tag:blogger.com,1999:blog-86392584747957394462024-02-06T19:10:13.592-08:00Manzanita DriveDiscounted Cash Flow Valuations and DiscussionsEric Cotahttp://www.blogger.com/profile/01550847614110321622noreply@blogger.comBlogger208125tag:blogger.com,1999:blog-8639258474795739446.post-30040208256724843992014-06-25T15:56:00.000-07:002014-06-25T16:18:11.700-07:00Johnson & Johnson: $JNJ Cash Flow Valuation<span style="background-color: white; color: #333333; font-family: Helvetica Neue, Arial, Helvetica, sans-serif; line-height: 14px;">Current Price: ~ $106/share</span><br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><span style="background-color: white; color: #333333;"><span class="Apple-style-span" style="line-height: 14px;">Yield: ~ 2.56%</span><br /><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span></span><span style="background-color: #fdfdfd; line-height: 22px;">Johnson & Johnson is a holding company, which is engaged in the research and development, manufacture and sale of a range of products in the health care field within its Consumer, Pharmaceutical and Medical Devices, and Diagnostics business segments.</span></span><br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><span style="background-color: #fdfdfd; line-height: 22px;"><br /></span><img alt="JOHNSON'S® Products" src="http://www.johnsonsbaby.com/sites/default/files/home/products.png" height="184" width="320" /> <img alt="Children's TYLENOL® Meltaways® Chewable Tablets" src="http://www.tylenol.com/sites/default/files/styles/medium/public/prod_images/Childrens_Tyl%20Meltaways%20Chewable%20Tablets%20in%20Grape_0.jpg?itok=bSQJ2xpk" height="125" width="200" /></span><br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><img src="http://www.listerine.com/sites/default/files/final_he_white_1.jpg" height="176" width="400" /> <img alt="Eczema Carousel" src="http://www.neosporin.com/sites/default/files/neosporin_files/images/eczema_carousel_image/antiIchPackshotbig.png" height="200" width="121" /> </span><br />
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Estimated WACC for the firm today is 7.50% using the Capital Asset Pricing Model and the company's recent SEC filings.</span></div>
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<span style="border: 0px; font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Recent free cash flows and noted growth rates:</span><br />
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Year</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">FCF $Millions</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2004</span></div>
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<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">8956</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2005</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">9245</span></div>
</td>
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<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2006</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">11510</span></div>
</td>
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<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2007</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">11939</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2008</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">11906</span></div>
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<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2009</span></div>
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<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">14206</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2010</span></div>
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<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">14001</span></div>
</td>
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<tr style="height: 13.5pt; mso-yfti-irow: 8;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2011</span></div>
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<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">11405</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 9;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2012</span></div>
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<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">12462</span></div>
</td>
</tr>
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<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2013</span></div>
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<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">13819</span></div>
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<span style="font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-style: inherit;">Average Annual Growth FCF: ~ 6%</span></div>
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<span class="Apple-style-span" style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; line-height: 14px;">CAGR FCF: ~ 5%</span></div>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Consensus Forecast Industry 5-Year Growth: ~ 12% per year</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Consensus Forecast Company 5-Year Growth: ~ 7% per year</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Internal Growth Rate: ~ 6%</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Sustainable Growth Rate: ~ 11%</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-style: inherit;"><b>Scenario 1</b></span></div>
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<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-style: inherit;">Start at $13819 million FCF</span></li>
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-style: inherit;">Assume a 5-year growth rate in FCF of 7% per year, then no growth or 0% growth in FCF per year forever:</span></li>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Discounted Cash Flow Valuation</span><br />
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Year</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">FCF $Millions</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">0</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">13819</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">14786</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">15821</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">3</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">16929</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">4</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">18114</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">5</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">19382</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Terminal Value</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">276333</span></div>
</td>
</tr>
</tbody></table>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br />
<span style="font-style: inherit;">The firm's future free cash flows, discounted at a WACC of 7.50%, give a present value for the entire firm (Debt + Equity) of $260565 million. If the firm's fair value of debt is estimated at $15013 million, then the fair value of the firm's equity could be $245552</span><span style="font-style: inherit;"> million. $245552 million / 2830 million outstanding shares is approximately $87 per share and a 20% margin of safety is $70/share.</span></span></div>
<div style="border: 0px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<b><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Scenario 2</span></b><br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">All else being equal,</span></div>
<div style="font-style: inherit; line-height: 20px;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-style: inherit;">Assume a 5-year growth rate in FCF of 11% per year, then 0% growth in FCF per year forever:</span></li>
</ul>
</div>
<div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Discounted Cash Flow Valuation</span><br />
<table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: none; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Year</span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">FCF $Millions</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">0</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">13819</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">15339</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">17026</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">3</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">18899</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">4</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">20978</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">5</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">23286</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Terminal Value</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">344403</span></div>
</td>
</tr>
</tbody></table>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div>
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; line-height: 20px;">Present Value of the entire firm (Debt + Equity): $315975 million</span></li>
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; line-height: 20px;">Value of Equity: $300962 million or $106/share</span></li>
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; line-height: 20px;">20% margin of safety is $85/share</span></li>
</ul>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br />
</span><br />
<div>
<span style="font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-style: inherit; line-height: 20px;">Sources</span></div>
</div>
</div>
<div style="font-style: inherit; line-height: 20px;">
<div style="border: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><a href="http://morningstar.com/" style="color: #992211; text-decoration: none;"><b>Morningstar.com</b></a></span></div>
<div style="border: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><a href="http://finance.yahoo.com/" style="color: #992211; text-decoration: none;"><b>Yahoo! Finance</b></a></span></div>
<div style="border: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<b><a href="http://goo.gl/Bcbc4" style="color: #771100; text-decoration: none;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">JNJ.com</span></a></b><br />
<div>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
</div>
<div style="border: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; line-height: 14px;"><span class="Apple-style-span" style="line-height: 20px;"><strong style="border: 0px; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Disclosure: </strong></span><span class="Apple-style-span" style="line-height: 20px;">I have no real positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.</span></span></div>
</div>
</div>
</div>
</div>
Eric Cotahttp://www.blogger.com/profile/01550847614110321622noreply@blogger.com0tag:blogger.com,1999:blog-8639258474795739446.post-26011412946246285992014-01-09T12:44:00.000-08:002014-01-09T12:48:45.524-08:00Analog Devices Inc: $ADI Cash Flow Valuation Update<span style="background-color: white; color: #333333; font-family: Helvetica Neue, Arial, Helvetica, sans-serif; line-height: 14px;">Current Price: ~ $50/share</span><br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><span style="background-color: white; color: #333333;"><span class="Apple-style-span" style="line-height: 14px;">Yield: ~ 2.74%</span><br /><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span></span><span style="line-height: 22px;">Analog Devices Inc is engaged in the design, manufacture and marketing of a portfolio of high-performance analog, mixed-signal and digital signal processing integrated circuits used in virtually all types of electronic equipment.</span></span><br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><span style="background-color: #fdfdfd; line-height: 22px;"><br /></span> <img src="http://investor.analog.com/images/InvestorFactImg.gif" /></span><br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /> <span style="background-color: white; color: #333333; line-height: 17px;"> </span></span><br />
<div style="background-color: white; border: 0px; color: #333333; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="margin: 0px;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Estimated WACC for the firm today is 12.93% using the Capital Asset Pricing Model and the company's recent SEC filings.</span></div>
<div style="margin: 0px;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
</div>
<div style="background-color: white; border: 0px; color: #333333; line-height: 17px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="margin: 0px;">
<div style="border: 0px; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div>
<div style="font-style: inherit;">
<span style="border: 0px; font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Recent free cash flows and noted growth rates:</span><br />
<span style="border: 0px; font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></span><br />
<table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: none; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Year</span></div>
</td>
<td style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">FCF $Millions</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2004</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">632</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2005</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">587</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2006</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">492</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2007</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">679</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2008</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">512</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2009</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">376</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2010</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">880</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 8;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2011</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">778</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 9;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2012</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">682</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 10; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2013</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">789</span></div>
</td>
</tr>
</tbody></table>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjrBzANU6wQh7HOy-C7wjz6CrsVqlSbUOsEpoR-H0UIEAAeFtwCPj7hbb39yNXSYjjx1BDzhJm1tgcfWNiAkdhkHRUEseEAKdNq_xnwCjvi4HUQaslI-I3nJiNBMoz2L_PJNWniJxxmymqx/s1600/ADI+fcf.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjrBzANU6wQh7HOy-C7wjz6CrsVqlSbUOsEpoR-H0UIEAAeFtwCPj7hbb39yNXSYjjx1BDzhJm1tgcfWNiAkdhkHRUEseEAKdNq_xnwCjvi4HUQaslI-I3nJiNBMoz2L_PJNWniJxxmymqx/s1600/ADI+fcf.jpg" height="454" width="640" /></span></a></div>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-style: inherit;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></span>
<br />
<div class="separator" style="clear: both; text-align: center;">
</div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgyvI84y4iecuUf3Idp1Qt-SmbpVdPAzZG1ulV8uB33l-oVhLZMX3b6irERINQHGBsPG_TQRSPL09-EpfMFUrjQ0P387wUsCa-9qr0e6a7g1EoHAt5X9-G2krM6rLo5BVrCj4EQHFgfUSyV/s1600/LLL.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"></span></a></div>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span>
<br />
<div style="font-style: inherit;">
<span style="font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-style: inherit;">Average Annual Growth FCF: ~ 10%</span></div>
</div>
<div style="font-style: inherit;">
<div style="border: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; line-height: 14px;">CAGR FCF: ~ 2.5%</span></div>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Consensus Forecast Industry 5-Year Growth: ~ 24.6% per year</span></div>
</div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Consensus Forecast Company 5-Year Growth: ~ 11% per year</span></div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Internal Growth Rate: ~ 4.5%</span></div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Sustainable Growth Rate: ~ 6%</span></div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-style: inherit;"><b>Scenario 1</b></span><br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-style: inherit;">Average FCF (2013 - 2011) is $750 million</span></div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-style: inherit;">Start at $750 million FCF</span></li>
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-style: inherit;">Assume a 5-year growth rate in FCF of 11% per year, then no growth or 0% growth in FCF per year forever:</span></li>
</ul>
</div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Discounted Cash Flow Valuation</span><br />
<table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: none; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Year</span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">FCF $Millions</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">0</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">750</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">833</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">924</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">3</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1026</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">4</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1139</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">5</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1264</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Terminal Value</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">10847</span></div>
</td>
</tr>
</tbody></table>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><span style="font-style: inherit;">The firm's future free cash flows, discounted at a WACC of 12.93%, give a present value for the entire firm (Debt + Equity) of $9467 million. If the firm's fair value of debt is estimated at $872 million, then the fair value of the firm's equity could be $8595</span><span style="font-style: inherit;"> million. $8595 million / 311 million outstanding shares is approximately $28 per share and a 20% margin of safety is $22/share.</span></span></div>
<div style="border: 0px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<b><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Scenario 2</span></b><br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">All else being equal,</span></div>
<div style="font-style: inherit; line-height: 20px;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-style: inherit;">Assume a 5-year growth rate in FCF of 11% per year, then 7% growth in FCF per year forever:</span></li>
</ul>
</div>
<div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Discounted Cash Flow Valuation</span><br />
<table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: none; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Year</span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">FCF $Millions</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">0</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">750</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">833</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">924</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">3</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1026</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">4</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1139</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">5</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1264</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Terminal Value</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">23647</span></div>
</td>
</tr>
</tbody></table>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div>
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; line-height: 20px;">Present Value of the entire firm (Debt + Equity): $16435 million</span></li>
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; line-height: 20px;">Value of Equity: $15563 million or $50/share</span></li>
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; line-height: 20px;">20% margin of safety is $40/share</span></li>
</ul>
<br />
<div>
<span style="font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-style: inherit; line-height: 20px;">Sources</span></div>
</div>
</div>
<div style="font-style: inherit; line-height: 20px;">
<div style="border: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><a href="http://morningstar.com/" style="color: #992211; text-decoration: none;"><b>Morningstar.com</b></a></span></div>
<div style="border: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><a href="http://finance.yahoo.com/" style="color: #992211; text-decoration: none;"><b>Yahoo! Finance</b></a></span></div>
<div style="border: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<b><a href="http://goo.gl/d3XQEx" style="color: #771100; text-decoration: none;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Analog Devices Inc</span></a></b><br />
<div>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
</div>
<div style="border: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; line-height: 14px;"><span class="Apple-style-span" style="line-height: 20px;"><strong style="border: 0px; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Disclosure: </strong></span><span class="Apple-style-span" style="line-height: 20px;">I have no real positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.</span></span></div>
</div>
</div>
</div>
</div>
Eric Cotahttp://www.blogger.com/profile/01550847614110321622noreply@blogger.com0tag:blogger.com,1999:blog-8639258474795739446.post-53887928996054661862014-01-06T13:14:00.001-08:002014-01-06T13:14:13.021-08:00L-3 Communications Holdings Inc: $LLL Cash Flow Valuation Update<span style="background-color: white; color: #333333; font-family: Helvetica Neue, Arial, Helvetica, sans-serif; line-height: 14px;">Current Price: ~ $106/share</span><br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><span style="background-color: white; color: #333333;"><span class="Apple-style-span" style="line-height: 14px;">Yield: ~ 2.09%</span><br /><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span></span><span style="background-color: #fdfdfd; line-height: 22px;">L-3 Communications Holdings, Inc is engaged as a system contractor in aircraft modernization & maintenance, Command, Control, Communications, Intelligence, Surveillance and Reconnaissance systems, and government services.</span></span><br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><span style="background-color: #fdfdfd; line-height: 22px;"><br /></span> <img alt="l3-logo-bevel" src="http://www.l-3com.com/images/stories/l3-logo-bevel.png" /> </span><br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"> <img alt="banner_pls" height="91" src="http://www.l-3com.com/images/stories/banners/banner_pls.png" width="200" /> <img alt="banner_nss" height="91" src="http://www.l-3com.com/images/stories/banners/banner_nss.png" width="200" /> <img alt="banner_c3isr" height="91" src="http://www.l-3com.com/images/stories/banners/banner_c3isr.png" width="200" /></span><br />
<br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"> <span style="background-color: white; color: #333333; line-height: 17px;"> </span></span><br />
<div style="background-color: white; border: 0px; color: #333333; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="margin: 0px;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Estimated WACC for the firm today is 9.72% using the Capital Asset Pricing Model and the company's recent SEC filings.</span></div>
<div style="margin: 0px;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
</div>
<div style="background-color: white; border: 0px; color: #333333; line-height: 17px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="margin: 0px;">
<div style="border: 0px; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div>
<div style="font-style: inherit;">
<span style="border: 0px; font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Recent free cash flows and noted growth rates:</span></div>
<div style="font-style: inherit;">
<span style="border: 0px; font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></span></div>
<table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: none; font-style: inherit;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Year</span></div>
</td>
<td style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">FCF $Millions</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2003</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">373</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2004</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">540</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2005</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">727</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2006</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">918</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2007</span></div>
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<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1113</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2008</span></div>
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<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1169</span></div>
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<tr style="height: 13.5pt; mso-yfti-irow: 7;">
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2009</span></div>
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<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1221</span></div>
</td>
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<tr style="height: 13.5pt; mso-yfti-irow: 8;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120">
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2010</span></div>
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<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1280</span></div>
</td>
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<tr style="height: 13.5pt; mso-yfti-irow: 9;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120">
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2011</span></div>
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<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1292</span></div>
</td>
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<tr style="height: 13.5pt; mso-yfti-irow: 10;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120">
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2012</span></div>
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<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1096</span></div>
</td>
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<tr style="height: 13.5pt; mso-yfti-irow: 11; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120">
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2013 guidance*</span></div>
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<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1010</span></div>
</td>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><span style="font-style: inherit;">* </span><i>Free cash flow guidance remains $1,010,000,000</i><span style="font-style: inherit;"> - </span><span style="font-style: inherit;">Ralph G. D'Ambrosio, Chief Financial Officer and Senior Vice President; Q3 2013 earnings call transcript</span></span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgyvI84y4iecuUf3Idp1Qt-SmbpVdPAzZG1ulV8uB33l-oVhLZMX3b6irERINQHGBsPG_TQRSPL09-EpfMFUrjQ0P387wUsCa-9qr0e6a7g1EoHAt5X9-G2krM6rLo5BVrCj4EQHFgfUSyV/s1600/LLL.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgyvI84y4iecuUf3Idp1Qt-SmbpVdPAzZG1ulV8uB33l-oVhLZMX3b6irERINQHGBsPG_TQRSPL09-EpfMFUrjQ0P387wUsCa-9qr0e6a7g1EoHAt5X9-G2krM6rLo5BVrCj4EQHFgfUSyV/s1600/LLL.jpg" height="450" width="640" /></span></a></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-style: inherit;">Average Annual Growth FCF: ~ 14.11%</span></div>
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<span class="Apple-style-span" style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; line-height: 14px;">CAGR FCF: ~ 12.72%</span></div>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Consensus Forecast Industry 5-Year Growth: ~ 12% per year</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Consensus Forecast Company 5-Year Growth: ~ 2% per year</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Internal Growth Rate: ~ 4%</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Sustainable Growth Rate: ~ 11%</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-style: inherit;"><b>Scenario 1</b></span><br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-style: inherit;">Average FCF (2013* - 2011) is $1133 million</span></div>
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<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-style: inherit;">Start at $1133 million FCF</span></li>
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-style: inherit;">Assume a 5-year growth rate in FCF of 2% per year, then no growth or 0% growth in FCF per year forever:</span></li>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Discounted Cash Flow Valuation</span><br />
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Year</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">FCF $Millions</span></div>
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<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">0</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1133</span></div>
</td>
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<tr style="height: 13.5pt; mso-yfti-irow: 2;">
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<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1156</span></div>
</td>
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<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1179</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">3</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1202</span></div>
</td>
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<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">4</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1226</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">5</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1251</span></div>
</td>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Terminal Value</span></div>
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<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">13129</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><span style="font-style: inherit;">The firm's future free cash flows, discounted at a WACC of 9.72%, give a present value for the entire firm (Debt + Equity) of $12833 million. If the firm's fair value of debt is estimated at $3883 million, then the fair value of the firm's equity could be $8950</span><span style="font-style: inherit;"> million. $8950 million / 89 million outstanding shares is approximately $101 per share and a 20% margin of safety is $81/share.</span></span></div>
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<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<b><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Scenario 2</span></b><br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">All else being equal,</span></div>
<div style="font-style: inherit; line-height: 20px;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-style: inherit;">Assume a 5-year growth rate in FCF of 6.25% per year, then 0% growth in FCF per year forever:</span></li>
</ul>
</div>
<div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Discounted Cash Flow Valuation</span><br />
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Year</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">FCF $Millions</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">0</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1133</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1204</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1279</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">3</span></div>
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<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1359</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">4</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1444</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">5</span></div>
