Monday, January 28, 2013

Rockwell Collins Inc: $COL Cash Flow Valuation Update


Current Price: ~ $59/share
Yield: ~ 2.02%


Rockwell Collins, Inc. designs, produces & supports communications & aviation electronics for commercial & military customers. Its products & services include cabin management systems, radar & surveillance, field support, spares & parts, among others.         


Estimated WACC for the firm today is 9.76% 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
302
2004
296
2005
456
2006
451
2007
474
2008
441
2009
478
2010
595
2011
501
2012
392




Average Annual Growth FCF: ~ 5%
CAGR FCF: ~ 3%
Consensus Forecast Industry 5-Year Growth: ~ 11% per year
Consensus Forecast Company 5-Year Growth: ~ 10% per year
Internal Growth Rate: ~ 8%
Sustainable Growth Rate: ~ 41%

Scenario 1
Average FCF (past 5 years) is $481 million
  • Start at $481 million FCF
  • Assume a 5-year growth rate in FCF of 9% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
481
1
524
2
571
3
623
4
679
5
740
Terminal Value
8267


The firm's future free cash flows, discounted at a WACC of 9.76%, give a present value for the entire firm (Debt + Equity) of $7546 million. If the firm's fair value of debt is estimated at $837 million, then the fair value of the firm's equity could be $6709 million.  $6709 million / 137 million outstanding shares is approximately $49 per share and a 20% margin of safety is $39/share.


Scenario 2
All else being equal,
  • Assume a 5-year growth rate in FCF of 9% per year, then 2% growth in FCF per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
481
1
524
2
571
3
623
4
679
5
740
Terminal Value
10399


  • Present Value of the entire firm (Debt + Equity): $8884 million
  • Value of Equity: $8047 million or $59/share
  • 20% margin of safety is $47/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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