Discounted Cash Flow Calculation for SWX:ALC using 2 Stage Free Cash Flow to Equity Model
The calculations below outline how an intrinsic value for
is arrived at by discounting future cash flows to their present value using the 2 stage method.
We try to start with analysts estimates of free cash flow, however if these are not available we use the most recent financial results. In the 1st stage we continue to grow the free cash flow over a 10 year period, with the growth rate trending towards the perpetual growth rate used in the 2nd stage. The 2nd stage assumes the company grows at a stable rate into perpetuity.
Note: Free cash flow to equity valuations ignore the company's cash or debt.
SWX:ALC DCF 1st Stage: Next 10 year cash flow forecast
Amount off the current price
is available for.
Share price is
vs Future cash flow value of
Current Discount Checks
to be considered undervalued it must be available for at least 20% below the
current price. Less than 40% is even better.
Alcon's share price is below the future cash flow value, but not at a moderate discount (< 20%).
Alcon's share price is below the future cash flow value, but not at a substantial discount (< 40%).
PRICE RELATIVE TO MARKET
We can also value a company based on what the stock market is willing to pay for
it. This is similar to the price of fruit (e.g. Mangoes or Avocados) increasing
when they are out of season, or how much your home is worth.
The amount the stock market is willing to pay for
is considered below, and whether this is a fair price.
Price based on past earnings
Alcon's earnings available for a low price, and how does
this compare to other companies in the same industry?
Alcon's earnings are expected to grow significantly at over 20% yearly.
Alcon's revenue is expected to grow by 5.1% yearly, however this is not considered high growth (20% yearly).
Past and Future Earnings per Share
The accuracy of the analysts who estimate the future performance data can
be gauged below. We look back 3 years and see if they were any good at
predicting what actually occurred. We also show the highest and lowest estimates
looking forward to see if there is a wide range.
Alcon's performance over the past 5 years by checking for:
Has earnings increased in past 5 years? (1 check)
Has the earnings growth in the last year exceeded that of the
industry? (1 check)
Is the recent earnings growth over the last year higher than the average annual growth over the
past 5 years? (1 check)
Is the Return on Equity (ROE) higher than 20%? (1 check)
Is the Return on Assets (ROA) above industry average? (1 check)
Has the Return on Capital Employed (ROCE) increased from 3 years ago? (1 check)
The above checks will fail if the company has reported a loss in the most recent
earnings report. Some checks require at least 3 or 5 years worth of data.
has a total score of
0/6, see the detailed checks below.
Note: We use GAAP Net Income excluding extraordinary items in all our calculations.
Management is one of the most important areas of a company. We look at
unreasonable CEO compensation, how long the team and board of directors have
been around for and insider trading.
TENURE AS CEO
Mr. David J. Endicott had been the Chief Executive Officer of Alcon, Inc. since July 1, 2018. Mr. Endicott has been the President of Hospira Medical Devices at Hospira Inc. since March 10, 2014. Mr. Endicott is a Director of Alcon, Inc. Mr. Endicott served as a Corporate Vice President and President of Allergan Medical, Asia Pacific and Latin America at Allergan Inc. since April 2011. He served as Corporate Vice President and President of Allergan Medical at Allergan, Inc. since August 2010. He served as Corporate Vice President and President of Europe, Africa and Middle East at Allergan, Inc. from October 2004 to August 2010 and managed the expansion of Allergan's business internationally, including Allergan's entry into new markets such as Turkey and Poland. He served as Senior Vice President of U.S. Specialty Pharmaceuticals from January 2004 to October 2004, Vice President and General Manager of Canada from February 2000 to December 2003 and Vice President of U.S. Managed Markets since 1998. He served as a Director of ZELTIQ Aesthetics, Inc. since April 25, 2016 until April 28, 2017. He served various roles at Allergan since joining Allergan Medical in 1986. He served as a Director of Orexigen Therapeutics, Inc. since November 30, 2012 until July 27, 2018. Mr. Endicott earned his Bachelor's Degree in Chemistry from Whitman College, his Master's in Business Administration from the University of Southern California and is a Graduate of the Harvard Business School Advanced Management Program.
Insufficient data for David to compare compensation growth.
Insufficient data for David to establish whether their remuneration is reasonable compared to companies of similar size in Switzerland.
Management Team Tenure
Average tenure and age of the
management team in years:
The average tenure for the Alcon management team is less than 2 years, this suggests a new team.
Senior VP & Head of Global Human Resources
Senior VP & Head of Global Manufacturing & Technical Operations
CEO & Director
Senior VP & CFO
Chief Accounting Officer
Senior VP & Chief Information Officer
Senior VP and Head of Global Investor Relations & Communications
Senior VP & Head of Global Corporate Development Strategy
Region President for North America
Board of Directors
CEO & Director
Who owns this company?
Recent Insider Trading
No 3 month open market individual insider trading information.
Calculating The Fair Value Of Alcon, Inc. (VTX:ALC)
A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, and so the sum of these future cash flows is then discounted to today's value: 10-year free cash flow (FCF) estimate 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Levered FCF ($, Millions) $802.2m $1.1b $1.3b $1.6b $1.8b $2.0b $2.1b $2.3b $2.4b $2.6b Growth Rate Estimate Source Analyst x12 Analyst x12 Analyst x6 Analyst x5 Est @ 14.06% Est @ 10.82% Est @ 8.56% Est @ 6.97% Est @ 5.86% Est @ 5.09% Present Value ($, Millions) Discounted @ 8.73% $737.8 $925.6 $1.0k $1.1k $1.2k $1.2k $1.2k $1.2k $1.1k $1.1k ("Est" = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF)= $10.8b We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. … Terminal Value (TV) = FCF2029 × (1 + g) ÷ (r – g) = US$2.6b × (1 + 3.3%) ÷ (8.7% – 3.3%) = US$48b Present Value of Terminal Value (PVTV) = TV / (1 + r)10 = $US$48b ÷ ( 1 + 8.7%)10 = $20.93b The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is $31.71b. … SWX:ALC Intrinsic value, July 18th 2019 Important assumptions Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows.
Alcon, Inc. develops and manufactures eye care products for eye care professionals and their patients. It offers surgical products, which include technologies and devices for cataract, retinal, glaucoma, and refractive surgery; advanced technology intraocular lenses to treat cataracts and refractive errors, such as presbyopia and astigmatism; and advanced viscoelastics, surgical solutions, surgical packs, and other disposable products for cataract and vitreoretinal surgery. The company also provides pharmaceutical products for elevated intraocular pressure caused by glaucoma; anti-inflammatories; anti-infective to aid in the treatment of bacterial infections and bacterial conjunctivitis; ophthalmic solutions to treat inflammation and pain associated with ocular surgery; eye inflammation and infection solutions following cataract surgery; and vitreomacular adhesion, eye and nasal allergy treatment solutions, and over-the-counter dry eye relief and ocular vitamins. In addition, it offers vision care products, such as contact lenses and lens care products; daily disposable, monthly replacement, and color-enhancing contact lenses for comfortable and convenient vision correction options; contact lens care products; multi-purpose and hydrogen-peroxide based solutions to clean, rinse, and disinfect contact lenses; rewetting drops; and daily protein removers that removes protein deposits from lenses. Alcon, Inc. was formerly known as Alcon Universal S.A. and changed the name to Alcon, Inc. in December 2001. The company was founded in 1945 and is headquartered in Geneva, Switzerland. Alcon, Inc. was previously operating as a subsidiary of Novartis AG. Alcon, Inc.(SWX:ALC) operates independently of Novartis AG as of April 9, 2019.
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