Tuesday, February 21, 2012

AmerisourceBergen Corp: $ABC Cash Flow Valuation


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
  • 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

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,
  • 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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