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<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1534</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Terminal Value</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">16773</span></div>
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<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; line-height: 20px;">Present Value of the entire firm (Debt + Equity): $15699 million</span></li>
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; line-height: 20px;">Value of Equity: $11816 million or $133/share</span></li>
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; line-height: 20px;">20% margin of safety is $106/share</span></li>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><b>Conclusion: Closing out position in LLL for my Fantasy Portfolio today; looking for better value</b></span><br />
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<span style="font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-style: inherit; line-height: 20px;"><br /></span><span style="font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-style: inherit; line-height: 20px;">Sources</span></div>
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<span class="Apple-style-span" style="color: #992211; font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><a href="http://morningstar.com/" style="color: #992211; text-decoration: none;"><b>Morningstar.com</b></a></span></div>
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<span class="Apple-style-span" style="color: #992211; font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><a href="http://finance.yahoo.com/" style="color: #992211; text-decoration: none;"><b>Yahoo! Finance</b></a></span></div>
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<b><a href="http://goo.gl/q6nPm" style="color: #771100; text-decoration: none;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">L-3 Communications Holdings Inc</span></a></b><br />
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<span class="Apple-style-span" style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; line-height: 14px;"><span class="Apple-style-span" style="line-height: 20px;"><strong style="border: 0px; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Disclosure: </strong></span><span class="Apple-style-span" style="line-height: 20px;">I have no real positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.</span></span></div>
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Eric Cotahttp://www.blogger.com/profile/01550847614110321622noreply@blogger.com0tag:blogger.com,1999:blog-8639258474795739446.post-50758969082274269912013-12-19T12:44:00.000-08:002013-12-19T12:51:18.481-08:00Hormel Foods Corporation: $HRL Cash Flow Valuation Update<span style="background-color: white; color: #333333; font-family: Helvetica Neue, Arial, Helvetica, sans-serif; line-height: 14px;">Current Price: ~ $45/share</span><br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><span style="background-color: white; color: #333333;"><span class="Apple-style-span" style="line-height: 14px;">Yield: ~ 1.52%</span><br /><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span></span><span style="background-color: #fdfdfd; line-height: 22px;">Hormel Foods Corporation is engaged in the production of meat and food products and the marketing of those products throughout the United States and internationally.</span></span><br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><span style="background-color: #fdfdfd; line-height: 22px;"><br /></span> <img height="76" src="http://www.hormelfoods.com/Sites/HormelFoods/img/bw-hormel-lg.png" width="200" /> <img alt="Skippy® brand" src="http://www.hormelfoods.com/Brands/www.hormelfoods.com/~/media/HormelFoods/Images/Brands/Wall/Skippy-Logo_brand-wall.ashx" /> <img alt="SPAM® Brand" src="http://www.hormelfoods.com/Brands/www.hormelfoods.com/~/media/HormelFoods/Images/Brands/Wall/bw-spam.ashx" /><img alt="Farmer John® meat products" src="http://www.hormelfoods.com/Brands/www.hormelfoods.com/~/media/HormelFoods/Images/Brands/Wall/bw-farmerJohn.ashx" /></span><br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><img src="http://www.hormelfoods.com/Brands/www.hormelfoods.com/~/media/HormelFoods/Images/Brands/Wall/bw-herdez.ashx" /><img alt="Jennie-O Turkey Store® products" src="http://www.hormelfoods.com/Brands/www.hormelfoods.com/~/media/HormelFoods/Images/Brands/Wall/bw-jennieO.ashx" /> <img alt="Dinty Moore® stew" src="http://www.hormelfoods.com/Brands/www.hormelfoods.com/~/media/HormelFoods/Images/Brands/Wall/bw-dintyMoore.ashx" /><img alt="Hormel® chili" src="http://www.hormelfoods.com/Brands/www.hormelfoods.com/~/media/HormelFoods/Images/Brands/Wall/bw-hormel-chili.ashx" /><img alt="La Victoria® Mexican products" src="http://www.hormelfoods.com/Brands/www.hormelfoods.com/~/media/HormelFoods/Images/Brands/Wall/bw-laVictoria.ashx" /></span><br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"> <span style="background-color: white; color: #333333; line-height: 17px;"> </span></span><br />
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Estimated WACC for the firm today is 9.03% using the Capital Asset Pricing Model and the company's recent SEC filings.</span></div>
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<span style="border: 0px; font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Recent free cash flows and noted growth rates:</span><br />
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Year</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">FCF $Millions</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2004</span></div>
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<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">214</span></div>
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<tr style="height: 13.5pt; mso-yfti-irow: 2;">
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2005</span></div>
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<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">322</span></div>
</td>
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<tr style="height: 13.5pt; mso-yfti-irow: 3;">
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2006</span></div>
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<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">185</span></div>
</td>
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<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2007</span></div>
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<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">211</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2008</span></div>
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<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">146</span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2009</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">454</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2010</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">396</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 8;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2011</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">394</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 9;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2012</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">385</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 10; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2013</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">531</span></div>
</td>
</tr>
</tbody></table>
<br />
<div class="separator" style="clear: both; text-align: center;">
</div>
<div class="separator" style="clear: both; text-align: center;">
</div>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEinLjmU_CaPDkevFgMdnmlMgSdsEzLpr4saQxprkBF9I8myO88_bzQxTm3lJ6hW6erz8-5Q6iODJAqQBz68qd1_HNYWlHoFnIvNd6W6fRbrcvCasI7c4eFliJV5kpyrhwHKOb3Wwjwz2mQe/s1600/HRL.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="458" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEinLjmU_CaPDkevFgMdnmlMgSdsEzLpr4saQxprkBF9I8myO88_bzQxTm3lJ6hW6erz8-5Q6iODJAqQBz68qd1_HNYWlHoFnIvNd6W6fRbrcvCasI7c4eFliJV5kpyrhwHKOb3Wwjwz2mQe/s640/HRL.jpg" width="640" /></a></div>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-style: inherit;">Average Annual Growth FCF: ~ 25%</span></div>
<div>
<div style="border: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; line-height: 14px;">CAGR FCF: ~ 11%</span></div>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Consensus Forecast Industry 5-Year Growth: ~ 13.6% per year</span></div>
</div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Consensus Forecast Company 5-Year Growth: ~ 11% per year</span></div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Internal Growth Rate: ~ 7.8%</span></div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Sustainable Growth Rate: ~ 12.6%</span></div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-style: inherit;"><b>Scenario 1</b></span><br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-style: inherit;">Average FCF (2013 - 2009) is $432 million</span></div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-style: inherit;">Start at $432 million FCF</span></li>
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-style: inherit;">Assume a 5-year growth rate in FCF of 11% per year, then no growth or 0% growth in FCF per year forever:</span></li>
</ul>
</div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Discounted Cash Flow Valuation</span><br />
<table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: none; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Year</span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">FCF $Millions</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">0</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">432</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">480</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">532</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">3</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">591</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">4</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">656</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">5</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">728</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Terminal Value</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">8948</span></div>
</td>
</tr>
</tbody></table>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><span style="font-style: inherit;"><br /></span></span>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><span style="font-style: inherit;">The firm's future free cash flows, discounted at a WACC of 9.03%, give a present value for the entire firm (Debt + Equity) of $8088 million. If the firm's fair value of debt is estimated at $262 million, then the fair value of the firm's equity could be $7826</span><span style="font-style: inherit;"> million. $7826 million / 264 million outstanding shares is approximately $30 per share and a 20% margin of safety is $24/share.</span></span></div>
<div style="border: 0px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<b><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Scenario 2</span></b><br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">All else being equal,</span></div>
<div style="font-style: inherit; line-height: 20px;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-style: inherit;">Assume a 5-year growth rate in FCF of 11% per year, then 3.75% growth in FCF per year forever:</span></li>
</ul>
</div>
<div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Discounted Cash Flow Valuation</span><br />
<table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: none; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Year</span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">FCF $Millions</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">0</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">432</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">480</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">532</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">3</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">591</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">4</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">656</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">5</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">728</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Terminal Value</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">15303</span></div>
</td>
</tr>
</tbody></table>
</div>
<div>
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; line-height: 20px;">Present Value of the entire firm (Debt + Equity): $12212 million</span></li>
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; line-height: 20px;">Value of Equity: $11950 million or $45/share</span></li>
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; line-height: 20px;">20% margin of safety is $36/share</span></li>
</ul>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><b>Conclusion: Closing out position in HRL for my Fantasy Portfolio today; looking for better value</b></span><br />
<div>
<span style="font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-style: inherit; line-height: 20px;"><br /></span><span style="font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-style: inherit; line-height: 20px;">Sources</span></div>
</div>
</div>
<div style="font-style: inherit; line-height: 20px;">
<div style="border: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><a href="http://morningstar.com/" style="color: #992211; text-decoration: none;"><b>Morningstar.com</b></a></span></div>
<div style="border: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><a href="http://finance.yahoo.com/" style="color: #992211; text-decoration: none;"><b>Yahoo! Finance</b></a></span></div>
<div style="border: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<b><a href="http://goo.gl/QGUWZ4" style="color: #771100; text-decoration: none;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Hormel Foods Corporation</span></a></b><br />
<div>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
</div>
<div style="border: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; line-height: 14px;"><span class="Apple-style-span" style="line-height: 20px;"><strong style="border: 0px; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Disclosure: </strong></span><span class="Apple-style-span" style="line-height: 20px;">I have no real positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.</span></span></div>
</div>
</div>
</div>
</div>
Eric Cotahttp://www.blogger.com/profile/01550847614110321622noreply@blogger.com0tag:blogger.com,1999:blog-8639258474795739446.post-13654815417896669382013-12-16T12:53:00.000-08:002013-12-16T14:53:13.075-08:00Closing Out Applied Materials Inc: $AMAT Cash Flow Valuation Update<span style="background-color: white; color: #333333; font-family: Helvetica Neue, Arial, Helvetica, sans-serif; line-height: 14px;">Current Price: ~ $17/share</span><br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><span style="background-color: white; color: #333333;"><span class="Apple-style-span" style="line-height: 14px;">Yield: ~ 2.34%</span><br /><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span></span><span style="background-color: #fdfdfd; line-height: 22px;">Applied Materials, Inc., provides manufacturing equipment, services and software to the global semiconductor, flat panel display, solar photovoltaic and related industries.</span></span><br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><span style="background-color: #fdfdfd; line-height: 22px;"><br /></span></span>
<img src="http://www.appliedmaterials.com/sites/all/themes/appliedmaterials/images/main/applied_materials-logo.gif" /> <img src="http://www.appliedmaterials.com/sites/default/files/imagecache/multimedia_thumb/pp_Producer_HARP_th.jpg" /> <img src="http://www.appliedmaterials.com/sites/default/files/imagecache/multimedia_thumb/media-resource/endura_amber.jpg" /> <img src="http://www.appliedmaterials.com/sites/default/files/imagecache/multimedia_thumb/media-resource/SEMVision-G6.jpg" /> <img src="http://www.appliedmaterials.com/sites/default/files/imagecache/multimedia_thumb/pp_E3_Advanced_Equip_Ctrl_th.jpg" /><br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"> <span style="background-color: white; color: #333333; line-height: 17px;"> </span></span><br />
<div style="background-color: white; border: 0px; color: #333333; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="margin: 0px;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br />Estimated WACC for the firm today is 17.31% using the Capital Asset Pricing Model and the company's recent SEC filings.</span></div>
<div style="margin: 0px;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
</div>
<div style="background-color: white; border: 0px; color: #333333; line-height: 17px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="margin: 0px;">
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div>
<span style="border: 0px; font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Recent free cash flows and noted growth rates:</span><br />
<table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: none; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Year</span></div>
</td>
<td style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">FCF $Millions</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2004</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1437</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2005</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1047</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2006</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1756</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2007</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1945</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2008</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1423</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2009</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">84</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2010</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1554</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 8;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2011</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2217</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 9;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2012</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1689</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 10; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2013</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">426</span></div>
</td>
</tr>
</tbody></table>
<br />
<div class="separator" style="clear: both; text-align: center;">
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Average Annual Growth FCF: ~ 180.5%</span></div>
<div>
<div style="border: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; line-height: 14px;">CAGR FCF: ~ -12.64%</span></div>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Consensus Forecast Industry 5-Year Growth: ~ 17% per year</span></div>
</div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Consensus Forecast Company 5-Year Growth: ~ 8% per year</span></div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Internal Growth Rate: ~ -1.7%</span></div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Sustainable Growth Rate: ~ -2.81%</span></div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-style: inherit;"><b>Scenario 1</b></span><br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-style: inherit;">Average FCF (2013-2011) is $1444 million</span></div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-style: inherit;">Start at $1444 million FCF</span></li>
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-style: inherit;">Assume a 5-year growth rate in FCF of 8% per year, then no growth or 0% growth in FCF per year forever:</span></li>
</ul>
</div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Discounted Cash Flow Valuation</span><br />
<table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: none; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Year</span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">FCF $Millions</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">0</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1444</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1560</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1684</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">3</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1819</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">4</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1965</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">5</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2122</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Terminal Value</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">13235</span></div>
</td>
</tr>
</tbody></table>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><span style="font-style: inherit;"><br /></span><span style="font-style: inherit;">The firm's future free cash flows, discounted at a WACC of 17.31%, give a present value for the entire firm (Debt + Equity) of $11629 million. If the firm's fair value of debt is estimated at $2100 million, then the fair value of the firm's equity could be $9529</span><span style="font-style: inherit;"> million. $9529 million / 1200 million outstanding shares is approximately $8 per share and a 20% margin of safety is $6.40/share.</span></span></div>
<div style="border: 0px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<b><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Scenario 2</span></b><br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">All else being equal,</span></div>
<div style="font-style: inherit; line-height: 20px;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; font-style: inherit;">Assume a 5-year growth rate in FCF of 12.00% per year, then 9.50% growth in FCF per year forever:</span></li>
</ul>
</div>
<div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Discounted Cash Flow Valuation</span><br />
<table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: none; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Year</span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">FCF $Millions</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">0</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1444</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1617</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">1811</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">3</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2029</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">4</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2272</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">5</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">2545</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Terminal Value</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">36480</span></div>
</td>
</tr>
</tbody></table>
</div>
<div>
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; line-height: 20px;">Present Value of the entire firm (Debt + Equity): $22715 million</span></li>
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; line-height: 20px;">Value of Equity: $20615 million or $17/share</span></li>
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; line-height: 20px;">20% margin of safety is $13.60/share</span></li>
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</span><br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><b>Conclusion: Closing out position in AMAT for my Fantasy Portfolio today.</b></span><br />
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<span style="font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-style: inherit; line-height: 20px;"><br /></span>
<span style="font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif; font-style: inherit; line-height: 20px;">Sources</span></div>
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<span class="Apple-style-span" style="color: #992211; font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><a href="http://morningstar.com/" style="color: #992211; text-decoration: none;"><b>Morningstar.com</b></a></span></div>
<div style="border: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><a href="http://finance.yahoo.com/" style="color: #992211; text-decoration: none;"><b>Yahoo! Finance</b></a></span></div>
<div style="border: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<b><a href="http://goo.gl/9WtbJ" style="color: #771100; text-decoration: none;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Applied Materials, Inc.</span></a></b><br />
<div>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
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<div style="border: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif; line-height: 14px;"><span class="Apple-style-span" style="line-height: 20px;"><strong style="border: 0px; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Disclosure: </strong></span><span class="Apple-style-span" style="line-height: 20px;">I have no real positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.</span></span></div>
</div>
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Eric Cotahttp://www.blogger.com/profile/01550847614110321622noreply@blogger.com0tag:blogger.com,1999:blog-8639258474795739446.post-30030325300036365012013-11-24T18:50:00.000-08:002013-11-24T18:50:18.785-08:00Raytheon Company: $RTN Cash Flow Valuation Update<span style="background-color: white; color: #333333; font-family: inherit; line-height: 14px;">Current Price: ~ $87/share</span><br />
<span style="font-family: inherit;"><span style="background-color: white; color: #333333;"><span class="Apple-style-span" style="line-height: 14px;">Yield: ~ 2.46%</span><br /><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span></span><span style="background-color: #fdfdfd; line-height: 22px;">Raytheon Company provides technology-driven solutions that provide integrated mission systems for the critical defense and non-defense needs of its customers.</span></span><br />
<span style="font-family: inherit;"><br /> <img alt="Raytheon" src="http://www.raytheon.com/ourcompany/rtnwcm/groups/secure/documents/site/rtn_logo.gif" /><span style="background-color: white; color: #333333; line-height: 17px;"> </span></span><br />
<img alt="RMS13 SM3 Pic 03" height="136" src="http://www.raytheon.com/newsroom/rtnwcm/groups/gallery/documents/digitalasset/rtn_132605.jpg" width="200" /><span style="font-family: inherit;"><span style="background-color: white; color: #333333; line-height: 17px;"> </span></span><img alt="JLENS &mdash; which is short for Joint Land Attack Cruise Missile Defense Elevated Netted Sensor System &mdash; is a system of two aerostats, or tethered airships, that float 10,000 feet in the air. The aerostats, each nearly as long as a football field, carry powerful radars that can look deep into enemy territory (photo courtesy of the U.S. Army)." height="150" src="http://www.raytheon.com/rtnwcm/groups/gallery/documents/digitalasset/rtn_142431.jpg" width="200" /><span style="font-family: inherit;"><span style="background-color: white; color: #333333; line-height: 17px;"> </span></span><img alt="AMDR allows naval forces to quickly respond to a broad spectrum of threats, both present and future. <br> (<a href=/rtnwcm/groups/gallery/documents/digitalasset/rtn_162219.jpg target=_blank>Download High Res Photo</a>) " height="136" src="http://www.raytheon.com/rtnwcm/groups/public/documents/image/rtn11_amdr_img4.jpg" width="200" /><br />
<div style="background-color: white; border: 0px; color: #333333; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="margin: 0px;">
<span style="font-family: inherit;"><br />Estimated WACC for the firm today is 8.49% using the Capital Asset Pricing Model and the company's recent SEC filings.</span></div>
<div style="margin: 0px;">
<span style="font-family: inherit;"><br /></span></div>
</div>
<div style="background-color: white; border: 0px; color: #333333; line-height: 17px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="margin: 0px;">
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div>
<span style="border: 0px; font-family: inherit; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Recent free cash flows and noted growth rates:</span><br />
<span style="font-family: inherit;"><span style="border: 0px; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></span><br /></span>
<table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: none; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">Year</span></div>
</td>
<td style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">FCF $Millions</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2003</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1141</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2004</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1605</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2005</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2102</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2006</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2371</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2007</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">800</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2008</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1637</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2009</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2378</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 8;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2010</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1556</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 9;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2011</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1670</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 10; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2012</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1542</span></div>
</td>
</tr>
</tbody></table>
<span style="font-family: inherit;"><span style="border: 0px; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><br /></span>
<span style="border: 0px; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">YTD Free Cash Flow for nine months ending 9/30/2013 is $1112million; $1483 million annualized</span></span><br />
<span style="font-family: inherit;"><span style="border: 0px; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><br /></span>
<span style="border: 0px; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><br /></span>
</span><br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj6eTR6VGb-Pg-7J69DJ9ww-IqkSaQz315-6BT6Y388lPG9N86lTnVo5uqek-prQYz1hYj5uKrnNHz6mJPUC1_9R7Dq4h0VBn8VebEYTk-VmLWJuNjQJiuRnIPn69RFwwa-wXSvrWOtq44F/s1600/RTN.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><span style="font-family: inherit;"><img border="0" height="428" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj6eTR6VGb-Pg-7J69DJ9ww-IqkSaQz315-6BT6Y388lPG9N86lTnVo5uqek-prQYz1hYj5uKrnNHz6mJPUC1_9R7Dq4h0VBn8VebEYTk-VmLWJuNjQJiuRnIPn69RFwwa-wXSvrWOtq44F/s640/RTN.jpg" width="640" /></span></a></div>
<span style="font-family: inherit;"><span style="border: 0px; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><br /></span>
</span><br />
<div class="separator" style="clear: both; text-align: center;">
</div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjQO_JvGVGfKQURMz1ZQBdCPnpVyVKvOALRWTKeVd9CxF8lbJzw-6_nls8lN9NlS0rg0zhZXZpzjjLQ7edxdutuRLaIlcrihIWwwgaiYZNbtWpZCFPHCbhb8O5sohQlV6Cu-v0JpVTIY5rL/s1600/CPB.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"></a></div>
<span style="font-family: inherit;"><br /></span></div>
<div>
<span style="font-family: inherit;">Average Annual Growth FCF: ~ 14.8%</span></div>
<div>
<div style="border: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: inherit; line-height: 14px;">CAGR FCF: ~ 3.4%</span></div>
<span style="font-family: inherit;">Consensus Forecast Industry 5-Year Growth: ~ 12% per year</span></div>
