Tuesday, March 22, 2011

Leggett & Platt, Inc: $LEG cash flow valuation

Current Price: ~ $23/share
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 year
Consensus 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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