Wednesday, March 28, 2012

Wal-mart Stores Inc: $WMT Cash Flow Valuation Update


Current Price: ~ $61/share
Projected Yield: ~ 2.60%


Wal-Mart is the largest retailer in the world with more than $400 billion in annual revenue and fast approaching 10,000 stores across the globe. The company mainly operates supercenters, followed by wholesale warehouse clubs and also is testing a smaller store format for urban areas, which the company has yet to penetrate.           


Estimated WACC for the firm today is 6.09% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Year
FCF $Millions
2003
3177
2004
5688
2005
2151
2006
3070
2007
4498
2008
5417
2009
11648
2010
14065
2011
10944
2012
10745


Average Annual Growth FCF: ~ 26%
CAGR FCF: ~ 15%
Consensus Forecast Industry 5-Year Growth: ~ 14% per year
Consensus Forecast Company 5-Year Growth: ~ 9% per year
Internal Growth Rate: ~ 6%
Sustainable Growth Rate: ~ 18%

Scenario 1
  • Start at $10745 million FCF
  • Assume a 5-year growth rate in FCF of 9% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year
FCF $Millions
0
10745
1
11712
2
12766
3
13915
4
15167
5
16533
Terminal Value
295841



The firm's future cash flows, discounted at a WACC of 6.09%, give a present value for the entire firm (Debt + Equity) of $278429 million. If the firm's fair value of debt is estimated at $53043 million, then the fair value of the firm's equity could be $225386 million.  $225386 million / 3430 million outstanding shares is approximately $66 per share and a 20% margin of safety is $53/share.


Scenario 2
All else being equal,
  • Assume a 5-year growth rate in FCF of 9% per year, then 1% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year
FCF $Millions
0
10745
1
11712
2
12766
3
13915
4
15167
5
16533
Terminal Value
353949


  • Present Value of the entire firm (Debt + Equity): $321664 million
  • Value of Equity: $268621 million or $78/share
  • 20% margin of safety is $62/share



Sources
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Monday, March 26, 2012

Texas Instruments Inc: $TXN Cash Flow Valuation Update


Current Price: ~ $34/share
Projected Yield: ~ 2.04%


Dallas-based Texas Instruments generates about 96% of its revenue from semiconductors and 4% from its well-known calculators. TI is the world's largest maker of analog chips, which are used to process real-world signals, such as sound and power. TI also has a leading market share position in digital signal processors, used in wireless communications, and has a growing mobile processor business line that is used to run software and applications in many popular smartphones and tablets.           


Estimated WACC for the firm today is 11.92% 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
1190
2003
1351
2004
1848
2005
2442
2006
1188
2007
3720
2008
2567
2009
1890
2010
2621
2011
2440


Average Annual Growth FCF: ~ 24%
CAGR FCF: ~ 8%
Consensus Forecast Industry 5-Year Growth: ~ 15% per year
Consensus Forecast Company 5-Year Growth: ~ 7% per year
Internal Growth Rate: ~ 10%
Sustainable Growth Rate: ~ 17%

Scenario 1
Average FCF (2011, 2010, 2009) is $2317 million
  • Start at $2317 million FCF
  • Assume a 5-year growth rate in FCF of 7% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year
FCF $Millions
0
2317
1
2479
2
2653
3
2838
4
3037
5
3250
Terminal Value
29163



The firm's future cash flows, discounted at a WACC of 11.92%, give a present value for the entire firm (Debt + Equity) of $26748 million. If the firm's fair value of debt is estimated at $4600 million, then the fair value of the firm's equity could be $22148 million.  $22148 million / 1140 million outstanding shares is approximately $19 per share and a 20% margin of safety is $15/share.


Scenario 2
All else being equal,
  • Assume a 5-year growth rate in FCF of 7% per year, then 6% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year
FCF $Millions
0
2,317
1
2479
2
2653
3
2838
4
3037
5
3250
Terminal Value
58705


  • Present Value of the entire firm (Debt + Equity): $43568 million
  • Value of Equity: $38968 million or $34/share
  • 20% margin of safety is $27/share

Sources
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Molson Coors Brewing Co: $TAP Cash Flow Valuation Update


Current Price: ~ $45/share
Projected Yield: ~ 2.91%


Molson Coors is one of the largest brewers in the world. Major brands include Coors Light, Molson Canadian, Carling, Miller Lite, Keystone, Blue Moon and Leinenkugel's. Its largest markets include Canada, the United States, and the United Kingdom. Molson Coors retains 40% share of the Canadian beer market, 29% of the U.S. beer market (via its MillerCoors joint venture with SABMiller), and 19% of the U.K. beer market.           


Estimated WACC for the firm today is 7.82% 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
19
2003
304
2004
288
2005
16
2006
387
2007
188
2008
181
2009
700
2010
572
2011
633


CAGR FCF ex-2002: ~ 10%
Consensus Forecast Industry 5-Year Growth: ~ 13% per year
Consensus Forecast Company 5-Year Growth: ~ 7% per year
Internal Growth Rate: ~ 4%
Sustainable Growth Rate: ~ 6%

Scenario 1
  • Start at $633 million FCF
  • Assume a 5-year growth rate in FCF of 7% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year
FCF $Millions
0
633
1
677
2
725
3
775
4
830
5
888
Terminal Value
12143



The firm's future cash flows, discounted at a WACC of 7.82%, give a present value for the entire firm (Debt + Equity) of $11426 million. If the firm's fair value of debt is estimated at $2178 million, then the fair value of the firm's equity could be $9248 million.  $9248 million / 181 million outstanding shares is approximately $51 per share and a 20% margin of safety is $41/share.


Scenario 2
All else being equal,
  • Assume a 5-year growth rate in FCF of 7% per year, then 1% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year
FCF $Millions
0
633
1
677
2
725
3
775
4
830
5
888
Terminal Value
13923


  • Present Value of the entire firm (Debt + Equity): $12647 million
  • Value of Equity: $10469 million or $58/share
  • 20% margin of safety is $46/share



Scenario 3
All else being equal,
  • Discount the firm's future FCFs at 9%
  • Assume a 5-year growth rate in FCF of 7% per year, then 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year
FCF $Millions
0
633
1
677
2
725
3
775
4
830
5
888
Terminal Value
10555


  • Present Value of the entire firm (Debt + Equity): $9855 million
  • Value of Equity: $7677 million or $42/share
  • 20% margin of safety is $34/share



Sources
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.