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)
Weighted Average Cost of Capital (WACC)
FCFF Growth Rate (g)

CVS Health Corp., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Year	Value	FCFF_t or Terminal value (TV_t)	Calculation	Present value at 6.56%
0¹	FCFF₀	12,206
1	FCFF₁	12,563	= 12,206 × (1 + 2.93%)	11,790
2	FCFF₂	12,755	= 12,563 × (1 + 1.53%)	11,234
3	FCFF₃	12,772	= 12,755 × (1 + 0.13%)	10,557
4	FCFF₄	12,610	= 12,772 × (1 + -1.27%)	9,782
5	FCFF₅	12,274	= 12,610 × (1 + -2.67%)	8,935
5	Terminal value (TV₅)	129,545	= 12,274 × (1 + -2.67%) ÷ (6.56% – -2.67%)	94,307
Intrinsic value of CVS Health Corp. capital				146,604
Less: Debt (fair value)				58,651
Intrinsic value of CVS Health Corp. common stock				87,953

Intrinsic value of CVS Health Corp. common stock (per share)				$69.89
Current share price				$55.77

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.

CVS Health Corp., cost of capital

	Value¹	Weight	Required rate of return²	Calculation
Equity (fair value)	70,181	0.54	9.35%
Debt (fair value)	58,651	0.46	3.21%	= 4.32% × (1 – 25.58%)

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

¹ US$ in millions

Equity (fair value) = No. shares of common stock outstanding × Current share price
= 1,258,407,645 × $55.77
= $70,181,394,361.65

Debt (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
= (25.10% + 26.00% + 24.20% + 26.30% + 26.30%) ÷ 5
= 25.58%

WACC = 6.56%

FCFF growth rate (g) implied by PRAT model

CVS Health Corp., PRAT model

	Average	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Selected Financial Data (US$ in millions)
Interest expense		2,658)	2,287)	2,503)	2,907)	3,035)
Loss from discontinued operations, net of tax		—)	—)	—)	(9)	—)
Net income attributable to CVS Health		8,344)	4,149)	7,910)	7,179)	6,634)

Effective income tax rate (EITR)¹		25.10%	26.00%	24.20%	26.30%	26.30%

Interest expense, after tax²		1,991)	1,692)	1,897)	2,142)	2,237)
Add: Common stock dividends		3,138)	2,910)	2,644)	2,644)	2,615)
Interest expense (after tax) and dividends		5,129)	4,602)	4,541)	4,786)	4,852)

EBIT(1 – EITR)³		10,335)	5,841)	9,807)	9,330)	8,871)

Short-term debt		200)	—)	—)	—)	—)
Current portion of long-term debt		2,772)	1,778)	4,205)	5,440)	3,781)
Long-term debt, excluding current portion		58,638)	50,476)	51,971)	59,207)	64,699)
Total CVS Health shareholders’ equity		76,461)	71,015)	75,075)	69,389)	63,864)
Total capital		138,071)	123,269)	131,251)	134,036)	132,344)
Financial Ratios
Retention rate (RR)⁴		0.50	0.21	0.54	0.49	0.45
Return on invested capital (ROIC)⁵		7.49%	4.74%	7.47%	6.96%	6.70%
Averages
RR	0.44
ROIC	6.67%

FCFF growth rate (g)⁶	2.93%

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)
= 2,658 × (1 – 25.10%)
= 1,991

³ EBIT(1 – EITR) = Net income attributable to CVS Health – Loss from discontinued operations, net of tax + Interest expense, after tax
= 8,344 – 0 + 1,991
= 10,335

⁴ RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [10,335 – 5,129] ÷ 10,335
= 0.50

⁵ ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 10,335 ÷ 138,071
= 7.49%

⁶ g = RR × ROIC
= 0.44 × 6.67%
= 2.93%

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

g = 100 × (Total capital, fair value₀ × WACC – FCFF₀) ÷ (Total capital, fair value₀ + FCFF₀)
= 100 × (128,832 × 6.56% – 12,206) ÷ (128,832 + 12,206)
= -2.67%

where:

Total capital, fair value₀ = current fair value of CVS Health Corp. debt and equity (US$ in millions)
FCFF₀ = the last year CVS Health Corp. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of CVS Health Corp. capital

FCFF growth rate (g) forecast

CVS Health Corp., H-model

Year	Value	g_t
1	g₁	2.93%
2	g₂	1.53%
3	g₃	0.13%
4	g₄	-1.27%
5 and thereafter	g₅	-2.67%

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)
= 2.93% + (-2.67% – 2.93%) × (2 – 1) ÷ (5 – 1)
= 1.53%

g₃ = g₁ + (g₅ – g₁) × (3 – 1) ÷ (5 – 1)
= 2.93% + (-2.67% – 2.93%) × (3 – 1) ÷ (5 – 1)
= 0.13%

g₄ = g₁ + (g₅ – g₁) × (4 – 1) ÷ (5 – 1)
= 2.93% + (-2.67% – 2.93%) × (4 – 1) ÷ (5 – 1)
= -1.27%

CVS Health Corp. (NYSE:CVS)

Present Value of Free Cash Flow to the Firm (FCFF)

Intrinsic Stock Value (Valuation Summary)

Weighted Average Cost of Capital (WACC)

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

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

FCFF growth rate (g) forecast