Current Price: ~ $74/share
Projected Yield: ~ 2.42%
Projected Yield: ~ 2.42%
Becton Dickinson is the world's largest manufacturer and distributor of medical surgical products, such as needles, syringes, and sharps-disposal units. The company also manufactures diagnostic instruments and reagents, as well as flow cytometry and cell-imaging systems. International revenue accounts for 55% of the company's business.
I estimated the firm's WACC today at 6.87% using the Capital Asset Pricing Model and the company's recent SEC filings.
Recent free cash flows and growth rates:
Year | FCF $Millions |
2002 | 576 |
2003 | 645 |
2004 | 832 |
2005 | 909 |
2006 | 594 |
2007 | 662 |
2008 | 1036 |
2009 | 1126 |
2010 | 1207 |
2011 | 1201 |
Average Annual Growth FCF: ~ 11%
CAGR FCF: ~ 9%
Consensus Forecast Industry 5-Year Growth: ~ 16% per yearConsensus Forecast Company 5-Year Growth: ~ 9% per year
Scenario 1
Starting at $1201 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
Year | FCF $Millions |
1 | 1309 |
2 | 1427 |
3 | 1555 |
4 | 1695 |
5 | 1848 |
Terminal Value | 29297 |
The firm's future cash flows, discounted at a WACC of 6.87%, give a present value for the entire firm (Debt + Equity) of $27384 million. If the firm's fair value of debt is estimated at $3000 million, then the fair value of the firm's equity could be $24384 million. $24384 million / 215 million outstanding shares is approximately $113 per share and a 20% margin of safety is $91/share.
Scenario 2
Starting at $1201 million FCF, assuming the company achieves a 5-year growth rate in FCF of 6% per year, and then a growth rate in FCF of 0% per year forever:
Discounted Cash Flow Valuation
Year | FCF $Millions |
1 | 1273 |
2 | 1349 |
3 | 1430 |
4 | 1516 |
5 | 1607 |
Terminal Value | 24780 |
The firm's future cash flows, discounted at a WACC of 6.87%, give a present value for the entire firm (Debt + Equity) of $23631 million. If the firm's fair value of debt is estimated at $3000 million, then the fair value of the firm's equity could be $20631 million. $20631 million / 215 million outstanding shares is approximately $96 per share and a 20% margin of safety is $77/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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