Thursday, January 9, 2014

Analog Devices Inc: $ADI Cash Flow Valuation Update

Current Price: ~ $50/share
Yield: ~ 2.74%


Analog Devices Inc is engaged in the design, manufacture and marketing of a portfolio of high-performance analog, mixed-signal and digital signal processing integrated circuits used in virtually all types of electronic equipment.


  


              

Estimated WACC for the firm today is 12.93% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Year
FCF $Millions
2004
632
2005
587
2006
492
2007
679
2008
512
2009
376
2010
880
2011
778
2012
682
2013
789






Average Annual Growth FCF: ~ 10%
CAGR FCF: ~ 2.5%
Consensus Forecast Industry 5-Year Growth: ~ 24.6% per year
Consensus Forecast Company 5-Year Growth: ~ 11% per year
Internal Growth Rate: ~ 4.5%
Sustainable Growth Rate: ~ 6%

Scenario 1
Average FCF (2013 - 2011) is $750 million
  • Start at $750 million FCF
  • Assume a 5-year growth rate in FCF of 11% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
750
1
833
2
924
3
1026
4
1139
5
1264
Terminal Value
10847

The firm's future free cash flows, discounted at a WACC of 12.93%, give a present value for the entire firm (Debt + Equity) of $9467 million. If the firm's fair value of debt is estimated at $872 million, then the fair value of the firm's equity could be $8595 million.  $8595 million / 311 million outstanding shares is approximately $28 per share and a 20% margin of safety is $22/share.

Scenario 2
All else being equal,
  • Assume a 5-year growth rate in FCF of 11% per year, then 7% growth in FCF per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
750
1
833
2
924
3
1026
4
1139
5
1264
Terminal Value
23647

  • Present Value of the entire firm (Debt + Equity): $16435 million
  • Value of Equity: $15563 million or $50/share
  • 20% margin of safety is $40/share

Sources
Disclosure: I have no real positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Monday, January 6, 2014

L-3 Communications Holdings Inc: $LLL Cash Flow Valuation Update

Current Price: ~ $106/share
Yield: ~ 2.09%


L-3 Communications Holdings, Inc is engaged as a system contractor in aircraft modernization & maintenance, Command, Control, Communications, Intelligence, Surveillance and Reconnaissance systems, and government services.


 l3-logo-bevel 


 banner_pls     banner_nss  banner_c3isr

        
Estimated WACC for the firm today is 9.72% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:
Year
FCF $Millions
2003
373
2004
540
2005
727
2006
918
2007
1113
2008
1169
2009
1221
2010
1280
2011
1292
2012
1096
2013 guidance*
1010

Free cash flow guidance remains $1,010,000,000Ralph G. D'Ambrosio, Chief Financial Officer and Senior Vice President; Q3 2013 earnings call transcript



Average Annual Growth FCF: ~ 14.11%
CAGR FCF: ~ 12.72%
Consensus Forecast Industry 5-Year Growth: ~ 12% per year
Consensus Forecast Company 5-Year Growth: ~ 2% per year
Internal Growth Rate: ~ 4%
Sustainable Growth Rate: ~ 11%

Scenario 1
Average FCF (2013* - 2011) is $1133 million
  • Start at $1133 million FCF
  • Assume a 5-year growth rate in FCF of 2% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
1133
1
1156
2
1179
3
1202
4
1226
5
1251
Terminal Value
13129

The firm's future free cash flows, discounted at a WACC of 9.72%, give a present value for the entire firm (Debt + Equity) of $12833 million. If the firm's fair value of debt is estimated at $3883 million, then the fair value of the firm's equity could be $8950 million.  $8950 million / 89 million outstanding shares is approximately $101 per share and a 20% margin of safety is $81/share.

Scenario 2
All else being equal,
  • Assume a 5-year growth rate in FCF of 6.25% per year, then 0% growth in FCF per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
1133
1
1204
2
1279
3
1359
4
1444
5
1534
Terminal Value
16773

  • Present Value of the entire firm (Debt + Equity): $15699 million
  • Value of Equity: $11816 million or $133/share
  • 20% margin of safety is $106/share

Conclusion: Closing out position in LLL for my Fantasy Portfolio today; looking for better value

Sources
Disclosure: I have no real positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Thursday, December 19, 2013

Hormel Foods Corporation: $HRL Cash Flow Valuation Update

Current Price: ~ $45/share
Yield: ~ 1.52%


Hormel Foods Corporation is engaged in the production of meat and food products and the marketing of those products throughout the United States and internationally.


       Skippy® brand SPAM® BrandFarmer John® meat products

Jennie-O Turkey Store® products Dinty Moore® stewHormel® chiliLa Victoria® Mexican products
        
Estimated WACC for the firm today is 9.03% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Year
FCF $Millions
2004
214
2005
322
2006
185
2007
211
2008
146
2009
454
2010
396
2011
394
2012
385
2013
531




Average Annual Growth FCF: ~ 25%
CAGR FCF: ~ 11%
Consensus Forecast Industry 5-Year Growth: ~ 13.6% per year
Consensus Forecast Company 5-Year Growth: ~ 11% per year
Internal Growth Rate: ~ 7.8%
Sustainable Growth Rate: ~ 12.6%

Scenario 1
Average FCF (2013 - 2009) is $432 million
  • Start at $432 million FCF
  • Assume a 5-year growth rate in FCF of 11% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
432
1
480
2
532
3
591
4
656
5
728
Terminal Value
8948

The firm's future free cash flows, discounted at a WACC of 9.03%, give a present value for the entire firm (Debt + Equity) of $8088 million. If the firm's fair value of debt is estimated at $262 million, then the fair value of the firm's equity could be $7826 million.  $7826 million / 264 million outstanding shares is approximately $30 per share and a 20% margin of safety is $24/share.

Scenario 2
All else being equal,
  • Assume a 5-year growth rate in FCF of 11% per year, then 3.75% growth in FCF per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
432
1
480
2
532
3
591
4
656
5
728
Terminal Value
15303
  • Present Value of the entire firm (Debt + Equity): $12212 million
  • Value of Equity: $11950 million or $45/share
  • 20% margin of safety is $36/share

Conclusion: Closing out position in HRL for my Fantasy Portfolio today; looking for better value

Sources
Disclosure: I have no real positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.