Monday, February 28, 2011

Kimberly-Clark: $KMB valuation update

Kimberly-Clark ($KMB) filed a 10K annual report for 2010 recently so here's an update to the cash flow valuation I posted February 1.  This update incorporates the firm's year-end 2010 data.  I believe $KMB is undervalued now at $66/share and fairly valued at $82/share on a cash flow valuation basis.    

Kimberly-Clark is a leading player in the global health and hygiene category selling bathroom tissues, diapers, feminine products, and paper towels. Its brands include Kleenex, Scott, Huggies, Pull-Ups, and Kotex. Kimberly sells its products directly and distributes them through supermarkets, mass merchandisers, and drugstores, among other outlets. Sales generated outside of North America account for about 45% of the firm's consolidated sales base.

I estimated the firm's WACC today at 6.94% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:
YearFCF $Millions
2000963
20011154
20021554
20031735
20042435
20051602
20061607
20071440
20081610
20092633
20101780
Average Annual Growth: approx 11%
CAGR: approx. 6%
Consensus Forecast Industry 5-Year Growth: approx. 13% per year
Consensus Forecast Company 5-Year Growth: approx. 9% per year
Assuming the company achieves a 5-year growth rate in FCF of 9% per year, and assuming that after the next five years, the company achieves no growth in FCF or 0% growth per year forever:
Discounted Cash Flow Valuation
YearFCF $ Millions
01780
11940
22115
32305
42513
52739
Terminal Value43011

The firm's future cash flows, discounted at a WACC of 6.94%, give a present value for the entire firm (Debt + Equity) of $40,179 million. If the firm's fair value of debt is estimated at $7000 million, then the fair value of the firm's equity could be $33,179 million.  $33,179 million / 404 million outstanding shares is approximately $82 per share and a 20% margin of safety is $66/share.

All else being equal, if you assume a lower 5-year growth rate in FCF of 6% per year (instead of 9%) with 0% growth thereafter, the fair value for $KMB on a cash flow valuation basis is $69/share and a 20% margin of safety is $55/share.


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

Sunday, February 27, 2011

Abbott Laboratories: $ABT valuation update

Abbott Laboratories ($ABT) filed a 10K annual report for 2010 recently so here's an update to the cash flow valuation I posted January 14.  This update incorporates the firm's year-end 2010 data.  I believe $ABT is undervalued now at $48/share and fairly valued at $89/share on a cash flow valuation basis.    


Abbott manufactures and markets pharmaceuticals, medical devices, blood glucose monitoring kits, and nutritional health-care products. Products include prescription drugs, coronary and carotid stents, and nutritional liquids for infants and adults. Following the Advanced Medical Optics acquisition, Abbott also markets eye-care products. Abbott generates slightly less than 60% of revenue from pharmaceuticals.



I estimated the firm's WACC today at 6.32% using the Capital Asset Pricing Model and the company's recent SEC filings.
Recent free cash flows and noted growth rates:
YearFCF $Millions
20002064
20012403
20022887
20032500
20043116
20053967
20063991
20073528
20086056
20096186
20107721
Average Annual Growth: approx 16%
CAGR: approx. 14%
Consensus Forecast Industry 5-Year Growth: approx. 12% per year
Consensus Forecast Company 5-Year Growth: approx. 9% per year
Assuming the company achieves a 5-year growth rate in FCF of 5% per year, and assuming that after the next five years, the company achieves no growth in FCF or 0% growth per year forever:
Discounted Cash Flow Valuation
YearFCF $ Millions
07721
18107
28512
38938
49385
59854
Terminal Value163604

The firm's future cash flows, discounted at a WACC of 6.32%, give a present value for the entire firm (Debt + Equity) of $157,587 million. If the firm's fair value of debt is estimated at $20,000 million, then the fair value of the firm's equity could be $137,587 million.  $137,587 million / 1550 million outstanding shares is approximately $89 per share and a 20% margin of safety is $71/share.

All else being equal and assuming a higher WACC of 9.00%, the fair value for $ABT is $58/share and a 20% margin of safety is $46/share.

