Current Price: ~ $36/share
Projected Yield: ~ 3.27%
Projected Yield: ~ 3.27%
Kraft is the leading packaged food firm in North America and the second-largest packaged food company in the world behind Nestle. The firm sells snacks, beverages, cheese, and convenient meats, with a product portfolio that includes well-known brands such as Nabisco, Oscar Mayer, Maxwell House, Jell-O, Chips Ahoy, and Kool-Aid. Including the acquisition of Cadbury, international sales now account for around 57% of the consolidated total.
I estimated the firm's WACC today at 6.94% 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 | 2227 |
2002 | 2536 |
2003 | 3034 |
2004 | 3002 |
2005 | 2293 |
2006 | 2551 |
2007 | 2330 |
2008 | 2774 |
2009 | 3754 |
2010 | 2087 |
Average Annual Growth FCF: ~ 2%
CAGR FCF: ~ -1%
Consensus Forecast Industry 5-Year Growth: ~ 13% per yearConsensus Forecast Company 5-Year Growth: ~ 10% per year
Scenario 1
Average FCF in last three years is $2872 million. Starting at $2872 million FCF, assuming the company achieves a 5-year growth rate in FCF of 10% 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 | 2087 |
1 | 3159 |
2 | 3475 |
3 | 3823 |
4 | 4205 |
5 | 4625 |
Terminal Value | 73332 |
The firm's future cash flows, discounted at a WACC of 6.94%, give a present value for the entire firm (Debt + Equity) of $68,077 million. If the firm's fair value of debt is estimated at $30,000 million, then the fair value of the firm's equity could be $38,077 million. $38,077 million / 1760 million outstanding shares is approximately $22 per share and a 20% margin of safety is $18/share.
Scenario 2
Starting at $2872 million FCF, assuming the company achieves a 5-year growth rate in FCF of 10% per year, and then a growth rate in FCF of 2.30% per year forever:
Discounted Cash Flow Valuation
Year | FCF $Millions |
0 | 2087 |
1 | 3159 |
2 | 3475 |
3 | 3823 |
4 | 4205 |
5 | 4625 |
Terminal Value | 109696 |
The firm's future cash flows, discounted at a WACC of 6.94%, give a present value for the entire firm (Debt + Equity) of $94,079 million. If the firm's fair value of debt is estimated at $30,000 million, then the fair value of the firm's equity could be $64,079 million. $64,079 million / 1760 million outstanding shares is approximately $36 per share and a 20% margin of safety is $29/share.
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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