Wednesday, April 6, 2011

General Mills Inc: $GIS cash flow valuation

Current Price: ~ $36/share
Projected Yield: ~ 3.09%


With operations that began more than 150 years ago, General Mills is now a leading global manufacturer and marketer of branded consumer foods, such as ready-to-eat breakfast cereals, refrigerated dough and other baking items, snack foods, ice cream, and yogurt. Its portfolio of well-known brands includes Cheerios, Betty Crocker, Pillsbury, Haagen-Dazs, and Yoplait. International sales account for about 20% of the firm's consolidated revenue.

I estimated the firm's WACC today at 5.50% 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
429
2002
407
2003
920
2004
833
2005
1297
2006
1411
2007
1305
2008
1208
2009
1266
2010
1531
TTM
1217

Average Annual Growth FCF: approx. 21%

CAGR FCF: approx. 15%
Consensus Forecast Industry 5-Year Growth: approx. 14% 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
1217
1
1314
2
1420
3
1533
4
1656
5
1788
Terminal Value
35107

The firm's future cash flows, discounted at a WACC of 5.50%, give a present value for the entire firm (Debt + Equity) of $33,391 million.  If the firm's fair value of debt is estimated at $7361 million, then the fair value of the firm's equity could be $26,030 million.  $26,030 million / 638 million outstanding shares is approximately $41 per share and a 20% margin of safety is $33/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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