Current Price: ~ $84/share
Yield: ~ 2.96%
Established in 1940, Air Products is the world's largest supplier of hydrogen and helium. It offers a unique portfolio of products and services in a number of industries, including technology, energy, industrial, and health care. The company operates in more than 40 countries, with international sales representing 60% of revenue. Air Products generates $10 billion in annual sales and employs almost 20,000 workers.
Estimated WACC for the firm today is 10.11% 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
|
423
|
2004
|
380
|
2005
|
446
|
2006
|
85
|
2007
|
442
|
2008
|
595
|
2009
|
144
|
2010
|
492
|
2011
|
402
|
2012
|
278
|
Average Annual Growth FCF: ~ 55%
CAGR FCF: ~ -4.6%
Consensus Forecast Industry 5-Year Growth: ~ 11% per year
Consensus Forecast Company 5-Year Growth: ~ 8% per year
Internal Growth Rate: ~ 4%
Sustainable Growth Rate: ~ 11%
Scenario 1
The highest level of FCF achieved in the past 10 years is $595 million
The highest level of FCF achieved in the past 10 years is $595 million
- Start at $595 million FCF
- Assume a 5-year growth rate in FCF of 11% per year, then 4% growth in FCF per year forever:
Discounted Cash Flow Valuation
The firm's future free cash flows, discounted at a WACC of 10.11%, give a present value for the entire firm (Debt + Equity) of $14307 million. If the firm's fair value of debt is estimated at $5006 million, then the fair value of the firm's equity could be $9301 million. $9301 million / 213 million outstanding shares is approximately $44 per share and a 20% margin of safety is $35/share.
Year
|
FCF
$Millions
|
0
|
595
|
1
|
660
|
2
|
733
|
3
|
814
|
4
|
903
|
5
|
1003
|
Terminal
Value
|
18221
|
The firm's future free cash flows, discounted at a WACC of 10.11%, give a present value for the entire firm (Debt + Equity) of $14307 million. If the firm's fair value of debt is estimated at $5006 million, then the fair value of the firm's equity could be $9301 million. $9301 million / 213 million outstanding shares is approximately $44 per share and a 20% margin of safety is $35/share.
Scenario 2
All else being equal,
All else being equal,
- Assume a 5-year growth rate in FCF of 11% per year, then 6.75% growth in FCF per year forever:
Discounted Cash Flow Valuation
Year
|
FCF
$Millions
|
0
|
595
|
1
|
660
|
2
|
733
|
3
|
814
|
4
|
903
|
5
|
1003
|
Terminal
Value
|
33144
|
- Present Value of the entire firm (Debt + Equity): $23527 million
- Value of Equity: $18521 million or $87/share
- 20% margin of safety is $70/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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