</div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Consensus Forecast Company 5-Year Growth: ~ 9.6% per year</span></div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Internal Growth Rate: ~ 4.8%</span></div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Sustainable Growth Rate: ~ 17.4%</span></div>
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<span style="font-family: inherit;"><br /></span></div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit; font-style: inherit;"><b>Scenario 1</b></span><br />
<span style="font-family: inherit;">Average FCF (YTD, 2012, 2011, 2010) is $1563 million</span></div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Start at $1563 million FCF</span></li>
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Assume a 5-year growth rate in FCF of 9.6% per year, then no growth or 0% growth in FCF per year forever:</span></li>
</ul>
</div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;"><br /></span></div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Discounted Cash Flow Valuation</span><br />
<table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: none; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">Year</span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">FCF $Millions</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">0</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1563</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1713</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1878</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">3</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2058</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">4</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2255</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">5</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2472</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">Terminal Value</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">31911</span></div>
</td>
</tr>
</tbody></table>
<span style="font-family: inherit;"><br />
<span style="font-style: inherit;">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</span><span style="font-style: inherit;"> million. $24245 million / 319 million outstanding shares is approximately $76 per share and a 20% margin of safety is $61/share.</span></span></div>
<div style="border: 0px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<b><span style="font-family: inherit;">Scenario 2</span></b><br />
<span style="font-family: inherit;">All else being equal,</span></div>
<div style="font-style: inherit; line-height: 20px;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Assume a 5-year growth rate in FCF of 12% per year, then 0% growth in FCF per year forever:</span></li>
</ul>
</div>
<div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;">Discounted Cash Flow Valuation</span><br />
<table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: none; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">Year</span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">FCF $Millions</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">0</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1563</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1751</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1961</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">3</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2196</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">4</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2459</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">5</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2755</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">Terminal Value</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">36340</span></div>
</td>
</tr>
</tbody></table>
</div>
<div>
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">Present Value of the entire firm (Debt + Equity): $32787 million</span></li>
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">Value of Equity: $27741 million or $87/share</span></li>
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">20% margin of safety is $70/share</span></li>
</ul>
<span style="font-family: inherit;"><br />
</span><br />
<div>
<span style="font-family: inherit; font-style: inherit; line-height: 20px;">Sources</span></div>
</div>
</div>
<div style="font-style: inherit; line-height: 20px;">
<div style="border: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: inherit;"><a href="http://morningstar.com/" style="color: #992211; text-decoration: none;"><b>Morningstar.com</b></a></span></div>
<div style="border: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: inherit;"><a href="http://finance.yahoo.com/" style="color: #992211; text-decoration: none;"><b>Yahoo! Finance</b></a></span></div>
<div style="border: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<b><a href="http://goo.gl/E7DUY" style="color: #771100; text-decoration: none;"><span style="font-family: inherit;">Raytheon.com</span></a></b><br />
<div>
<span style="font-family: inherit;"><br /></span></div>
</div>
<div style="border: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: inherit; line-height: 14px;"><span class="Apple-style-span" style="line-height: 20px;"><strong style="border: 0px; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Disclosure: </strong></span><span class="Apple-style-span" style="line-height: 20px;">I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.</span></span></div>
</div>
</div>
</div>
</div>
Eric Cotahttp://www.blogger.com/profile/01550847614110321622noreply@blogger.com0tag:blogger.com,1999:blog-8639258474795739446.post-8397353947887336822013-11-11T15:33:00.000-08:002013-11-11T15:34:02.510-08:00Microsoft Corporation: $MSFT Cash Flow Valuation Update<span style="font-family: inherit;"><br /></span>
<span style="background-color: white; color: #333333; font-family: inherit; line-height: 14px;">Current Price: ~ $38/share</span><br />
<span style="font-family: inherit;"><span style="background-color: white; color: #333333;"><span style="background-color: white;"><span style="background-color: white;"><span style="background-color: white;"><span style="background-color: white;"><span style="background-color: white;"><span style="background-color: white;"><span style="background-color: white;"><span style="background-color: white;"><span class="Apple-style-span" style="line-height: 14px;">Yield: ~ 2.44%</span></span></span></span><br style="background-color: white;" /><span style="background-color: white; line-height: 17px;"><span style="background-color: white;"><span style="background-color: white;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span></span></span><span style="background-color: white; line-height: 17px;"><span style="background-color: white;"><span style="background-color: white;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span></span></span></span></span></span></span></span></span></span><span style="background-color: #fdfdfd; line-height: 22px;">Microsoft Corporation is engaged in developing, manufacturing, licensing and supporting software products, services and entertainment, and device hardware products.</span> <span style="background-color: white; color: #333333; line-height: 17px;"> <span style="background-color: white;"> <span style="background-color: white;"> <span style="background-color: white;"> <span style="background-color: white;"> <span style="background-color: white;"> <span style="background-color: white;"> <span style="background-color: white;"> <span style="background-color: white;"> <span style="line-height: 22px;"><br /></span></span></span></span></span></span></span></span></span></span><br />
<div style="background-color: white; border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; color: #333333; font-style: inherit; line-height: 20px; margin-bottom: 7px; margin-left: 0px; margin-right: 0px; margin-top: 7px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;">
<div style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span style="font-family: inherit;"><br /></span>
<br />
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjLGkFTGiLrfw2YBzZUWUHusm_JDatZmwu_6sv8fisSwvG5aiO2nYVkHgb-eQcn3WUO8cb58T0LzIpaxZ7Potxbjo8Gg8gNK5A3e78zCN6XvpLhL3zP4mRBwGw9btxsjZgFQzKAV67R5rmn/s1600/mslogo.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjLGkFTGiLrfw2YBzZUWUHusm_JDatZmwu_6sv8fisSwvG5aiO2nYVkHgb-eQcn3WUO8cb58T0LzIpaxZ7Potxbjo8Gg8gNK5A3e78zCN6XvpLhL3zP4mRBwGw9btxsjZgFQzKAV67R5rmn/s1600/mslogo.png" /></a><img alt="Surface" src="http://dri1.img.digitalrivercontent.net/Storefront/Site/msusa/images/promo/en-US-Global_NAV_SurfacePro2.png" style="font-style: inherit;" /><img alt="Xbox " src="http://dri1.img.digitalrivercontent.net/Storefront/Site/msusa/images/promo/en-US/US_Global_NAV_XboxOne.png" /><img alt="Windows Phone 8" src="http://dri2.img.digitalrivercontent.net/Storefront/Site/msusa/images/promo/en-US-Global_NAV_Phones.png" /><span style="font-family: inherit;"><br /></span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">Estimated WACC for the firm today is 9.89% using the Capital Asset Pricing Model and the company's recent SEC filings.</span></div>
<div style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span style="font-family: inherit;"><br /></span></div>
</div>
<div style="background-color: white; border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; color: #333333; line-height: 17px; margin-bottom: 7px; margin-left: 0px; margin-right: 0px; margin-top: 7px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;">
<div style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<div style="background-color: white; border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-style: inherit; line-height: 20px; margin-bottom: 7px; margin-left: 0px; margin-right: 0px; margin-top: 7px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;">
<div>
<span style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-family: inherit; font-style: inherit; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;">Recent free cash flows and noted growth rates:</span><br />
<span style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-family: inherit; font-style: inherit; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;"></span><br />
<table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: none; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">Year</span></div>
</td>
<td style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">FCF $Millions</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2004</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">13517</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2005</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">15793</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2006</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">12826</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2007</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">15532</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2008</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">18430</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2009</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">15918</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2010</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">22096</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 8;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2011</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">24639</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 9;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2012</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">29321</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 10; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2013</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">24576</span></div>
</td>
</tr>
</tbody></table>
<span style="font-family: inherit;">
</span>
<span style="font-family: inherit;"><br /></span></div>
<div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhAGXotKHL58R0OPH3qdVz4OyzVJzCx9ajycgkZcEPFaC1CNO63g4eJHBULMCnceY0MOg753X0ulFwAB7Vy6IA-q0E1IkVD1SXGIhtT0LoSb3Ao2IjAR3jw75t01Hoy_fTDWpcx2XzTx6kK/s1600/MSFT.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="428" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhAGXotKHL58R0OPH3qdVz4OyzVJzCx9ajycgkZcEPFaC1CNO63g4eJHBULMCnceY0MOg753X0ulFwAB7Vy6IA-q0E1IkVD1SXGIhtT0LoSb3Ao2IjAR3jw75t01Hoy_fTDWpcx2XzTx6kK/s640/MSFT.jpg" width="640" /></a></div>
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">Average Annual Growth FCF: ~ 8.6%</span></div>
<div>
<div style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-style: inherit; margin-bottom: 7px; margin-left: 0px; margin-right: 0px; margin-top: 7px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: inherit; line-height: 14px;">CAGR FCF: ~ 6.9%</span></div>
<span style="font-family: inherit;">Consensus Forecast Industry 5-Year Growth: ~ 18% per year</span></div>
</div>
<div style="background-color: white; border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-style: inherit; line-height: 20px; margin-bottom: 7px; margin-left: 0px; margin-right: 0px; margin-top: 7px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Consensus Forecast Company 5-Year Growth: ~ 7% per year</span></div>
<div style="background-color: white; border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-style: inherit; line-height: 20px; margin-bottom: 7px; margin-left: 0px; margin-right: 0px; margin-top: 7px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Internal Growth Rate: ~ 12.2%</span></div>
<div style="background-color: white; border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-style: inherit; line-height: 20px; margin-bottom: 7px; margin-left: 0px; margin-right: 0px; margin-top: 7px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Sustainable Growth Rate: ~ 24.6%</span></div>
<div style="background-color: white; border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-style: inherit; line-height: 20px; margin-bottom: 7px; margin-left: 0px; margin-right: 0px; margin-top: 7px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;">
<span style="font-family: inherit;"><br /></span></div>
<div style="background-color: white; border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-style: inherit; line-height: 20px; margin-bottom: 7px; margin-left: 0px; margin-right: 0px; margin-top: 7px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;">
<span style="background-color: white; font-family: inherit; font-style: inherit;"><b>Scenario 1</b></span></div>
<div style="background-color: white; border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-style: inherit; line-height: 20px; margin-bottom: 7px; margin-left: 0px; margin-right: 0px; margin-top: 7px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin-bottom: 0.5em; margin-left: 0px; margin-right: 0px; margin-top: 0.5em; padding-bottom: 0px; padding-left: 2.5em; padding-right: 2.5em; padding-top: 0px;">
<li style="border-bottom-style: none; border-color: initial; border-image: initial; border-left-style: none; border-right-style: none; border-top-style: none; border-width: initial; margin-bottom: 0.25em; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;"><span style="background-color: white; font-family: inherit; font-style: inherit;">Start at $24576 million FCF</span></li>
<li style="border-bottom-style: none; border-color: initial; border-image: initial; border-left-style: none; border-right-style: none; border-top-style: none; border-width: initial; margin-bottom: 0.25em; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;"><span style="background-color: white; font-family: inherit; font-style: inherit;">Assume a 5-year growth rate in FCF of 7% per year, then no growth or 0% growth in FCF per year forever:</span></li>
</ul>
</div>
<div style="background-color: white; border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-style: inherit; line-height: 20px; margin-bottom: 7px; margin-left: 0px; margin-right: 0px; margin-top: 7px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;">
<span style="font-family: inherit;"><br /></span></div>
<div style="background-color: white; border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-style: inherit; line-height: 20px; margin-bottom: 7px; margin-left: 0px; margin-right: 0px; margin-top: 7px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Discounted Cash Flow Valuation</span><br />
<table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: none; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">Year</span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">FCF $Millions</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">0</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">24576</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">26296</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">28137</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">3</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">30107</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">4</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">32214</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">5</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">34469</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">Terminal Value</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">372954</span></div>
</td>
</tr>
</tbody></table>
<span style="background-color: white; font-family: inherit; font-style: inherit;"><br /></span>
<span style="font-family: inherit;">
<span style="background-color: white; font-style: inherit;">The firm's future free cash flows, discounted at a WACC of 9.89%, give a present value for the entire firm (Debt + Equity) of $346267 million. If the firm's fair value of debt is estimated at $14600 million, then the fair value of the firm's equity could be $331667</span><span style="background-color: white; font-style: inherit;"> million. $331667 million / 8350 million outstanding shares is approximately $40 per share and a 20% margin of safety is $32/share.</span></span></div>
<div style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; margin-bottom: 7px; margin-left: 0px; margin-right: 0px; margin-top: 7px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;">
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="background-color: white; font-style: inherit; line-height: 20px;">
<b><span style="font-family: inherit;"><br /></span></b></div>
<div style="background-color: white; font-style: inherit; line-height: 20px;">
<b><span style="font-family: inherit;">Scenario 2</span></b><br />
<span style="font-family: inherit;">All else being equal,</span></div>
<div style="background-color: white; font-style: inherit; line-height: 20px;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin-bottom: 0.5em; margin-left: 0px; margin-right: 0px; margin-top: 0.5em; padding-bottom: 0px; padding-left: 2.5em; padding-right: 2.5em; padding-top: 0px;">
<li style="border-bottom-style: none; border-color: initial; border-image: initial; border-left-style: none; border-right-style: none; border-top-style: none; border-width: initial; margin-bottom: 0.25em; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;"><span style="background-color: white; font-family: inherit; font-style: inherit;">Assume a 5-year growth rate in FCF of 10.5% per year, then 0% growth in FCF per year forever:</span></li>
</ul>
</div>
<div style="background-color: white;">
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;">Discounted Cash Flow Valuation</span><br />
<table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: none; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">Year</span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">FCF $Millions</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">0</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">24576</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">27156</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">30008</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">3</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">33159</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">4</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">36640</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">5</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">40488</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">Terminal Value</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">452404</span></div>
</td>
</tr>
</tbody></table>
<span style="font-family: inherit;"><br /></span></div>
<div>
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin-bottom: 0.5em; margin-left: 0px; margin-right: 0px; margin-top: 0.5em; padding-bottom: 0px; padding-left: 2.5em; padding-right: 2.5em; padding-top: 0px;">
<li style="border-bottom-style: none; border-color: initial; border-image: initial; border-left-style: none; border-right-style: none; border-top-style: none; border-width: initial; margin-bottom: 0.25em; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;"><span style="font-family: inherit; line-height: 20px;">Present Value of the entire firm (Debt + Equity): $407272 million</span></li>
<li style="border-bottom-style: none; border-color: initial; border-image: initial; border-left-style: none; border-right-style: none; border-top-style: none; border-width: initial; margin-bottom: 0.25em; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;"><span style="font-family: inherit; line-height: 20px;">Value of Equity: $392672 million or $47/share</span></li>
<li style="border-bottom-style: none; border-color: initial; border-image: initial; border-left-style: none; border-right-style: none; border-top-style: none; border-width: initial; margin-bottom: 0.25em; margin-left: 0px; margin-right: 0px; margin-top: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px;"><span style="font-family: inherit; line-height: 20px;">20% margin of safety is $38/share</span></li>
</ul>
<span style="font-family: inherit;"><br />
</span><br />
<div style="background-color: white;">
<div>
<span style="font-family: inherit; font-style: inherit; line-height: 20px;">Sources</span></div>
</div>
</div>
</div>
<div style="background-color: white; font-style: inherit; line-height: 20px;">
<div style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-style: inherit; margin-bottom: 7px; margin-left: 0px; margin-right: 0px; margin-top: 7px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: inherit;"><a href="http://morningstar.com/" style="color: #992211; text-decoration: none;"><b>Morningstar.com</b></a></span></div>
<div style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-style: inherit; margin-bottom: 7px; margin-left: 0px; margin-right: 0px; margin-top: 7px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: inherit;"><a href="http://finance.yahoo.com/" style="color: #992211; text-decoration: none;"><b>Yahoo! Finance</b></a></span></div>
<div style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-style: inherit; margin-bottom: 7px; margin-left: 0px; margin-right: 0px; margin-top: 7px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;">
<b><a href="http://goo.gl/tnlh3" style="color: #771100; text-decoration: none;"><span style="font-family: inherit;">Microsoft</span></a></b><br />
<div>
<span style="font-family: inherit;"><br /></span></div>
</div>
<div style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-style: inherit; margin-bottom: 7px; margin-left: 0px; margin-right: 0px; margin-top: 7px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: inherit; line-height: 14px;"><span class="Apple-style-span" style="line-height: 20px;"><strong style="border-bottom-width: 0px; border-color: initial; border-left-width: 0px; border-right-width: 0px; border-style: initial; border-top-width: 0px; font-style: inherit; font-weight: bold; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; outline-color: initial; outline-style: initial; outline-width: 0px; padding-bottom: 0px; padding-left: 0px; padding-right: 0px; padding-top: 0px; vertical-align: baseline;">Disclosure: </strong></span><span class="Apple-style-span" style="line-height: 20px;">I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.</span></span></div>
</div>
</div>
</div>
</div>
Eric Cotahttp://www.blogger.com/profile/01550847614110321622noreply@blogger.com0tag:blogger.com,1999:blog-8639258474795739446.post-645638848048411642013-11-11T14:04:00.000-08:002013-11-11T14:04:02.364-08:00Campbell Soup Co: $CPB Cash Flow Valuation Update<span style="background-color: white; color: #333333; font-family: inherit; line-height: 14px;">Current Price: ~ $42/share</span><br />
<span style="font-family: inherit;"><span style="background-color: white; color: #333333;"><span class="Apple-style-span" style="line-height: 14px;">Yield: ~ 2.13%</span><br /><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span></span><span style="background-color: #fdfdfd; line-height: 22px;">Campbell Soup Co manufactures & sells branded convenience food products. Its five segments are: U.S. Simple Meals, Global Baking & Snacking, International Simple Meals & Beverages, U.S. Beverages & Bolthouse and Foodservice.</span></span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"> <img alt="Campbell's Products" src="http://www.campbellsoupcompany.com/~/media/Images/CSC/About%20Us/campbells-products-467x295.ashx?h=295&w=467" /><span style="background-color: white; color: #333333; line-height: 17px;"> </span></span><br />
<div style="background-color: white; border: 0px; color: #333333; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="margin: 0px;">
<span style="font-family: inherit;"><br />Estimated WACC for the firm today is 6.63% using the Capital Asset Pricing Model and the company's recent SEC filings.</span></div>
<div style="margin: 0px;">
<span style="font-family: inherit;"><br /></span></div>
</div>
<div style="background-color: white; border: 0px; color: #333333; line-height: 17px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="margin: 0px;">
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div>
<span style="border: 0px; font-family: inherit; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Recent free cash flows and noted growth rates:</span><br />
<table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: none; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">Year</span></div>
</td>
<td style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">FCF $Millions</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2004</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">456</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2005</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">658</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2006</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">917</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2007</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">340</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2008</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">468</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2009</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">821</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2010</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">742</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 8;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2011</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">870</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 9;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2012</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">797</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 10; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="top" width="72"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2013</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112"><div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">683</span></div>
</td>
</tr>
</tbody></table>
<span style="font-family: inherit;"><br />
</span><br />
<div class="separator" style="clear: both; text-align: center;">
</div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjQO_JvGVGfKQURMz1ZQBdCPnpVyVKvOALRWTKeVd9CxF8lbJzw-6_nls8lN9NlS0rg0zhZXZpzjjLQ7edxdutuRLaIlcrihIWwwgaiYZNbtWpZCFPHCbhb8O5sohQlV6Cu-v0JpVTIY5rL/s1600/CPB.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><span style="font-family: inherit;"><img border="0" height="426" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjQO_JvGVGfKQURMz1ZQBdCPnpVyVKvOALRWTKeVd9CxF8lbJzw-6_nls8lN9NlS0rg0zhZXZpzjjLQ7edxdutuRLaIlcrihIWwwgaiYZNbtWpZCFPHCbhb8O5sohQlV6Cu-v0JpVTIY5rL/s640/CPB.jpg" width="640" /></span></a></div>
<span style="font-family: inherit;"><br />
</span></div>
<div>
<span style="font-family: inherit;">Average Annual Growth FCF: ~ 13%</span></div>
<div>
<div style="border: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: inherit; line-height: 14px;">CAGR FCF: ~ 4.6%</span></div>
<span style="font-family: inherit;">Consensus Forecast Industry 5-Year Growth: ~ 14% per year</span></div>
</div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Consensus Forecast Company 5-Year Growth: ~ 6% per year</span></div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Internal Growth Rate: ~ 4%</span></div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Sustainable Growth Rate: ~ 35%</span></div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;"><br /></span></div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit; font-style: inherit;"><b>Scenario 1</b></span></div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Start at $683 million FCF</span></li>
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Assume a 5-year growth rate in FCF of 6% per year, then no growth or 0% growth in FCF per year forever:</span></li>
</ul>
</div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;"><br /></span></div>
<div style="border: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Discounted Cash Flow Valuation</span><br />
<table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: none; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">Year</span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">FCF $Millions</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">0</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">683</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">724</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">767</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">3</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">813</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">4</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">862</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">5</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">914</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">Terminal Value</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">14616</span></div>
</td>
</tr>
</tbody></table>
<span style="font-family: inherit; font-style: inherit;"><br /></span>
<span style="font-family: inherit;">
<span style="font-style: inherit;">The firm's future free cash flows, discounted at a WACC of 6.63%, give a present value for the entire firm (Debt + Equity) of $13959 million. If the firm's fair value of debt is estimated at $3299 million, then the fair value of the firm's equity could be $10660</span><span style="font-style: inherit;"> million. $10660 million / 314 million outstanding shares is approximately $34 per share and a 20% margin of safety is $27/share.</span></span></div>
<div style="border: 0px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<b><span style="font-family: inherit;">Scenario 2</span></b><br />
<span style="font-family: inherit;">All else being equal,</span></div>
<div style="font-style: inherit; line-height: 20px;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Assume a 5-year growth rate in FCF of 9.5% per year, then 0% growth in FCF per year forever:</span></li>
</ul>
</div>
<div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;">Discounted Cash Flow Valuation</span><br />
