Hormel Foods Corporation: $HRL Cash Flow Valuation Update

Current Price: ~ $45/share
Yield: ~ 1.52%


Hormel Foods Corporation is engaged in the production of meat and food products and the marketing of those products throughout the United States and internationally.

        
 
        

Estimated WACC for the firm today is 9.03% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Year	FCF $Millions
2004	214
2005	322
2006	185
2007	211
2008	146
2009	454
2010	396
2011	394
2012	385
2013	531

Average Annual Growth FCF: ~ 25%

CAGR FCF: ~ 11%

Consensus Forecast Industry 5-Year Growth: ~ 13.6% per year

Consensus Forecast Company 5-Year Growth: ~ 11% per year

Internal Growth Rate: ~ 7.8%

Sustainable Growth Rate: ~ 12.6%

Scenario 1
Average FCF (2013 - 2009) is $432 million

• Start at $432 million FCF
• Assume a 5-year growth rate in FCF of 11% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	432
1	480
2	532
3	591
4	656
5	728
Terminal Value	8948

The firm's future free cash flows, discounted at a WACC of 9.03%, give a present value for the entire firm (Debt + Equity) of $8088 million. If the firm's fair value of debt is estimated at $262 million, then the fair value of the firm's equity could be $7826 million.  $7826 million / 264 million outstanding shares is approximately $30 per share and a 20% margin of safety is $24/share.

Scenario 2
All else being equal,

• Assume a 5-year growth rate in FCF of 11% per year, then 3.75% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	432
1	480
2	532
3	591
4	656
5	728
Terminal Value	15303

• Present Value of the entire firm (Debt + Equity): $12212 million
• Value of Equity: $11950 million or $45/share
• 20% margin of safety is $36/share

Conclusion: Closing out position in HRL for my Fantasy Portfolio today; looking for better value

Sources

Morningstar.com

Yahoo! Finance

Hormel Foods Corporation

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

Closing Out Applied Materials Inc: $AMAT Cash Flow Valuation Update

Current Price: ~ $17/share
Yield: ~ 2.34%


Applied Materials, Inc., provides manufacturing equipment, services and software to the global semiconductor, flat panel display, solar photovoltaic and related industries.

        
          

Estimated WACC for the firm today is 17.31% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Year	FCF $Millions
2004	1437
2005	1047
2006	1756
2007	1945
2008	1423
2009	84
2010	1554
2011	2217
2012	1689
2013	426

Average Annual Growth FCF: ~ 180.5%

CAGR FCF: ~ -12.64%

Consensus Forecast Industry 5-Year Growth: ~ 17% per year

Consensus Forecast Company 5-Year Growth: ~ 8% per year

Internal Growth Rate: ~ -1.7%

Sustainable Growth Rate: ~ -2.81%

Scenario 1
Average FCF (2013-2011) is $1444 million

• Start at $1444 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	1444
1	1560
2	1684
3	1819
4	1965
5	2122
Terminal Value	13235

The firm's future free cash flows, discounted at a WACC of 17.31%, give a present value for the entire firm (Debt + Equity) of $11629 million. If the firm's fair value of debt is estimated at $2100 million, then the fair value of the firm's equity could be $9529 million.  $9529 million / 1200 million outstanding shares is approximately $8 per share and a 20% margin of safety is $6.40/share.

Scenario 2
All else being equal,

• Assume a 5-year growth rate in FCF of 12.00% per year, then 9.50% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	1444
1	1617
2	1811
3	2029
4	2272
5	2545
Terminal Value	36480

• Present Value of the entire firm (Debt + Equity): $22715 million
• Value of Equity: $20615 million or $17/share
• 20% margin of safety is $13.60/share

Conclusion: Closing out position in AMAT for my Fantasy Portfolio today.

Sources

Morningstar.com

Yahoo! Finance

Applied Materials, Inc.

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

Raytheon Company: $RTN Cash Flow Valuation Update

Current Price: ~ $87/share
Yield: ~ 2.46%


Raytheon Company provides technology-driven solutions that provide integrated mission systems for the critical defense and non-defense needs of its customers.

      
    

Estimated WACC for the firm today is 8.49% 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	1141
2004	1605
2005	2102
2006	2371
2007	800
2008	1637
2009	2378
2010	1556
2011	1670
2012	1542

YTD Free Cash Flow for nine months ending 9/30/2013 is $1112million; $1483 million annualized

Average Annual Growth FCF: ~ 14.8%

CAGR FCF: ~ 3.4%

Consensus Forecast Industry 5-Year Growth: ~ 12% per year

Consensus Forecast Company 5-Year Growth: ~ 9.6% per year

Internal Growth Rate: ~ 4.8%

Sustainable Growth Rate: ~ 17.4%

Scenario 1
Average FCF (YTD, 2012, 2011, 2010) is $1563 million

• Start at $1563 million FCF
• Assume a 5-year growth rate in FCF of 9.6% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	1563
1	1713
2	1878
3	2058
4	2255
5	2472
Terminal Value	31911

The firm's future free cash flows, discounted at a WACC of 8.49%, give a present value for the entire firm (Debt + Equity) of $29291 million. If the firm's fair value of debt is estimated at $5046 million, then the fair value of the firm's equity could be $24245 million.  $24245 million / 319 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 12% per year, then 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	1563
1	1751
2	1961
3	2196
4	2459
5	2755
Terminal Value	36340

• Present Value of the entire firm (Debt + Equity): $32787 million
• Value of Equity: $27741 million or $87/share
• 20% margin of safety is $70/share

Sources

Morningstar.com

Yahoo! Finance

Raytheon.com

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