Stock Analysis on Net
Stock Analysis on Net

Danaher Corp. (NYSE:DHR)

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)

Danaher Corp., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

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Year Value FCFEt or Terminal value (TVt) Calculation Present value at 12.66%
01 FCFE0 3,493
1 FCFE1 3,828 = 3,493 × (1 + 9.59%) 3,398
2 FCFE2 4,203 = 3,828 × (1 + 9.81%) 3,312
3 FCFE3 4,625 = 4,203 × (1 + 10.04%) 3,235
4 FCFE4 5,100 = 4,625 × (1 + 10.27%) 3,166
5 FCFE5 5,636 = 5,100 × (1 + 10.50%) 3,106
5 Terminal value (TV5) 288,051 = 5,636 × (1 + 10.50%) ÷ (12.66% – 10.50%) 158,732
Intrinsic value of Danaher Corp. common stock 174,949
 
Intrinsic value of Danaher Corp. common stock (per share) $242.22
Current share price $247.18

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 4.57%
Expected rate of return on market portfolio2 E(RM) 13.82%
Systematic risk of Danaher Corp. common stock βDHR 0.87
 
Required rate of return on Danaher Corp. common stock3 rDHR 12.66%

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 rDHR = RF + βDHR [E(RM) – RF]
= 4.57% + 0.87 [13.82% – 4.57%]
= 12.66%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Danaher Corp., 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 millions)
Common stock dividends declared 773 725 601 509 484
Mandatory Convertible Preferred Stock dividends declared 21 106 164 136 68
Net earnings 4,764 7,209 6,433 3,646 3,008
Sales 23,890 31,471 29,453 22,284 17,911
Total assets 84,488 84,350 83,184 76,161 62,082
Total Danaher stockholders’ equity 53,486 50,082 45,167 39,766 30,271
Financial Ratios
Retention rate1 0.84 0.90 0.90 0.85 0.84
Profit margin2 19.85% 22.57% 21.28% 15.75% 16.41%
Asset turnover3 0.28 0.37 0.35 0.29 0.29
Financial leverage4 1.58 1.68 1.84 1.92 2.05
Averages
Retention rate 0.87
Profit margin 19.17%
Asset turnover 0.32
Financial leverage 1.81
 
FCFE growth rate (g)5 9.59%

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 – Common stock dividends declared – Mandatory Convertible Preferred Stock dividends declared) ÷ (Net earnings – Mandatory Convertible Preferred Stock dividends declared)
= (4,764 – 773 – 21) ÷ (4,764 – 21)
= 0.84

2 Profit margin = 100 × (Net earnings – Mandatory Convertible Preferred Stock dividends declared) ÷ Sales
= 100 × (4,764 – 21) ÷ 23,890
= 19.85%

3 Asset turnover = Sales ÷ Total assets
= 23,890 ÷ 84,488
= 0.28

4 Financial leverage = Total assets ÷ Total Danaher stockholders’ equity
= 84,488 ÷ 53,486
= 1.58

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.87 × 19.17% × 0.32 × 1.81
= 9.59%

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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (178,532 × 12.66% – 3,493) ÷ (178,532 + 3,493)
= 10.50%

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

FCFE growth rate (g) forecast

Danaher Corp., H-model

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Year Value gt
1 g1 9.59%
2 g2 9.81%
3 g3 10.04%
4 g4 10.27%
5 and thereafter g5 10.50%

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)
= 9.59% + (10.50% – 9.59%) × (2 – 1) ÷ (5 – 1)
= 9.81%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 9.59% + (10.50% – 9.59%) × (3 – 1) ÷ (5 – 1)
= 10.04%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 9.59% + (10.50% – 9.59%) × (4 – 1) ÷ (5 – 1)
= 10.27%