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 yearConsensus 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.
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