Current Price: ~ $54/share
Projected Yield: ~ 3.76%
Since its founding more than 110 years ago, H.J. Heinz has grown into a globally diversified manufacturer and marketer of packaged foods, selling through grocery stores, convenience stores, and food-service distributors. Its products include ketchup, condiments, sauces, frozen food, soups, beans, pasta meals, infant nutrition, and others; its namesake brand accounts for about 40% of annual sales. International sales account for 60% of the firm's consolidated total.
Estimated WACC for the firm today is 5.20% 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
|
854
|
|
2004
|
1017
|
|
2005
|
948
|
|
2006
|
858
|
|
2007
|
851
|
|
2008
|
887
|
|
2009
|
875
|
|
2010
|
985
|
|
2011
|
1248
|
|
2012
|
1074
|
Average Annual Growth FCF: ~ 3%
CAGR FCF: ~ 3%
Consensus Forecast Industry 5-Year Growth: ~ 13% per year
Consensus Forecast Company 5-Year Growth: ~ 8% per year
Internal Growth Rate: ~ 3%
Sustainable Growth Rate: ~ 11%
Scenario 1
Average FCF (2012, 2011, 2010) is $1102 million
Average FCF (2012, 2011, 2010) is $1102 million
- Start at $1102 million FCF
- Assume a 5-year growth rate in FCF of 3% 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 5.20%, give a present value for the entire firm (Debt + Equity) of $24802 million. If the firm's fair value of debt is estimated at $5700 million, then the fair value of the firm's equity could be $19102 million. $19102 million / 320 million outstanding shares is approximately $60 per share and a 20% margin of safety is $48/share.
|
Year
|
FCF
$Millions
|
|
0
|
1102
|
|
1
|
1135
|
|
2
|
1169
|
|
3
|
1204
|
|
4
|
1240
|
|
5
|
1278
|
|
Terminal
Value
|
25293
|
The firm's future cash flows, discounted at a WACC of 5.20%, give a present value for the entire firm (Debt + Equity) of $24802 million. If the firm's fair value of debt is estimated at $5700 million, then the fair value of the firm's equity could be $19102 million. $19102 million / 320 million outstanding shares is approximately $60 per share and a 20% margin of safety is $48/share.
Scenario 2
All else being equal,
All else being equal,
- Assume a 5-year growth rate in FCF of 5% per year, then 0% growth in FCF per year forever:
Discounted Cash Flow Valuation
|
Year
|
FCF
$Millions
|
|
0
|
1102
|
|
1
|
1157
|
|
2
|
1215
|
|
3
|
1276
|
|
4
|
1339
|
|
5
|
1406
|
|
Terminal
Value
|
28387
|
- Present Value of the entire firm (Debt + Equity): $27507 million
- Value of Equity: $21807 million or $68/share
- 20% margin of safety is $54/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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