Current Price: ~ $36/share
Projected Yield: ~ 1.44%
AmerisourceBergen is one of three national pharmaceutical distributors. The company's activities include procurement, packaging, inventory management, reimbursement consulting, physician education, and logistics services. AmerisourceBergen is a leader in specialty distribution and is the largest distributor of oncology drugs in the United States.
Estimated WACC for the firm today is 8.02% 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
|
472
|
2003
|
264
|
2004
|
636
|
2005
|
1323
|
2006
|
694
|
2007
|
1090
|
2008
|
600
|
2009
|
638
|
2010
|
924
|
2011
|
1000
|
TTM
|
1533
|
Average Annual Growth FCF: ~ 25%
CAGR FCF: ~ 9%
Consensus Forecast Industry 5-Year Growth: ~ 18% per year
Consensus Forecast Company 5-Year Growth: ~ 13% per year
Internal Growth Rate: ~ 4%
Sustainable Growth Rate: ~ 25%
Scenario 1
Average FCF (2011, 2010, 2009) is $854 million
Average FCF (2011, 2010, 2009) is $854 million
- Start at $854 million FCF
- Assume a 5-year growth rate in FCF of 13% per year, then no growth or 0% growth in FCF per year forever:
Discounted Cash Flow Valuation
The firm's future cash flows, discounted at a WACC of 8.02%, give a present value for the entire firm (Debt + Equity) of $19977 million. If the firm's fair value of debt is estimated at $2079 million, then the fair value of the firm's equity could be $17898 million. $17898 million / 258 million outstanding shares is approximately $69 per share and a 20% margin of safety is $55/share.
Year
|
FCF
$Millions
|
0
|
854
|
1
|
965
|
2
|
1090
|
3
|
1232
|
4
|
1392
|
5
|
1573
|
Terminal
Value
|
22174
|
The firm's future cash flows, discounted at a WACC of 8.02%, give a present value for the entire firm (Debt + Equity) of $19977 million. If the firm's fair value of debt is estimated at $2079 million, then the fair value of the firm's equity could be $17898 million. $17898 million / 258 million outstanding shares is approximately $69 per share and a 20% margin of safety is $55/share.
Scenario 2
All else being equal,
All else being equal,
- Assume a 5-year growth rate in FCF of 6% per year, then 0% growth in FCF per year forever:
Discounted Cash Flow Valuation
Year
|
FCF
$Millions
|
0
|
854
|
1
|
905
|
2
|
960
|
3
|
1017
|
4
|
1078
|
5
|
1143
|
Terminal
Value
|
15108
|
- Present Value of the entire firm (Debt + Equity): $14310 million
- Value of Equity: $12231 million or $47/share
- 20% margin of safety is $38/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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