Stock Analysis on Net
Stock Analysis on Net

Thermo Fisher Scientific Inc. (NYSE:TMO)

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

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

Intrinsic Stock Value (Valuation Summary)

Thermo Fisher Scientific Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

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Year Value FCFFt or Terminal value (TVt) Calculation Present value at 10.61%
01 FCFF0 8,337
1 FCFF1 9,040 = 8,337 × (1 + 8.44%) 8,173
2 FCFF2 9,763 = 9,040 × (1 + 8.00%) 7,980
3 FCFF3 10,502 = 9,763 × (1 + 7.57%) 7,760
4 FCFF4 11,251 = 10,502 × (1 + 7.13%) 7,516
5 FCFF5 12,005 = 11,251 × (1 + 6.70%) 7,250
5 Terminal value (TV5) 327,175 = 12,005 × (1 + 6.70%) ÷ (10.61% – 6.70%) 197,587
Intrinsic value of Thermo Fisher Scientific Inc. capital 236,266
Less: Debt obligations (fair value) 32,458
Intrinsic value of Thermo Fisher Scientific Inc. common stock 203,808
 
Intrinsic value of Thermo Fisher Scientific Inc. common stock (per share) $532.83
Current share price $509.12

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

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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)

Thermo Fisher Scientific Inc., cost of capital

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Value1 Weight Required rate of return2 Calculation
Equity (fair value) 194,739 0.86 12.01%
Debt obligations (fair value) 32,458 0.14 2.25% = 2.48% × (1 – 9.39%)

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
= 382,500,265 × $509.12
= $194,738,534,916.80

   Debt obligations (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
= (4.51% + 8.97% + 12.54% + 11.76% + 9.19%) ÷ 5
= 9.39%

WACC = 10.61%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Thermo Fisher Scientific Inc., 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)
Interest expense 1,375 726 536 553 676
Net income attributable to Thermo Fisher Scientific Inc. 5,995 6,950 7,725 6,375 3,696
 
Effective income tax rate (EITR)1 4.51% 8.97% 12.54% 11.76% 9.19%
 
Interest expense, after tax2 1,313 661 469 488 614
Add: Dividends declared 541 471 410 350 304
Interest expense (after tax) and dividends 1,854 1,132 879 838 918
 
EBIT(1 – EITR)3 7,308 7,611 8,194 6,863 4,310
 
Short-term obligations and current maturities of long-term obligations 3,609 5,579 2,537 2,628 676
Long-term obligations, excluding current maturities 31,308 28,909 32,333 19,107 17,076
Total Thermo Fisher Scientific Inc. shareholders’ equity 46,735 43,978 40,793 34,507 29,675
Total capital 81,652 78,466 75,663 56,242 47,427
Financial Ratios
Retention rate (RR)4 0.75 0.85 0.89 0.88 0.79
Return on invested capital (ROIC)5 8.95% 9.70% 10.83% 12.20% 9.09%
Averages
RR 0.83
ROIC 10.15%
 
FCFF growth rate (g)6 8.44%

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).

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2023 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 1,375 × (1 – 4.51%)
= 1,313

3 EBIT(1 – EITR) = Net income attributable to Thermo Fisher Scientific Inc. + Interest expense, after tax
= 5,995 + 1,313
= 7,308

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [7,308 – 1,854] ÷ 7,308
= 0.75

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 7,308 ÷ 81,652
= 8.95%

6 g = RR × ROIC
= 0.83 × 10.15%
= 8.44%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (227,197 × 10.61% – 8,337) ÷ (227,197 + 8,337)
= 6.70%

where:

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

FCFF growth rate (g) forecast

Thermo Fisher Scientific Inc., H-model

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Year Value gt
1 g1 8.44%
2 g2 8.00%
3 g3 7.57%
4 g4 7.13%
5 and thereafter g5 6.70%

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)
= 8.44% + (6.70% – 8.44%) × (2 – 1) ÷ (5 – 1)
= 8.00%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 8.44% + (6.70% – 8.44%) × (3 – 1) ÷ (5 – 1)
= 7.57%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 8.44% + (6.70% – 8.44%) × (4 – 1) ÷ (5 – 1)
= 7.13%