Stock Analysis on Net
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 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)

Stryker 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 12.02%
01 FCFF0 3,022
1 FCFF1 3,140 = 3,022 × (1 + 3.91%) 2,803
2 FCFF2 3,302 = 3,140 × (1 + 5.15%) 2,631
3 FCFF3 3,513 = 3,302 × (1 + 6.39%) 2,499
4 FCFF4 3,781 = 3,513 × (1 + 7.63%) 2,401
5 FCFF5 4,117 = 3,781 × (1 + 8.88%) 2,334
5 Terminal value (TV5) 142,530 = 4,117 × (1 + 8.88%) ÷ (12.02% – 8.88%) 80,802
Intrinsic value of Stryker Corp. capital 93,471
Less: Debt (fair value) 13,401
Intrinsic value of Stryker Corp. common stock 80,070
 
Intrinsic value of Stryker Corp. common stock (per share) $211.74
Current share price $241.26

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)

Stryker Corp., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 91,233 0.87 13.50%
Debt (fair value) 13,401 0.13 1.95% = 2.33% × (1 – 16.16%)

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
= 378,154,080 × $241.26
= $91,233,453,340.80

   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
= (12.60% + 18.20% + 18.70% + 21.00% + 10.30%) ÷ 5
= 16.16%

WACC = 12.02%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Stryker Corp., 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 337 315 287 264 247
Net earnings 1,994 1,599 2,083 3,553 1,020
 
Effective income tax rate (EITR)1 12.60% 18.20% 18.70% 21.00% 10.30%
 
Interest expense, after tax2 295 258 233 209 222
Add: Cash dividends declared 976 885 801 722 653
Interest expense (after tax) and dividends 1,271 1,143 1,034 931 875
 
EBIT(1 – EITR)3 2,289 1,857 2,316 3,762 1,242
 
Current maturities of debt 7 761 859 1,373 632
Long-term debt, excluding current maturities 12,472 13,230 10,231 8,486 6,590
Total Stryker shareholders’ equity 14,877 13,084 12,807 11,730 9,966
Total capital 27,356 27,075 23,897 21,589 17,188
Financial Ratios
Retention rate (RR)4 0.44 0.38 0.55 0.75 0.30
Return on invested capital (ROIC)5 8.37% 6.86% 9.69% 17.42% 7.22%
Averages
RR 0.49
ROIC 8.03%
 
FCFF growth rate (g)6 3.91%

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)
= 337 × (1 – 12.60%)
= 295

3 EBIT(1 – EITR) = Net earnings + Interest expense, after tax
= 1,994 + 295
= 2,289

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [2,289 – 1,271] ÷ 2,289
= 0.44

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 2,289 ÷ 27,356
= 8.37%

6 g = RR × ROIC
= 0.49 × 8.03%
= 3.91%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (104,634 × 12.02% – 3,022) ÷ (104,634 + 3,022)
= 8.88%

where:

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

FCFF growth rate (g) forecast

Stryker Corp., H-model

Microsoft Excel
Year Value gt
1 g1 3.91%
2 g2 5.15%
3 g3 6.39%
4 g4 7.63%
5 and thereafter g5 8.88%

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)
= 3.91% + (8.88% – 3.91%) × (2 – 1) ÷ (5 – 1)
= 5.15%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 3.91% + (8.88% – 3.91%) × (3 – 1) ÷ (5 – 1)
= 6.39%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 3.91% + (8.88% – 3.91%) × (4 – 1) ÷ (5 – 1)
= 7.63%