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