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

Saturday, February 26, 2011

Baxter International Inc: $BAX valuation update

Baxter International Inc ($BAX) filed a 10K annual report for 2010 recently so here's an update to my $BAX cash flow valuation posted January 27.  This update incorporates the firm's year-end 2010 data.  I believe $BAX is undervalued now at $52/share and fairly valued at $61/share 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

I estimated the firm's WACC today at 7.85% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:
YearFCF $Millions
2000566
2001362
2002345
2003636
2004822
20051106
20061657
20071613
20081561
20091895
20102040
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
Assuming the company achieves a 5-year growth rate in FCF of 9% per year, and assuming that after the next five years, the company achieves no growth in FCF or 0% growth per year forever:
Discounted Cash Flow Valuation
YearFCF $ Millions
02040
12224
22424
32642
42880
53139
Terminal Value43610

The firm's future cash flows, discounted at a WACC of 7.85%, give a present value for the entire firm (Debt + Equity) of $40,427 million. If the firm's fair value of debt is estimated at $4700 million, then the fair value of the firm's equity could be $35,727 million.  $35,727 million / 583 million outstanding shares is approximately $61 per share and a 20% margin of safety is $49/share.



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

International Business Machines: $IBM valuation update

International Business Machines Corp ($IBM) filed a 10K annual report for 2010 recently so here's an update to my $IBM cash flow valuation posted February 7.  This update incorporates the firm's year-end 2010 data.  I believe $IBM is undervalued now at $162/share and fairly valued at $182/share on a cash flow valuation basis.    


IBM is one of the largest information technology companies with an array of offerings including system hardware, infrastructure software, outsourcing, and systems integration services. The firm has operations in more than 170 countries, and generates about 65% of revenue from abroad.



I estimated the firm's WACC today at 9.32% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:
YearFCF $Millions
20018605
20028313
2003 10014
200410955
200511072
20069841
200710584
200814641
200917326
201015364

Average Annual Growth: approx 8%
CAGR: approx. 7%
Consensus Forecast Industry 5-Year Growth: approx. 14% per year
Consensus Forecast Company 5-Year Growth: approx. 11% per year
Assuming the company achieves a 5-year growth rate in FCF of 9% per year, and assuming that after the next five years, the company achieves no growth in FCF or 0% growth per year forever:
Discounted Cash Flow Valuation
YearFCF $ Millions
015364
116747
218254
319897
421688
523639
Terminal Value276446

The firm's future cash flows, discounted at a WACC of 9.32%, give a present value for the entire firm (Debt + Equity) of $253,196 million. If the firm's fair value of debt is estimated at $30,784 million, then the fair value of the firm's equity could be $222,412 million.  $222,412 million / 1220 million outstanding shares is approximately $182 per share and a 20% margin of safety is $146/share.



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

Friday, February 25, 2011

Johnson & Johnson: $JNJ valuation update

Johnson & Johnson ($JNJ) filed a 10K annual report today so here's a quick update to my $JNJ cash flow valuation previously posted on January 17.  This update incorporates the firm's year-end 2010 data.  I believe $JNJ is undervalued now at $60/share and fairly valued at $72/share.    


Johnson & Johnson ranks as the world's largest and most diverse health-care company. The company comprises three divisions: pharmaceutical, medical devices and diagnostics, and consumer. While the pharmaceutical division currently represents 35% of total sales, we expect patent losses to reduce this proportion to 30% over the next 10 years, with the remaining divisions picking up equal share.



I estimated the firm's WACC today at 8.64% using the Capital Asset Pricing Model and the company's recent SEC filings.


Recent free cash flows and noted growth rates:
YearFCF $Millions
20017133
20026077
2003 8333
20048956
20059245
200611510
200711939
200811906
200914206
201014001

Average Annual Growth: approx 9%
CAGR: approx. 8%
Consensus Forecast Industry 5-Year Growth: approx. 12% per year
Consensus Forecast Company 5-Year Growth: approx. 6% per year
Assuming the company achieves a 5-year growth rate in FCF of 6% per year, and assuming that after the next five years, the company achieves no growth in FCF or 0% growth per year forever:
Discounted Cash Flow Valuation
YearFCF $ Millions
014001
114841
215732
316675
417676
518736
Terminal Value229807

The firm's future cash flows, discounted at a WACC of 8.64%, give a present value for the entire firm (Debt + Equity) of $216,893 million. If the firm's fair value of debt is estimated at $17,773 million, then the fair value of the firm's equity could be $199,120 million.  $199,120 million / 2750 million outstanding shares is approximately $72 per share and a 20% margin of safety is $58/share.



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