Stock Analysis on Net
Stock Analysis on Net

Air Products & Chemicals Inc. (NYSE:APD)

This company has been moved to the archive! The financial data has not been updated since August 9, 2021.

Present Value of Free Cash Flow to Equity (FCFE) 

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 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)

Air Products & Chemicals Inc., 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 12.68%
01 FCFE0 5,190,000
1 FCFE1 5,562,296 = 5,190,000 × (1 + 7.17%) 4,936,198
2 FCFE2 5,915,135 = 5,562,296 × (1 + 6.34%) 4,658,452
3 FCFE3 6,241,268 = 5,915,135 × (1 + 5.51%) 4,362,026
4 FCFE4 6,533,585 = 6,241,268 × (1 + 4.68%) 4,052,336
5 FCFE5 6,785,370 = 6,533,585 × (1 + 3.85%) 3,734,788
5 Terminal value (TV5) 79,804,980 = 6,785,370 × (1 + 3.85%) ÷ (12.68% – 3.85%) 43,926,070
Intrinsic value of Air Products & Chemicals Inc. common stock 65,669,869
 
Intrinsic value of Air Products & Chemicals Inc. common stock (per share) $296.66
Current share price $275.75

Based on: 10-K (reporting date: 2020-09-30).

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 4.79%
Expected rate of return on market portfolio2 E(RM) 13.79%
Systematic risk of Air Products & Chemicals Inc. common stock βAPD 0.88
 
Required rate of return on Air Products & Chemicals Inc. common stock3 rAPD 12.68%

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 rAPD = RF + βAPD [E(RM) – RF]
= 4.79% + 0.88 [13.79% – 4.79%]
= 12.68%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Air Products & Chemicals Inc., PRAT model

Microsoft Excel
Average Sep 30, 2020 Sep 30, 2019 Sep 30, 2018 Sep 30, 2017 Sep 30, 2016 Sep 30, 2015
Selected Financial Data (US$ in thousands)
Dividends on common stock 1,144,100 1,008,300 931,800 808,500 733,700 687,900
Net income attributable to Air Products 1,886,700 1,760,000 1,497,800 3,000,400 631,100 1,277,900
Sales 8,856,300 8,918,900 8,930,200 8,187,600 9,524,400 9,894,900
Total assets 25,168,500 18,942,800 19,178,300 18,467,200 18,055,300 17,438,100
Total Air Products shareholders’ equity 12,079,800 11,053,600 10,857,500 10,086,200 7,079,600 7,249,000
Financial Ratios
Retention rate1 0.39 0.43 0.38 0.73 -0.16 0.46
Profit margin2 21.30% 19.73% 16.77% 36.65% 6.63% 12.91%
Asset turnover3 0.35 0.47 0.47 0.44 0.53 0.57
Financial leverage4 2.08 1.71 1.77 1.83 2.55 2.41
Averages
Retention rate 0.48
Profit margin 15.47%
Asset turnover 0.47
Financial leverage 2.06
 
FCFE growth rate (g)5 7.17%

Based on: 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30).

2020 Calculations

1 Retention rate = (Net income attributable to Air Products – Dividends on common stock) ÷ Net income attributable to Air Products
= (1,886,700 – 1,144,100) ÷ 1,886,700
= 0.39

2 Profit margin = 100 × Net income attributable to Air Products ÷ Sales
= 100 × 1,886,700 ÷ 8,856,300
= 21.30%

3 Asset turnover = Sales ÷ Total assets
= 8,856,300 ÷ 25,168,500
= 0.35

4 Financial leverage = Total assets ÷ Total Air Products shareholders’ equity
= 25,168,500 ÷ 12,079,800
= 2.08

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.48 × 15.47% × 0.47 × 2.06
= 7.17%

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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (61,041,305 × 12.68% – 5,190,000) ÷ (61,041,305 + 5,190,000)
= 3.85%

where:
Equity market value0 = current market value of Air Products & Chemicals Inc. common stock (US$ in thousands)
FCFE0 = the last year Air Products & Chemicals Inc. free cash flow to equity (US$ in thousands)
r = required rate of return on Air Products & Chemicals Inc. common stock

FCFE growth rate (g) forecast

Air Products & Chemicals Inc., H-model

Microsoft Excel
Year Value gt
1 g1 7.17%
2 g2 6.34%
3 g3 5.51%
4 g4 4.68%
5 and thereafter g5 3.85%

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)
= 7.17% + (3.85% – 7.17%) × (2 – 1) ÷ (5 – 1)
= 6.34%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 7.17% + (3.85% – 7.17%) × (3 – 1) ÷ (5 – 1)
= 5.51%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 7.17% + (3.85% – 7.17%) × (4 – 1) ÷ (5 – 1)
= 4.68%