<table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: none; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">Year</span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">FCF $Millions</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">0</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">683</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">748</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">819</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">3</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">897</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">4</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">982</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">5</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1075</span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="top" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">Terminal Value</span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 84.0pt;" valign="top" width="112">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">17761</span></div>
</td>
</tr>
</tbody></table>
</div>
<div>
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">Present Value of the entire firm (Debt + Equity): $16586 million</span></li>
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">Value of Equity: $13287 million or $42/share</span></li>
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">20% margin of safety is $34/share</span></li>
</ul>
<span style="font-family: inherit;"><br />
</span><br />
<div>
<span style="font-style: inherit; line-height: 20px;"><span style="font-family: inherit;">Sources</span></span></div>
</div>
</div>
<div style="font-style: inherit; line-height: 20px;">
<div style="border: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: inherit;"><a href="http://morningstar.com/" style="color: #992211; text-decoration: none;"><b>Morningstar.com</b></a></span></div>
<div style="border: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: inherit;"><a href="http://finance.yahoo.com/" style="color: #992211; text-decoration: none;"><b>Yahoo! Finance</b></a></span></div>
<div style="border: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<b><a href="http://goo.gl/irPfWt" style="color: #771100; text-decoration: none;"><span style="font-family: inherit;">Campbell Soup Company</span></a></b><br />
<div>
<span style="font-family: inherit;"><br /></span></div>
</div>
<div style="border: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: inherit; line-height: 14px;"><span class="Apple-style-span" style="line-height: 20px;"><strong style="border: 0px; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Disclosure: </strong></span><span class="Apple-style-span" style="line-height: 20px;">I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.</span></span></div>
</div>
</div>
</div>
</div>
Eric Cotahttp://www.blogger.com/profile/01550847614110321622noreply@blogger.com0tag:blogger.com,1999:blog-8639258474795739446.post-7423170153432827352013-01-28T12:35:00.000-08:002013-01-28T12:35:36.077-08:00Rockwell Collins Inc: $COL Cash Flow Valuation Update<br />
<span style="background-color: white; color: #333333; font-family: inherit; line-height: 14px;">Current Price: ~ $59/share</span><br />
<span style="font-family: inherit;"><span style="background-color: white; color: #333333;"><span class="Apple-style-span" style="line-height: 14px;">Yield: ~ 2.02%</span><br /><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span></span></span><span style="background-color: #fdfdfd; line-height: 22px;">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.</span><span style="background-color: white; color: #333333; line-height: 17px;"> <span style="line-height: 22px;"><br /></span></span><br />
<div style="background-color: white; border-width: 0px; color: #333333; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="margin: 0px;">
<span style="font-family: inherit;"><br />Estimated WACC for the firm today is 9.76% using the Capital Asset Pricing Model and the company's recent SEC filings.</span></div>
<div style="margin: 0px;">
<span style="font-family: inherit;"><br /></span></div>
</div>
<div style="background-color: white; border-width: 0px; color: #333333; line-height: 17px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="margin: 0px;">
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div>
<span style="border-width: 0px; font-family: inherit; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Recent free cash flows and noted growth rates:</span><br />
<span style="border-width: 0px; font-family: inherit; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.65pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184; width: 205px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
Year<o:p></o:p></div>
</td>
<td style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.75pt;" valign="bottom" width="133">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
FCF $Millions<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
2003<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.75pt;" valign="bottom" width="133">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
302<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
2004<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.75pt;" valign="bottom" width="133">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
296<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
2005<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.75pt;" valign="bottom" width="133">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
456<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
2006<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.75pt;" valign="bottom" width="133">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
451<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
2007<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.75pt;" valign="bottom" width="133">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
474<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
2008<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.75pt;" valign="bottom" width="133">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
441<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
2009<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.75pt;" valign="bottom" width="133">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
478<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 8;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
2010<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.75pt;" valign="bottom" width="133">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
595<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 9;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
2011<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.75pt;" valign="bottom" width="133">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
501<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 10; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
2012<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.75pt;" valign="bottom" width="133">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
392<o:p></o:p></div>
</td>
</tr>
</tbody></table>
</span><br />
<span style="font-family: inherit;"><br /><span style="border-width: 0px; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></span></span>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjmKb_JQj_8n52x6fL90wnFuOGBGspSlmc8vwRsWCNrTR0EmGsH0SLgptPf9ZZjcmY-7sd_OrX8MyX3_2y-gmFk0IA0Wzg7zFAu_367FqSUeFoa998AY6pQKn-wg0RxLnovmCjWY5Giro5l/s1600/COL.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="454" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjmKb_JQj_8n52x6fL90wnFuOGBGspSlmc8vwRsWCNrTR0EmGsH0SLgptPf9ZZjcmY-7sd_OrX8MyX3_2y-gmFk0IA0Wzg7zFAu_367FqSUeFoa998AY6pQKn-wg0RxLnovmCjWY5Giro5l/s640/COL.jpg" width="640" /></a></div>
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><br /></span></div>
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<span style="font-family: inherit;">Average Annual Growth FCF: ~ 5%</span></div>
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<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: inherit; line-height: 14px;">CAGR FCF: ~ 3%</span></div>
<span style="font-family: inherit;">Consensus Forecast Industry 5-Year Growth: ~ 11% per year</span></div>
</div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Consensus Forecast Company 5-Year Growth: ~ 10% per year</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Internal Growth Rate: ~ 8%</span></div>
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<span style="font-family: inherit;">Sustainable Growth Rate: ~ 41%</span></div>
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<span style="font-family: inherit;"><br /></span></div>
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<span style="font-family: inherit; font-style: inherit;"><b>Scenario 1</b></span><br />
<span style="font-family: inherit; font-style: inherit;">Average FCF (past 5 years) is $481 million</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Start at $481 million FCF</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Assume a 5-year growth rate in FCF of 9% per year, then no growth or 0% growth in FCF per year forever:</span></li>
</ul>
</div>
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<span style="font-family: inherit;"><br /></span></div>
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<span style="font-family: inherit;">Discounted Cash Flow Valuation</span><br />
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<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">Year<o:p></o:p></span></div>
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<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">FCF $Millions<o:p></o:p></span></div>
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<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">0<o:p></o:p></span></div>
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<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">481<o:p></o:p></span></div>
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<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 104.25pt;" valign="bottom" width="139">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1<o:p></o:p></span></div>
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<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">524<o:p></o:p></span></div>
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<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 104.25pt;" valign="bottom" width="139">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2<o:p></o:p></span></div>
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<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">571<o:p></o:p></span></div>
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</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 104.25pt;" valign="bottom" width="139">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">3<o:p></o:p></span></div>
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<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">623<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 104.25pt;" valign="bottom" width="139">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">4<o:p></o:p></span></div>
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<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">679<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 104.25pt;" valign="bottom" width="139">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">5<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">740<o:p></o:p></span></div>
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<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 104.25pt;" valign="bottom" width="139">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">Terminal Value<o:p></o:p></span></div>
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<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">8267<o:p></o:p></span></div>
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<br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><span style="font-style: inherit;">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</span><span style="font-style: inherit;"> million. $6709 million / 137 million outstanding shares is approximately $49 per share and a 20% margin of safety is $39/share.</span></span></div>
<div style="border-width: 0px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<b><span style="font-family: inherit;"><br /></span></b></div>
<div style="font-style: inherit; line-height: 20px;">
<b><span style="font-family: inherit;">Scenario 2</span></b><br />
<span style="font-family: inherit;">All else being equal,</span></div>
<div style="font-style: inherit; line-height: 20px;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Assume a 5-year growth rate in FCF of 9% per year, then 2% growth in FCF per year forever:</span></li>
</ul>
</div>
<div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;">Discounted Cash Flow Valuation</span><br />
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<span style="font-family: inherit;">Year<o:p></o:p></span></div>
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<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">FCF $Millions<o:p></o:p></span></div>
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<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">0<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">481<o:p></o:p></span></div>
</td>
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<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 104.25pt;" valign="bottom" width="139">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">524<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 104.25pt;" valign="bottom" width="139">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">571<o:p></o:p></span></div>
</td>
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<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 104.25pt;" valign="bottom" width="139">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">3<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">623<o:p></o:p></span></div>
</td>
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<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 104.25pt;" valign="bottom" width="139">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">4<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">679<o:p></o:p></span></div>
</td>
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<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 104.25pt;" valign="bottom" width="139">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">5<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">740<o:p></o:p></span></div>
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</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 104.25pt;" valign="bottom" width="139">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">Terminal Value<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">10399<o:p></o:p></span></div>
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</tbody></table>
<br />
<span style="font-family: inherit;"><br /></span></div>
<div>
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">Present Value of the entire firm (Debt + Equity): $8884 million</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">Value of Equity: $8047 million or $59/share</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">20% margin of safety is $47/share</span></li>
</ul>
<span style="font-family: inherit;"><br /></span>
<div>
<span style="font-family: inherit;"><br class="Apple-interchange-newline" /></span></div>
</div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit; font-style: inherit;">Sources</span></div>
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<span class="Apple-style-span" style="color: #992211; font-family: inherit;"><a href="http://morningstar.com/" style="color: #992211; text-decoration: initial;"><b>Morningstar.com</b></a></span></div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: inherit;"><a href="http://finance.yahoo.com/" style="color: #992211; text-decoration: initial;"><b>Yahoo! Finance</b></a></span></div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<b><a href="http://goo.gl/Fohuc" style="color: #771100; text-decoration: initial;"><span style="font-family: inherit;">Rockwellcollins.com</span></a></b><br />
<div>
<span style="font-family: inherit;"><br /></span></div>
</div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: inherit; line-height: 14px;"><span class="Apple-style-span" style="line-height: 20px;"><strong style="border-width: 0px; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Disclosure: </strong></span><span class="Apple-style-span" style="line-height: 20px;">I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.</span></span></div>
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</div>
Eric Cotahttp://www.blogger.com/profile/01550847614110321622noreply@blogger.com1tag:blogger.com,1999:blog-8639258474795739446.post-16990623771979710062013-01-25T14:09:00.000-08:002013-01-25T14:09:21.952-08:00Becton Dickinson & Co: $BDX Cash Flow Valuation Update<br />
<span style="background-color: white; color: #333333; font-family: inherit; line-height: 14px;">Current Price: ~ $85/share</span><br />
<span style="font-family: inherit;"><span style="background-color: white; color: #333333;"><span class="Apple-style-span" style="line-height: 14px;">Yield: ~ 2.20%</span><br /><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span></span></span><span style="background-color: #fdfdfd; line-height: 22px;">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.</span><span style="background-color: white; color: #333333; line-height: 17px;"> <span style="line-height: 22px;"><br /></span></span><br />
<div style="background-color: white; border-width: 0px; color: #333333; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="margin: 0px;">
<span style="font-family: inherit;"><br />Estimated WACC for the firm today is 7.93% using the Capital Asset Pricing Model and the company's recent SEC filings.</span></div>
<div style="margin: 0px;">
<span style="font-family: inherit;"><br /></span></div>
</div>
<div style="background-color: white; border-width: 0px; color: #333333; line-height: 17px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
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<div>
<span style="border-width: 0px; font-family: inherit; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Recent free cash flows and noted growth rates:</span><br />
<span style="border-width: 0px; font-family: inherit; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.65pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184; width: 205px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
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<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
Year<o:p></o:p></div>
</td>
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FCF $Millions<o:p></o:p></div>
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<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
2003<o:p></o:p></div>
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<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.75pt;" valign="bottom" width="133">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
645<o:p></o:p></div>
</td>
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<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
2004<o:p></o:p></div>
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<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.75pt;" valign="bottom" width="133">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
832<o:p></o:p></div>
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<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
2005<o:p></o:p></div>
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<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.75pt;" valign="bottom" width="133">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
909<o:p></o:p></div>
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<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
2006<o:p></o:p></div>
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<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.75pt;" valign="bottom" width="133">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
594<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
2007<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.75pt;" valign="bottom" width="133">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
662<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
2008<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.75pt;" valign="bottom" width="133">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
1036<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
2009<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.75pt;" valign="bottom" width="133">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
1016<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 8;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
2010<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.75pt;" valign="bottom" width="133">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
1112<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 9;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
2011<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.75pt;" valign="bottom" width="133">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
1111<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 10; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
2012<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.75pt;" valign="bottom" width="133">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
1207<o:p></o:p></div>
</td>
</tr>
</tbody></table>
</span><br />
<span style="font-family: inherit;"><br /><span style="border-width: 0px; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></span></span>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhDCHE_fWKB04rC1QN-OlR39FmdxJ1awQQApaHkWDVPswOMSEoO3CE6EziuecHQ5VWf2USGxdQiTY079dGaGRbzgSkCoqrATC430NvZG-VkUhwibE3l8P7jxdi-3FZrQCA8WH7xP3iTqCNn/s1600/BDX.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="454" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhDCHE_fWKB04rC1QN-OlR39FmdxJ1awQQApaHkWDVPswOMSEoO3CE6EziuecHQ5VWf2USGxdQiTY079dGaGRbzgSkCoqrATC430NvZG-VkUhwibE3l8P7jxdi-3FZrQCA8WH7xP3iTqCNn/s640/BDX.jpg" width="640" /></a></div>
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><br /></span></div>
<div>
<span style="font-family: inherit;">Average Annual Growth FCF: ~ 10%</span></div>
<div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: inherit; line-height: 14px;">CAGR FCF: ~ 7%</span></div>
<span style="font-family: inherit;">Consensus Forecast Industry 5-Year Growth: ~ 16% per year</span></div>
</div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Consensus Forecast Company 5-Year Growth: ~ 7% per year</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Internal Growth Rate: ~ 8%</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Sustainable Growth Rate: ~ 22%</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;"><br /></span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit; font-style: inherit;"><b>Scenario 1</b></span><br />
<span style="font-family: inherit; font-style: inherit;">Average FCF (2012, 2011, 2010) is $1143 million</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Start at $1143 million FCF</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Assume a 5-year growth rate in FCF of 7% per year, then no growth or 0% growth in FCF per year forever:</span></li>
</ul>
</div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;"><br /></span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Discounted Cash Flow Valuation</span><br />
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.65pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184; width: 271px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
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<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">Year<o:p></o:p></span></div>
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<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">FCF $Millions<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 104.25pt;" valign="bottom" width="139">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">0<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1143<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 104.25pt;" valign="bottom" width="139">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1223<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 104.25pt;" valign="bottom" width="139">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1309<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 104.25pt;" valign="bottom" width="139">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">3<o:p></o:p></span></div>
</td>
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<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1400<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 104.25pt;" valign="bottom" width="139">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">4<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1498<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 104.25pt;" valign="bottom" width="139">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">5<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1603<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 104.25pt;" valign="bottom" width="139">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">Terminal Value<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">21635<o:p></o:p></span></div>
</td>
</tr>
</tbody></table>
<br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><span style="font-style: inherit;">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</span><span style="font-style: inherit;"> million. $16025 million / 197 million outstanding shares is approximately $81 per share and a 20% margin of safety is $65/share.</span></span></div>
<div style="border-width: 0px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<b><span style="font-family: inherit;"><br /></span></b></div>
<div style="font-style: inherit; line-height: 20px;">
<b><span style="font-family: inherit;">Scenario 2</span></b><br />
<span style="font-family: inherit;">All else being equal,</span></div>
<div style="font-style: inherit; line-height: 20px;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Assume a 5-year growth rate in FCF of 7% per year, then 2% growth in FCF per year forever:</span></li>
</ul>
</div>
<div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;">Discounted Cash Flow Valuation</span><br />
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.65pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184; width: 271px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 104.25pt;" valign="bottom" width="139">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">Year<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">FCF $Millions<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 104.25pt;" valign="bottom" width="139">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">0<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1143<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 104.25pt;" valign="bottom" width="139">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1223<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 104.25pt;" valign="bottom" width="139">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1309<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 104.25pt;" valign="bottom" width="139">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">3<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1400<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 104.25pt;" valign="bottom" width="139">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">4<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1498<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 104.25pt;" valign="bottom" width="139">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">5<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1603<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 104.25pt;" valign="bottom" width="139">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">Terminal Value<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">28933<o:p></o:p></span></div>
</td>
</tr>
</tbody></table>
<br />
<span style="font-family: inherit;"><br /></span></div>
<div>
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">Present Value of the entire firm (Debt + Equity): $25326 million</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">Value of Equity: $21009 million or $107/share</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">20% margin of safety is $86/share</span></li>
</ul>
<span style="font-family: inherit;"><br /></span>
<div>
<span style="font-family: inherit;"><br class="Apple-interchange-newline" /></span></div>
</div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit; font-style: inherit;">Sources</span></div>
</div>
<div style="font-style: inherit; line-height: 20px;">
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: inherit;"><a href="http://morningstar.com/" style="color: #992211; text-decoration: initial;"><b>Morningstar.com</b></a></span></div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: inherit;"><a href="http://finance.yahoo.com/" style="color: #992211; text-decoration: initial;"><b>Yahoo! Finance</b></a></span></div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<b><a href="http://goo.gl/JsVbk" style="color: #771100; text-decoration: initial;"><span style="font-family: inherit;">BD.com</span></a></b><br />
<div>
<span style="font-family: inherit;"><br /></span></div>
</div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: inherit; line-height: 14px;"><span class="Apple-style-span" style="line-height: 20px;"><strong style="border-width: 0px; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Disclosure: </strong></span><span class="Apple-style-span" style="line-height: 20px;">I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.</span></span></div>
</div>
</div>
</div>
</div>
Eric Cotahttp://www.blogger.com/profile/01550847614110321622noreply@blogger.com0tag:blogger.com,1999:blog-8639258474795739446.post-5411383895187285842013-01-24T13:15:00.000-08:002013-01-24T13:15:23.826-08:00World Champion BrilliancyGrandmaster Levon Aronian vs World Champion Viswanathan Anand <br />
2013 Tata Steel Chess Tournament (<b><a href="http://goo.gl/63f05">Kingscrusher</a></b>)<br />
<br />
<br />
<iframe width="640" height="480" src="http://www.youtube.com/embed/oCrU9410vSo" frameborder="0" allowfullscreen></iframe>Eric Cotahttp://www.blogger.com/profile/01550847614110321622noreply@blogger.com0tag:blogger.com,1999:blog-8639258474795739446.post-38221119346244884872013-01-24T12:59:00.000-08:002013-01-24T12:59:28.726-08:00AmerisourceBergen Corp: $ABC Cash Flow Valuation Update<br />
<span style="background-color: white; color: #333333; font-family: inherit; line-height: 14px;">Current Price: ~ $46/share</span><br />
<span style="font-family: inherit;"><span style="background-color: white; color: #333333;"><span class="Apple-style-span" style="line-height: 14px;">Yield: ~ 1.30%</span><br /><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span></span></span><span style="background-color: #fdfdfd; line-height: 22px;">AmerisourceBergen Corporation is a pharmaceutical services company providing drug distribution and related healthcare services and solutions to pharmacy, physician, and manufacturer customers, which are based mainly in the United States and Canada.</span> <span style="background-color: white; color: #333333; line-height: 17px;"> <span style="line-height: 22px;"><br /></span></span><br />
<div style="background-color: white; border-width: 0px; color: #333333; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="margin: 0px;">
<span style="font-family: inherit;"><br />Estimated WACC for the firm today is 6.88% using the Capital Asset Pricing Model and the company's recent SEC filings.</span></div>
<div style="margin: 0px;">
<span style="font-family: inherit;"><br /></span></div>
</div>
<div style="background-color: white; border-width: 0px; color: #333333; line-height: 17px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="margin: 0px;">
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div>
<span style="border-width: 0px; font-family: inherit; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Recent free cash flows and noted growth rates:</span><br />
<span style="border-width: 0px; font-family: inherit; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.65pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184; width: 199px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
