Raytheon - Good value on a cash flow valuation basis

I believe $RTN, at approximately $51/share, is a good value with a margin of safety.

Raytheon is a major United States defense contractor with nearly $25 billion in annual sales that operates through six segments: integrated defense systems, intelligence and information, missile systems, network-centric systems, space and airborne systems, and technical services. Sales to the U.S. government account for more than 88% of the company's total sales. Waltham, Mass., based Raytheon employs 75,000 people.
(Source: Morningstar.com)

I estimated the firm's WACC at 9.11% using the Capital Asset Pricing Model and the company's recent SEC filings. 

Recent free cash flows and noted growth rates:

Year	FCF $Millions
2000	529
2001	-353
2002	581
2003	1043
2004	1708
2005	2177
2006	2371
2007	800
2008	1711
2009	2445
TTM	1824

CAGR: approx. 19%
Internal Growth Rate: approx. 7%
Sustainable Growth Rate: approx. 18%
Consensus Forecast Industry 5-Year Growth: approx. 13% per year
Consensus Forecast Company 5-Year Growth: approx. 8% per year

Assume a lower 5-year growth rate of 6% 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	1824
1	1933
2	2049
3	2172
4	2303
5	2441
Terminal Value	28397

The firm's future cash flows, discounted at a WACC of 9.11%, give a present value for the entire firm (Debt + Equity) of $26,731 million. If the firm's fair value of debt is estimated at $2,781 million, then the fair value of the firm's equity could be $23,950 million.

$23,950 million / 365 million outstanding shares = $65.62 per share. A 20% margin of safety from here is approx $52 per share and $RTN's current share price is approx $51.  I consider $RTN a good buy with a margin of safety for the long term 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.