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)

Hubbell Inc., free cash flow to the firm (FCFF) forecast

US$ in thousands, except per share data

Year	Value	FCFF_t or Terminal value (TV_t)	Calculation	Present value at 13.50%
0¹	FCFF₀	544,283
1	FCFF₁	573,097	= 544,283 × (1 + 5.29%)	504,945
2	FCFF₂	609,928	= 573,097 × (1 + 6.43%)	473,490
3	FCFF₃	656,035	= 609,928 × (1 + 7.56%)	448,720
4	FCFF₄	713,056	= 656,035 × (1 + 8.69%)	429,723
5	FCFF₅	783,111	= 713,056 × (1 + 9.82%)	415,818
5	Terminal value (TV₅)	23,419,427	= 783,111 × (1 + 9.82%) ÷ (13.50% – 9.82%)	12,435,310
Intrinsic value of Hubbell Inc. capital				14,708,006
Less: Debt (fair value)				1,311,200
Intrinsic value of Hubbell Inc. common stock				13,396,806

Intrinsic value of Hubbell Inc. common stock (per share)				$249.84
Current share price				$279.10

Based on: 10-K (reporting date: 2022-12-31).

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.

Hubbell Inc., cost of capital

	Value¹	Weight	Required rate of return²	Calculation
Equity (fair value)	14,965,914	0.92	14.46%
Debt (fair value)	1,311,200	0.08	2.48%	= 3.14% × (1 – 21.06%)

Based on: 10-K (reporting date: 2022-12-31).

¹ US$ in thousands

Equity (fair value) = No. shares of common stock outstanding × Current share price
= 53,622,050 × $279.10
= $14,965,914,155.00

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
= (21.30% + 19.20% + 21.50% + 21.70% + 21.60%) ÷ 5
= 21.06%

WACC = 13.50%

FCFF growth rate (g) implied by PRAT model

Hubbell Inc., PRAT model

	Average	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Selected Financial Data (US$ in thousands)
Interest expense, net		49,600)	54,700)	60,300)	69,400)	72,400)
Income from discontinued operations, net of tax		34,600)	34,500)	—)	—)	—)
Net income attributable to Hubbell Incorporated		545,900)	399,500)	351,200)	400,900)	360,200)

Effective income tax rate (EITR)¹		21.30%	19.20%	21.50%	21.70%	21.60%

Interest expense, net, after tax²		39,035)	44,198)	47,336)	54,340)	56,762)
Add: Cash dividends declared		229,900)	217,400)	201,800)	187,000)	172,800)
Interest expense (after tax) and dividends		268,935)	261,598)	249,136)	241,340)	229,562)

EBIT(1 – EITR)³		550,335)	409,198)	398,536)	455,240)	416,962)

Short-term debt and current portion of long-term debt		4,700)	9,700)	153,100)	65,400)	56,100)
Long-term debt, excluding current portion		1,437,900)	1,435,500)	1,436,900)	1,506,000)	1,737,100)
Total Hubbell Incorporated shareholders’ equity		2,360,900)	2,229,800)	2,070,000)	1,947,100)	1,780,600)
Total capital		3,803,500)	3,675,000)	3,660,000)	3,518,500)	3,573,800)
Financial Ratios
Retention rate (RR)⁴		0.51	0.36	0.37	0.47	0.45
Return on invested capital (ROIC)⁵		14.47%	11.13%	10.89%	12.94%	11.67%
Averages
RR	0.43
ROIC	12.22%

FCFF growth rate (g)⁶	5.29%

Based on: 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), 10-K (reporting date: 2018-12-31).

¹ See details »

2022 Calculations

² Interest expense, net, after tax = Interest expense, net × (1 – EITR)
= 49,600 × (1 – 21.30%)
= 39,035

³ EBIT(1 – EITR) = Net income attributable to Hubbell Incorporated – Income from discontinued operations, net of tax + Interest expense, net, after tax
= 545,900 – 34,600 + 39,035
= 550,335

⁴ RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [550,335 – 268,935] ÷ 550,335
= 0.51

⁵ ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 550,335 ÷ 3,803,500
= 14.47%

⁶ g = RR × ROIC
= 0.43 × 12.22%
= 5.29%

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

g = 100 × (Total capital, fair value₀ × WACC – FCFF₀) ÷ (Total capital, fair value₀ + FCFF₀)
= 100 × (16,277,114 × 13.50% – 544,283) ÷ (16,277,114 + 544,283)
= 9.82%

where:

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

FCFF growth rate (g) forecast

Hubbell Inc., H-model

Year	Value	g_t
1	g₁	5.29%
2	g₂	6.43%
3	g₃	7.56%
4	g₄	8.69%
5 and thereafter	g₅	9.82%

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)
= 5.29% + (9.82% – 5.29%) × (2 – 1) ÷ (5 – 1)
= 6.43%

g₃ = g₁ + (g₅ – g₁) × (3 – 1) ÷ (5 – 1)
= 5.29% + (9.82% – 5.29%) × (3 – 1) ÷ (5 – 1)
= 7.56%

g₄ = g₁ + (g₅ – g₁) × (4 – 1) ÷ (5 – 1)
= 5.29% + (9.82% – 5.29%) × (4 – 1) ÷ (5 – 1)
= 8.69%

Hubbell Inc. (NYSE:HUBB)

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