This excerpt taken from the CVS 8-K filed Feb 13, 2007.
CVS Discounted Cash Flow Analysis
Lehman Brothers estimated, after taking into account selected comparable drugstores enterprise values to the last twelve months EBITDA multiples, a range of terminal values in 2011 calculated based on selected EBITDA multiples of 10.0x to 12.0x. Lehman Brothers discounted the unlevered free cash flow streams and the estimated terminal value to a present value at a range of discount rates from 9.5% to 11.5% . The discount rates utilized in this analysis were chosen by Lehman Brothers based on its expertise and experience with the drugstore industry and also on an analysis of the weighted average cost of capital of CVS and other comparable companies. Lehman Brothers calculated per share equity values by first determining a range of enterprise values of CVS by adding the present values of the after-tax unlevered free cash flows and terminal values for each EBITDA terminal multiple and discount rate scenario, and then subtracting from the enterprise values the net debt (which is total debt minus cash) of CVS, and dividing those amounts by the number of fully diluted shares of CVS.
Based on the projections and assumptions set forth above, the discounted cash flow analysis of CVS yielded an implied valuation range of CVS common stock of $41.90 to $54.38 per share. Lehman Brothers noted that the price of CVS common stock as of February 9, 2007 was $32.91 per share, which was (i) 21.5% lower than the low of the per share equity valuation range implied by the foregoing analysis and (ii) 39.5% lower than the high of the per share equity valuation range implied by the foregoing analysis.