Procter & Gamble: fairly valued at $64/share

I believe Procter & Gamble ($PG), at approximately $64/share is fairly valued on a cash flow valuation basis.  Assuming all else at $PG meets my standard for good business, I'd buy it today for the long term at $50.

Since its founding in 1837, Procter & Gamble has become the world's largest consumer product manufacturer, with a lineup of famous brands. The brands are sold through three global business units and include Tide laundry detergent, Charmin toilet paper, Pantene shampoo, Cover Girl cosmetics, and Iams pet food. Since 2001, the company has doubled the sales it derives from developing markets, acquired and integrated Wella and Gillette, and sold its pharmaceutical and coffee businesses.

I estimated the firm's WACC at 7.81% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Year	FCF $Millions
2001	3318
2002	6063
2003	7218
2004	7338
2005	6541
2006	8708
2007	10490
2008	12768
2009	11681
2010	13005
TTM	10503

Average Annual Growth: approx. 19%
CAGR: approx. 16%
Consensus Forecast Industry 5-Year Growth: approx. 11% 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

Year	FCF $ Millions
0	10503
1	11448
2	12479
3	13602
4	14826
5	16160
Terminal Value	225481

The firm's future cash flows, discounted at a WACC of 7.81%, give a present value for the entire firm (Debt + Equity) of $209,078 million. If the firm's fair value of debt is estimated at $34,000 million, then the fair value of the firm's equity could be $175,078 million.  $175,078 million / 2800 million outstanding shares is approximately $63 per share and a 20% margin of safety is $50. Assuming all else at $PG meets my standard for good business, I'd buy it today for the long term at $50.

Sources
Morningstar.com

PG.com

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