Stock Analysis on Net
Stock Analysis on Net

Edwards Lifesciences Corp. (NYSE:EW)

This company has been moved to the archive! The financial data has not been updated since February 14, 2022.

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

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 the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Edwards Lifesciences Corp., free cash flow to the firm (FCFF) forecast

US$ in thousands, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 14.52%
01 FCFF0 1,420,139
1 FCFF1 1,690,677 = 1,420,139 × (1 + 19.05%) 1,476,308
2 FCFF2 1,983,679 = 1,690,677 × (1 + 17.33%) 1,512,530
3 FCFF3 2,293,348 = 1,983,679 × (1 + 15.61%) 1,526,929
4 FCFF4 2,611,921 = 2,293,348 × (1 + 13.89%) 1,518,537
5 FCFF5 2,929,832 = 2,611,921 × (1 + 12.17%) 1,487,388
5 Terminal value (TV5) 139,903,420 = 2,929,832 × (1 + 12.17%) ÷ (14.52% – 12.17%) 71,024,786
Intrinsic value of Edwards Lifesciences Corp. capital 78,546,477
Less: Debt (fair value) 675,400
Intrinsic value of Edwards Lifesciences Corp. common stock 77,871,077
 
Intrinsic value of Edwards Lifesciences Corp. common stock (per share) $124.95
Current share price $107.73

Based on: 10-K (reporting date: 2021-12-31).

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.

Weighted Average Cost of Capital (WACC)

Edwards Lifesciences Corp., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 67,138,137 0.99 14.64%
Debt (fair value) 675,400 0.01 3.06% = 3.40% × (1 – 10.03%)

Based on: 10-K (reporting date: 2021-12-31).

1 US$ in thousands

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 623,207,437 × $107.73
= $67,138,137,188.01

   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
= (11.69% + 10.18% + 10.01% + 3.07% + 15.19%) ÷ 5
= 10.03%

WACC = 14.52%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Edwards Lifesciences Corp., PRAT model

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Average Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017
Selected Financial Data (US$ in thousands)
Interest expense 18,400 15,800 20,700 29,900 23,200
Net income 1,503,100 823,400 1,046,900 722,200 583,600
 
Effective income tax rate (EITR)1 11.69% 10.18% 10.01% 3.07% 15.19%
 
Interest expense, after tax2 16,249 14,192 18,628 28,982 19,676
Interest expense (after tax) and dividends 16,249 14,192 18,628 28,982 19,676
 
EBIT(1 – EITR)3 1,519,349 837,592 1,065,528 751,182 603,276
 
Short-term debt — — — — 598,000
Long-term debt 595,700 595,000 594,400 593,800 438,400
Stockholders’ equity 5,835,900 4,574,300 4,148,300 3,140,400 2,956,200
Total capital 6,431,600 5,169,300 4,742,700 3,734,200 3,992,600
Financial Ratios
Retention rate (RR)4 0.99 0.98 0.98 0.96 0.97
Return on invested capital (ROIC)5 23.62% 16.20% 22.47% 20.12% 15.11%
Averages
RR 0.98
ROIC 19.50%
 
FCFF growth rate (g)6 19.05%

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

1 See details »

2021 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 18,400 × (1 – 11.69%)
= 16,249

3 EBIT(1 – EITR) = Net income + Interest expense, after tax
= 1,503,100 + 16,249
= 1,519,349

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [1,519,349 – 16,249] ÷ 1,519,349
= 0.99

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 1,519,349 ÷ 6,431,600
= 23.62%

6 g = RR × ROIC
= 0.98 × 19.50%
= 19.05%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (67,813,537 × 14.52% – 1,420,139) ÷ (67,813,537 + 1,420,139)
= 12.17%

where:

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

FCFF growth rate (g) forecast

Edwards Lifesciences Corp., H-model

Microsoft Excel
Year Value gt
1 g1 19.05%
2 g2 17.33%
3 g3 15.61%
4 g4 13.89%
5 and thereafter g5 12.17%

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)
= 19.05% + (12.17% – 19.05%) × (2 – 1) ÷ (5 – 1)
= 17.33%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 19.05% + (12.17% – 19.05%) × (3 – 1) ÷ (5 – 1)
= 15.61%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 19.05% + (12.17% – 19.05%) × (4 – 1) ÷ (5 – 1)
= 13.89%