Raytheon Company ($RTN) filed a 10K annual report for 2010 recently so here's an update to the cash flow valuation posted January 19. This update incorporates the firm's year-end 2010 data. I believe $RTN is fairly valued at $56/share on a cash flow valuation basis.
Raytheon is a major United States defense contractor with nearly $25 billion in annual sales that operates through six segments: integrated defense systems, intelligence and information, missile systems, network-centric systems, space and airborne systems, and technical services. Sales to the U.S. government account for more than 88% of the company's total sales. Waltham, Mass., based Raytheon employs 75,000 people.
I estimated the firm's WACC today at 9.46% using the Capital Asset Pricing Model and the company's recent SEC filings.
Recent free cash flows and noted growth rates:
Year | FCF $Millions |
2000 | 529 |
2001 | -353 |
2002 | 581 |
2003 | 1043 |
2004 | 1708 |
2005 | 2177 |
2006 | 2371 |
2007 | 800 |
2008 | 1711 |
2009 | 2445 |
2010 | 1556 |
Average Annual Growth FCF ex-2001: approx 27%
CAGR FCF: approx. 11%
Consensus Forecast Industry 5-Year Growth: approx. 13% per year
Consensus Forecast Company 5-Year Growth: approx. 8% per year
Assuming the company achieves a 5-year growth rate in FCF of 8% 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 | 1556 |
1 | 1680 |
2 | 1815 |
3 | 1960 |
4 | 2117 |
5 | 2286 |
Terminal Value | 26110 |
The firm's future cash flows, discounted at a WACC of 9.46%, give a present value for the entire firm (Debt + Equity) of $24,093 million. If the firm's fair value of debt is estimated at $3783 million, then the fair value of the firm's equity could be $20,310 million. $20,310 million / 360 million outstanding shares is approximately $56 per share and a 20% margin of safety is $45/share.
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