Projected Yield: ~ 3.67%
Since its founding more than 110 years ago, H.J. Heinz has grown into a globally diversified manufacturer and marketer of packaged foods, selling through grocery stores, convenience stores, and food-service distributors. Its products include ketchup, condiments, sauces, frozen food, soups, beans, pasta meals, infant nutrition, and others; its namesake brand accounts for about 40% of annual sales. International sales account for 60% of the firm's consolidated total.
I estimated the firm's WACC today at 6.19% 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
|
678
|
2003
|
854
|
2004
|
1017
|
2005
|
948
|
2006
|
858
|
2007
|
851
|
2008
|
887
|
2009
|
875
|
2010
|
985
|
2011
|
1248
|
TTM
|
960
|
Average Annual Growth FCF: ~ 8%
CAGR FCF: ~ 7%
Consensus Forecast Industry 5-Year Growth: ~ 14% per year
Consensus Forecast Company 5-Year Growth: ~ 8% per year
Internal Growth Rate: ~ 4%
Sustainable Growth Rate: ~ 19%
Average FCF (2011, 2010, 2009) is $1036 million. Starting at $1036 million FCF, assuming the company achieves a 5-year growth rate in FCF of 8% per year, and assuming that after the next five years, the company achieves no growth or 0% growth in FCF per year forever:
Discounted Cash Flow Valuation
Year
|
FCF
$Millions
|
0
|
1036
|
1
|
1119
|
2
|
1208
|
3
|
1305
|
4
|
1409
|
5
|
1522
|
Terminal
Value
|
26551
|
The firm's future cash flows, discounted at a WACC of 6.19%, give a present value for the entire firm (Debt + Equity) of $25113 million. If the firm's fair value of debt is estimated at $5000 million, then the fair value of the firm's equity could be $20113 million. $20113 million / 320 million outstanding shares is approximately $63 per share and a 20% margin of safety is $50/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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