Current Price: ~ $63/share
Projected Yield: ~ 3.31%
Projected Yield: ~ 3.31%
Since its founding in 1837, Procter & Gamble has become the world's largest consumer product manufacturer, with a lineup of famous brands. The brands are sold through three global business units, and include Tide laundry detergent, Charmin toilet paper, Pantene shampoo, Cover Girl cosmetics, and Iams pet food. Since 2001, the company has doubled the sales it derives from developing markets, acquired and integrated Wella and Gillette, and sold its pharmaceutical and coffee businesses.
I estimated the firm's WACC today at 6.31% using the Capital Asset Pricing Model and the company's recent SEC filings.
Recent free cash flows and growth rates:
Average Annual Growth FCF: ~ 7%
Year | FCF $Millions |
2002 | 6063 |
2003 | 7218 |
2004 | 7338 |
2005 | 6541 |
2006 | 8708 |
2007 | 10490 |
2008 | 12768 |
2009 | 11681 |
2010 | 13005 |
2011 | 9925 |
Average Annual Growth FCF: ~ 7%
CAGR FCF: ~ 6%
Consensus Forecast Industry 5-Year Growth: ~ 13% per yearConsensus Forecast Company 5-Year Growth: ~ 9% per year
Starting at $9925 million FCF, assuming the company achieves a 5-year growth rate in FCF of 9% 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
The firm's future cash flows, discounted at a WACC of 6.31%, give a present value for the entire firm (Debt + Equity) of $247,693 million. If the firm's fair value of debt is estimated at $35,400 million, then the fair value of the firm's equity could be $212,293 million. $212,293 million / 2750 million outstanding shares is approximately $77 per share and a 20% margin of safety is $62/share.
Year | FCF $Millions |
0 | 9925 |
1 | 10818 |
2 | 11792 |
3 | 12853 |
4 | 14010 |
5 | 15271 |
Terminal Value | 263699 |
The firm's future cash flows, discounted at a WACC of 6.31%, give a present value for the entire firm (Debt + Equity) of $247,693 million. If the firm's fair value of debt is estimated at $35,400 million, then the fair value of the firm's equity could be $212,293 million. $212,293 million / 2750 million outstanding shares is approximately $77 per share and a 20% margin of safety is $62/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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