Friday, January 25, 2013

Becton Dickinson & Co: $BDX Cash Flow Valuation Update


Current Price: ~ $85/share
Yield: ~ 2.20%

Becton, Dickinson & Co., is engaged in manufacturing and sale of medical supplies, devices, laboratory equipment and diagnostic products used by healthcare institutions, life science researchers, clinical laboratories, industry and the general public.     


Estimated WACC for the firm today is 7.93% 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
645
2004
832
2005
909
2006
594
2007
662
2008
1036
2009
1016
2010
1112
2011
1111
2012
1207




Average Annual Growth FCF: ~ 10%
CAGR FCF: ~ 7%
Consensus Forecast Industry 5-Year Growth: ~ 16% per year
Consensus Forecast Company 5-Year Growth: ~ 7% per year
Internal Growth Rate: ~ 8%
Sustainable Growth Rate: ~ 22%

Scenario 1
Average FCF (2012, 2011, 2010) is $1143 million
  • Start at $1143 million FCF
  • Assume a 5-year growth rate in FCF of 7% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
1143
1
1223
2
1309
3
1400
4
1498
5
1603
Terminal Value
21635


The firm's future free cash flows, discounted at a WACC of 7.93%, give a present value for the entire firm (Debt + Equity) of $20342 million. If the firm's fair value of debt is estimated at $4317 million, then the fair value of the firm's equity could be $16025 million.  $16025 million / 197 million outstanding shares is approximately $81 per share and a 20% margin of safety is $65/share.


Scenario 2
All else being equal,
  • 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
1143
1
1223
2
1309
3
1400
4
1498
5
1603
Terminal Value
28933


  • Present Value of the entire firm (Debt + Equity): $25326 million
  • Value of Equity: $21009 million or $107/share
  • 20% margin of safety is $86/share


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

1 comment:

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