Baxter offers long term value with a margin of safety

I believe $BAX, at approximately $49/share offers value with a margin of safety on a cash flow valuation basis.

Baxter International focuses on delivering injectable therapies for a wide variety of medical conditions. The firm's BioScience segment specializes in developing treatments for disorders such as hemophilia and immune deficiencies. It also provides a variety of medication delivery systems including intravenous bags, solutions, and other devices to control fluid inflow, including dialysis equipment and solutions for patients with kidney failure.
(Source: Morningstar.com)

Baxter Reports Sales and EPS for Fourth Quarter 2010 in Line with Guidance

I estimated the firm's WACC at 7.69% using the Capital Asset Pricing Model and the company's recent SEC filings.  ValuePro has a baseline WACC calculator here and it calculates the firm's WACC at 6.83%.  I'll go with the higher mark, 7.69%.  

Recent free cash flows and noted growth rates:

Year	FCF $Millions
2000	566
2001	362
2002	345
2003	636
2004	822
2005	1106
2006	1657
2007	1613
2008	1561
2009	1895
2010	2040

Average Annual Growth: approx 18%
CAGR: approx. 14%
Consensus Forecast Industry 5-Year Growth: approx. 16% per year
Consensus Forecast Company 5-Year Growth: approx. 10% per year

Assume the company achieves a slightly lower 5-year growth rate of 9% per year, and assume that after the next five years, the company achieves no growth or 0% growth per year forever.

Discounted Cash Flow Valuation:

Year	FCF $ Millions
0	2040
1	2224
2	2424
3	2642
4	2880
5	3139
Terminal Value	44468

The firm's future cash flows, discounted at a WACC of 7.69%, give a present value for the entire firm (Debt + Equity) of $41,274 million. If the firm's fair value of debt is estimated at $5,500 million, then the fair value of the firm's equity could be $35,774 million.

$35,774 million / 583 million outstanding shares is approx $61 per share. A 20% margin of safety from here is approx $49 so assuming all else meets my standard for good business, I'd buy $BAX today for the long term at $49 or less.  I believe $BAX offers value with a margin of safety on a cash flow valuation basis.

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