Thursday, August 30, 2012

KLA-Tencor Corporation: $KLAC Cash Flow Valuation Update


Current Price: ~ $51/share
Yield: ~ 2.78%


KLA-Tencor designs and manufactures yield-management and process-monitoring systems for the semiconductor industry. The systems are used to analyze the manufacturing process at various steps in a product's development. The firm's laser-scanning products are used for wafer qualification, process monitoring, and equipment monitoring. KLA-Tencor also provides systems for optical metrology and e-beam metrology.           


Estimated WACC for the firm today is 14.52% 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
112
2004
294
2005
447
2006
241
2007
527
2008
611
2009
173
2010
418
2011
772
2012
884




Average Annual Growth FCF: ~ 52%
CAGR FCF: ~ 26%
Consensus Forecast Industry 5-Year Growth: ~ 14% per year
Consensus Forecast Company 5-Year Growth: ~ 10% per year
Internal Growth Rate: ~ 12%
Sustainable Growth Rate: ~ 20%

Scenario 1
Average FCF (2012, 2011, 2010) is $691 million
  • Start at $691 million FCF
  • Assume a 5-year growth rate in FCF of 10% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
691
1
760
2
836
3
920
4
1012
5
1113
Terminal Value
8433


The firm's future free cash flows, discounted at a WACC of 14.52%, give a present value for the entire firm (Debt + Equity) of $7349 million. If the firm's fair value of debt is estimated at $902 million, then the fair value of the firm's equity could be $6447 million.  $6447 million / 167 million outstanding shares is approximately $39 per share and a 20% margin of safety is $31/share.


Scenario 2
All else being equal,
  • Assume a 5-year growth rate in FCF of 10% per year, then 5% growth in FCF per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
691
1
760
2
836
3
920
4
1012
5
1113
Terminal Value
12863


  • Present Value of the entire firm (Debt + Equity): $9598 million
  • Value of Equity: $8696 million or $52/share
  • 20% margin of safety is $42/share


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

Harris Corporation: $HRS Cash Flow Valuation Update


Current Price: ~ $47/share
Yield: ~ 2.57%


Harris sells communications products and services to government and commercial customers in more than 150 countries. With recent acquisitions in new end markets, Harris will report results in RF communications (38% of fiscal 2011 sales), government communications (29%), and integrated network solutions (33%). The U.S. government represented 72% of sales in fiscal 2011. Based in Melbourne, Fla., Harris has operations worldwide and employs about 17,000 people.           


Estimated WACC for the firm today is 10.24% 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
80
2004
204
2005
226
2006
188
2007
310
2008
404
2009
545
2010
605
2011
508
2012
619





Average Annual Growth FCF: ~ 33%
CAGR FCF: ~ 25.5%
Consensus Forecast Industry 5-Year Growth: ~ 15% per year
Consensus Forecast Company 5-Year Growth: ~ 3% per year
Internal Growth Rate: ~ -2% (Dividends per share > Earnings per share in 2012)

Scenario 1
Average FCF (2012, 2011, 2010) is $577 million
  • Start at $577 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
Year
FCF $Millions
0
577
1
594
2
612
3
631
4
649
5
669
Terminal Value
6727


The firm's future free cash flows, discounted at a WACC of 10.24%, give a present value for the entire firm (Debt + Equity) of $6495 million. If the firm's fair value of debt is estimated at $2148 million, then the fair value of the firm's equity could be $4347 million.  $4347 million / 112 million outstanding shares is approximately $39 per share and a 20% margin of safety is $31/share.


Scenario 2
All else being equal,
  • Assume a 5-year growth rate in FCF of 6% per year, then 2.25% growth in FCF per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
577
1
612
2
648
3
687
4
728
5
772
Terminal Value
10242


  • Present Value of the entire firm (Debt + Equity): $8858 million
  • Value of Equity: $6710 million or $60/share
  • 20% margin of safety is $48/share



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

Wednesday, August 29, 2012

Avery Dennison Corp: $AVY Cash Flow Valuation Update

Current Price: ~ $31/share
Yield: ~ 3.35%


Avery Dennison manufactures pressure-sensitive materials, merchandise tags, and labels. The company also runs a specialty converting business that produces radio frequency identification, or RFID, inlays and labels. Avery Dennison draws a significant amount of revenue from outside the United States, with international operations accounting for nearly 75% of 2011 sales.           


Estimated WACC for the firm today is 10.69% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Year
FCF $Millions
2002
371
2003
134
2004
338
2005
253
2006
316
2007
245
2008
348
2009
466
2010
378
2011
292
TTM
437



Average Annual Growth FCF: ~ 11%
CAGR FCF: ~ -3%
Consensus Forecast Industry 5-Year Growth: ~ 12% per year
Consensus Forecast Company 5-Year Growth: ~ 9% per year
Internal Growth Rate: ~ 1.5%
Sustainable Growth Rate: ~ 5%

Scenario 1
Average FCF (2011, 2010, 2009) is $379 million
  • Start at $379 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
379
1
413
2
450
3
491
4
535
5
583
Terminal Value
5946


The firm's future free cash flows, discounted at a WACC of 10.69%, give a present value for the entire firm (Debt + Equity) of $5388 million. If the firm's fair value of debt is estimated at $1440 million, then the fair value of the firm's equity could be $3948 million.  $3948 million / 101 million outstanding shares is approximately $39 per share and a 20% margin of safety is $31/share.


Scenario 2
All else being equal,
  • Assume a 5-year growth rate in FCF of 5.50% per year, then 0% growth in FCF per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
379
1
400
2
422
3
445
4
470
5
495
Terminal Value
4889


  • Present Value of the entire firm (Debt + Equity): $4587 million
  • Value of Equity: $3147 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.