Projected Yield: ~ 4.61%
I believe Leggett & Platt, Inc. ($LEG) is fairly valued at $19/share on a cash flow valuation basis.
Leggett & Platt engineers components and products for a variety of uses. Its springs and spring units are used in bedding and chairs. The company also makes headboards, die-cast products for barbecue grills and lighting fixtures, and store displays and shelving. Its Specialized Products segment offers machinery, manufacturing equipment, automotive seating suspensions, control cable systems, and lumbar supports.
I estimated the firm's WACC today at 12.59% 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 | 407 |
2002 | 332 |
2003 | 259 |
2004 | 185 |
2005 | 284 |
2006 | 313 |
2007 | 465 |
2008 | 318 |
2009 | 482 |
2010 | 295 |
Average Annual Growth FCF: approx. 3%
CAGR FCF: approx. -4%
Consensus Forecast Industry 5-Year Growth: approx. 19% per yearConsensus Forecast Company 5-Year Growth: approx. 15% 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 | 295 |
1 | 322 |
2 | 350 |
3 | 382 |
4 | 416 |
5 | 454 |
Terminal Value | 3931 |
The firm's future cash flows, discounted at a WACC of 12.59%, give a present value for the entire firm (Debt + Equity) of $3513 million. If the firm's fair value of debt is estimated at $800 million, then the fair value of the firm's equity could be $2713 million. $2713 million / 146 million outstanding shares is approximately $19 per share and a 20% margin of safety is $15/share.
Sources
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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