Yield: ~ 2.46%
Raytheon Company provides technologydriven solutions that provide integrated mission systems for the critical defense and nondefense 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 5Year Growth: ~ 12% per year
Consensus Forecast Company 5Year 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 5year 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 5year 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.