Thursday, December 20, 2012

Starbucks Corporation: $SBUX Cash Flow Valuation Update


Current Price: ~ $54/share
Yield: ~ 1.33%

Through a global chain of almost 17,500 company-owned and licensed stores, Starbucks sells coffee, espresso, teas, cold blended beverages, complementary food items, and other accessories. In addition to its retail operations, the firm distributes packaged coffee, VIA single-serve packets, K-Cups, and tea through grocery stores and warehouse clubs under the Starbucks, Tazo, and the Seattle's Best Coffee brands.     


Estimated WACC for the firm today is 9.41% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:
Year
FCF $Millions
2003
209
2004
408
2005
280
2006
360
2007
251
2008
274
2009
943
2010
1264
2011
1081
2012
894




Average Annual Growth FCF: ~ 35%
CAGR FCF: ~ 17.5%
Consensus Forecast Industry 5-Year Growth: ~ 12% per year
Consensus Forecast Company 5-Year Growth: ~ 18% per year
Internal Growth Rate: ~ 12%
Sustainable Growth Rate: ~ 22%

Scenario 1
Average FCF (2012, 2011, 2010) is $1080 million
  • Start at $1080 million FCF
  • Assume a 5-year growth rate in FCF of 18% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
1080
1
1274
2
1504
3
1774
4
2094
5
2471
Terminal Value
30977


The firm's future free cash flows, discounted at a WACC of 9.41%, give a present value for the entire firm (Debt + Equity) of $26570 million. If the firm's fair value of debt is estimated at $674 million, then the fair value of the firm's equity could be $25896 million.  $25896 million / 744 million outstanding shares is approximately $35 per share and a 20% margin of safety is $28/share.


Scenario 2
All else being equal,
  • Assume a 5-year growth rate in FCF of 18% per year, then 4% growth in FCF per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
1080
1
1274
2
1504
3
1774
4
2094
5
2471
Terminal Value
53874


  • Present Value of the entire firm (Debt + Equity): $41173 million
  • Value of Equity: $40499 million or $54/share
  • 20% margin of safety is $43/share


Sources
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Wednesday, December 19, 2012

Air Products & Chemicals Inc: $APD Cash Flow Valuation Update


Current Price: ~ $84/share
Yield: ~ 2.96%

Established in 1940, Air Products is the world's largest supplier of hydrogen and helium. It offers a unique portfolio of products and services in a number of industries, including technology, energy, industrial, and health care. The company operates in more than 40 countries, with international sales representing 60% of revenue. Air Products generates $10 billion in annual sales and employs almost 20,000 workers.         


Estimated WACC for the firm today is 10.11% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:
Year
FCF $Millions
2003
423
2004
380
2005
446
2006
85
2007
442
2008
595
2009
144
2010
492
2011
402
2012
278





Average Annual Growth FCF: ~ 55%
CAGR FCF: ~ -4.6%
Consensus Forecast Industry 5-Year Growth: ~ 11% per year
Consensus Forecast Company 5-Year Growth: ~ 8% per year
Internal Growth Rate: ~ 4%
Sustainable Growth Rate: ~ 11%

Scenario 1
The highest level of FCF achieved in the past 10 years is $595 million
  • Start at $595 million FCF
  • Assume a 5-year growth rate in FCF of 11% per year, then 4% growth in FCF per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
595
1
660
2
733
3
814
4
903
5
1003
Terminal Value
18221


The firm's future free cash flows, discounted at a WACC of 10.11%, give a present value for the entire firm (Debt + Equity) of $14307 million. If the firm's fair value of debt is estimated at $5006 million, then the fair value of the firm's equity could be $9301 million.  $9301 million / 213 million outstanding shares is approximately $44 per share and a 20% margin of safety is $35/share.


Scenario 2
All else being equal,
  • Assume a 5-year growth rate in FCF of 11% per year, then 6.75% growth in FCF per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
595
1
660
2
733
3
814
4
903
5
1003
Terminal Value
33144


  • Present Value of the entire firm (Debt + Equity): $23527 million
  • Value of Equity: $18521 million or $87/share
  • 20% margin of safety is $70/share



Sources
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Monday, December 17, 2012

The Walt Disney Co: $DIS Cash Flow Valuation Update


Current Price: ~ $49/share
Yield: ~ 1.54%


Disney owns the rights to some of the most famous characters ever created, including Mickey Mouse and Winnie the Pooh. These characters and others are featured in several theme parks Disney owns or licenses around the world. Disney makes live-action and animated films under several labels and owns ABC, Disney Channel, and ESPN. Disney also owns a 42.5% stake in A&E, The History Channel, and Lifetime Networks. The company generates about 25% of its sales from outside the United States.     


Estimated WACC for the firm today is 10.70% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:
Year
FCF $Millions
2003
1852
2004
3217
2005
2446
2006
4759
2007
3855
2008
3860
2009
3311
2010
4468
2011
3435
2012
4182




Average Annual Growth FCF: ~ 16%
CAGR FCF: ~ 9%
Consensus Forecast Industry 5-Year Growth: ~ 18% per year
Consensus Forecast Company 5-Year Growth: ~ 11% per year
Internal Growth Rate: ~ 7%
Sustainable Growth Rate: ~ 14%

Scenario 1
Average FCF (2012, 2011, 2010) is $4028 million 
  • Start at $4028 million FCF
  • Assume a 5-year growth rate in FCF of 11% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
4028
1
4471
2
4963
3
5509
4
6115
5
6787
Terminal Value
70392


The firm's future free cash flows, discounted at a WACC of 10.70%, give a present value for the entire firm (Debt + Equity) of $62640 million. If the firm's fair value of debt is estimated at $15146 million, then the fair value of the firm's equity could be $47494 million.  $47494 million / 1770 million outstanding shares is approximately $27 per share and a 20% margin of safety is $22/share.


Scenario 2
All else being equal,
  • Assume a 5-year growth rate in FCF of 11% per year, then 5.25% growth in FCF per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
4028
1
4471
2
4963
3
5509
4
6115
5
6787
Terminal Value
138163


  • Present Value of the entire firm (Debt + Equity): $103402 million
  • Value of Equity: $88256 million or $50/share
  • 20% margin of safety is $40/share


Sources
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.