Stock Analysis on Net
Stock Analysis on Net

Bristol-Myers Squibb Co. (NYSE:BMY)

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)

Bristol-Myers Squibb Co., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 8.12%
01 FCFE0 13,107
1 FCFE1 13,446 = 13,107 × (1 + 2.59%) 12,436
2 FCFE2 13,617 = 13,446 × (1 + 1.27%) 11,648
3 FCFE3 13,611 = 13,617 × (1 + -0.05%) 10,768
4 FCFE4 13,426 = 13,611 × (1 + -1.36%) 9,823
5 FCFE5 13,066 = 13,426 × (1 + -2.68%) 8,842
5 Terminal value (TV5) 117,732 = 13,066 × (1 + -2.68%) ÷ (8.12% – -2.68%) 79,672
Intrinsic value of Bristol-Myers Squibb Co. common stock 133,189
 
Intrinsic value of Bristol-Myers Squibb Co. common stock (per share) $65.67
Current share price $58.23

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.

Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.65%
Expected rate of return on market portfolio2 E(RM) 13.79%
Systematic risk of Bristol-Myers Squibb Co. common stock βBMY 0.38
 
Required rate of return on Bristol-Myers Squibb Co. common stock3 rBMY 8.12%

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 rBMY = RF + βBMY [E(RM) – RF]
= 4.65% + 0.38 [13.79% – 4.65%]
= 8.12%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Bristol-Myers Squibb Co., PRAT model

Microsoft Excel
Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Cash dividends declared 4,762 4,644 4,455 4,178 3,035
Net earnings (loss) attributable to BMS 8,025 6,327 6,994 (9,015) 3,439
Revenues 45,006 46,159 46,385 42,518 26,145
Total assets 95,159 96,820 109,314 118,481 129,944
Total BMS shareholders’ equity 29,430 31,061 35,946 37,822 51,598
Financial Ratios
Retention rate1 0.41 0.27 0.36 — 0.12
Profit margin2 17.83% 13.71% 15.08% -21.20% 13.15%
Asset turnover3 0.47 0.48 0.42 0.36 0.20
Financial leverage4 3.23 3.12 3.04 3.13 2.52
Averages
Retention rate 0.29
Profit margin 7.71%
Asset turnover 0.39
Financial leverage 3.01
 
FCFE growth rate (g)5 2.59%

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).

2023 Calculations

1 Retention rate = (Net earnings (loss) attributable to BMS – Cash dividends declared) ÷ Net earnings (loss) attributable to BMS
= (8,025 – 4,762) ÷ 8,025
= 0.41

2 Profit margin = 100 × Net earnings (loss) attributable to BMS ÷ Revenues
= 100 × 8,025 ÷ 45,006
= 17.83%

3 Asset turnover = Revenues ÷ Total assets
= 45,006 ÷ 95,159
= 0.47

4 Financial leverage = Total assets ÷ Total BMS shareholders’ equity
= 95,159 ÷ 29,430
= 3.23

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.29 × 7.71% × 0.39 × 3.01
= 2.59%

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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (118,101 × 8.12% – 13,107) ÷ (118,101 + 13,107)
= -2.68%

where:
Equity market value0 = current market value of Bristol-Myers Squibb Co. common stock (US$ in millions)
FCFE0 = the last year Bristol-Myers Squibb Co. free cash flow to equity (US$ in millions)
r = required rate of return on Bristol-Myers Squibb Co. common stock

FCFE growth rate (g) forecast

Bristol-Myers Squibb Co., H-model

Microsoft Excel
Year Value gt
1 g1 2.59%
2 g2 1.27%
3 g3 -0.05%
4 g4 -1.36%
5 and thereafter g5 -2.68%

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)
= 2.59% + (-2.68% – 2.59%) × (2 – 1) ÷ (5 – 1)
= 1.27%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 2.59% + (-2.68% – 2.59%) × (3 – 1) ÷ (5 – 1)
= -0.05%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 2.59% + (-2.68% – 2.59%) × (4 – 1) ÷ (5 – 1)
= -1.36%