Danaher Corporation Fair Value Calculation (NYSE: DHR)
Does Danaher Corporation (NYSE: DHR) August Stock Price Reflect Its True Value? Today, we’re going to estimate the intrinsic value of the stock by estimating the company’s future cash flows and discounting them to their present value. We will use the Discounted Cash Flow (DCF) model on this occasion. It may sound complicated, but it’s actually quite simple!
We generally think of a business’s value as the present value of all the cash it will generate in the future. However, a DCF is only one evaluation measure among many, and it is not without its flaws. Anyone who wants to learn a little more about intrinsic value should read the Simply Wall St.
See our latest review for Danaher
Is Danaher valued enough?
We use what is called a twostep model, which simply means that we have two different periods of growth rate for the cash flow of the business. Usually the first stage is higher growth and the second stage is lower growth stage. To begin with, we need to estimate the next ten years of cash flow. Where possible, we use analyst estimates, but when these are not available, we extrapolate the previous free cash flow (FCF) from the last estimate or stated value. We assume that companies with decreasing free cash flow will slow their rate of contraction, and companies with increasing free cash flow will see their growth rate slow during this period. We do this to reflect the fact that growth tends to slow down more in the early years than in subsequent years.
A DCF is based on the idea that a dollar in the future is worth less than a dollar today, and therefore the sum of those future cash flows is then discounted to today’s value. :
10year Free Cash Flow (FCF) estimate
2022 
2023 
2024 
2025 
2026 
2027 
2028 
2029 
2030 
2031 

Leverage FCF ($, Millions) 
7.12 billion US dollars 
7.44 billion US dollars 
US $ 9.17 billion 
US $ 10.1 billion 
US $ 10.7 billion 
US $ 11.3 billion 
US $ 11.8 billion 
US $ 12.2 billion 
US $ 12.5 billion 
US $ 12.9 billion 
Source of estimated growth rate 
Analyst x8 
Analyst x8 
Analyst x3 
Analyst x2 
Est @ 6.56% 
Est at 5.19% 
East @ 4.23% 
East @ 3.56% 
Est @ 3.09% 
East @ 2.76% 
Present value (in millions of dollars) discounted at 6.3% 
$ 6.7,000 
US $ 6.6k 
$ 7.6,000 
$ 7.9,000 
$ 7.9,000 
7.8,000 USD 
$ 7.7,000 
7.5,000 USD 
$ 7.2,000 
US $ 7,000 
(“East” = FCF growth rate estimated by Simply Wall St)
10year present value of cash flows (PVCF) = 74 billion US dollars
The second stage is also known as terminal value, this is the cash flow of the business after the first stage. For a number of reasons, a very conservative growth rate is used that cannot exceed that of a country’s GDP growth. In this case, we used the 5year average of the 10year government bond yield (2.0%) to estimate future growth. Similar to the 10year “growth” period, we discount future cash flows to their present value, using a cost of equity of 6.3%.
Terminal value (TV)= FCF_{2031} × (1 + g) ÷ (r – g) = US $ 13 billion × (1 + 2.0%) ÷ (6.3% – 2.0%) = US $ 304 billion
Present value of terminal value (PVTV)= TV / (1 + r)^{ten}= 304 billion US dollars ÷ (1 + 6.3%)^{ten}= 165 billion US dollars
The total value is the sum of the cash flows for the next ten years plus the final present value, which gives the total value of equity, which in this case is US $ 239 billion. To get the intrinsic value per share, we divide it by the total number of shares outstanding. From the current share price of $ 322, the company appears to be roughly at fair value with a 3.8% discount to the current share price. The assumptions in any calculation have a big impact on the valuation, so it’s best to take this as a rough estimate, not precise down to the last penny.
The hypotheses
Now the most important inputs to a discounted cash flow are the discount rate and, of course, the actual cash flow. You don’t have to agree with these entries, I recommend that you redo the calculations yourself and play with them. The DCF also does not take into account the possible cyclicality of an industry or the future capital needs of a company, so it does not give a complete picture of a company’s potential performance. Since we view Danaher as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which takes into account debt. In this calculation, we used 6.3%, which is based on a leveraged beta of 0.916. Beta is a measure of the volatility of a stock relative to the market as a whole. We get our beta from the industry average beta from globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.
Next steps:
While important, calculating DCF ideally won’t be the only piece of analysis you’ll look at for a business. DCF models are not the alpha and omega of investment valuation. Rather, it should be seen as a guide to “what assumptions must be true for this stock to be under / overvalued?” For example, if the terminal value growth rate is adjusted slightly, it can dramatically change the overall result. For Danaher, we’ve compiled three important factors to consider:

Risks: Take risks, for example – Danaher a 3 warning signs we think you should be aware.

Future benefits: How does DHR’s growth rate compare to that of its peers and the broader market? Dig deeper into the analyst consensus number for years to come by interacting with our free analyst growth expectations chart.

Other strong companies: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid trading fundamentals to see if there are other companies you might not have considered!
PS. The Simply Wall St app performs a daily discounted cash flow assessment for every NYSE share. If you want to find the calculation for other actions, just search here.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you longterm, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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