Projected Yield: ~ 3.54%
With a heritage that dates back about 140 years, Campbell Soup is now a leading global manufacturer and marketer of branded convenience food products, most notably soup. However, the firm's product assortment spans beyond soup, as its portfolio of well-known brands includes Campbell's, Pace, Prego, Swanson, V8, and Pepperidge Farm. International operations account for around 30% of Campbell's consolidated sales.
I estimated the firm's WACC today at 4.49% using the Capital Asset Pricing Model and the company's recent SEC filings.
Recent free cash flows and noted growth rates:
|
Year
|
FCF
$Millions
|
|
2002
|
748
|
|
2003
|
590
|
|
2004
|
456
|
|
2005
|
658
|
|
2006
|
917
|
|
2007
|
340
|
|
2008
|
468
|
|
2009
|
821
|
|
2010
|
742
|
|
2011
|
870
|
Average Annual Growth FCF: ~ 11%
CAGR FCF: ~ 2%
Consensus Forecast Industry 5-Year Growth: ~ 14% per year
Consensus Forecast Company 5-Year Growth: ~ 5% per year
Scenario 1
Starting at $870 million FCF, assuming the company achieves a 5-year growth rate in FCF of 5% 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
|
870
|
|
1
|
914
|
|
2
|
959
|
|
3
|
1007
|
|
4
|
1057
|
|
5
|
1110
|
|
Terminal
Value
|
25940
|
The firm's future cash flows, discounted at a WACC of 4.49%, give a present value for the entire firm (Debt + Equity) of $25235 million. If the firm's fair value of debt is estimated at $3300 million, then the fair value of the firm's equity could be $21935 million. $21935 million / 319 million outstanding shares is approximately $69 per share and a 20% margin of safety is $55/share.
Scenario 2
All else being equal, discount the future cash flows at a firm WACC of 7.00%:
Discounted Cash Flow Valuation
|
Year
|
FCF
$Millions
|
|
0
|
870
|
|
1
|
914
|
|
2
|
959
|
|
3
|
1007
|
|
4
|
1057
|
|
5
|
1110
|
|
Terminal
Value
|
16655
|
The firm's future cash flows, discounted at a WACC of 7.00%, give a present value for the entire firm (Debt + Equity) of $15987 million. If the firm's fair value of debt is estimated at $3300 million, then the fair value of the firm's equity could be $12687 million. $12687 million / 319 million outstanding shares is approximately $40 per share and a 20% margin of safety is $32/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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