Stock Analysis on Net
Stock Analysis on Net

Express Scripts Holding Co. (NASDAQ:ESRX)

This company has been moved to the archive! The financial data has not been updated since October 31, 2018.

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)

Express Scripts Holding Co., free cash flow to equity (FCFE) forecast

US$ in thousands, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 12.98%
01 FCFE0 5,552,600
1 FCFE1 6,409,732 = 5,552,600 × (1 + 15.44%) 5,673,452
2 FCFE2 7,192,873 = 6,409,732 × (1 + 12.22%) 5,635,306
3 FCFE3 7,840,190 = 7,192,873 × (1 + 9.00%) 5,436,873
4 FCFE4 8,293,419 = 7,840,190 × (1 + 5.78%) 5,090,538
5 FCFE5 8,505,917 = 8,293,419 × (1 + 2.56%) 4,621,243
5 Terminal value (TV5) 83,759,377 = 8,505,917 × (1 + 2.56%) ÷ (12.98% – 2.56%) 45,506,251
Intrinsic value of Express Scripts Holding Co. common stock 71,963,662
 
Intrinsic value of Express Scripts Holding Co. common stock (per share) $127.63
Current share price $96.97

Based on: 10-K (reporting date: 2017-12-31).

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.

Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.44%
Expected rate of return on market portfolio2 E(RM) 13.77%
Systematic risk of Express Scripts Holding Co. common stock βESRX 0.92
 
Required rate of return on Express Scripts Holding Co. common stock3 rESRX 12.98%

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 rESRX = RF + βESRX [E(RM) – RF]
= 4.44% + 0.92 [13.77% – 4.44%]
= 12.98%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Express Scripts Holding Co., PRAT model

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Average Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Selected Financial Data (US$ in thousands)
Net income attributable to Express Scripts 4,517,400 3,404,400 2,476,400 2,007,600 1,844,600
Revenues 100,064,600 100,287,500 101,751,800 100,887,100 104,098,800
Total assets 54,255,800 51,744,900 53,243,300 53,798,900 53,548,200
Total Express Scripts stockholders’ equity 18,119,600 16,236,000 17,372,800 20,054,200 21,837,400
Financial Ratios
Retention rate1 1.00 1.00 1.00 1.00 1.00
Profit margin2 4.51% 3.39% 2.43% 1.99% 1.77%
Asset turnover3 1.84 1.94 1.91 1.88 1.94
Financial leverage4 2.99 3.19 3.06 2.68 2.45
Averages
Retention rate 1.00
Profit margin 2.82%
Asset turnover 1.90
Financial leverage 2.88
 
FCFE growth rate (g)5 15.44%

Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).

2017 Calculations

1 Company does not pay dividends

2 Profit margin = 100 × Net income attributable to Express Scripts ÷ Revenues
= 100 × 4,517,400 ÷ 100,064,600
= 4.51%

3 Asset turnover = Revenues ÷ Total assets
= 100,064,600 ÷ 54,255,800
= 1.84

4 Financial leverage = Total assets ÷ Total Express Scripts stockholders’ equity
= 54,255,800 ÷ 18,119,600
= 2.99

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 1.00 × 2.82% × 1.90 × 2.88
= 15.44%

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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (54,677,504 × 12.98% – 5,552,600) ÷ (54,677,504 + 5,552,600)
= 2.56%

where:
Equity market value0 = current market value of Express Scripts Holding Co. common stock (US$ in thousands)
FCFE0 = the last year Express Scripts Holding Co. free cash flow to equity (US$ in thousands)
r = required rate of return on Express Scripts Holding Co. common stock

FCFE growth rate (g) forecast

Express Scripts Holding Co., H-model

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Year Value gt
1 g1 15.44%
2 g2 12.22%
3 g3 9.00%
4 g4 5.78%
5 and thereafter g5 2.56%

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)
= 15.44% + (2.56% – 15.44%) × (2 – 1) ÷ (5 – 1)
= 12.22%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 15.44% + (2.56% – 15.44%) × (3 – 1) ÷ (5 – 1)
= 9.00%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 15.44% + (2.56% – 15.44%) × (4 – 1) ÷ (5 – 1)
= 5.78%