Projected Yield: ~ 5.1%
I believe Entergy Corporation ($ETR) is fairly valued at $85/share on a cash flow valuation basis.
Entergy is an integrated energy company with two primary businesses. Its regulated utility distributes power to 2.7 million customers across four states through six utilities in the Southeast. Its wholesale commodity segment owns and operates 30 gigawatts of power generation capacity primarily in the Northeast and is the second-largest nuclear operator in the U.S.
I estimated the firm's WACC today at 6.61% 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 | 835 |
2002 | 651 |
2003 | 437 |
2004 | 1519 |
2005 | -160 |
2006 | 1419 |
2007 | 237 |
2008 | 845 |
2009 | 2408 |
2010 | 1952 |
CAGR FCF: approx. 10%
Consensus Forecast Industry 5-Year Growth: approx. 8% per year
Consensus Forecast Company 5-Year Growth: approx. 2% per year
Assuming the company achieves a 5-year growth rate in FCF of -2% per year (negative growth), 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 | 1952 |
1 | 1913 |
2 | 1875 |
3 | 1837 |
4 | 1800 |
5 | 1764 |
Terminal Value | 26151 |
The firm's future cash flows, discounted at a WACC of 6.61%, give a present value for the entire firm (Debt + Equity) of $26,621 million. If the firm's fair value of debt is estimated at $11,442 million, then the fair value of the firm's equity could be $15,179 million. $15,179 million / 179 million outstanding shares is approximately $85 per share and a 20% margin of safety is $68/share.
Sources
Sources
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
No comments:
Post a Comment