Baxter International focuses on delivering injectable therapies for a wide variety of medical conditions. The firm's BioScience segment specializes in developing treatments for disorders such as hemophilia and immune deficiencies. It also provides a variety of medication delivery systems including intravenous bags, solutions, and other devices to control fluid inflow, including dialysis equipment and solutions for patients with kidney failure
I estimated the firm's WACC today at 7.85% using the Capital Asset Pricing Model and the company's recent SEC filings.
Recent free cash flows and noted growth rates:
| Year | FCF $Millions |
| 2000 | 566 |
| 2001 | 362 |
| 2002 | 345 |
| 2003 | 636 |
| 2004 | 822 |
| 2005 | 1106 |
| 2006 | 1657 |
| 2007 | 1613 |
| 2008 | 1561 |
| 2009 | 1895 |
| 2010 | 2040 |
Average Annual Growth: approx 18%
CAGR: approx. 14%
CAGR: approx. 14%
Consensus Forecast Industry 5-Year Growth: approx. 16% per year
Consensus Forecast Company 5-Year Growth: approx. 10% per year
Consensus Forecast Company 5-Year Growth: approx. 10% per year
Assuming the company achieves a 5-year growth rate in FCF of 9% per year, and assuming that after the next five years, the company achieves no growth in FCF or 0% growth per year forever:
Discounted Cash Flow Valuation
| Year | FCF $ Millions |
| 0 | 2040 |
| 1 | 2224 |
| 2 | 2424 |
| 3 | 2642 |
| 4 | 2880 |
| 5 | 3139 |
| Terminal Value | 43610 |
The firm's future cash flows, discounted at a WACC of 7.85%, give a present value for the entire firm (Debt + Equity) of $40,427 million. If the firm's fair value of debt is estimated at $4700 million, then the fair value of the firm's equity could be $35,727 million. $35,727 million / 583 million outstanding shares is approximately $61 per share and a 20% margin of safety is $49/share.
Sources
Morningstar.com
Morningstar.com
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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