Leggett & Platt Inc: $LEG Cash Flow Valuation Update

Current Price: ~ $23/share
Projected Yield: ~ 4.85%

2011 EPS: $1.04    DPS: $1.10

Leggett & Platt engineers components and products for a variety of uses. Its springs and spring units are used in bedding and chairs. The company also makes headboards, die-cast products for barbecue grills and lighting fixtures, and store displays and shelving. Its Specialized Products segment offers machinery, manufacturing equipment, automotive seating suspensions, control cable systems, and lumbar supports.           

Estimated WACC for the firm today is 10.98% 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	332
2003	259
2004	185
2005	284
2006	313
2007	465
2008	318
2009	482
2010	295
2011	254

Average Annual Growth FCF: ~ 3%

CAGR FCF: ~ -3%

Consensus Forecast Industry 5-Year Growth: ~ 33% per year

Consensus Forecast Company 5-Year Growth: ~ 15% per year

Internal Growth Rate: ~ 0%

Sustainable Growth Rate: ~ -1%

Scenario 1

• Start at $254 million FCF
• Assume a 5-year growth rate in FCF of 15% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	254
1	292
2	336
3	386
4	444
5	511
Terminal Value	5351

The firm's future cash flows, discounted at a WACC of 10.98%, give a present value for the entire firm (Debt + Equity) of $4594 million. If the firm's fair value of debt is estimated at $865 million, then the fair value of the firm's equity could be $3729 million.  $3729 million / 140 million outstanding shares is approximately $27 per share and a 20% margin of safety is $22/share.

Scenario 2
All else being equal,

• Assume a 5-year growth rate in FCF of 12% per year, then 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	254
1	284
2	319
3	357
4	400
5	448
Terminal Value	4566

• Present Value of the entire firm (Debt + Equity): $4018 million
• Value of Equity: $3153 million or $23/share
• 20% margin of safety is $18/share

Scenario 3
All else being equal,

• Assume a 5-year growth rate in FCF of 8% per year, then 3% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	254
1	274
2	296
3	320
4	346
5	373
Terminal Value	5051

• Present Value of the entire firm (Debt + Equity): $4172 million
• Value of Equity: $3307 million or $24/share
• 20% margin of safety is $19/share

Sources

Morningstar.com

Yahoo! Finance

Leggett & Platt Inc.

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