Current Price: ~ $57/share
Projected Yield: ~ 2.35%
Projected Yield: ~ 2.35%
Honeywell International is a diversified manufacturer that operates four major business segments: aerospace (32% of sales); automation products for process controls, sensing instruments, and safety and security products (41%); specialty materials (14%); and transportation products (13%).
I estimated the firm's WACC today at 13.13% using the Capital Asset Pricing Model and the company's recent SEC filings.
Recent free cash flows and growth rates:
| Year | FCF $Millions |
| 2001 | 1120 |
| 2002 | 1709 |
| 2003 | 1544 |
| 2004 | 1624 |
| 2005 | 1758 |
| 2006 | 2478 |
| 2007 | 3144 |
| 2008 | 2907 |
| 2009 | 3337 |
| 2010 | 3552 |
| TTM | 2312 |
Average Annual Growth FCF: ~ 15%
CAGR FCF: ~ 14%
Consensus Forecast Industry 5-Year Growth: ~ 15% per yearConsensus Forecast Company 5-Year Growth: ~ 15% per year
Scenario 1
Average FCF over the past three years is $3265 million. Starting at $3265 million FCF, assuming the company achieves a 5-year growth rate in FCF of 15% 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 | 3265 |
| 1 | 3755 |
| 2 | 4318 |
| 3 | 4966 |
| 4 | 5711 |
| 5 | 6567 |
| Terminal Value | 57513 |
The firm's future cash flows, discounted at a WACC of 13.13%, give a present value for the entire firm (Debt + Equity) of $48,187 million. If the firm's fair value of debt is estimated at $8132 million, then the fair value of the firm's equity could be $40,055 million. $40,055 million / 787 million outstanding shares is approximately $51 per share and a 20% margin of safety is $41/share.
Scenario 2
Starting at $3265 million FCF, assuming the company achieves a 5-year growth rate in FCF of 15% per year, and then a growth rate in FCF of 2.00% per year forever:
Discounted Cash Flow Valuation
| Year | FCF $Millions |
| 0 | 3265 |
| 1 | 3755 |
| 2 | 4318 |
| 3 | 4966 |
| 4 | 5711 |
| 5 | 6567 |
| Terminal Value | 67846 |
The firm's future cash flows, discounted at a WACC of 13.13%, give a present value for the entire firm (Debt + Equity) of $53,763 million. If the firm's fair value of debt is estimated at $8132 million, then the fair value of the firm's equity could be $45,631 million. $45,631 million / 787 million outstanding shares is approximately $58 per share and a 20% margin of safety is $46/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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