Current Price: ~ $72/share
Projected Yield: ~ 4.14%
Kimberly-Clark is a leading player in the global health and hygiene category selling bathroom tissues, diapers, feminine products, and paper towels. Its brands include Kleenex, Scott, Huggies, Pull-Ups, and Kotex. Kimberly sells its products directly and distributes them through supermarkets, mass merchandisers, and drugstores, among other outlets. Sales generated outside of North America account for about 45% of the firm's consolidated sales base.
Estimated WACC for the firm today is 4.36% 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
|
1554
|
|
2003
|
1735
|
|
2004
|
2435
|
|
2005
|
1602
|
|
2006
|
1607
|
|
2007
|
1440
|
|
2008
|
1610
|
|
2009
|
2633
|
|
2010
|
1780
|
|
2011
|
1320
|
Average Annual Growth FCF: ~ 3%
CAGR FCF: ~ -2%
Consensus Forecast Industry 5-Year Growth: ~ 13% per year
Consensus Forecast Company 5-Year Growth: ~ 6% per year
Internal Growth Rate: ~ 2%
Sustainable Growth Rate: ~ 9%
Scenario 1
- Start at $1320 million FCF
- Assume a 5-year growth rate in FCF of 6% 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 4.36%, give a present value for the entire firm (Debt + Equity) of $41618 million. If the firm's fair value of debt is estimated at $7057 million, then the fair value of the firm's equity could be $34561 million. $34561 million / 394 million outstanding shares is approximately $88 per share and a 20% margin of safety is $70/share.
|
Year
|
FCF
$Millions
|
|
0
|
1320
|
|
1
|
1399
|
|
2
|
1483
|
|
3
|
1572
|
|
4
|
1666
|
|
5
|
1766
|
|
Terminal
Value
|
42952
|
The firm's future cash flows, discounted at a WACC of 4.36%, give a present value for the entire firm (Debt + Equity) of $41618 million. If the firm's fair value of debt is estimated at $7057 million, then the fair value of the firm's equity could be $34561 million. $34561 million / 394 million outstanding shares is approximately $88 per share and a 20% margin of safety is $70/share.
Scenario 2
All else being equal,
All else being equal,
- Assume a 5-year growth rate in FCF of 3% per year, then 0% growth in FCF per year forever:
Discounted Cash Flow Valuation
|
Year
|
FCF
$Millions
|
|
0
|
1320
|
|
1
|
1360
|
|
2
|
1400
|
|
3
|
1442
|
|
4
|
1486
|
|
5
|
1530
|
|
Terminal
Value
|
36156
|
- Present Value of the entire firm (Debt + Equity): $35556 million
- Value of Equity: $28499 million or $72/share
- 20% margin of safety is $58/share
Sources
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
No comments:
Post a Comment