Friday, September 14, 2012

Clorox Company: $CLX Cash Flow Valuation Update


Current Price: ~ $71/share
Yield: ~ 3.46%


For nearly 100 years, Clorox has operated in the household product industry, expanding its portfolio to include such leading brands as Clorox, Glad, Hidden Valley, and Kingsford. The firm distributes its products through mass merchants, grocery stores, and other retail outlets. With its acquisition of Burt's Bees in 2007, Clorox gained entry into the fast-growing natural personal-care category. International sales amount to 20% of the firm's consolidated total.

Estimated WACC for the firm today is 5.08% 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
598
2004
727
2005
614
2006
342
2007
562
2008
560
2009
541
2010
616
2011
470
2012
420




Average Annual Growth FCF: ~ 0%
CAGR FCF: ~ -4%
Consensus Forecast Industry 5-Year Growth: ~ 14% per year
Consensus Forecast Company 5-Year Growth: ~ 8% per year
Internal Growth Rate: ~ 5.5%


Scenario 1
  • Start at $420 million FCF
  • Assume a 5-year growth rate in FCF of 8% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
420
1
454
2
490
3
529
4
571
5
617
Terminal Value
13121


The firm's future free cash flows, discounted at a WACC of 5.08%, give a present value for the entire firm (Debt + Equity) of $12524 million. If the firm's fair value of debt is estimated at $2606 million, then the fair value of the firm's equity could be $9918 million.  $9918 million / 130 million outstanding shares is approximately $76 per share and a 20% margin of safety is $61/share.


Scenario 2
All else being equal,
  • Assume a 5-year growth rate in FCF of 4% per year, then 0% growth in FCF per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
420
1
437
2
454
3
472
4
491
5
511
Terminal Value
10462


  • Present Value of the entire firm (Debt + Equity): $10203 million
  • Value of Equity: $7597 million or $58/share
  • 20% margin of safety is $46/share


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

Automatic Data Processing: $ADP Cash Flow Valuation Update

Current Price: ~ $58/share
Yield: ~ 2.73%


ADP competes in the human resources administration services industry. The firm provides services that satisfy companies' human resources needs, such as payroll processing and benefits administration. The firm was founded in 1949 and has its headquarters in Roseland, N.J. It serves more than 560,000 clients with 57,000 employees worldwide.      


Estimated WACC for the firm today is 9.89% 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
1431
2004
1188
2005
1237
2006
1402
2007
975
2008
1509
2009
1309
2010
1455
2011
1428
2012
1661





Average Annual Growth FCF: ~ 4%
CAGR FCF: ~ 2%
Consensus Forecast Industry 5-Year Growth: ~ 19% per year
Consensus Forecast Company 5-Year Growth: ~ 9% per year
Internal Growth Rate: ~ 2%
Sustainable Growth Rate: ~ 11.5%

Scenario 1
Average FCF (2012, 2011, 2010) is $1515 million
  • Start at $1515 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
1515
1
1651
2
1800
3
1962
4
2139
5
2331
Terminal Value
25701


The firm's future free cash flows, discounted at a WACC of 9.89%, give a present value for the entire firm (Debt + Equity) of $23435 million. If the firm's fair value of debt is estimated at $17 million, then the fair value of the firm's equity could be $23418 million.  $23418 million / 485 million outstanding shares is approximately $48 per share and a 20% margin of safety is $38/share.


Scenario 2
All else being equal,
  • Assume a 5-year growth rate in FCF of 9% per year, then 2.50% growth in FCF per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
1515
1
1651
2
1800
3
1962
4
2139
5
2331
Terminal Value
34400


  • Present Value of the entire firm (Debt + Equity): $28865 million
  • Value of Equity: $28848 million or $59/share
  • 20% margin of safety is $47/share



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

Tuesday, September 4, 2012

Cool Praying Mantis

I was out for a walk this morning when this "weird flying grasshopper" landed in front of me:


Stagmomantis californica

Baxter International Inc: $BAX Cash Flow Valuation Update


Current Price: ~ $59/share
Yield: ~ 2.24%


Baxter International focuses on delivering injectable therapies for a wide variety of medical conditions. The firm's BioScience segment specializes in developing treatments for disorders such as hemophilia and immune deficiencies. It also provides a variety of medication delivery systems including intravenous bags, solutions, and other devices to control fluid inflow, including dialysis equipment and solutions for patients with kidney failure.           


Estimated WACC for the firm today is 8.01% 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
345
2003
636
2004
822
2005
1106
2006
1657
2007
1613
2008
1561
2009
1895
2010
2040
2011
1857
TTM
2115




Average Annual Growth FCF: ~ 24%
CAGR FCF: ~ 21%
Consensus Forecast Industry 5-Year Growth: ~ 18% per year
Consensus Forecast Company 5-Year Growth: ~ 8% per year
Internal Growth Rate: ~ 9%
Sustainable Growth Rate: ~ 30%

Scenario 1
Average FCF (2011, 2010, 2009) is $1931 million
  • Start at $1931 million FCF
  • Assume a 5-year growth rate in FCF of 8% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
1931
1
2085
2
2252
3
2433
4
2627
5
2837
Terminal Value
38252


The firm's future free cash flows, discounted at a WACC of 8.01%, give a present value for the entire firm (Debt + Equity) of $35673 million. If the firm's fair value of debt is estimated at $6577 million, then the fair value of the firm's equity could be $29096 million.  $29096 million / 547 million outstanding shares is approximately $53 per share and a 20% margin of safety is $42/share.


Scenario 2
All else being equal,
  • Assume a 5-year growth rate in FCF of 8% per year, then 2.40% growth in FCF per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
1931
1
2085
2
2252
3
2433
4
2627
5
2837
Terminal Value
54614


  • Present Value of the entire firm (Debt + Equity): $46803 million
  • Value of Equity: $40226 million or $74/share
  • 20% margin of safety is $59/share


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