Question

We want to estimate the value of Teladoc Health Inc. (NYSE: TDOC). Teladoc is a new company that does not pay a dividend and the required return is 8.5%. The free cash flow for TDOC is $202 million and expected to grow at 9%, 8%, and 7% for the next 3 years and then at a constant growth rate of 3%. The outstanding debt for TDOC is $1.2 billion and the number of shares of common stock outstanding is 25 million and there is no preferred stock. What is the estimated stock price today? Without using excel

Answer 1

The price is computed as follows:

= FCF in year 1 / (1 + required rate of return)¹ + FCF in year 2 / (1 + required rate of return)² + FCF in year 3 / (1 + required rate of return)³ + 1 / (1 + required rate of return)³ x [ (FCF in year 3 x (1 + growth rate) / (required rate of return - growth rate) ]

= ($ 202 million x 1.09) / 1.085 + ($ 202 million x 1.09 x 1.08) / 1.085² + ($ 202 million x 1.09 x 1.08 x 1.07) / 1.085³ + 1 / 1.085³ x [ ($ 202 million x 1.09 x 1.08 x 1.07 x 1.03) / (0.085 - 0.03) ]

= $ 220.18 million / 1.085 + $ 237.7944 million / 1.085² + $ 254.440008 million / 1.085³ + 1 / 1.085³ x [ ($ 4,764.967423 million) ]

= $ 220.18 million / 1.085 + $ 237.7944 million / 1.085² + $ 5,019.407431 million / 1.085³

= $ 4,334.661313 million

So, the price per share will be as follows:

= ($ 4,334.661313 million - debt) / Number of shares outstanding

= ($ 4,334.661313 million - $ 1,200 million) 25 million

= $ 125.39

Please ask in case of any doubts