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 5Year Growth: ~ 11% per year
Consensus Forecast Company 5Year Growth: ~ 10% per year
Internal Growth Rate: ~ 8%
Sustainable Growth Rate: ~ 41%
Scenario 1
Average FCF (past 5 years) is $481 million
Average FCF (past 5 years) is $481 million
 Start at $481 million FCF
 Assume a 5year growth rate in FCF of 9% 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 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.
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,
All else being equal,
 Assume a 5year 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.