DCF Studio

    DGX · NYQ · Healthcare

    Quest Diagnostics Incorporated

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 136.89

    Market price

    USD 246.45

    Implied upside

    -44.5%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    Value Per Share

    Perpetuity growth
    USD 136.89-44.5%
    Exit multiple
    USD 243.85-1.1%
    Market price
    USD 246.45

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn2bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 11.4bnUSD 11.9bnUSD 12.3bnUSD 12.8bnUSD 13.3bn+3.7%
    EBITUSD 1.6bnUSD 1.7bnUSD 1.7bnUSD 1.8bnUSD 1.9bn+3.7%
    NOPATUSD 1.3bnUSD 1.3bnUSD 1.4bnUSD 1.4bnUSD 1.5bn+3.7%
    Add depreciation & amortisationUSD 553.1mUSD 573.8mUSD 595.3mUSD 617.6mUSD 640.7m+3.7%
    Less capital expenditureUSD -503.1mUSD -521.9mUSD -541.5mUSD -561.7mUSD -582.8m+3.7%
    Less increase in working capitalUSD 17.8mUSD 18.4mUSD 19.1mUSD 19.8mUSD 20.6m-3.7%
    Free cashflow to firmUSD 1.3bnUSD 1.4bnUSD 1.4bnUSD 1.5bnUSD 1.5bn+3.7%
    Discount factor0.96280.89240.82720.76680.7107-
    Present valueUSD 1.3bnUSD 1.2bnUSD 1.2bnUSD 1.1bnUSD 1.1bn-3.8%
    Present Value Of The ForecastUSD 5.9bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.698Reported 0.549, pulled toward 1.0 (Blume)
    Cost of equity8.84%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 27.2bn80.5% of capital
    Total debtUSD 6.6bn19.5% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC7.88%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 136.89

    73% of EV

    Forecast FCFF, final year
    USD 1.5bn
    Capex at depreciation, working capital in reinvestment
    USD 1.6bn
    Less reinvestment at g/ROIC (27.2% of NOPAT)
    USD -434.1m
    Capitalised
    USD 1.2bn
    ROIC (reported)
    9.2%
    Terminal value, undiscounted
    USD 22.1bn
    Terminal value, discounted
    USD 15.7bn
    Enterprise value
    USD 21.6bn
    Less net debt
    USD 6.2bn
    Equity value
    USD 15.5bn

    Exit at 15.7x EBITDA

    Value per shareUSD 243.85

    82% of EV

    Terminal value, undiscounted
    USD 39.1bn
    Terminal value, discounted
    USD 27.8bn
    Enterprise value
    USD 33.7bn
    Less net debt
    USD 6.2bn
    Equity value
    USD 27.6bn

    Spread between methods: 56%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    5.88%211.75224.53240.92262.79293.59
    6.88%164.10170.00177.10185.90197.12
    7.88%131.35133.93136.89140.35144.47
    8.88%107.43108.29109.20110.18111.24
    9.88%90.4890.9591.4291.8892.35

    Outlined: this model. Green text: above today's price of 246.45. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year3.7%14.5%+10.8pp
    EBIT margin14.0%22.6%+8.6pp
    Discount rate7.9%5.8%-2.1pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.