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    MCK · NYQ · Healthcare

    McKesson Corporation

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 1132.10

    Market price

    USD 874.65

    Implied upside

    +29.4%

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

    AdjustedReported capital expenditure averages just 0.21% of revenue, which is too low to be the company's real investment - property trusts and similar structures invest through lines that are not reported as capex. Capex has been set to 1.00% of revenue so the forecast is not handed free growth. Override it if the reported figure is right.
    AdjustedCapital expenditure runs at 1.0% of revenue against depreciation of 0.2%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Value Per Share

    Perpetuity growth
    USD 1132.10+29.4%
    Exit multiple
    USD 1132.28+29.5%
    Market price
    USD 874.65

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn3bnFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayUSD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueUSD 457.5bnUSD 518.7bnUSD 588.2bnUSD 666.9bnUSD 756.3bn+13.4%
    EBITUSD 6.8bnUSD 7.7bnUSD 8.7bnUSD 9.9bnUSD 11.2bn+13.4%
    NOPATUSD 5.5bnUSD 6.3bnUSD 7.1bnUSD 8.1bnUSD 9.1bn+13.4%
    Add depreciation & amortisationUSD 895.6mUSD 1.0bnUSD 1.2bnUSD 1.3bnUSD 1.5bn+13.4%
    Less capital expenditureUSD -4.6bnUSD -5.2bnUSD -5.9bnUSD -6.7bnUSD -7.6bn+13.4%
    Less increase in working capitalUSD -69.4mUSD -78.7mUSD -89.2mUSD -101.2mUSD -114.7m+13.4%
    Free cashflow to firmUSD 1.8bnUSD 2.0bnUSD 2.3bnUSD 2.6bnUSD 2.9bn+13.4%
    Discount factor0.96380.89540.83180.77280.7179-
    Present valueUSD 1.7bnUSD 1.8bnUSD 1.9bnUSD 2.0bnUSD 2.1bn+5.3%
    Present Value Of The ForecastUSD 9.6bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.536Reported 0.307, pulled toward 1.0 (Blume)
    Cost of equity7.94%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 102.0bn92.2% of capital
    Total debtUSD 8.6bn7.8% of capital, book value as a proxy
    Tax rate18.7%Effective, capped at statutory
    WACC7.64%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 1132.10

    93% of EV

    Forecast FCFF, final year
    USD 2.9bn
    Capex at depreciation, working capital in reinvestment
    USD 9.9bn
    Less reinvestment at g/ROIC (4.2% of NOPAT)
    USD -411.9m
    Capitalised
    USD 9.5bn
    ROIC (reported)
    60.0%
    Terminal value, undiscounted
    USD 188.8bn
    Terminal value, discounted
    USD 135.6bn
    Enterprise value
    USD 145.1bn
    Less net debt
    USD 4.6bn
    Equity value
    USD 140.5bn

    Exit at 14.8x EBITDA

    Value per shareUSD 1132.28

    93% of EV

    Terminal value, undiscounted
    USD 188.9bn
    Terminal value, discounted
    USD 135.6bn
    Enterprise value
    USD 145.2bn
    Less net debt
    USD 4.6bn
    Equity value
    USD 140.5bn

    Spread between methods: 0%.

    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%
    5.64%1530.131728.011988.702347.862874.44
    6.64%1189.361308.321455.891643.831891.43
    7.64%961.071039.041132.091245.081385.23
    8.64%797.94852.16915.14989.191077.56
    9.64%675.90715.27760.08811.57871.38

    Outlined: this model. Green text: above today's price of 874.65. 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 year13.4%7.7%-5.7pp
    EBIT margin1.5%1.2%-0.3pp
    Discount rate7.6%8.9%+1.2pp
    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.