Stock Analysis on Net
Stock Analysis on Net

Trane Technologies plc (NYSE:TT)

This company has been moved to the archive! The financial data has not been updated since May 3, 2023.

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)

Trane Technologies plc, 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 12.98%
01 FCFF0 1,596,886
1 FCFF1 1,720,351 = 1,596,886 × (1 + 7.73%) 1,522,731
2 FCFF2 1,859,321 = 1,720,351 × (1 + 8.08%) 1,456,689
3 FCFF3 2,015,958 = 1,859,321 × (1 + 8.42%) 1,397,978
4 FCFF4 2,192,775 = 2,015,958 × (1 + 8.77%) 1,345,919
5 FCFF5 2,392,697 = 2,192,775 × (1 + 9.12%) 1,299,926
5 Terminal value (TV5) 67,626,517 = 2,392,697 × (1 + 9.12%) ÷ (12.98% – 9.12%) 36,740,754
Intrinsic value of Trane Technologies plc capital 43,763,998
Less: Debt (fair value) 4,600,000
Intrinsic value of Trane Technologies plc common stock 39,163,998
 
Intrinsic value of Trane Technologies plc common stock (per share) $171.73
Current share price $177.74

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

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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)

Trane Technologies plc, cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 40,533,934 0.90 14.05%
Debt (fair value) 4,600,000 0.10 3.56% = 4.41% × (1 – 19.22%)

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
= 228,051,842 × $177.74
= $40,533,934,397.08

   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
= (17.30% + 18.60% + 23.00% + 20.30% + 16.90%) ÷ 5
= 19.22%

WACC = 12.98%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Trane Technologies plc, PRAT model

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Average Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018
Selected Financial Data (US$ in thousands)
Interest expense 223,500 233,700 248,700 243,000 220,700
Discontinued operations, net of tax (21,500) (20,600) (121,400) 40,600 (21,500)
Net earnings attributable to Trane Technologies plc 1,756,500 1,423,400 854,900 1,410,900 1,337,600
 
Effective income tax rate (EITR)1 17.30% 18.60% 23.00% 20.30% 16.90%
 
Interest expense, after tax2 184,835 190,232 191,499 193,671 183,402
Add: Cash dividends declared 620,700 561,800 507,700 509,500 480,800
Interest expense (after tax) and dividends 805,535 752,032 699,199 703,171 664,202
 
EBIT(1 – EITR)3 1,962,835 1,634,232 1,167,799 1,563,971 1,542,502
 
Short-term borrowings and current maturities of long-term debt 1,048,000 350,400 775,600 650,500 350,600
Long-term debt,excluding current maturities 3,788,300 4,491,700 4,496,500 4,922,900 3,740,700
Total Trane Technologies plc shareholders’ equity 6,088,600 6,255,900 6,407,700 7,267,600 7,022,700
Total capital 10,924,900 11,098,000 11,679,800 12,841,000 11,114,000
Financial Ratios
Retention rate (RR)4 0.59 0.54 0.40 0.55 0.57
Return on invested capital (ROIC)5 17.97% 14.73% 10.00% 12.18% 13.88%
Averages
RR 0.56
ROIC 13.75%
 
FCFF growth rate (g)6 7.73%

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, after tax = Interest expense × (1 – EITR)
= 223,500 × (1 – 17.30%)
= 184,835

3 EBIT(1 – EITR) = Net earnings attributable to Trane Technologies plc – Discontinued operations, net of tax + Interest expense, after tax
= 1,756,500 – -21,500 + 184,835
= 1,962,835

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [1,962,835 – 805,535] ÷ 1,962,835
= 0.59

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 1,962,835 ÷ 10,924,900
= 17.97%

6 g = RR × ROIC
= 0.56 × 13.75%
= 7.73%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (45,133,934 × 12.98% – 1,596,886) ÷ (45,133,934 + 1,596,886)
= 9.12%

where:

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

FCFF growth rate (g) forecast

Trane Technologies plc, H-model

Microsoft Excel
Year Value gt
1 g1 7.73%
2 g2 8.08%
3 g3 8.42%
4 g4 8.77%
5 and thereafter g5 9.12%

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)
= 7.73% + (9.12% – 7.73%) × (2 – 1) ÷ (5 – 1)
= 8.08%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 7.73% + (9.12% – 7.73%) × (3 – 1) ÷ (5 – 1)
= 8.42%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 7.73% + (9.12% – 7.73%) × (4 – 1) ÷ (5 – 1)
= 8.77%