I estimated the firm's WACC at 6.29% using the Capital Asset Pricing Model and information gleamed from the company's recent SEC filings. Assuming I missed the mark on my estimate, factor in a margin of safety and estimate the firm's WACC higher at 8.00%.
Recent free cash flows and noted growth rates
CAGR: approx 13%
Internal Growth Rate: approx 8%
Sustainable Growth Rate: approx 20%
Consensus Forecast Industry 5-Year Growth Rate: approx 13% per year
Consensus Forecast Company 5-Year Growth Rate: approx 10% per year
Assuming the forecast company 5-year growth rate of 10% per year is too high, factor in a margin of safety and assume a lower growth rate of 5% per year. Furthermore, assume that after the next five years, the company achieves no growth or 0% growth per year forever.
Discounted Cash Flow Valuation
|Year||FCF $ Millions|
$96,862 million / 1,550 million outstanding shares = $62.49 per share. A 20% margin of safety here is $49.99 per share and $ABT's current share price is approx $47. I like $ABT for the long term and consider it undervalued here.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.