Projected Yield: ~ 1.24%
Stryker develops, manufactures, and markets medical devices and equipment for use primarily in orthopedic procedures. The firm generates most of its revenue from reconstructive implants, such as knees and hips, but serves a variety of other orthopedic niches, including spine. Beyond implants, Stryker offers a wide range of operating room equipment, tools for orthopedic and other procedures, hospital beds, and stretchers.
I estimated the firm's WACC today at 11.29% using the Capital Asset Pricing Model and the company's recent SEC filings.
Recent free cash flows and noted growth rates:
| Year | FCF $Millions |
| 2001 | 306 |
| 2002 | 365 |
| 2003 | 504 |
| 2004 | 406 |
| 2005 | 592 |
| 2006 | 650 |
| 2007 | 841 |
| 2008 | 1021 |
| 2009 | 1329 |
| 2010 | 1365 |
Average Annual Growth FCF: ~ 20%
CAGR FCF: ~ 18%
Consensus Forecast Industry 5-Year Growth: ~ 16% per yearConsensus Forecast Company 5-Year Growth: ~ 11% per year
Assuming the company achieves a 5-year growth rate in FCF of 11% 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 | 1365 |
| 1 | 1515 |
| 2 | 1682 |
| 3 | 1867 |
| 4 | 2072 |
| 5 | 2300 |
| Terminal Value | 22613 |
The firm's future cash flows, discounted at a WACC of 11.29%, give a present value for the entire firm (Debt + Equity) of $20,017 million. If the firm's fair value of debt is estimated at $1025 million, then the fair value of the firm's equity could be $18,992 million. $18,992 / 388 million outstanding shares is ~ $49 per share and a 20% margin of safety is ~ $39/share.
Sources
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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