Stock Analysis on Net

Stryker Corp. (NYSE:SYK)

This company has been moved to the archive! The financial data has not been updated since April 29, 2022.

Present Value of Free Cash Flow to Equity (FCFE)

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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 equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.


Intrinsic Stock Value (Valuation Summary)

Stryker Corp., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 13.64%
01 FCFE0 1,585
1 FCFE1 1,696 = 1,585 × (1 + 6.99%) 1,492
2 FCFE2 1,834 = 1,696 × (1 + 8.17%) 1,420
3 FCFE3 2,006 = 1,834 × (1 + 9.34%) 1,367
4 FCFE4 2,217 = 2,006 × (1 + 10.52%) 1,329
5 FCFE5 2,476 = 2,217 × (1 + 11.70%) 1,306
5 Terminal value (TV5) 142,516 = 2,476 × (1 + 11.70%) ÷ (13.64%11.70%) 75,196
Intrinsic value of Stryker Corp. common stock 82,111
 
Intrinsic value of Stryker Corp. common stock (per share) $217.14
Current share price $241.26

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

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.


Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.43%
Expected rate of return on market portfolio2 E(RM) 13.60%
Systematic risk of Stryker Corp. common stock βSYK 1.00
 
Required rate of return on Stryker Corp. common stock3 rSYK 13.64%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rSYK = RF + βSYK [E(RM) – RF]
= 4.43% + 1.00 [13.60%4.43%]
= 13.64%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Stryker Corp., PRAT model

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Average Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017
Selected Financial Data (US$ in millions)
Cash dividends declared 976 885 801 722 653
Net earnings 1,994 1,599 2,083 3,553 1,020
Net sales 17,108 14,351 14,884 13,601 12,444
Total assets 34,631 34,330 30,167 27,229 22,197
Total Stryker shareholders’ equity 14,877 13,084 12,807 11,730 9,966
Financial Ratios
Retention rate1 0.51 0.45 0.62 0.80 0.36
Profit margin2 11.66% 11.14% 13.99% 26.12% 8.20%
Asset turnover3 0.49 0.42 0.49 0.50 0.56
Financial leverage4 2.33 2.62 2.36 2.32 2.23
Averages
Retention rate 0.55
Profit margin 11.25%
Asset turnover 0.49
Financial leverage 2.31
 
FCFE growth rate (g)5 6.99%

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).

2021 Calculations

1 Retention rate = (Net earnings – Cash dividends declared) ÷ Net earnings
= (1,994976) ÷ 1,994
= 0.51

2 Profit margin = 100 × Net earnings ÷ Net sales
= 100 × 1,994 ÷ 17,108
= 11.66%

3 Asset turnover = Net sales ÷ Total assets
= 17,108 ÷ 34,631
= 0.49

4 Financial leverage = Total assets ÷ Total Stryker shareholders’ equity
= 34,631 ÷ 14,877
= 2.33

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.55 × 11.25% × 0.49 × 2.31
= 6.99%


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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (91,233 × 13.64%1,585) ÷ (91,233 + 1,585)
= 11.70%

where:
Equity market value0 = current market value of Stryker Corp. common stock (US$ in millions)
FCFE0 = the last year Stryker Corp. free cash flow to equity (US$ in millions)
r = required rate of return on Stryker Corp. common stock


FCFE growth rate (g) forecast

Stryker Corp., H-model

Microsoft Excel
Year Value gt
1 g1 6.99%
2 g2 8.17%
3 g3 9.34%
4 g4 10.52%
5 and thereafter g5 11.70%

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)
= 6.99% + (11.70%6.99%) × (2 – 1) ÷ (5 – 1)
= 8.17%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 6.99% + (11.70%6.99%) × (3 – 1) ÷ (5 – 1)
= 9.34%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 6.99% + (11.70%6.99%) × (4 – 1) ÷ (5 – 1)
= 10.52%