Stock Analysis on Net
Stock Analysis on Net

Vertex Pharmaceuticals Inc. (NASDAQ:VRTX)

This company has been moved to the archive! The financial data has not been updated since February 15, 2024.

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)

Vertex Pharmaceuticals Inc., free cash flow to the firm (FCFF) forecast

US$ in thousands, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 7.89%
01 FCFF0 3,372,501
1 FCFF1 4,128,024 = 3,372,501 × (1 + 22.40%) 3,826,270
2 FCFF2 4,870,034 = 4,128,024 × (1 + 17.97%) 4,184,068
3 FCFF3 5,529,797 = 4,870,034 × (1 + 13.55%) 4,403,615
4 FCFF4 6,034,106 = 5,529,797 × (1 + 9.12%) 4,453,962
5 FCFF5 6,317,245 = 6,034,106 × (1 + 4.69%) 4,322,098
5 Terminal value (TV5) 207,060,889 = 6,317,245 × (1 + 4.69%) ÷ (7.89% – 4.69%) 141,665,781
Intrinsic value of Vertex Pharmaceuticals Inc. capital 162,855,795
Less: Finance lease liabilities (fair value) 426,700
Intrinsic value of Vertex Pharmaceuticals Inc. common stock 162,429,095
 
Intrinsic value of Vertex Pharmaceuticals Inc. common stock (per share) $628.82
Current share price $426.29

Based on: 10-K (reporting date: 2023-12-31).

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)

Vertex Pharmaceuticals Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 110,114,039 1.00 7.89%
Finance lease liabilities (fair value) 426,700 0.00 6.86% = 8.20% × (1 – 16.34%)

Based on: 10-K (reporting date: 2023-12-31).

1 US$ in thousands

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 258,307,816 × $426.29
= $110,114,038,882.64

   Finance lease liabilities (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
= (17.40% + 21.50% + 14.20% + 13.00% + 15.60%) ÷ 5
= 16.34%

WACC = 7.89%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Vertex Pharmaceuticals Inc., PRAT model

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Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in thousands)
Interest expense 44,100 54,800 61,500 58,151 58,502
Net income 3,619,600 3,322,000 2,342,100 2,711,647 1,176,810
 
Effective income tax rate (EITR)1 17.40% 21.50% 14.20% 13.00% 15.60%
 
Interest expense, after tax2 36,427 43,018 52,767 50,591 49,376
Interest expense (after tax) and dividends 36,427 43,018 52,767 50,591 49,376
 
EBIT(1 – EITR)3 3,656,027 3,365,018 2,394,867 2,762,238 1,226,186
 
Current finance lease liabilities 50,600 40,800 46,900 42,434 38,794
Long-term finance lease liabilities 376,100 430,800 509,800 539,042 538,576
Shareholders’ equity 17,580,400 13,912,700 10,100,000 8,686,815 6,085,244
Total capital 18,007,100 14,384,300 10,656,700 9,268,291 6,662,614
Financial Ratios
Retention rate (RR)4 0.99 0.99 0.98 0.98 0.96
Return on invested capital (ROIC)5 20.30% 23.39% 22.47% 29.80% 18.40%
Averages
RR 0.98
ROIC 22.88%
 
FCFF growth rate (g)6 22.40%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

1 See details »

2023 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 44,100 × (1 – 17.40%)
= 36,427

3 EBIT(1 – EITR) = Net income + Interest expense, after tax
= 3,619,600 + 36,427
= 3,656,027

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [3,656,027 – 36,427] ÷ 3,656,027
= 0.99

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 3,656,027 ÷ 18,007,100
= 20.30%

6 g = RR × ROIC
= 0.98 × 22.88%
= 22.40%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (110,540,739 × 7.89% – 3,372,501) ÷ (110,540,739 + 3,372,501)
= 4.69%

where:

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

FCFF growth rate (g) forecast

Vertex Pharmaceuticals Inc., H-model

Microsoft Excel
Year Value gt
1 g1 22.40%
2 g2 17.97%
3 g3 13.55%
4 g4 9.12%
5 and thereafter g5 4.69%

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)
= 22.40% + (4.69% – 22.40%) × (2 – 1) ÷ (5 – 1)
= 17.97%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 22.40% + (4.69% – 22.40%) × (3 – 1) ÷ (5 – 1)
= 13.55%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 22.40% + (4.69% – 22.40%) × (4 – 1) ÷ (5 – 1)
= 9.12%