Stock Analysis on Net
Stock Analysis on Net

Allergan Inc. (NYSE:AGN.)

This company has been moved to the archive! The financial data has not been updated since February 19, 2015.

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)

Allergan 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 11.13%
01 FCFE0 1,666,900
1 FCFE1 -2,991,870 = 1,666,900 × (1 + -279.49%) -2,692,275
2 FCFE2 3,215,812 = -2,991,870 × (1 + -207.49%) 2,604,018
3 FCFE3 -1,141,066 = 3,215,812 × (1 + -135.48%) -831,459
4 FCFE4 -416,706 = -1,141,066 × (1 + -63.48%) -273,235
5 FCFE5 -452,214 = -416,706 × (1 + 8.52%) -266,826
5 Terminal value (TV5) -18,825,111 = -452,214 × (1 + 8.52%) ÷ (11.13% – 8.52%) -11,107,617
Intrinsic value of Allergan Inc. common stock -12,567,393
 
Intrinsic value of Allergan Inc. common stock (per share) $-41.86
Current share price $231.12

Based on: 10-K (reporting date: 2014-12-31).

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 4.69%
Expected rate of return on market portfolio2 E(RM) 13.79%
Systematic risk of Allergan Inc. common stock βAGN. 0.71
 
Required rate of return on Allergan Inc. common stock3 rAGN. 11.13%

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 rAGN. = RF + βAGN. [E(RM) – RF]
= 4.69% + 0.71 [13.79% – 4.69%]
= 11.13%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Allergan Inc., PRAT model

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Average Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010
Selected Financial Data (US$ in thousands)
Dividends 59,700 59,500 60,400 61,100 60,900
Net earnings attributable to Allergan, Inc. 1,524,200 985,100 1,098,800 934,500 600
Product net sales 7,126,100 6,197,500 5,708,800 5,347,100 4,819,600
Total assets 12,415,700 10,574,300 9,179,300 8,508,600 8,308,100
Total Allergan, Inc. stockholders’ equity 7,753,000 6,463,200 5,837,100 5,309,600 4,757,700
Financial Ratios
Retention rate1 0.96 0.94 0.95 0.93 -100.50
Profit margin2 21.39% 15.90% 19.25% 17.48% 0.01%
Asset turnover3 0.57 0.59 0.62 0.63 0.58
Financial leverage4 1.60 1.64 1.57 1.60 1.75
Averages
Retention rate -19.34
Profit margin 14.80%
Asset turnover 0.60
Financial leverage 1.63
 
FCFE growth rate (g)5 -279.49%

Based on: 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31), 10-K (reporting date: 2010-12-31).

2014 Calculations

1 Retention rate = (Net earnings attributable to Allergan, Inc. – Dividends) ÷ Net earnings attributable to Allergan, Inc.
= (1,524,200 – 59,700) ÷ 1,524,200
= 0.96

2 Profit margin = 100 × Net earnings attributable to Allergan, Inc. ÷ Product net sales
= 100 × 1,524,200 ÷ 7,126,100
= 21.39%

3 Asset turnover = Product net sales ÷ Total assets
= 7,126,100 ÷ 12,415,700
= 0.57

4 Financial leverage = Total assets ÷ Total Allergan, Inc. stockholders’ equity
= 12,415,700 ÷ 7,753,000
= 1.60

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= -19.34 × 14.80% × 0.60 × 1.63
= -279.49%

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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (69,390,936 × 11.13% – 1,666,900) ÷ (69,390,936 + 1,666,900)
= 8.52%

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

FCFE growth rate (g) forecast

Allergan Inc., H-model

Microsoft Excel
Year Value gt
1 g1 -279.49%
2 g2 -207.49%
3 g3 -135.48%
4 g4 -63.48%
5 and thereafter g5 8.52%

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)
= -279.49% + (8.52% – -279.49%) × (2 – 1) ÷ (5 – 1)
= -207.49%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= -279.49% + (8.52% – -279.49%) × (3 – 1) ÷ (5 – 1)
= -135.48%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= -279.49% + (8.52% – -279.49%) × (4 – 1) ÷ (5 – 1)
= -63.48%