Thursday, June 30, 2011

United Technologies Corp: $UTX cash flow valuation

Current Price: ~ $89/share
Projected Yield: ~ 2.17%


United Technologies is a $54 billion diversified conglomerate with business operations serving primarily construction and aerospace markets. Otis elevators, Carrier air conditioners, Pratt & Whitney engines, and Sikorsky helicopters are key United Technologies product lines.


I estimated the firm's WACC today at 11.72% 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
2092
2002
2267
2003
2345
2004
2904
2005
3405
2006
3849
2007
4177
2008
4945
2009
4527
2010
5041
TTM
5215

Average Annual Growth FCF: ~ 11%
CAGR FCF: ~ 10%
Consensus Forecast Industry 5-Year Growth: ~ 16% per year
Consensus Forecast Company 5-Year Growth: ~ 11% per year

Scenario 1
Starting at $5041 million FCF, assuming the company achieves a 5-year growth rate in FCF of 11% 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
5041
1
5596
2
6211
3
6894
4
7653
5
8494
Terminal Value
80419

The firm's future cash flows, discounted at a WACC of 11.72%, give a present value for the entire firm (Debt + Equity) of $70,916 million. If the firm's fair value of debt is estimated at $11,289 million, then the fair value of the firm's equity could be $59,627 million.  $59,627 million / 915 million outstanding shares is approximately $65 per share and a 20% margin of safety is $52/share.


Scenario 2
Starting at $5041 million FCF, assuming the company achieves a 5-year growth rate in FCF of 11% per year, and then a growth rate in FCF of 3.75% per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
5041
1
5596
2
6211
3
6894
4
7653
5
8494
Terminal Value
118236

The firm's future cash flows, discounted at a WACC of 11.72%, give a present value for the entire firm (Debt + Equity) of $92,641 million. If the firm's fair value of debt is estimated at $11,289 million, then the fair value of the firm's equity could be $81,352 million.  $81,352 million / 915 million outstanding shares is approximately $89 per share and a 20% margin of safety is $71/share.


Sources
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Wednesday, June 29, 2011

Starbucks Corporation: $SBUX cash flow valuation

Current Price: ~ $39/share
Projected Yield: ~ 1.32%

Through a global chain of more than 16,600 company-owned and licensed stores, Starbucks sells coffee, espresso, teas, cold blended beverages, complementary food items, and other accessories. In addition to its retail operations, the firm distributes coffee and tea through grocery stores and warehouse clubs under the Tazo, Seattle's Best Coffee, and Torrefazione Italia brands. Starbucks also markets bottled beverages, ice creams, and liqueurs through various partnerships.



I estimated the firm's WACC today at 14.60% 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
77
2002
102
2003
209
2004
408
2005
280
2006
360
2007
251
2008
274
2009
943
2010
1264
TTM
921

Average Annual Growth FCF: ~ 54%
CAGR FCF: ~ 36%
Consensus Forecast Industry 5-Year Growth: ~ 15% per year
Consensus Forecast Company 5-Year Growth: ~ 18% per year

Scenario 1
Starting at $1264 million FCF, assuming the company achieves a 5-year growth rate in FCF of 18% 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
1264
1
1492
2
1760
3
2077
4
2451
5
2892
Terminal Value
23371

The firm's future cash flows, discounted at a WACC of 14.60%, give a present value for the entire firm (Debt + Equity) of $18,729 million. If the firm's fair value of debt is estimated at $620 million, then the fair value of the firm's equity could be $18,109 million.  $18,109 million / 750 million outstanding shares is approximately $24 per share and a 20% margin of safety is $19/share.


Scenario 2
Starting at $1264 million FCF, assuming the company achieves a 5-year growth rate in FCF of 18% per year, and then a growth rate in FCF of 7% per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
1264
1
1492
2
1760
3
2077
4
2451
5
2892
Terminal Value
44897

The firm's future cash flows, discounted at a WACC of 14.60%, give a present value for the entire firm (Debt + Equity) of $29,619 million. If the firm's fair value of debt is estimated at $620 million, then the fair value of the firm's equity could be $28,999 million.  $28,999 million / 750 million outstanding shares is approximately $39 per share and a 20% margin of safety is $31/share.


Sources
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Praxair Inc: $PX cash flow valuation

Current Price: ~ $108/share
Projected Yield: ~ 1.85%

Praxair is the largest industrial gas supplier in North America and South America. It has a growing presence in Asia and a well-established presence in Europe. Its three main distribution businesses--on-site, merchant liquid, and packaged or cylinder gases--represent 25%, 30%, and 29% of total sales, respectively. Praxair serves a variety of diverse industries, including health care, petroleum refining, aerospace, and chemicals, and generates about $10 billion in annual sales.



I estimated the firm's WACC today at 9.84% 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
425
2002
503
2003
154
2004
575
2005
598
2006
652
2007
582
2008
427
2009
816
2010
517
TTM
347

Average Annual Growth FCF: ~ 28%
CAGR FCF: ~ 2%
Consensus Forecast Industry 5-Year Growth: ~ 14% per year
Consensus Forecast Company 5-Year Growth: ~ 13% per year

Scenario 1
The highest level of FCF achieved in the last ten years is $816 million.  Starting at $816 million FCF, assuming the company achieves a 5-year growth rate in FCF of 13% per year, and assuming that after the next five years, the company achieves a growth rate in FCF of 3% per year forever:
Discounted Cash Flow Valuation
Year
FCF $Millions
0
816
1
922
2
1042
3
1177
4
1330
5
1503
Terminal Value
24830

The firm's future cash flows, discounted at a WACC of 9.84%, give a present value for the entire firm (Debt + Equity) of $19,974 million. If the firm's fair value of debt is estimated at $6138 million, then the fair value of the firm's equity could be $13,836 million.  $13,836 million / 303 million outstanding shares is approximately $46 per share and a 20% margin of safety is $37/share.


Scenario 2
Starting at $816 million FCF, assuming the company achieves a 5-year growth rate in FCF of 13% per year, and then a growth rate in FCF of 6.75% per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
816
1
922
2
1042
3
1177
4
1330
5
1503
Terminal Value
54943

The firm's future cash flows, discounted at a WACC of 9.84%, give a present value for the entire firm (Debt + Equity) of $38,807 million. If the firm's fair value of debt is estimated at $6138 million, then the fair value of the firm's equity could be $32,669 million.  $32,669 million / 303 million outstanding shares is approximately $108 per share and a 20% margin of safety is $86/share.


Sources
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.