Year<o:p></o:p></div>
</td>
<td style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 95.25pt;" valign="bottom" width="127">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
FCF $Millions<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
2003<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 95.25pt;" valign="bottom" width="127">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
264<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
2004<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 95.25pt;" valign="bottom" width="127">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
636<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
2005<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 95.25pt;" valign="bottom" width="127">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
1323<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
2006<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 95.25pt;" valign="bottom" width="127">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
694<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
2007<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 95.25pt;" valign="bottom" width="127">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
1090<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
2008<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 95.25pt;" valign="bottom" width="127">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
600<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
2009<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 95.25pt;" valign="bottom" width="127">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
638<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 8;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
2010<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 95.25pt;" valign="bottom" width="127">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
924<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 9;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
2011<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 95.25pt;" valign="bottom" width="127">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
1000<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 10; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
2012<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 95.25pt;" valign="bottom" width="127">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
1141<o:p></o:p></div>
</td>
</tr>
</tbody></table>
</span><br />
<span style="font-family: inherit;"><br /></span>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgd99sin1huw470fP3X74cwh7YQexTNPFHl5qxdduJ6AINNviPGIoG7X5tHApVWnOUaSVLl3PCr7ETj2uK_i4QANQnSd1Yx2yrjaDNkFNXuGXDXjONTQMuY5pXVqV05x02GvvX0f-J0UNBI/s1600/ABC.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="452" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgd99sin1huw470fP3X74cwh7YQexTNPFHl5qxdduJ6AINNviPGIoG7X5tHApVWnOUaSVLl3PCr7ETj2uK_i4QANQnSd1Yx2yrjaDNkFNXuGXDXjONTQMuY5pXVqV05x02GvvX0f-J0UNBI/s640/ABC.jpg" width="640" /></a></div>
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><br /></span></div>
<div>
<span style="font-family: inherit;">Average Annual Growth FCF: ~ 32%</span></div>
<div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: inherit; line-height: 14px;">CAGR FCF: ~ 18%</span></div>
<span style="font-family: inherit;">Consensus Forecast Industry 5-Year Growth: ~ 16% per year</span></div>
</div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Consensus Forecast Company 5-Year Growth: ~ 12% per year</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Internal Growth Rate: ~ 4%</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Sustainable Growth Rate: ~ 28%</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;"><br /></span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit; font-style: inherit;"><b>Scenario 1</b></span><br />
<span style="font-family: inherit; font-style: inherit;">Average FCF (past five years) is $861 million</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Start at $861 million FCF</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Assume a 5-year growth rate in FCF of 12% per year, then no growth or 0% growth in FCF per year forever:</span></li>
</ul>
</div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;"><br /></span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Discounted Cash Flow Valuation</span><br />
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<tbody>
<tr style="height: 13.5pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.75pt;" valign="bottom" width="133">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">Year<o:p></o:p></span></div>
</td>
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<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">FCF $Millions<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.75pt;" valign="bottom" width="133">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">0<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 94.5pt;" valign="bottom" width="126">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">861<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.75pt;" valign="bottom" width="133">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 94.5pt;" valign="bottom" width="126">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">964<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.75pt;" valign="bottom" width="133">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">2<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 94.5pt;" valign="bottom" width="126">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1080<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.75pt;" valign="bottom" width="133">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">3<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 94.5pt;" valign="bottom" width="126">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1210<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.75pt;" valign="bottom" width="133">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">4<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 94.5pt;" valign="bottom" width="126">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1355<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.75pt;" valign="bottom" width="133">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">5<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 94.5pt;" valign="bottom" width="126">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">1517<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.75pt;" valign="bottom" width="133">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">Terminal Value<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 94.5pt;" valign="bottom" width="126">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">24684<o:p></o:p></span></div>
</td>
</tr>
</tbody></table>
<br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><span style="font-style: inherit;">The firm's future free cash flows, discounted at a WACC of 6.88%, give a present value for the entire firm (Debt + Equity) of $22658 million. If the firm's fair value of debt is estimated at $1636 million, then the fair value of the firm's equity could be $21022</span><span style="font-style: inherit;"> million. $21022 million / 235 million outstanding shares is approximately $89 per share and a 20% margin of safety is $71/share.</span></span></div>
<div style="border-width: 0px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<b><span style="font-family: inherit;"><br /></span></b></div>
<div style="font-style: inherit; line-height: 20px;">
<b><span style="font-family: inherit;">Scenario 2</span></b><br />
<span style="font-family: inherit;">All else being equal,</span></div>
<div style="font-style: inherit; line-height: 20px;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Assume a 5-year growth rate in FCF of 4% per year, then 0% growth in FCF per year forever:</span></li>
</ul>
</div>
<div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;">Discounted Cash Flow Valuation</span><br />
<span style="font-family: inherit;"><br /></span>
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.65pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-yfti-tbllook: 1184; width: 259px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.75pt;" valign="bottom" width="133">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">Year<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 94.5pt;" valign="bottom" width="126">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">FCF $Millions<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.75pt;" valign="bottom" width="133">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">0<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 94.5pt;" valign="bottom" width="126">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: inherit;">861<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.75pt;" valign="bottom" width="133">
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
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<span style="font-family: inherit;">895<o:p></o:p></span></div>
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<span style="font-family: inherit;">931<o:p></o:p></span></div>
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<span style="font-family: inherit;">969<o:p></o:p></span></div>
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<span style="font-family: inherit;">1007<o:p></o:p></span></div>
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<span style="font-family: inherit;">5<o:p></o:p></span></div>
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<span style="font-family: inherit;">1048<o:p></o:p></span></div>
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<span style="font-family: inherit;">Terminal Value<o:p></o:p></span></div>
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<span style="font-family: inherit;">15824<o:p></o:p></span></div>
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<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">Present Value of the entire firm (Debt + Equity): $15312 million</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">Value of Equity: $13676 million or $58/share</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">20% margin of safety is $46/share</span></li>
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<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit; font-style: inherit;">Sources</span></div>
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<span class="Apple-style-span" style="color: #992211; font-family: inherit;"><a href="http://morningstar.com/" style="color: #992211; text-decoration: initial;"><b>Morningstar.com</b></a></span></div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: inherit;"><a href="http://finance.yahoo.com/" style="color: #992211; text-decoration: initial;"><b>Yahoo! Finance</b></a></span></div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<b><a href="http://goo.gl/nZ1TQ" style="color: #771100; text-decoration: initial;"><span style="font-family: inherit;">AmerisourceBergen</span></a></b><br />
<div>
<span style="font-family: inherit;"><br /></span></div>
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<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: inherit; line-height: 14px;"><span class="Apple-style-span" style="line-height: 20px;"><strong style="border-width: 0px; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Disclosure: </strong></span><span class="Apple-style-span" style="line-height: 20px;">I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.</span></span></div>
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Eric Cotahttp://www.blogger.com/profile/01550847614110321622noreply@blogger.com0tag:blogger.com,1999:blog-8639258474795739446.post-45391300138518400412013-01-03T14:26:00.000-08:002013-01-03T14:26:55.785-08:00Fantasy Portfolio: Performance Snapshot<div class="separator" style="clear: both; text-align: left;">
<span style="background-color: white; color: #333333; font-family: inherit; line-height: 20px;">I started a fantasy portfolio of stocks in late August 2010 to test my investment ideas and discipline. My goal is to assemble a diversified portfolio of value stocks from dividend-paying firms of the S&P 500 that produce solid free cash flow.</span></div>
<span style="font-family: inherit;"><span style="background-color: white; color: #333333; line-height: 20px;"><br /></span>
</span><br />
<ul style="background-color: white; color: #333333; line-height: 20px; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit;">Dividends automatically reinvested</span></li>
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit;">Maintain near equal weightings of a maximum of 30 stocks</span></li>
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit;">Infrequent trading</span></li>
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit;">Total return of portfolio is measured against total return of the S&P 500</span></li>
<li style="border: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit;">Goal: to outperform the S&P 500 Index on a total return risk-adjusted basis</span></li>
</ul>
<span style="font-family: inherit;"><br style="background-color: white; color: #333333; line-height: 20px;" /><span style="background-color: white; color: #333333; line-height: 20px;">Below is a snapshot of the fantasy portfolio's current holdings and performance thus far.</span><br style="background-color: white; color: #333333; line-height: 20px;" /><span style="background-color: white; color: #333333; line-height: 20px;">*Note: Tr</span><span style="background-color: white; color: #333333; line-height: 20px;">ansaction costs and taxes not included in returns.</span><span style="background-color: white; color: #333333; line-height: 20px;"><br /></span></span><br />
<ul style="background-color: white; color: #333333; line-height: 20px; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgbZWtT2-zf03prA4SG_PEkBVvmmNqmkO8hqRtiYMKEM_l4-rEPVhHpeKup5_1Bmpe8XRyU04iVw2QWNJHdIoyKH4JZzPdVRHZaWtjvoBzsJHQx9Igo1RlusH3XuLJmcQDTcZXKYByE4L8M/s1600/Stock+Portfolio.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><span style="font-family: inherit;"><img border="0" height="364" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgbZWtT2-zf03prA4SG_PEkBVvmmNqmkO8hqRtiYMKEM_l4-rEPVhHpeKup5_1Bmpe8XRyU04iVw2QWNJHdIoyKH4JZzPdVRHZaWtjvoBzsJHQx9Igo1RlusH3XuLJmcQDTcZXKYByE4L8M/s640/Stock+Portfolio.jpg" width="640" /></span></a></ul>
<span style="font-family: inherit;"><br style="background-color: white; color: #333333; line-height: 20px;" /><span style="background-color: white; color: #333333; line-height: 20px;"><br /></span></span><br />
<div class="separator" style="background-color: white; clear: both; color: #333333; line-height: 20px; text-align: center;">
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<span style="background-color: white; color: #333333; font-family: inherit; line-height: 20px;"><br /></span>
<div class="separator" style="background-color: white; clear: both; color: #333333; line-height: 20px; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhKEvqiwzqZJw36gm2Th2yYcfWcg82SCCJePEwpENh5gysZ0NO_aFYDGl40FgW_xIkhs95zD34jvyxzCa4V0e8QwL9QQ6IUhXr9s6ANvYIjvO_04rAHdIc7XJqMcB3fLrD1z7LVjBgJM_xn/s1600/Portfolio+Performance.jpg" imageanchor="1" style="clear: left; float: left; line-height: normal; margin-bottom: 1em; margin-right: 1em;"><span style="font-family: inherit;"><img border="0" height="452" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhKEvqiwzqZJw36gm2Th2yYcfWcg82SCCJePEwpENh5gysZ0NO_aFYDGl40FgW_xIkhs95zD34jvyxzCa4V0e8QwL9QQ6IUhXr9s6ANvYIjvO_04rAHdIc7XJqMcB3fLrD1z7LVjBgJM_xn/s640/Portfolio+Performance.jpg" width="640" /></span></a></div>
<div class="separator" style="background-color: white; clear: both; color: #333333; line-height: 20px; text-align: center;">
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<span style="font-family: inherit;"><br /><span style="background-color: white; color: #333333; line-height: 20px;">Source: </span><a href="http://www.morningstar.com/" style="background-color: white; color: #771100; line-height: 20px; text-decoration: initial;"><b>Morningstar.com</b></a><br style="background-color: white; color: #333333; line-height: 20px;" /><br style="background-color: white; color: #333333; line-height: 20px;" /><span class="Apple-style-span" style="background-color: white; color: #333333; line-height: 20px;"><strong style="border-width: 0px; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Disclosure: </strong></span><span class="Apple-style-span" style="background-color: white; color: #333333; line-height: 20px;">I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.</span><span style="background-color: white; color: #333333; line-height: 20px;"> </span></span>Eric Cotahttp://www.blogger.com/profile/01550847614110321622noreply@blogger.com0tag:blogger.com,1999:blog-8639258474795739446.post-64381342003137764662012-12-20T11:56:00.000-08:002012-12-20T11:56:03.061-08:00Starbucks Corporation: $SBUX Cash Flow Valuation Update<br />
<span style="background-color: white; color: #333333; font-family: inherit; line-height: 14px;">Current Price: ~ $54/share</span><br />
<span style="font-family: inherit;"><span style="background-color: white; color: #333333;"><span class="Apple-style-span" style="line-height: 14px;">Yield: ~ 1.33%</span><br /><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span></span></span><span style="background-color: #fdfdfd; line-height: 22px;">Through a global chain of almost 17,500 company-owned and licensed stores, Starbucks sells coffee, espresso, teas, cold blended beverages, complementary food items, and other accessories. In addition to its retail operations, the firm distributes packaged coffee, VIA single-serve packets, K-Cups, and tea through grocery stores and warehouse clubs under the Starbucks, Tazo, and the Seattle's Best Coffee brands.</span><span style="background-color: white; color: #333333; line-height: 17px;"> <span style="line-height: 22px;"><br /></span></span><br />
<div style="background-color: white; border-width: 0px; color: #333333; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="margin: 0px;">
<span style="font-family: inherit;"><br />Estimated WACC for the firm today is 9.41% using the Capital Asset Pricing Model and the company's recent SEC filings.</span></div>
<div style="margin: 0px;">
<span style="font-family: inherit;"><br /></span></div>
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<div>
<span style="border-width: 0px; font-family: inherit; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Recent free cash flows and noted growth rates:</span><br />
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Year<o:p></o:p></div>
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FCF
$Millions<o:p></o:p></div>
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<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2003<o:p></o:p></div>
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<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
209<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2004<o:p></o:p></div>
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<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
408<o:p></o:p></div>
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<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
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2005<o:p></o:p></div>
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<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
280<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
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2006<o:p></o:p></div>
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<div class="MsoNormal">
360<o:p></o:p></div>
</td>
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<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
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2007<o:p></o:p></div>
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<div class="MsoNormal">
251<o:p></o:p></div>
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<tr style="height: 13.5pt; mso-yfti-irow: 6;">
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2008<o:p></o:p></div>
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<div class="MsoNormal">
274<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2009<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
943<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 8;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2010<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
1264<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 9;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2011<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
1081<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 10; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2012<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
894<o:p></o:p></div>
</td>
</tr>
</tbody></table>
</span><br />
<span style="font-family: inherit;"><br /></span>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgVkuvCizL3zbtpN8O1VxfWsL3VLlSn0_YlrMgZYJ-WGR3sxwobsay8DVnmT0QnPECMgFiXbiuAHn1GyODolp0_FG2o1OgtOmpS7GaDHrRgJM4thBKE7uKZTASdP3Z8_x1uhl-W7Qf7PD_Q/s1600/SBUX.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="432" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgVkuvCizL3zbtpN8O1VxfWsL3VLlSn0_YlrMgZYJ-WGR3sxwobsay8DVnmT0QnPECMgFiXbiuAHn1GyODolp0_FG2o1OgtOmpS7GaDHrRgJM4thBKE7uKZTASdP3Z8_x1uhl-W7Qf7PD_Q/s640/SBUX.jpg" width="640" /></a></div>
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><br /></span></div>
<div>
<span style="font-family: inherit;">Average Annual Growth FCF: ~ 35%</span></div>
<div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: inherit; line-height: 14px;">CAGR FCF: ~ 17.5%</span></div>
<span style="font-family: inherit;">Consensus Forecast Industry 5-Year Growth: ~ 12% per year</span></div>
</div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Consensus Forecast Company 5-Year Growth: ~ 18% per year</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Internal Growth Rate: ~ 12%</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Sustainable Growth Rate: ~ 22%</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;"><br /></span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit; font-style: inherit;"><b>Scenario 1</b></span><br />
<span style="font-family: inherit; font-style: inherit;">Average FCF (2012, 2011, 2010) is $1080 million</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Start at $1080 million FCF</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Assume a 5-year growth rate in FCF of 18% per year, then no growth or 0% growth in FCF per year forever:</span></li>
</ul>
</div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;"><br /></span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Discounted Cash Flow Valuation</span><br />
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.9pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; width: 253px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133">
<div class="MsoNormal">
<span style="font-family: inherit;">Year<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120">
<div class="MsoNormal">
<span style="font-family: inherit;">FCF
$Millions<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">0<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">1080<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">1<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="1274.4">
<div class="MsoNormal">
<span style="font-family: inherit;">1274<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="1503.7919999999997">
<div class="MsoNormal">
<span style="font-family: inherit;">1504<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">3<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="1774.4745599999994">
<div class="MsoNormal">
<span style="font-family: inherit;">1774<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">4<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="2093.8799807999994">
<div class="MsoNormal">
<span style="font-family: inherit;">2094<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">5<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="2470.7783773439992">
<div class="MsoNormal">
<span style="font-family: inherit;">2471<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133">
<div class="MsoNormal">
<span style="font-family: inherit;">Terminal
Value<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="30977.354063956154">
<div class="MsoNormal">
<span style="font-family: inherit;">30977<o:p></o:p></span></div>
</td>
</tr>
</tbody></table>
<br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><span style="font-style: inherit;">The firm's future free cash flows, discounted at a WACC of 9.41%, give a present value for the entire firm (Debt + Equity) of $26570 million. If the firm's fair value of debt is estimated at $674 million, then the fair value of the firm's equity could be $25896</span><span style="font-style: inherit;"> million. $25896 million / 744 million outstanding shares is approximately $35 per share and a 20% margin of safety is $28/share.</span></span></div>
<div style="border-width: 0px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<b><span style="font-family: inherit;"><br /></span></b></div>
<div style="font-style: inherit; line-height: 20px;">
<b><span style="font-family: inherit;">Scenario 2</span></b><br />
<span style="font-family: inherit;">All else being equal,</span></div>
<div style="font-style: inherit; line-height: 20px;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Assume a 5-year growth rate in FCF of 18% per year, then 4% growth in FCF per year forever:</span></li>
</ul>
</div>
<div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;">Discounted Cash Flow Valuation</span><br />
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.9pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; width: 253px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133">
<div class="MsoNormal">
<span style="font-family: inherit;">Year<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120">
<div class="MsoNormal">
<span style="font-family: inherit;">FCF
$Millions<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">0<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">1080<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">1<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="1274.4">
<div class="MsoNormal">
<span style="font-family: inherit;">1274<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="1503.7919999999997">
<div class="MsoNormal">
<span style="font-family: inherit;">1504<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">3<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="1774.4745599999994">
<div class="MsoNormal">
<span style="font-family: inherit;">1774<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">4<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="2093.8799807999994">
<div class="MsoNormal">
<span style="font-family: inherit;">2094<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">5<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="2470.7783773439992">
<div class="MsoNormal">
<span style="font-family: inherit;">2471<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133">
<div class="MsoNormal">
<span style="font-family: inherit;">Terminal
Value<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="53873.620881507712">
<div class="MsoNormal">
<span style="font-family: inherit;">53874<o:p></o:p></span></div>
</td>
</tr>
</tbody></table>
<br />
<span style="font-family: inherit;"><br /></span></div>
<div>
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">Present Value of the entire firm (Debt + Equity): $41173 million</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">Value of Equity: $40499 million or $54/share</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">20% margin of safety is $43/share</span></li>
</ul>
<span style="font-family: inherit;"><br /></span>
<div>
<span style="font-family: inherit;"><br class="Apple-interchange-newline" /></span></div>
</div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit; font-style: inherit;">Sources</span></div>
</div>
<div style="font-style: inherit; line-height: 20px;">
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: inherit;"><a href="http://morningstar.com/" style="color: #992211; text-decoration: initial;"><b>Morningstar.com</b></a></span></div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: inherit;"><a href="http://finance.yahoo.com/" style="color: #992211; text-decoration: initial;"><b>Yahoo! Finance</b></a></span></div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<b><a href="http://goo.gl/dAZSp" style="color: #771100; text-decoration: initial;"><span style="font-family: inherit;">Starbucks.com</span></a></b><br />
<div>
<span style="font-family: inherit;"><br /></span></div>
</div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: inherit; line-height: 14px;"><span class="Apple-style-span" style="line-height: 20px;"><strong style="border-width: 0px; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Disclosure: </strong></span><span class="Apple-style-span" style="line-height: 20px;">I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.</span></span></div>
</div>
</div>
</div>
</div>
Eric Cotahttp://www.blogger.com/profile/01550847614110321622noreply@blogger.com0tag:blogger.com,1999:blog-8639258474795739446.post-74506467153857044042012-12-19T12:15:00.000-08:002012-12-19T12:43:59.783-08:00Air Products & Chemicals Inc: $APD Cash Flow Valuation Update<br />
<span style="background-color: white; color: #333333; font-family: inherit; line-height: 14px;">Current Price: ~ $84/share</span><br />
<span style="font-family: inherit;"><span style="background-color: white; color: #333333;"><span class="Apple-style-span" style="line-height: 14px;">Yield: ~ 2.96%</span><br /><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span></span></span><span style="background-color: #fdfdfd; line-height: 22px;">Established in 1940, Air Products is the world's largest supplier of hydrogen and helium. It offers a unique portfolio of products and services in a number of industries, including technology, energy, industrial, and health care. The company operates in more than 40 countries, with international sales representing 60% of revenue. Air Products generates $10 billion in annual sales and employs almost 20,000 workers.</span><span style="background-color: white; color: #333333; line-height: 17px;"> <span style="line-height: 22px;"><br /></span></span><br />
<div style="background-color: white; border-width: 0px; color: #333333; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="margin: 0px;">
<span style="font-family: inherit;"><br />Estimated WACC for the firm today is 10.11% using the Capital Asset Pricing Model and the company's recent SEC filings.</span></div>
<div style="margin: 0px;">
<span style="font-family: inherit;"><br /></span></div>
</div>
<div style="background-color: white; border-width: 0px; color: #333333; line-height: 17px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="margin: 0px;">
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div>
<span style="border-width: 0px; font-family: inherit; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Recent free cash flows and noted growth rates:</span><br />
<span style="border-width: 0px; font-family: inherit; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.9pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; width: 205px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"><div class="MsoNormal">
Year<o:p></o:p></div>
</td>
<td style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133"><div class="MsoNormal">
FCF
$Millions<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num=""><div class="MsoNormal">
2003<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
423<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num=""><div class="MsoNormal">
2004<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
380<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num=""><div class="MsoNormal">
2005<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
446<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num=""><div class="MsoNormal">
2006<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
85<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num=""><div class="MsoNormal">
2007<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
