Current Price: ~ $69/share
Yield: ~ 4.83%
Entergy is an integrated energy company with two primary businesses. Its regulated utility distributes power to 2.8 million customers across four states through six utilities in the Southeast. Its wholesale commodity segment owns and operates six nuclear units, approximately 5,000 MW of power generation capacity, primarily in the Northeast, and is the secondlargest nuclear operator in the U.S.
Estimated WACC for the firm today is 5.71% 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

651

2003

437

2004

1519

2005

160

2006

1419

2007

237

2008

845

2009

2408

2010

1544

2011

199

Average Annual Growth FCF: ~ 75%
Consensus Forecast Industry 5Year Growth: ~ 7% per year
Consensus Forecast Company 5Year Growth: ~ 1% per year
Internal Growth Rate: ~ 1%
Sustainable Growth Rate: ~ 7%
Scenario 1
Average FCF (2011, 2010, 2009) is $1251 million
Average FCF (2011, 2010, 2009) is $1251 million
 Start at $1251 million FCF
 Assume a 5year growth rate in FCF of 1% per year, then no growth or 0% growth in FCF per year forever:
Discounted Cash Flow Valuation
The firm's future free cash flows, discounted at a WACC of 5.71%, give a present value for the entire firm (Debt + Equity) of $23075 million. If the firm's fair value of debt is estimated at $12618 million, then the fair value of the firm's equity could be $10457 million. $10457 million / 177 million outstanding shares is approximately $59 per share and a 20% margin of safety is $47/share.
Year

FCF
$Millions

0

1251

1

1264

2

1276

3

1289

4

1302

5

1315

Terminal
Value

23246

The firm's future free cash flows, discounted at a WACC of 5.71%, give a present value for the entire firm (Debt + Equity) of $23075 million. If the firm's fair value of debt is estimated at $12618 million, then the fair value of the firm's equity could be $10457 million. $10457 million / 177 million outstanding shares is approximately $59 per share and a 20% margin of safety is $47/share.
Scenario 2
All else being equal,
All else being equal,
 Assume a 5year growth rate in FCF of 3% per year, then 0% growth in FCF per year forever:
Discounted Cash Flow Valuation
Year

FCF
$Millions

0

1251

1

1289

2

1327

3

1367

4

1408

5

1450

Terminal
Value

26148

 Present Value of the entire firm (Debt + Equity): $25596 million
 Value of Equity: $12978 million or $73/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.
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