Campbell Soup Co: $CPB Cash Flow Valuation Update

Current Price: ~ $37/share
Yield: ~ 3.17%


With a heritage that dates back about 140 years, Campbell Soup is now a leading global manufacturer and marketer of branded convenience food products, most notably soup. However, the firm's product assortment spans beyond soup, as its portfolio of well-known brands includes Campbell's, Pace, Prego, Swanson, V8, and Pepperidge Farm. International operations account for around 30% of Campbell's consolidated sales.     

Estimated WACC for the firm today is 4.25% 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	590
2004	456
2005	658
2006	917
2007	340
2008	468
2009	821
2010	742
2011	870
2012	797

Average Annual Growth FCF: ~ 12%

CAGR FCF: ~ 3%

Consensus Forecast Industry 5-Year Growth: ~ 14% per year

Consensus Forecast Company 5-Year Growth: ~ 5% per year

Internal Growth Rate: ~ 6%

Scenario 1
Average the high and low FCF of the past 5 years; Average FCF (2011, 2008) is $669 million

• Start at $669 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	669
1	689
2	710
3	731
4	753
5	776
Terminal Value	18799

The firm's future free cash flows, discounted at a WACC of 4.25%, give a present value for the entire firm (Debt + Equity) of $18494 million. If the firm's fair value of debt is estimated at $2663 million, then the fair value of the firm's equity could be $15831 million.  $15831 million / 314 million outstanding shares is approximately $50 per share and a 20% margin of safety is $40/share.

Scenario 2
Average FCF (2012, 2011, 2010) is $803 million

• Start at $803 million FCF
• Assume a higher WACC of 6.25%
• 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	803
1	843
2	885
3	930
4	976
5	1025
Terminal Value	17218

All else being equal,

• Present Value of the entire firm (Debt + Equity): $16591 million
• Value of Equity: $13928 million or $44/share
• 20% margin of safety is $35/share

Sources

Morningstar.com

Yahoo! Finance

Campbellsoupcompany.com

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