442<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num=""><div class="MsoNormal">
2008<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
595<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num=""><div class="MsoNormal">
2009<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
144<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 8;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num=""><div class="MsoNormal">
2010<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
492<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 9;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num=""><div class="MsoNormal">
2011<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
402<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 10; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num=""><div class="MsoNormal">
2012<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
278<o:p></o:p></div>
</td>
</tr>
</tbody></table>
</span><br />
<span style="font-family: inherit;"><br /></span>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEibmTO6E2DqGXRif4ydCyxHMwhCieu_rfRQWSIaEhPyw7gBoYg2OTBH0H0L1YBmaRnsLkUCOla_Bo1H1JacCKYNFguTxG0dcnKixr-VAu33O1yPtyywh6n-NGg9KYkVJyVLoV7tXtkftgMg/s1600/APD.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="440" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEibmTO6E2DqGXRif4ydCyxHMwhCieu_rfRQWSIaEhPyw7gBoYg2OTBH0H0L1YBmaRnsLkUCOla_Bo1H1JacCKYNFguTxG0dcnKixr-VAu33O1yPtyywh6n-NGg9KYkVJyVLoV7tXtkftgMg/s640/APD.jpg" width="640" /></a></div>
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><br /></span></div>
<div>
<span style="font-family: inherit;">Average Annual Growth FCF: ~ 55%</span></div>
<div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: inherit; line-height: 14px;">CAGR FCF: ~ -4.6%</span></div>
<span style="font-family: inherit;">Consensus Forecast Industry 5-Year Growth: ~ 11% per year</span></div>
</div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Consensus Forecast Company 5-Year Growth: ~ 8% per year</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Internal Growth Rate: ~ 4%</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Sustainable Growth Rate: ~ 11%</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;"><br /></span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit; font-style: inherit;"><b>Scenario 1</b></span><br />
<span style="font-family: inherit; font-style: inherit;">The highest level of FCF achieved in the past 10 years is $595 million</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Start at $595 million FCF</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Assume a 5-year growth rate in FCF of 11% per year, then 4% growth in FCF per year forever:</span></li>
</ul>
</div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;"><br /></span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Discounted Cash Flow Valuation</span><br />
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.9pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; width: 265px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 108.5pt;" valign="bottom" width="145"><div class="MsoNormal">
<span style="font-family: inherit;">Year<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120"><div class="MsoNormal">
<span style="font-family: inherit;">FCF
$Millions<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 108.5pt;" valign="bottom" width="145" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">0<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">595<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 108.5pt;" valign="bottom" width="145" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">1<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="660.45"><div class="MsoNormal">
<span style="font-family: inherit;">660<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 108.5pt;" valign="bottom" width="145" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">2<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="733.09950000000015"><div class="MsoNormal">
<span style="font-family: inherit;">733<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 108.5pt;" valign="bottom" width="145" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">3<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="813.74044500000025"><div class="MsoNormal">
<span style="font-family: inherit;">814<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 108.5pt;" valign="bottom" width="145" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">4<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="903.25189395000041"><div class="MsoNormal">
<span style="font-family: inherit;">903<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 108.5pt;" valign="bottom" width="145" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">5<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="1002.6096022845005"><div class="MsoNormal">
<span style="font-family: inherit;">1003<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 108.5pt;" valign="bottom" width="145"><div class="MsoNormal">
<span style="font-family: inherit;">Terminal
Value<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="18220.960738304537"><div class="MsoNormal">
<span style="font-family: inherit;">18221<o:p></o:p></span></div>
</td>
</tr>
</tbody></table>
<br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><span style="font-style: inherit;">The firm's future free cash flows, discounted at a WACC of 10.11%, give a present value for the entire firm (Debt + Equity) of $14307 million. If the firm's fair value of debt is estimated at $5006 million, then the fair value of the firm's equity could be $9301</span><span style="font-style: inherit;"> million. $9301 million / 213 million outstanding shares is approximately $44 per share and a 20% margin of safety is $35/share.</span></span></div>
<div style="border-width: 0px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<b><span style="font-family: inherit;"><br /></span></b></div>
<div style="font-style: inherit; line-height: 20px;">
<b><span style="font-family: inherit;">Scenario 2</span></b><br />
<span style="font-family: inherit;">All else being equal,</span></div>
<div style="font-style: inherit; line-height: 20px;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Assume a 5-year growth rate in FCF of 11% per year, then 6.75% growth in FCF per year forever:</span></li>
</ul>
</div>
<div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;">Discounted Cash Flow Valuation</span><br />
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.9pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; width: 265px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 108.5pt;" valign="bottom" width="145"><div class="MsoNormal">
<span style="font-family: inherit;">Year<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120"><div class="MsoNormal">
<span style="font-family: inherit;">FCF
$Millions<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 108.5pt;" valign="bottom" width="145" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">0<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">595<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 108.5pt;" valign="bottom" width="145" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">1<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="660.45"><div class="MsoNormal">
<span style="font-family: inherit;">660<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 108.5pt;" valign="bottom" width="145" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">2<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="733.09950000000015"><div class="MsoNormal">
<span style="font-family: inherit;">733<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 108.5pt;" valign="bottom" width="145" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">3<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="813.74044500000025"><div class="MsoNormal">
<span style="font-family: inherit;">814<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 108.5pt;" valign="bottom" width="145" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">4<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="903.25189395000041"><div class="MsoNormal">
<span style="font-family: inherit;">903<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 108.5pt;" valign="bottom" width="145" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">5<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="1002.6096022845005"><div class="MsoNormal">
<span style="font-family: inherit;">1003<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 108.5pt;" valign="bottom" width="145"><div class="MsoNormal">
<span style="font-family: inherit;">Terminal
Value<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="33143.797889973903"><div class="MsoNormal">
<span style="font-family: inherit;">33144<o:p></o:p></span></div>
</td>
</tr>
</tbody></table>
<br />
<span style="font-family: inherit;"><br /></span></div>
<div>
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">Present Value of the entire firm (Debt + Equity): $23527 million</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">Value of Equity: $18521 million or $87/share</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">20% margin of safety is $70/share</span></li>
</ul>
<span style="font-family: inherit;"><br /></span>
<br />
<div>
<span style="font-family: inherit;"><br class="Apple-interchange-newline" /></span></div>
</div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit; font-style: inherit;">Sources</span></div>
</div>
<div style="font-style: inherit; line-height: 20px;">
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: inherit;"><a href="http://morningstar.com/" style="color: #992211; text-decoration: initial;"><b>Morningstar.com</b></a></span></div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: inherit;"><a href="http://finance.yahoo.com/" style="color: #992211; text-decoration: initial;"><b>Yahoo! Finance</b></a></span></div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<b><a href="http://goo.gl/8IDt8" style="color: #771100; text-decoration: initial;"><span style="font-family: inherit;">Airproducts.com</span></a></b><br />
<div>
<span style="font-family: inherit;"><br /></span></div>
</div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: inherit; line-height: 14px;"><span class="Apple-style-span" style="line-height: 20px;"><strong style="border-width: 0px; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Disclosure: </strong></span><span class="Apple-style-span" style="line-height: 20px;">I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.</span></span></div>
</div>
</div>
</div>
</div>
Eric Cotahttp://www.blogger.com/profile/01550847614110321622noreply@blogger.com0tag:blogger.com,1999:blog-8639258474795739446.post-84946635351273814442012-12-17T14:06:00.000-08:002012-12-17T14:06:44.238-08:00The Walt Disney Co: $DIS Cash Flow Valuation Update<br />
<span style="background-color: white; color: #333333; font-family: inherit; line-height: 14px;">Current Price: ~ $49/share</span><br />
<span style="font-family: inherit;"><span style="background-color: white; color: #333333;"><span class="Apple-style-span" style="line-height: 14px;">Yield: ~ 1.54%</span><br /><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span></span></span><span style="background-color: #fdfdfd; line-height: 22px;">Disney owns the rights to some of the most famous characters ever created, including Mickey Mouse and Winnie the Pooh. These characters and others are featured in several theme parks Disney owns or licenses around the world. Disney makes live-action and animated films under several labels and owns ABC, Disney Channel, and ESPN. Disney also owns a 42.5% stake in A&E, The History Channel, and Lifetime Networks. The company generates about 25% of its sales from outside the United States.</span><span style="background-color: white; color: #333333; line-height: 17px;"> <span style="line-height: 22px;"><br /></span></span><br />
<div style="background-color: white; border-width: 0px; color: #333333; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="margin: 0px;">
<span style="font-family: inherit;"><br />Estimated WACC for the firm today is 10.70% using the Capital Asset Pricing Model and the company's recent SEC filings.</span></div>
<div style="margin: 0px;">
<span style="font-family: inherit;"><br /></span></div>
</div>
<div style="background-color: white; border-width: 0px; color: #333333; line-height: 17px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="margin: 0px;">
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div>
<span style="border-width: 0px; font-family: inherit; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Recent free cash flows and noted growth rates:</span><br />
<span style="border-width: 0px; font-family: inherit; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.9pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; width: 205px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal">
Year<o:p></o:p></div>
</td>
<td style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133">
<div class="MsoNormal">
FCF
$Millions<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2003<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
1852<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2004<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
3217<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2005<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
2446<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2006<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
4759<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2007<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
3855<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2008<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
3860<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2009<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
3311<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 8;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2010<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
4468<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 9;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2011<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
3435<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 10; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2012<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
4182<o:p></o:p></div>
</td>
</tr>
</tbody></table>
</span><br />
<span style="font-family: inherit;"><br /><span style="border-width: 0px; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></span></span>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjIgZTfrD2S_2IKfHs6ZmTS-LkfptJJYtr0m_PY8y5Cqpt_agrxCtvK7W5TGkcjdmyTXt99Zp2LIKr315FCpTQnch5lKMrhAW4E1ExXMj2jlHFp-c0F5Qj4jhzc-8MLIGRM9eZPfC_B3Q_R/s1600/DIS.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="426" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjIgZTfrD2S_2IKfHs6ZmTS-LkfptJJYtr0m_PY8y5Cqpt_agrxCtvK7W5TGkcjdmyTXt99Zp2LIKr315FCpTQnch5lKMrhAW4E1ExXMj2jlHFp-c0F5Qj4jhzc-8MLIGRM9eZPfC_B3Q_R/s640/DIS.jpg" width="640" /></a></div>
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><br /></span></div>
<div>
<span style="font-family: inherit;">Average Annual Growth FCF: ~ 16%</span></div>
<div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: inherit; line-height: 14px;">CAGR FCF: ~ 9%</span></div>
<span style="font-family: inherit;">Consensus Forecast Industry 5-Year Growth: ~ 18% per year</span></div>
</div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Consensus Forecast Company 5-Year Growth: ~ 11% per year</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Internal Growth Rate: ~ 7%</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Sustainable Growth Rate: ~ 14%</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;"><br /></span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit; font-style: inherit;"><b>Scenario 1</b></span><br />
<span style="font-family: inherit; font-style: inherit;">Average FCF (2012, 2011, 2010) is $4028 million </span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Start at $4028 million FCF</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Assume a 5-year growth rate in FCF of 11% per year, then no growth or 0% growth in FCF per year forever:</span></li>
</ul>
</div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;"><br /></span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Discounted Cash Flow Valuation</span><br />
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.9pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; width: 265px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133">
<div class="MsoNormal">
<span style="font-family: inherit;">Year<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132">
<div class="MsoNormal">
<span style="font-family: inherit;">FCF
$Millions<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">0<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">4028<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">1<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="4471.08">
<div class="MsoNormal">
<span style="font-family: inherit;">4471<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="4962.8988000000018">
<div class="MsoNormal">
<span style="font-family: inherit;">4963<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">3<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="5508.8176680000024">
<div class="MsoNormal">
<span style="font-family: inherit;">5509<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">4<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="6114.7876114800029">
<div class="MsoNormal">
<span style="font-family: inherit;">6115<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">5<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="6787.4142487428035">
<div class="MsoNormal">
<span style="font-family: inherit;">6787<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133">
<div class="MsoNormal">
<span style="font-family: inherit;">Terminal
Value<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="70391.785627668083">
<div class="MsoNormal">
<span style="font-family: inherit;">70392<o:p></o:p></span></div>
</td>
</tr>
</tbody></table>
<br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><span style="font-style: inherit;">The firm's future free cash flows, discounted at a WACC of 10.70%, give a present value for the entire firm (Debt + Equity) of $62640 million. If the firm's fair value of debt is estimated at $15146 million, then the fair value of the firm's equity could be $47494</span><span style="font-style: inherit;"> million. $47494 million / 1770 million outstanding shares is approximately $27 per share and a 20% margin of safety is $22/share.</span></span></div>
<div style="border-width: 0px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<b><span style="font-family: inherit;"><br /></span></b></div>
<div style="font-style: inherit; line-height: 20px;">
<b><span style="font-family: inherit;">Scenario 2</span></b><br />
<span style="font-family: inherit;">All else being equal,</span></div>
<div style="font-style: inherit; line-height: 20px;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Assume a 5-year growth rate in FCF of 11% per year, then 5.25% growth in FCF per year forever:</span></li>
</ul>
</div>
<div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;">Discounted Cash Flow Valuation</span><br />
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.9pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; width: 265px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133">
<div class="MsoNormal">
<span style="font-family: inherit;">Year<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132">
<div class="MsoNormal">
<span style="font-family: inherit;">FCF
$Millions<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">0<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">4028<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">1<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="4471.08">
<div class="MsoNormal">
<span style="font-family: inherit;">4471<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="4962.8988000000018">
<div class="MsoNormal">
<span style="font-family: inherit;">4963<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">3<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="5508.8176680000024">
<div class="MsoNormal">
<span style="font-family: inherit;">5509<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">4<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="6114.7876114800029">
<div class="MsoNormal">
<span style="font-family: inherit;">6115<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">5<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="6787.4142487428035">
<div class="MsoNormal">
<span style="font-family: inherit;">6787<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133">
<div class="MsoNormal">
<span style="font-family: inherit;">Terminal
Value<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="138163.13412229414">
<div class="MsoNormal">
<span style="font-family: inherit;">138163<o:p></o:p></span></div>
</td>
</tr>
</tbody></table>
<br />
<span style="font-family: inherit;"><br /></span></div>
<div>
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">Present Value of the entire firm (Debt + Equity): $103402 million</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">Value of Equity: $88256 million or $50/share</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">20% margin of safety is $40/share</span></li>
</ul>
<span style="font-family: inherit;"><br /></span>
<div>
<span style="font-family: inherit;"><br class="Apple-interchange-newline" /></span></div>
</div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit; font-style: inherit;">Sources</span></div>
</div>
<div style="font-style: inherit; line-height: 20px;">
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: inherit;"><a href="http://morningstar.com/" style="color: #992211; text-decoration: initial;"><b>Morningstar.com</b></a></span></div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: inherit;"><a href="http://finance.yahoo.com/" style="color: #992211; text-decoration: initial;"><b>Yahoo! Finance</b></a></span></div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<b><a href="http://goo.gl/dtZbb" style="color: #771100; text-decoration: initial;"><span style="font-family: inherit;">The Walt Disney Company</span></a></b><br />
<div>
<span style="font-family: inherit;"><br /></span></div>
</div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: inherit; line-height: 14px;"><span class="Apple-style-span" style="line-height: 20px;"><strong style="border-width: 0px; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Disclosure: </strong></span><span class="Apple-style-span" style="line-height: 20px;">I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.</span></span></div>
</div>
</div>
</div>
</div>
Eric Cotahttp://www.blogger.com/profile/01550847614110321622noreply@blogger.com0tag:blogger.com,1999:blog-8639258474795739446.post-53006648779875207492012-12-11T16:52:00.000-08:002012-12-11T16:52:26.395-08:00Emerson Electric Co: $EMR Cash Flow Valuation Update<br />
<span style="background-color: white; color: #333333; font-family: inherit; line-height: 14px;">Current Price: ~ $52/share</span><br />
<span style="font-family: inherit;"><span style="background-color: white; color: #333333;"><span class="Apple-style-span" style="line-height: 14px;">Yield: ~ 3.14%</span><br /><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span></span></span><span style="background-color: #fdfdfd; line-height: 22px;">Emerson manages five business segments: process management, industrial automation, network power, climate technologies, and tools and storage. Primary products include motors, drives, valves, switches, test equipment, air conditioning compressors, electric tools, and home storage solutions.</span><span style="background-color: white; color: #333333; line-height: 17px;"> <span style="line-height: 22px;"><br /></span></span><br />
<div style="background-color: white; border-width: 0px; color: #333333; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="margin: 0px;">
<span style="font-family: inherit;"><br />Estimated WACC for the firm today is 12.25% using the Capital Asset Pricing Model and the company's recent SEC filings.</span></div>
<div style="margin: 0px;">
<span style="font-family: inherit;"><br /></span></div>
</div>
<div style="background-color: white; border-width: 0px; color: #333333; line-height: 17px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="margin: 0px;">
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div>
<span style="border-width: 0px; font-family: inherit; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Recent free cash flows and noted growth rates:</span><br />
<span style="border-width: 0px; font-family: inherit; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.9pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; width: 215px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal">
Year<o:p></o:p></div>
</td>
<td style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 107.0pt;" valign="bottom" width="143">
<div class="MsoNormal">
FCF
$Millions<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2003<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 107.0pt;" valign="bottom" width="143" x:num="">
<div class="MsoNormal">
1394<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2004<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 107.0pt;" valign="bottom" width="143" x:num="">
<div class="MsoNormal">
1816<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2005<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 107.0pt;" valign="bottom" width="143" x:num="">
<div class="MsoNormal">
1669<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2006<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 107.0pt;" valign="bottom" width="143" x:num="">
<div class="MsoNormal">
1911<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2007<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 107.0pt;" valign="bottom" width="143" x:num="">
<div class="MsoNormal">
2335<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2008<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 107.0pt;" valign="bottom" width="143" x:num="">
<div class="MsoNormal">
2579<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2009<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 107.0pt;" valign="bottom" width="143" x:num="">
<div class="MsoNormal">
2555<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 8;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2010<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 107.0pt;" valign="bottom" width="143" x:num="">
<div class="MsoNormal">
2768<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 9;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2011<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 107.0pt;" valign="bottom" width="143" x:num="">
<div class="MsoNormal">
2586<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 10; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2012<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 107.0pt;" valign="bottom" width="143" x:num="">
<div class="MsoNormal">
2388<o:p></o:p></div>
</td>
</tr>
</tbody></table>
</span><br />
<span style="font-family: inherit;"><br /></span>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj1FMNq_VDTIn9sG48UxB5AUXHwVu3_lV3VMfBd_Ln_WNCStK35EfcKdMOdnx-aYemlV2v0rkuiUtvhBiTEIZOWu0crFCvs0vMcfIXq2IN1wBReZrspD6_QoO7XvySnEhrB4MvMC8aPqIY0/s1600/EMR.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="434" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj1FMNq_VDTIn9sG48UxB5AUXHwVu3_lV3VMfBd_Ln_WNCStK35EfcKdMOdnx-aYemlV2v0rkuiUtvhBiTEIZOWu0crFCvs0vMcfIXq2IN1wBReZrspD6_QoO7XvySnEhrB4MvMC8aPqIY0/s640/EMR.jpg" width="640" /></a></div>
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><br /></span></div>
<div>
<span style="font-family: inherit;">Average Annual Growth FCF: ~ 7%</span></div>
<div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: inherit; line-height: 14px;">CAGR FCF: ~ 6%</span></div>
<span style="font-family: inherit;">Consensus Forecast Industry 5-Year Growth: ~ 13% per year</span></div>
</div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Consensus Forecast Company 5-Year Growth: ~ 9% per year</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Internal Growth Rate: ~ 3%</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Sustainable Growth Rate: ~ 8%</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;"><br /></span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit; font-style: inherit;"><b>Scenario 1</b></span><br />
<span style="font-family: inherit; font-style: inherit;">The highest level of FCF achieved in the past 10 years is $2768 million</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Start at $2768 million FCF</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Assume a 5-year growth rate in FCF of 9% per year, then no growth or 0% growth in FCF per year forever:</span></li>
</ul>
</div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;"><br /></span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Discounted Cash Flow Valuation</span><br />
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.9pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; width: 265px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133">
<div class="MsoNormal">
<span style="font-family: inherit;">Year<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132">
<div class="MsoNormal">
<span style="font-family: inherit;">FCF
$Millions<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">0<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2768<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">1<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="3017.12">
<div class="MsoNormal">
<span style="font-family: inherit;">3017<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="3288.6608000000006">
<div class="MsoNormal">
<span style="font-family: inherit;">3289<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">3<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="3584.640272000001">
<div class="MsoNormal">
<span style="font-family: inherit;">3585<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">4<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="3907.2578964800014">
<div class="MsoNormal">
<span style="font-family: inherit;">3907<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">5<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="4258.9111071632015">
<div class="MsoNormal">
<span style="font-family: inherit;">4259<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133">
<div class="MsoNormal">
<span style="font-family: inherit;">Terminal
Value<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="37904.269840874658">
<div class="MsoNormal">
<span style="font-family: inherit;">37904<o:p></o:p></span></div>
</td>
</tr>
</tbody></table>
<br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><span style="font-style: inherit;">The firm's future free cash flows, discounted at a WACC of 12.25%, give a present value for the entire firm (Debt + Equity) of $33956 million. If the firm's fair value of debt is estimated at $5088 million, then the fair value of the firm's equity could be $28868</span><span style="font-style: inherit;"> million. $28868 million / 724 million outstanding shares is approximately $40 per share and a 20% margin of safety is $32/share.</span></span></div>
<div style="border-width: 0px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<b><span style="font-family: inherit;"><br /></span></b></div>
<div style="font-style: inherit; line-height: 20px;">
<b><span style="font-family: inherit;">Scenario 2</span></b><br />
<span style="font-family: inherit;">All else being equal,</span></div>
<div style="font-style: inherit; line-height: 20px;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Assume a 5-year growth rate in FCF of 9% per year, then 3.50% growth in FCF per year forever:</span></li>
</ul>
</div>
<div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;">Discounted Cash Flow Valuation</span><br />
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.9pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; width: 265px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133">
<div class="MsoNormal">
<span style="font-family: inherit;">Year<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132">
<div class="MsoNormal">
