Wednesday, July 18, 2012

Ross Stores Inc: $ROST Cash Flow Valuation Update

Current Price: ~ $69/share
Projected Yield: ~ .72%


Ross Stores is one of the largest off-price retailers of brand-name apparel and home accessories. The company operates about 1,051 Ross Dress for Less stores and 95 dd's Discounts stores in the United States. Ross Dress for Less offers merchandise at prices that are 20%-60% below the regular prices of most department and specialty stores; dd's Discounts is a similar concept with lower-tier brands and prices that are 20% lower than those at Ross Dress for Less.

Estimated WACC for the firm today is 6.87% 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
199
2004
169
2005
149
2006
199
2007
283
2008
117
2009
359
2010
730
2011
474
2012
404







Average Annual Growth FCF: ~ 28%
CAGR FCF: ~ 8%
Consensus Forecast Industry 5-Year Growth: ~ 14% per year
Consensus Forecast Company 5-Year Growth: ~ 13% per year
Internal Growth Rate: ~ 21%
Sustainable Growth Rate: ~ 65%

Scenario 1
Average FCF (2012, 2011, 2010) is $536 million
  • Start at $536 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
536
1
606
2
684
3
773
4
874
5
988
Terminal Value
16254




The firm's future cash flows, discounted at a WACC of 6.87%, give a present value for the entire firm (Debt + Equity) of $14841 million. If the firm's fair value of debt is estimated at $186 million, then the fair value of the firm's equity could be $14655 million.  $14655 million / 226 million outstanding shares is approximately $65 per share and a 20% margin of safety is $52/share.

Scenario 2
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
536
1
579
2
625
3
675
4
729
5
788
Terminal Value
22004



  • Present Value of the entire firm (Debt + Equity): $18554 million
  • Value of Equity: $18368 million or $81/share
  • 20% margin of safety is $65/share


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

Home Depot Inc: $HD Cash Flow Valuation Update


Current Price: ~ $51/share
Projected Yield: ~ 2.21%


Home Depot is the world's largest home-improvement specialty retailer, operating 2,250 warehouse-format stores throughout the United States, Canada, Mexico, and China. The company's stores offer products and services for home construction, renovation, remodeling, and maintenance. The firm is based in Atlanta and employs more than 300,000 people.           


Estimated WACC for the firm today is 9.69% 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
2053
2004
2439
2005
2956
2006
2603
2007
4119
2008
2169
2009
3681
2010
4159
2011
3489
2012
5430




Average Annual Growth FCF: ~ 18%
CAGR FCF: ~ 11%
Consensus Forecast Industry 5-Year Growth: ~ 14% per year
Consensus Forecast Company 5-Year Growth: ~ 15% per year
Internal Growth Rate: ~ 6%
Sustainable Growth Rate: ~ 14%

Scenario 1
Average FCF (2012, 2011, 2010) is $4359 million
  • Start at $4359 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
4359
1
5013
2
5765
3
6629
4
7624
5
8768
Terminal Value
104035



The firm's future cash flows, discounted at a WACC of 9.69%, give a present value for the entire firm (Debt + Equity) of $90682 million. If the firm's fair value of debt is estimated at $12100 million, then the fair value of the firm's equity could be $78582 million.  $78582 million / 1530 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 11% per year, then 4% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year
FCF $Millions
0
4359
1
4838
2
5371
3
5962
4
6617
5
7345
Terminal Value
143248


  • Present Value of the entire firm (Debt + Equity): $112791 million
  • Value of Equity: $10691 million or $66/share
  • 20% margin of safety is $53/share


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

Tuesday, July 17, 2012

Microchip Technology Inc: $MCHP Cash Flow Valuation Update


Current Price: ~ $32/share
Projected Yield: ~ 4.44%


Microchip became an independent company in 1989 when it was spun off from General Instrument. It is based in Chandler, Ariz., with production facilities in Arizona, Oregon, and Thailand. More than 80% of sales come from microcontrollers, which are used in a wide array of electronic devices from LCD displays to remote controls. The company has focused in recent years on lower-end eight-bit microcontrollers that are suitable for a wider range of less technologically advanced devices.      


Estimated WACC for the firm today is 10.36% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Year
FCF $Millions
2003
180
2004
280
2005
289
2006
361
2007
370
2008
377
2009
206
2010
404
2011
458
2012
334






Average Annual Growth FCF: ~ 14%
CAGR FCF: ~ 7%
Consensus Forecast Industry 5-Year Growth: ~ 15% per year
Consensus Forecast Company 5-Year Growth: ~ 13% per year
Internal Growth Rate: ~ 2%
Sustainable Growth Rate: ~ 3%

Scenario 1
Average FCF (2012, 2011, 2010) is $399
  • Start at $399 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
399
1
451
2
509
3
576
4
651
5
735
Terminal Value
8020



The firm's future cash flows, discounted at a WACC of 10.36%, give a present value for the entire firm (Debt + Equity) of $7043 million. If the firm's fair value of debt is estimated at $1585 million, then the fair value of the firm's equity could be $5458 million.  $5458 million / 194 million outstanding shares is approximately $28 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 7% per year, then 4% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year
FCF $Millions
0
399
1
427
2
457
3
489
4
523
5
560
Terminal Value
9419


  • Present Value of the entire firm (Debt + Equity): $7574 million
  • Value of Equity: $5989 million or $31/share
  • 20% margin of safety is $25/share


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