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:
YTD Free Cash Flow for nine months ending 9/30/2013 is $1112million; $1483 million annualized
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
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
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.
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,
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
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.