Thursday, October 25, 2012

Awesome Kings Indian Defense

Grandmaster Alexander Beliavsky vs Grandmaster Dr. John Nunn 1985 Wijk aan Zee (Kingscrusher)


Friday, October 12, 2012

Sysco Corporation: $SYY Cash Flow Valuation


Current Price: ~ $31/share
Yield: ~ 3.46%


Sysco operates as the largest North American foodservice distributor, controlling 17.5% of the market. The firm distributes more than 400,000 food and nonfood products to 400,000 customers, including restaurants, health care and educational facilities, and lodging establishments. From its founding in 1969 through the end of fiscal 2011, Sysco acquired more than 150 companies or divisions of companies to expand its footprint. Nearly 100% of the firm's sales are derived in North America.          


Estimated WACC for the firm today is 7.45% 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
937
2004
659
2005
802
2006
609
2007
800
2008
1080
2009
1118
2010
291
2011
455
2012
620




Average Annual Growth FCF: ~ 6%
CAGR FCF: ~ -4%
Consensus Forecast Industry 5-Year Growth: ~ 16% per year
Consensus Forecast Company 5-Year G620rowth: ~ 7% per year
Internal Growth Rate: ~ 4%
Sustainable Growth Rate: ~ 12%

Scenario 1
  • Start at $620 million FCF
  • 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
620
1
663
2
710
3
760
4
813
5
870
Terminal Value
26960


The firm's future free cash flows, discounted at a WACC of 7.45%, give a present value for the entire firm (Debt + Equity) of $21883 million. If the firm's fair value of debt is estimated at $3539 million, then the fair value of the firm's equity could be $18344 million.  $18344 million / 587 million outstanding shares is approximately $31 per share and a 20% margin of safety is $25/share.


Scenario 2
Average FCF (2012, 2009) is $869 million
  • Start at $869 million FCF
  • Assume a 5-year growth rate in FCF of 7% per year, then 2% growth in FCF per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
869
1
930
2
995
3
1065
4
1139
5
1219
Terminal Value
23924


  • Present Value of the entire firm (Debt + Equity): $20993 million
  • Value of Equity: $17457 million or $30/share
  • 20% margin of safety is $24/share


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