<span style="font-family: inherit;">FCF
$Millions<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">0<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2768<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">1<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="3017.12">
<div class="MsoNormal">
<span style="font-family: inherit;">3017<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="3288.6608000000006">
<div class="MsoNormal">
<span style="font-family: inherit;">3289<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">3<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="3584.640272000001">
<div class="MsoNormal">
<span style="font-family: inherit;">3585<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">4<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="3907.2578964800014">
<div class="MsoNormal">
<span style="font-family: inherit;">3907<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">5<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="4258.9111071632015">
<div class="MsoNormal">
<span style="font-family: inherit;">4259<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133">
<div class="MsoNormal">
<span style="font-family: inherit;">Terminal
Value<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="53070.824806038348">
<div class="MsoNormal">
<span style="font-family: inherit;">53071<o:p></o:p></span></div>
</td>
</tr>
</tbody></table>
<br />
<span style="font-family: inherit;"><br /></span></div>
<div>
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">Present Value of the entire firm (Debt + Equity): $42468 million</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">Value of Equity: $37380 million or $52/share</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">20% margin of safety is $42/share</span></li>
</ul>
<span style="font-family: inherit;"><br /></span>
<div>
<span style="font-family: inherit;"><br class="Apple-interchange-newline" /></span></div>
</div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit; font-style: inherit;">Sources</span></div>
</div>
<div style="font-style: inherit; line-height: 20px;">
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: inherit;"><a href="http://morningstar.com/" style="color: #992211; text-decoration: initial;"><b>Morningstar.com</b></a></span></div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: inherit;"><a href="http://finance.yahoo.com/" style="color: #992211; text-decoration: initial;"><b>Yahoo! Finance</b></a></span></div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<b><a href="http://goo.gl/fYMby" style="color: #771100; text-decoration: initial;"><span style="font-family: inherit;">Emerson.com</span></a></b><br />
<div>
<span style="font-family: inherit;"><br /></span></div>
</div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: inherit; line-height: 14px;"><span class="Apple-style-span" style="line-height: 20px;"><strong style="border-width: 0px; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Disclosure: </strong></span><span class="Apple-style-span" style="line-height: 20px;">I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.</span></span></div>
</div>
</div>
</div>
</div>
Eric Cotahttp://www.blogger.com/profile/01550847614110321622noreply@blogger.com0tag:blogger.com,1999:blog-8639258474795739446.post-17945114296087092002012-12-11T15:51:00.000-08:002012-12-11T15:54:00.735-08:00Walgreen Company: $WAG Cash Flow Valuation Update<br />
<span style="background-color: white; color: #333333; font-family: inherit; line-height: 14px;">Current Price: ~ $37/share</span><br />
<span style="font-family: inherit;"><span style="background-color: white; color: #333333;"><span class="Apple-style-span" style="line-height: 14px;">Yield: ~ 2.75%</span><br /><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span></span></span><span style="background-color: #fdfdfd; line-height: 22px;">Walgreen is the nation's largest retail pharmacy, with about 7,900 drugstores located throughout the U.S. Prescription drugs account for about two thirds of sales, with most of the rest attributable to nonprescription drugs and convenience items such as packaged foods, greeting cards, photofinishing, and household and personal care products. The company also operates in-store and work-site health clinics.</span><br />
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<div style="margin: 0px;">
<span style="font-family: inherit;"><br />Estimated WACC for the firm today is 10.80% using the Capital Asset Pricing Model and the company's recent SEC filings.</span></div>
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<span style="font-family: inherit;"><br /></span></div>
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<span style="border-width: 0px; font-family: inherit; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Recent free cash flows and noted growth rates:</span><br />
<span style="border-width: 0px; font-family: inherit; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.9pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; width: 205px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"><div class="MsoNormal">
Year<o:p></o:p></div>
</td>
<td style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133"><div class="MsoNormal">
FCF
$Millions<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num=""><div class="MsoNormal">
2003<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
696<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num=""><div class="MsoNormal">
2004<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
713<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num=""><div class="MsoNormal">
2005<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
134<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num=""><div class="MsoNormal">
2006<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
1102<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num=""><div class="MsoNormal">
2007<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
571<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num=""><div class="MsoNormal">
2008<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
814<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num=""><div class="MsoNormal">
2009<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
2184<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 8;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num=""><div class="MsoNormal">
2010<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
2730<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 9;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num=""><div class="MsoNormal">
2011<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
2430<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 10; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num=""><div class="MsoNormal">
2012<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
2881<o:p></o:p></div>
</td>
</tr>
</tbody></table>
</span><br />
<span style="font-family: inherit;"><br /></span>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgsTc8GsROb2YPrMDwhVucF-kBd1yjQIBErZdhYnqrd-s_1jBgVK6loj_GdRVyOKo_ydIu5KuDiVhL7fSdooOtO3cVhfuNII3ZAghvh2lJdLJthnxVSnajpEf7Fodw-xKxbkoltWH3l4Wyv/s1600/WAG.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="432" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgsTc8GsROb2YPrMDwhVucF-kBd1yjQIBErZdhYnqrd-s_1jBgVK6loj_GdRVyOKo_ydIu5KuDiVhL7fSdooOtO3cVhfuNII3ZAghvh2lJdLJthnxVSnajpEf7Fodw-xKxbkoltWH3l4Wyv/s640/WAG.jpg" width="640" /></a></div>
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><br /></span></div>
<div>
<span style="font-family: inherit;">Average Annual Growth FCF: ~ 93%</span></div>
<div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: inherit; line-height: 14px;">CAGR FCF: ~ 17%</span></div>
<span style="font-family: inherit;">Consensus Forecast Industry 5-Year Growth: ~ 12% per year</span></div>
</div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Consensus Forecast Company 5-Year Growth: ~ 12% per year</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Internal Growth Rate: ~ 4%</span></div>
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<span style="font-family: inherit;">Sustainable Growth Rate: ~ 8%</span></div>
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<span style="font-family: inherit;"><br /></span></div>
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<span style="font-family: inherit; font-style: inherit;"><b>Scenario 1</b></span><br />
<span style="font-family: inherit; font-style: inherit;">Average FCF (2009 - 2012) is $2556 million</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Start at $2556 million FCF</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Assume a 5-year growth rate in FCF of 12% per year, then no growth or 0% growth in FCF per year forever:</span></li>
</ul>
</div>
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<span style="font-family: inherit;"><br /></span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Discounted Cash Flow Valuation</span><br />
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<tbody>
<tr style="height: 13.5pt; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133"><div class="MsoNormal">
<span style="font-family: inherit;">Year<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120"><div class="MsoNormal">
<span style="font-family: inherit;">FCF
$Millions<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">0<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">2556<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">1<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="2862.72"><div class="MsoNormal">
<span style="font-family: inherit;">2863<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">2<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="3206.2464000000004"><div class="MsoNormal">
<span style="font-family: inherit;">3206<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">3<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="3590.9959680000006"><div class="MsoNormal">
<span style="font-family: inherit;">3591<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">4<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="4021.9154841600011"><div class="MsoNormal">
<span style="font-family: inherit;">4022<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">5<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="4504.5453422592018"><div class="MsoNormal">
<span style="font-family: inherit;">4505<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133"><div class="MsoNormal">
<span style="font-family: inherit;">Terminal
Value<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="46728.483987166815"><div class="MsoNormal">
<span style="font-family: inherit;">46728<o:p></o:p></span></div>
</td>
</tr>
</tbody></table>
<br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><span style="font-style: inherit;">The firm's future free cash flows, discounted at a WACC of 10.80%, give a present value for the entire firm (Debt + Equity) of $41189 million. If the firm's fair value of debt is estimated at $6510 million, then the fair value of the firm's equity could be $34679</span><span style="font-style: inherit;"> million. $34679 million / 944 million outstanding shares is approximately $37 per share and a 20% margin of safety is $30/share.</span></span></div>
<div style="border-width: 0px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<b><span style="font-family: inherit;"><br /></span></b></div>
<div style="font-style: inherit; line-height: 20px;">
<b><span style="font-family: inherit;">Scenario 2</span></b><br />
<span style="font-family: inherit;">All else being equal,</span></div>
<div style="font-style: inherit; line-height: 20px;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Assume a 5-year growth rate in FCF of 12% per year, then 2% growth in FCF per year forever:</span></li>
</ul>
</div>
<div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;">Discounted Cash Flow Valuation</span><br />
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.9pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; width: 253px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133"><div class="MsoNormal">
<span style="font-family: inherit;">Year<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120"><div class="MsoNormal">
<span style="font-family: inherit;">FCF
$Millions<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">0<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">2556<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">1<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="2862.72"><div class="MsoNormal">
<span style="font-family: inherit;">2863<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">2<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="3206.2464000000004"><div class="MsoNormal">
<span style="font-family: inherit;">3206<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">3<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="3590.9959680000006"><div class="MsoNormal">
<span style="font-family: inherit;">3591<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">4<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="4021.9154841600011"><div class="MsoNormal">
<span style="font-family: inherit;">4022<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">5<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="4504.5453422592018"><div class="MsoNormal">
<span style="font-family: inherit;">4505<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133"><div class="MsoNormal">
<span style="font-family: inherit;">Terminal
Value<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="57352.690313870604"><div class="MsoNormal">
<span style="font-family: inherit;">57353<o:p></o:p></span></div>
</td>
</tr>
</tbody></table>
<br />
<span style="font-family: inherit;"><br /></span></div>
<div>
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">Present Value of the entire firm (Debt + Equity): $47552 million</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">Value of Equity: $41042 million or $43/share</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">20% margin of safety is $34/share</span></li>
</ul>
<span style="font-family: inherit;"><br /></span>
<br />
<div>
<span style="font-family: inherit;"><br class="Apple-interchange-newline" /></span></div>
</div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit; font-style: inherit;">Sources</span></div>
</div>
<div style="font-style: inherit; line-height: 20px;">
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: inherit;"><a href="http://morningstar.com/" style="color: #992211; text-decoration: initial;"><b>Morningstar.com</b></a></span></div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: inherit;"><a href="http://finance.yahoo.com/" style="color: #992211; text-decoration: initial;"><b>Yahoo! Finance</b></a></span></div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<b><a href="http://goo.gl/A60Ym" style="color: #771100; text-decoration: initial;"><span style="font-family: inherit;">Walgreens.com</span></a></b><br />
<div>
<span style="font-family: inherit;"><br /></span></div>
</div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: inherit; line-height: 14px;"><span class="Apple-style-span" style="line-height: 20px;"><strong style="border-width: 0px; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Disclosure: </strong></span><span class="Apple-style-span" style="line-height: 20px;">I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.</span></span></div>
</div>
</div>
</div>
</div>
Eric Cotahttp://www.blogger.com/profile/01550847614110321622noreply@blogger.com0tag:blogger.com,1999:blog-8639258474795739446.post-31862761059930132092012-11-30T23:18:00.000-08:002012-11-30T23:18:06.002-08:00Costco Wholesale Corp: $COST Cash Flow Valuation Update<br />
<span style="background-color: white; color: #333333; font-family: inherit; line-height: 14px;">Current Price: ~ $104/share</span><br />
<span style="font-family: inherit;"><span style="background-color: white; color: #333333;"><span class="Apple-style-span" style="line-height: 14px;">Yield: ~ 1.02%</span><br /><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span></span></span><span style="background-color: #fdfdfd; line-height: 22px;">As of August, Costco Wholesale Corporation operates 439 membership warehouse clubs in the United States, 82 in Canada, 32 in Mexico, 22 in the United Kingdom, 13 in Japan, nine in Taiwan, eight in Korea and three in Australia. The base and executive membership cost $55 and $110 per year, respectively. The company sells food, fuel, and general merchandise to its members but derives most of its profits from membership fees.</span><br />
<div style="background-color: white; border-width: 0px; color: #333333; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="margin: 0px;">
<span style="font-family: inherit;"><br />Estimated WACC for the firm today is 5.96% using the Capital Asset Pricing Model and the company's recent SEC filings.</span></div>
<div style="margin: 0px;">
<span style="font-family: inherit;"><br /></span></div>
</div>
<div style="background-color: white; border-width: 0px; color: #333333; line-height: 17px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="margin: 0px;">
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div>
<span style="border-width: 0px; font-family: inherit; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Recent free cash flows and noted growth rates:</span><br />
<span style="border-width: 0px; font-family: inherit; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></span><table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.9pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; width: 205px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal">
<span style="font-family: inherit;">Year<o:p></o:p></span></div>
</td>
<td style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133">
<div class="MsoNormal">
<span style="font-family: inherit;">FCF
$Millions<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2003<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">697<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2004<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">1393<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2005<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">788<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2006<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">615<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2007<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">691<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2008<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">578<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2009<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">842<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 8;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2010<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">1725<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 9;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2011<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">1908<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 10; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2012<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">1577<o:p></o:p></span></div>
</td>
</tr>
</tbody></table>
<br />
<span style="font-family: inherit;"><br /></span>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgsgwW5GNNNIR6piKmQkAWSiN212_03__L_FTGGQ17RiuclCpUhh0-8MR9X78pegk4YE0Zk-t2y0UezYl_WwqMCaS09PrvaOiBvVhsvuwT1lw_WHkK6TUqtV7lLeRABqevZb3cV_2jAEk3e/s1600/COST.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="432" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgsgwW5GNNNIR6piKmQkAWSiN212_03__L_FTGGQ17RiuclCpUhh0-8MR9X78pegk4YE0Zk-t2y0UezYl_WwqMCaS09PrvaOiBvVhsvuwT1lw_WHkK6TUqtV7lLeRABqevZb3cV_2jAEk3e/s640/COST.jpg" width="640" /></a></div>
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><br /></span></div>
<div>
<span style="font-family: inherit;">Average Annual Growth FCF: ~ 19%</span></div>
<div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: inherit; line-height: 14px;">CAGR FCF: ~ 9.5%</span></div>
<span style="font-family: inherit;">Consensus Forecast Industry 5-Year Growth: ~ 12% per year</span></div>
</div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Consensus Forecast Company 5-Year Growth: ~ 12% per year</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Internal Growth Rate: ~ 5%</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Sustainable Growth Rate: ~ 11.5%</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;"><br /></span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit; font-style: inherit;"><b>Scenario 1</b></span><br />
<span style="font-family: inherit;">The company generated $1577 million FCF in 2012</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Start at $1577 million FCF</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Assume a 5-year growth rate in FCF of 12% per year, then no growth or 0% growth in FCF per year forever:</span></li>
</ul>
</div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;"><br /></span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Discounted Cash Flow Valuation</span><br />
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.9pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; width: 253px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133">
<div class="MsoNormal">
<span style="font-family: inherit;">Year<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120">
<div class="MsoNormal">
<span style="font-family: inherit;">FCF
$Millions<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">0<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">1577<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">1<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="1766.24">
<div class="MsoNormal">
<span style="font-family: inherit;">1766<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="1978.1888000000004">
<div class="MsoNormal">
<span style="font-family: inherit;">1978<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">3<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="2215.5714560000006">
<div class="MsoNormal">
<span style="font-family: inherit;">2216<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">4<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="2481.4400307200008">
<div class="MsoNormal">
<span style="font-family: inherit;">2481<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">5<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="2779.2128344064013">
<div class="MsoNormal">
<span style="font-family: inherit;">2779<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133">
<div class="MsoNormal">
<span style="font-family: inherit;">Terminal
Value<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="52240.715166423215">
<div class="MsoNormal">
<span style="font-family: inherit;">52241<o:p></o:p></span></div>
</td>
</tr>
</tbody></table>
<br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><span style="font-style: inherit;">The firm's future free cash flows, discounted at a WACC of 5.96%, give a present value for the entire firm (Debt + Equity) of $48455 million. If the firm's fair value of debt is estimated at $5163 million, then the fair value of the firm's equity could be $43292</span><span style="font-style: inherit;"> million. $43292 million / 432 million outstanding shares is approximately $100 per share and a 20% margin of safety is $80/share.</span></span></div>
<div style="border-width: 0px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<b><span style="font-family: inherit;"><br /></span></b></div>
<div style="font-style: inherit; line-height: 20px;">
<b><span style="font-family: inherit;">Scenario 2</span></b><br />
<span style="font-family: inherit;">All else being equal,</span></div>
<div style="font-style: inherit; line-height: 20px;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Assume a 5-year growth rate in FCF of 9.50% per year, then 2% growth in FCF per year forever:</span></li>
</ul>
</div>
<div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;">Discounted Cash Flow Valuation</span><br />
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.9pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; width: 253px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133">
<div class="MsoNormal">
<span style="font-family: inherit;">Year<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120">
<div class="MsoNormal">
<span style="font-family: inherit;">FCF
$Millions<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">0<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">1577<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">1<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="1726.8150000000001">
<div class="MsoNormal">
<span style="font-family: inherit;">1727<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="1890.862425">
<div class="MsoNormal">
<span style="font-family: inherit;">1891<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">3<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="2070.4943553749999">
<div class="MsoNormal">
<span style="font-family: inherit;">2070<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">4<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="2267.1913191356248">
<div class="MsoNormal">
<span style="font-family: inherit;">2267<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">5<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="2482.574494453509">
<div class="MsoNormal">
<span style="font-family: inherit;">2483<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133">
<div class="MsoNormal">
<span style="font-family: inherit;">Terminal
Value<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="68674.441136188427">
<div class="MsoNormal">
<span style="font-family: inherit;">68674<o:p></o:p></span></div>
</td>
</tr>
</tbody></table>
<br />
<span style="font-family: inherit;"><br /></span></div>
<div>
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">Present Value of the entire firm (Debt + Equity): $60130 million</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">Value of Equity: $54967 million or $127/share</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">20% margin of safety is $102/share</span></li>
</ul>
<span style="font-family: inherit;"><br /></span>
<div>
<span style="font-family: inherit;"><br class="Apple-interchange-newline" /></span></div>
</div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit; font-style: inherit;">Sources</span></div>
</div>
<div style="font-style: inherit; line-height: 20px;">
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: inherit;"><a href="http://morningstar.com/" style="color: #992211; text-decoration: initial;"><b>Morningstar.com</b></a></span></div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: inherit;"><a href="http://finance.yahoo.com/" style="color: #992211; text-decoration: initial;"><b>Yahoo! Finance</b></a></span></div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<b><a href="http://goo.gl/JA5cd" style="color: #771100; text-decoration: initial;"><span style="font-family: inherit;">Costco Wholesale</span></a></b><br />
<div>
<span style="font-family: inherit;"><br /></span></div>
</div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: inherit; line-height: 14px;"><span class="Apple-style-span" style="line-height: 20px;"><strong style="border-width: 0px; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Disclosure: </strong></span><span class="Apple-style-span" style="line-height: 20px;">I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.</span></span></div>
</div>
</div>
</div>
</div>
Eric Cotahttp://www.blogger.com/profile/01550847614110321622noreply@blogger.com0tag:blogger.com,1999:blog-8639258474795739446.post-21524103503580076242012-11-30T15:03:00.000-08:002012-11-30T15:03:37.456-08:00Cisco Systems Inc: $CSCO Cash Flow Valuation Update<br />
<span style="background-color: white; color: #333333; font-family: inherit; line-height: 14px;">Current Price: ~ $19/share</span><br />
<span style="font-family: inherit;"><span style="background-color: white; color: #333333;"><span class="Apple-style-span" style="line-height: 14px;">Yield: ~ 2.31%</span><br /><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span></span></span><span style="background-color: #fdfdfd; line-height: 22px;">Cisco Systems is the world's leading supplier of data networking equipment and software. Its products include routers, switches, access equipment, and network-management software that allow data communication among dispersed computer networks. The firm has also entered newer markets, such as video conferencing, web-based collaboration, and data center servers.</span><br />
<div style="background-color: white; border-width: 0px; color: #333333; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="margin: 0px;">
<span style="font-family: inherit;"><br />Estimated WACC for the firm today is 12.51% using the Capital Asset Pricing Model and the company's recent SEC filings.</span></div>
<div style="margin: 0px;">
<span style="font-family: inherit;"><br /></span></div>
</div>
<div style="background-color: white; border-width: 0px; color: #333333; line-height: 17px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="margin: 0px;">
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div>
<span style="border-width: 0px; font-family: inherit; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Recent free cash flows and noted growth rates:</span><br />
<span style="border-width: 0px; font-family: inherit; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.9pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; width: 205px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal">
Year<o:p></o:p></div>
</td>
<td style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133">
<div class="MsoNormal">
FCF
$Millions<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2003<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
4523<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2004<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
6508<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2005<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
6876<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2006<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
7127<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2007<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
8853<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2008<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
10821<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2009<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
8892<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 8;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2010<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
9165<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 9;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2011<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
8905<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 10; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2012<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
10365<o:p></o:p></div>
</td>
</tr>
</tbody></table>
</span><br />
<span style="font-family: inherit;"><br /></span>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhlJaqAqa0szrkh_OsnQZFdo3Kil83NrmkaXU0ejG-Ts4gzLVplbXK8kAYqQLCDk6Y14j6wgVm0urp8OmwPLjL8nua_Dqhh2_I0E76Y_mDcRrsI3rbU7EEahpmvS20eBlaDB2J0GgoawhJ5/s1600/CSCO.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="432" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhlJaqAqa0szrkh_OsnQZFdo3Kil83NrmkaXU0ejG-Ts4gzLVplbXK8kAYqQLCDk6Y14j6wgVm0urp8OmwPLjL8nua_Dqhh2_I0E76Y_mDcRrsI3rbU7EEahpmvS20eBlaDB2J0GgoawhJ5/s640/CSCO.jpg" width="640" /></a></div>
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><br /></span></div>
<div>
<span style="font-family: inherit;">Average Annual Growth FCF: ~ 11%</span></div>
<div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: inherit; line-height: 14px;">CAGR FCF: ~ 10%</span></div>
<span style="font-family: inherit;">Consensus Forecast Industry 5-Year Growth: ~ 14% per year</span></div>
</div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Consensus Forecast Company 5-Year Growth: ~ 8% per year</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Internal Growth Rate: ~ 7%</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Sustainable Growth Rate: ~ 14%</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;"><br /></span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit; font-style: inherit;"><b>Scenario 1</b></span><br />
