,190
Add: Cash dividends declared 628 150 555 496 —
Interest expense (after tax) and dividends 1,857 1,430 1,996 1,912 1,190
 
EBIT(1 – EITR)3 8,185 5,034 4,946 5,203 3,406
 
Long-term debt due within one year 237 209 145 788 200
Long-term debt due after one year, less debt issuance costs and discounts 34,342 30,795 33,577 32,033 32,858
Stockholders’ equity (deficit) attributable to HCA Healthcare, Inc. (933) 572 (2,808) (4,950) (6,806)
Total capital 33,646 31,576 30,914 27,871 26,252
Financial Ratios
Retention rate (RR)4 0.77 0.72 0.60 0.63 0.65
Return on invested capital (ROIC)5 24.33% 15.94% 16.00% 18.67% 12.97%
Averages
RR 0.67
ROIC 17.58%
 
FCFF growth rate (g)6 11.85%

Based on: 10-K (reporting date: 2021-12-31), 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).

1 See details »

2021 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 1,566 × (1 – 21.50%)
= 1,229

3 EBIT(1 – EITR) = Net income attributable to HCA Healthcare, Inc. + Interest expense, after tax
= 6,956 + 1,229
= 8,185

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [8,185 – 1,857] ÷ 8,185
= 0.77

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 8,185 ÷ 33,646
= 24.33%

6 g = RR × ROIC
= 0.67 × 17.58%
= 11.85%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (102,454 × 13.35% – 6,561) ÷ (102,454 + 6,561)
= 6.53%

where:

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

FCFF growth rate (g) forecast

HCA Healthcare Inc., H-model

Microsoft Excel
Year Value gt
1 g1 11.85%
2 g2 10.52%
3 g3 9.19%
4 g4 7.86%
5 and thereafter g5 6.53%

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)
= 11.85% + (6.53% – 11.85%) × (2 – 1) ÷ (5 – 1)
= 10.52%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 11.85% + (6.53% – 11.85%) × (3 – 1) ÷ (5 – 1)
= 9.19%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 11.85% + (6.53% – 11.85%) × (4 – 1) ÷ (5 – 1)
= 7.86%