Current Price: ~ $89/share
Projected Yield: ~ 2.57%
Projected Yield: ~ 2.57%
PPG Industries is a global producer of coatings, optical materials, chemicals, and glass. The company is the second-largest coatings producer worldwide, with 75% of sales generated by coatings. PPG's products are sold to a wide variety of end users, including the automotive, aerospace, construction, and industrial markets. Additionally, the company has a footprint in many regions around the globe with less than half of sales coming from North America.
I estimated the firm's WACC today at 12.18% using the Capital Asset Pricing Model and the company's recent SEC filings.
Recent free cash flows and growth rates:
| Year | FCF $Millions |
| 2001 | 769 |
| 2002 | 634 |
| 2003 | 906 |
| 2004 | 774 |
| 2005 | 777 |
| 2006 | 758 |
| 2007 | 643 |
| 2008 | 975 |
| 2009 | 1106 |
| 2010 | 1003 |
| TTM | 892 |
Average Annual Growth FCF: ~ 5%
CAGR FCF: ~ 3%
Consensus Forecast Industry 5-Year Growth: ~ 14% per yearConsensus Forecast Company 5-Year Growth: ~ 11% per year
Scenario 1
Average FCF over the past three years is $1028 million. Starting at $1028 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 | 1028 |
| 1 | 1141 |
| 2 | 1267 |
| 3 | 1406 |
| 4 | 1561 |
| 5 | 1732 |
| Terminal Value | 15787 |
The firm's future cash flows, discounted at a WACC of 12.18%, give a present value for the entire firm (Debt + Equity) of $13,866 million. If the firm's fair value of debt is estimated at $4358 million, then the fair value of the firm's equity could be $9508 million. $9508 million / 158 million outstanding shares is approximately $60 per share and a 20% margin of safety is $48/share.
Scenario 2
Starting at $1028 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 4.25% per year forever:
Discounted Cash Flow Valuation
| Year | FCF $Millions |
| 0 | 1028 |
| 1 | 1141 |
| 2 | 1267 |
| 3 | 1406 |
| 4 | 1561 |
| 5 | 1732 |
| Terminal Value | 24248 |
The firm's future cash flows, discounted at a WACC of 12.18%, give a present value for the entire firm (Debt + Equity) of $18,629 million. If the firm's fair value of debt is estimated at $4358 million, then the fair value of the firm's equity could be $14,271 million. $14,271 million / 158 million outstanding shares is approximately $90 per share and a 20% margin of safety is $72/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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