<span style="font-family: inherit; font-style: inherit;">Average FCF (2012, 2011, 2010) is $9478 million</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Start at $9478 million FCF</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Assume a 5-year growth rate in FCF of 8% per year, then no growth or 0% growth in FCF per year forever:</span></li>
</ul>
</div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;"><br /></span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Discounted Cash Flow Valuation</span><br />
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.9pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; width: 253px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133">
<div class="MsoNormal">
<span style="font-family: inherit;">Year<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120">
<div class="MsoNormal">
<span style="font-family: inherit;">FCF
$Millions<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">0<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">9478<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">1<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="10236.24">
<div class="MsoNormal">
<span style="font-family: inherit;">10236<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="11055.1392">
<div class="MsoNormal">
<span style="font-family: inherit;">11055<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">3<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="11939.550336">
<div class="MsoNormal">
<span style="font-family: inherit;">11940<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">4<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="12894.71436288">
<div class="MsoNormal">
<span style="font-family: inherit;">12895<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">5<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="13926.291511910402">
<div class="MsoNormal">
<span style="font-family: inherit;">13926<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133">
<div class="MsoNormal">
<span style="font-family: inherit;">Terminal
Value<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="120270.79236358234">
<div class="MsoNormal">
<span style="font-family: inherit;">120271<o:p></o:p></span></div>
</td>
</tr>
</tbody></table>
<br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><span style="font-style: inherit;">The firm's future free cash flows, discounted at a WACC of 12.51%, give a present value for the entire firm (Debt + Equity) of $108717 million. If the firm's fair value of debt is estimated at $18700 million, then the fair value of the firm's equity could be $90017</span><span style="font-style: inherit;"> million. $90017 million / 5310 million outstanding shares is approximately $17 per share and a 20% margin of safety is $14/share.</span></span></div>
<div style="border-width: 0px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<b style="font-style: inherit;"><span style="font-family: inherit;">Scenario 2</span></b></div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;">All else being equal,</span></div>
<div style="font-style: inherit; line-height: 20px;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Assume a 5-year growth rate in FCF of 8% per year, then 4.50% growth in FCF per year forever:</span></li>
</ul>
</div>
<div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;">Discounted Cash Flow Valuation</span><br />
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.9pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; width: 253px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133">
<div class="MsoNormal">
<span style="font-family: inherit;">Year<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120">
<div class="MsoNormal">
<span style="font-family: inherit;">FCF
$Millions<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">0<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">9478<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">1<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="10236.24">
<div class="MsoNormal">
<span style="font-family: inherit;">10236<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="11055.1392">
<div class="MsoNormal">
<span style="font-family: inherit;">11055<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">3<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="11939.550336">
<div class="MsoNormal">
<span style="font-family: inherit;">11940<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">4<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="12894.71436288">
<div class="MsoNormal">
<span style="font-family: inherit;">12895<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">5<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="13926.291511910402">
<div class="MsoNormal">
<span style="font-family: inherit;">13926<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133">
<div class="MsoNormal">
<span style="font-family: inherit;">Terminal
Value<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="187877.1192907111">
<div class="MsoNormal">
<span style="font-family: inherit;">187877<o:p></o:p></span></div>
</td>
</tr>
</tbody></table>
<br />
<span style="font-family: inherit;"><br /></span></div>
<div>
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">Present Value of the entire firm (Debt + Equity): $146225 million</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">Value of Equity: $127525 million or $24/share</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">20% margin of safety is $19/share</span></li>
</ul>
<span style="font-family: inherit;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit; font-style: inherit;">Sources</span></div>
</div>
<div style="font-style: inherit; line-height: 20px;">
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: inherit;"><a href="http://morningstar.com/" style="color: #992211; text-decoration: initial;"><b>Morningstar.com</b></a></span></div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: inherit;"><a href="http://finance.yahoo.com/" style="color: #992211; text-decoration: initial;"><b>Yahoo! Finance</b></a></span></div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<b><a href="http://goo.gl/RY7kp" style="color: #771100; text-decoration: initial;"><span style="font-family: inherit;">Cisco.com</span></a></b><br />
<div>
<span style="font-family: inherit;"><br /></span></div>
</div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: inherit; line-height: 14px;"><span class="Apple-style-span" style="line-height: 20px;"><strong style="border-width: 0px; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Disclosure: </strong></span><span class="Apple-style-span" style="line-height: 20px;">I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.</span></span></div>
</div>
</div>
</div>
</div>
Eric Cotahttp://www.blogger.com/profile/01550847614110321622noreply@blogger.com0tag:blogger.com,1999:blog-8639258474795739446.post-30067819662769380602012-11-30T13:48:00.000-08:002012-11-30T13:52:26.335-08:00Campbell Soup Co: $CPB Cash Flow Valuation Update<br />
<span style="background-color: white; color: #333333; font-family: inherit; line-height: 14px;">Current Price: ~ $37/share</span><br />
<span style="font-family: inherit;"><span style="background-color: white; color: #333333;"><span class="Apple-style-span" style="line-height: 14px;">Yield: ~ 3.17%</span><br /><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span></span></span><span style="background-color: #fdfdfd; line-height: 22px;">With a heritage that dates back about 140 years, Campbell Soup is now a leading global manufacturer and marketer of branded convenience food products, most notably soup. However, the firm's product assortment spans beyond soup, as its portfolio of well-known brands includes Campbell's, Pace, Prego, Swanson, V8, and Pepperidge Farm. International operations account for around 30% of Campbell's consolidated sales.</span><span style="background-color: white; color: #333333; line-height: 17px;"> <span style="line-height: 22px;"><br /></span></span><br />
<div style="background-color: white; border-width: 0px; color: #333333; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="margin: 0px;">
<span style="font-family: inherit;"><br />Estimated WACC for the firm today is 4.25% using the Capital Asset Pricing Model and the company's recent SEC filings.</span></div>
<div style="margin: 0px;">
<span style="font-family: inherit;"><br /></span></div>
</div>
<div style="background-color: white; border-width: 0px; color: #333333; line-height: 17px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="margin: 0px;">
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div>
<span style="border-width: 0px; font-family: inherit; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Recent free cash flows and noted growth rates:</span><br />
<span style="border-width: 0px; font-family: inherit; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></span><br />
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.65pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; width: 200px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72"><div class="MsoNormal">
<span style="font-family: inherit;">Year<o:p></o:p></span></div>
</td>
<td style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 96.0pt;" valign="bottom" width="128"><div class="MsoNormal">
<span style="font-family: inherit;">FCF
$Millions<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">2003<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 96.0pt;" valign="bottom" width="128" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">590<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">2004<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 96.0pt;" valign="bottom" width="128" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">456<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">2005<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 96.0pt;" valign="bottom" width="128" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">658<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">2006<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 96.0pt;" valign="bottom" width="128" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">917<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">2007<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 96.0pt;" valign="bottom" width="128" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">340<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">2008<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 96.0pt;" valign="bottom" width="128" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">468<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">2009<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 96.0pt;" valign="bottom" width="128" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">821<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 8;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">2010<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 96.0pt;" valign="bottom" width="128" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">742<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 9;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">2011<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 96.0pt;" valign="bottom" width="128" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">870<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 10; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">2012<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 96.0pt;" valign="bottom" width="128" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">797<o:p></o:p></span></div>
</td>
</tr>
</tbody></table>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiqaq8h9N7wEWd9KLVk8tsfw5eXMIqPA_Vwjd6pfRNCBudUg2-cOIARFCjx45KJKeLEBQFzRW5Ji8ns_3Vodo_Zph4fVsqK082D9osfUSANRlNg4jgwZyMbtFExaTbfJP4teAL3QsdEkKVS/s1600/CPB.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="434" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiqaq8h9N7wEWd9KLVk8tsfw5eXMIqPA_Vwjd6pfRNCBudUg2-cOIARFCjx45KJKeLEBQFzRW5Ji8ns_3Vodo_Zph4fVsqK082D9osfUSANRlNg4jgwZyMbtFExaTbfJP4teAL3QsdEkKVS/s640/CPB.jpg" width="640" /></a></div>
<br />
<span style="font-family: inherit;"><br /></span></div>
<div>
<span style="font-family: inherit;">Average Annual Growth FCF: ~ 12%</span></div>
<div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: inherit; line-height: 14px;">CAGR FCF: ~ 3%</span></div>
<span style="font-family: inherit;">Consensus Forecast Industry 5-Year Growth: ~ 14% per year</span></div>
</div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Consensus Forecast Company 5-Year Growth: ~ 5% per year</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Internal Growth Rate: ~ 6%</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;"><br /></span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit; font-style: inherit;"><b>Scenario 1</b></span><br />
<span style="font-family: inherit; font-style: inherit;">Average the high and low FCF of the past 5 years; Average FCF (2011, 2008) is $669 million</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Start at $669 million FCF</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Assume a 5-year growth rate in FCF of 3% per year, then no growth or 0% growth in FCF per year forever:</span></li>
</ul>
</div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;"><br /></span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Discounted Cash Flow Valuation</span><br />
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.9pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; width: 265px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133"><div class="MsoNormal">
<span style="font-family: inherit;">Year<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132"><div class="MsoNormal">
<span style="font-family: inherit;">FCF
$Millions<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">0<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">669<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">1<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="689.07"><div class="MsoNormal">
<span style="font-family: inherit;">689<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">2<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="709.74210000000005"><div class="MsoNormal">
<span style="font-family: inherit;">710<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">3<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="731.0343630000001"><div class="MsoNormal">
<span style="font-family: inherit;">731<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">4<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="752.96539389000009"><div class="MsoNormal">
<span style="font-family: inherit;">753<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">5<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="775.55435570670011"><div class="MsoNormal">
<span style="font-family: inherit;">776<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133"><div class="MsoNormal">
<span style="font-family: inherit;">Terminal
Value<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="18798.723985834746"><div class="MsoNormal">
<span style="font-family: inherit;">18799<o:p></o:p></span></div>
</td>
</tr>
</tbody></table>
<br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><span style="font-style: inherit;">The firm's future free cash flows, discounted at a WACC of 4.25%, give a present value for the entire firm (Debt + Equity) of $18494 million. If the firm's fair value of debt is estimated at $2663 million, then the fair value of the firm's equity could be $15831</span><span style="font-style: inherit;"> million. $15831 million / 314 million outstanding shares is approximately $50 per share and a 20% margin of safety is $40/share.</span></span></div>
<div style="border-width: 0px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<b><span style="font-family: inherit;"><br /></span></b></div>
<div style="font-style: inherit; line-height: 20px;">
<b><span style="font-family: inherit;">Scenario 2</span></b><br />
<span style="font-family: inherit;">Average FCF (2012, 2011, 2010) is $803 million</span></div>
<div style="font-style: inherit; line-height: 20px;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Start at $803 million FCF</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Assume a higher WACC of 6.25%</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Assume a 5-year growth rate in FCF of 5% per year, then 0% growth in FCF per year forever:</span></li>
</ul>
</div>
<div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;">Discounted Cash Flow Valuation</span><br />
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.9pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; width: 265px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133"><div class="MsoNormal">
<span style="font-family: inherit;">Year<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132"><div class="MsoNormal">
<span style="font-family: inherit;">FCF
$Millions<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">0<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">803<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">1<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="843.15"><div class="MsoNormal">
<span style="font-family: inherit;">843<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">2<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="885.3075"><div class="MsoNormal">
<span style="font-family: inherit;">885<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">3<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="929.57287500000018"><div class="MsoNormal">
<span style="font-family: inherit;">930<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">4<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="976.05151875000024"><div class="MsoNormal">
<span style="font-family: inherit;">976<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num=""><div class="MsoNormal">
<span style="font-family: inherit;">5<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="1024.8540946875003"><div class="MsoNormal">
<span style="font-family: inherit;">1025<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133"><div class="MsoNormal">
<span style="font-family: inherit;">Terminal
Value<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.0pt;" valign="bottom" width="132" x:num="17217.548790750006"><div class="MsoNormal">
<span style="font-family: inherit;">17218<o:p></o:p></span></div>
</td>
</tr>
</tbody></table>
<br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">All else being equal,</span></div>
<div>
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">Present Value of the entire firm (Debt + Equity): $16591 million</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">Value of Equity: $13928 million or $44/share</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">20% margin of safety is $35/share</span></li>
</ul>
<span style="font-family: inherit;"><br /></span>
<br />
<div>
<span style="font-family: inherit; font-style: inherit; line-height: 20px;">Sources</span></div>
</div>
</div>
<div style="font-style: inherit; line-height: 20px;">
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: inherit;"><a href="http://morningstar.com/" style="color: #992211; text-decoration: initial;"><b>Morningstar.com</b></a></span></div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: inherit;"><a href="http://finance.yahoo.com/" style="color: #992211; text-decoration: initial;"><b>Yahoo! Finance</b></a></span></div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<b><a href="http://goo.gl/C1yja" style="color: #771100; text-decoration: initial;"><span style="font-family: inherit;">Campbellsoupcompany.com</span></a></b><br />
<div>
<span style="font-family: inherit;"><br /></span></div>
</div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: inherit; line-height: 14px;"><span class="Apple-style-span" style="line-height: 20px;"><strong style="border-width: 0px; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Disclosure: </strong></span><span class="Apple-style-span" style="line-height: 20px;">I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.</span></span></div>
</div>
</div>
</div>
</div>
Eric Cotahttp://www.blogger.com/profile/01550847614110321622noreply@blogger.com0tag:blogger.com,1999:blog-8639258474795739446.post-65762235437370065162012-11-06T10:07:00.001-08:002012-11-06T10:07:49.316-08:00Boris Spassky Immortal GameGrandmaster Bent Larsen vs World Champion Boris Spassky 1970 USSR vs Rest of the World (<b><a href="http://goo.gl/j6zfW">Kingscrusher</a></b>)<br />
<br />
<br />
<iframe width="640" height="480" src="http://www.youtube.com/embed/Sp-Ew0Fcun0" frameborder="0" allowfullscreen></iframe>Eric Cotahttp://www.blogger.com/profile/01550847614110321622noreply@blogger.com0tag:blogger.com,1999:blog-8639258474795739446.post-29766343299596148062012-10-25T13:57:00.000-07:002012-10-25T13:57:44.674-07:00Awesome Kings Indian DefenseGrandmaster Alexander Beliavsky vs Grandmaster Dr. John Nunn 1985 Wijk aan Zee (<b><a href="http://goo.gl/XOmw9">Kingscrusher</a></b>)<br />
<br />
<br />
<iframe width="640" height="480" src="http://www.youtube.com/embed/0NvSfumCNxo" frameborder="0" allowfullscreen></iframe>Eric Cotahttp://www.blogger.com/profile/01550847614110321622noreply@blogger.com0tag:blogger.com,1999:blog-8639258474795739446.post-23761210406365607182012-10-12T13:45:00.002-07:002012-10-12T13:45:56.776-07:00Sysco Corporation: $SYY Cash Flow Valuation<br />
<span style="background-color: white; color: #333333; font-family: inherit; line-height: 14px;">Current Price: ~ $31/share</span><br />
<span style="font-family: inherit;"><span style="background-color: white; color: #333333;"><span class="Apple-style-span" style="line-height: 14px;">Yield: ~ 3.46%</span><br /><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span><span style="line-height: 17px;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span></span></span><span style="background-color: #fdfdfd; line-height: 22px;">Sysco operates as the largest North American foodservice distributor, controlling 17.5% of the market. The firm distributes more than 400,000 food and nonfood products to 400,000 customers, including restaurants, health care and educational facilities, and lodging establishments. From its founding in 1969 through the end of fiscal 2011, Sysco acquired more than 150 companies or divisions of companies to expand its footprint. Nearly 100% of the firm's sales are derived in North America.</span> <span style="background-color: white; color: #333333; line-height: 17px;"> <span style="line-height: 22px;"><br /></span></span><br />
<div style="background-color: white; border-width: 0px; color: #333333; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="margin: 0px;">
<span style="font-family: inherit;"><br />Estimated WACC for the firm today is 7.45% using the Capital Asset Pricing Model and the company's recent SEC filings.</span></div>
<div style="margin: 0px;">
<span style="font-family: inherit;"><br /></span></div>
</div>
<div style="background-color: white; border-width: 0px; color: #333333; line-height: 17px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="margin: 0px;">
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div>
<span style="border-width: 0px; font-family: inherit; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Recent free cash flows and noted growth rates:</span><br />
<span style="border-width: 0px; font-family: inherit; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.9pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; width: 193px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal">
Year<o:p></o:p></div>
</td>
<td style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 90.5pt;" valign="bottom" width="121">
<div class="MsoNormal">
FCF
$Millions<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2003<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 90.5pt;" valign="bottom" width="121" x:num="">
<div class="MsoNormal">
937<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2004<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 90.5pt;" valign="bottom" width="121" x:num="">
<div class="MsoNormal">
659<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2005<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 90.5pt;" valign="bottom" width="121" x:num="">
<div class="MsoNormal">
802<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2006<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 90.5pt;" valign="bottom" width="121" x:num="">
<div class="MsoNormal">
609<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2007<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 90.5pt;" valign="bottom" width="121" x:num="">
<div class="MsoNormal">
800<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2008<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 90.5pt;" valign="bottom" width="121" x:num="">
<div class="MsoNormal">
1080<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2009<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 90.5pt;" valign="bottom" width="121" x:num="">
<div class="MsoNormal">
1118<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 8;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2010<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 90.5pt;" valign="bottom" width="121" x:num="">
<div class="MsoNormal">
291<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 9;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2011<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 90.5pt;" valign="bottom" width="121" x:num="">
<div class="MsoNormal">
455<o:p></o:p></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 10; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
2012<o:p></o:p></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 90.5pt;" valign="bottom" width="121" x:num="">
<div class="MsoNormal">
620<o:p></o:p></div>
</td>
</tr>
</tbody></table>
</span><br />
<span style="font-family: inherit;"><br /></span>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi6jMogbCgOuPNq53Ni4niCDBsoaPIkgTlY0y6AxibqSxEmSResSrW-8-hz_fbs3-22URW4lVCcPNw4HrDX72OtDH6hLeBQFjrSUL7vNQn76v_Eoq7T41EiUl8iHooc-mWQlqeYh6PZWYFc/s1600/SYY.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="432" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi6jMogbCgOuPNq53Ni4niCDBsoaPIkgTlY0y6AxibqSxEmSResSrW-8-hz_fbs3-22URW4lVCcPNw4HrDX72OtDH6hLeBQFjrSUL7vNQn76v_Eoq7T41EiUl8iHooc-mWQlqeYh6PZWYFc/s640/SYY.jpg" width="640" /></a></div>
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><br /></span></div>
<div>
<span style="font-family: inherit;">Average Annual Growth FCF: ~ 6%</span></div>
<div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: inherit; line-height: 14px;">CAGR FCF: ~ -4%</span></div>
<span style="font-family: inherit;">Consensus Forecast Industry 5-Year Growth: ~ 16% per year</span></div>
</div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Consensus Forecast Company 5-Year G620rowth: ~ 7% per year</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Internal Growth Rate: ~ 4%</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Sustainable Growth Rate: ~ 12%</span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;"><br /></span></div>
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<span style="font-family: inherit; font-style: inherit;"><b>Scenario 1</b></span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Start at $620 million FCF</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Assume a 5-year growth rate in FCF of 7% per year, then 4% growth in FCF per year forever:</span></li>
</ul>
</div>
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<span style="font-family: inherit;"><br /></span></div>
<div style="border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Discounted Cash Flow Valuation</span><br />
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<div class="MsoNormal">
<span style="font-family: inherit;">Year<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120">
<div class="MsoNormal">
<span style="font-family: inherit;">FCF
$Millions<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">0<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">620<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">1<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="663.4">
<div class="MsoNormal">
<span style="font-family: inherit;">663<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="709.83800000000019">
<div class="MsoNormal">
<span style="font-family: inherit;">710<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">3<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="759.52666000000022">
<div class="MsoNormal">
<span style="font-family: inherit;">760<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">4<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="812.69352620000029">
<div class="MsoNormal">
<span style="font-family: inherit;">813<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">5<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="869.58207303400036">
<div class="MsoNormal">
<span style="font-family: inherit;">870<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133">
<div class="MsoNormal">
<span style="font-family: inherit;">Terminal
Value<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="26960.400040144683">
<div class="MsoNormal">
<span style="font-family: inherit;">26960<o:p></o:p></span></div>
</td>
</tr>
</tbody></table>
<br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><span style="font-style: inherit;">The firm's future free cash flows, discounted at a WACC of 7.45%, give a present value for the entire firm (Debt + Equity) of $21883 million. If the firm's fair value of debt is estimated at $3539 million, then the fair value of the firm's equity could be $18344</span><span style="font-style: inherit;"> million. $18344 million / 587 million outstanding shares is approximately $31 per share and a 20% margin of safety is $25/share.</span></span></div>
<div style="border-width: 0px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<b><span style="font-family: inherit;"><br /></span></b></div>
<div style="font-style: inherit; line-height: 20px;">
<b><span style="font-family: inherit;">Scenario 2</span></b><br />
<span style="font-family: inherit;">Average FCF (2012, 2009) is $869 million</span></div>
<div style="font-style: inherit; line-height: 20px;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Start at $869 million FCF</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; font-style: inherit;">Assume a 5-year growth rate in FCF of 7% per year, then 2% growth in FCF per year forever:</span></li>
</ul>
</div>
<div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;">Discounted Cash Flow Valuation</span><br />
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.9pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; width: 253px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133">
<div class="MsoNormal">
<span style="font-family: inherit;">Year<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120">
<div class="MsoNormal">
<span style="font-family: inherit;">FCF
$Millions<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">0<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">869<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">1<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="929.83">
<div class="MsoNormal">
<span style="font-family: inherit;">930<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="994.91810000000009">
<div class="MsoNormal">
<span style="font-family: inherit;">995<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">3<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="1064.5623670000002">
<div class="MsoNormal">
<span style="font-family: inherit;">1065<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">4<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="1139.0817326900003">
<div class="MsoNormal">
<span style="font-family: inherit;">1139<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">5<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="1218.8174539783004">
<div class="MsoNormal">
<span style="font-family: inherit;">1219<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133">
<div class="MsoNormal">
<span style="font-family: inherit;">Terminal
Value<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="23923.882375638652">
<div class="MsoNormal">
<span style="font-family: inherit;">23924<o:p></o:p></span></div>
</td>
</tr>
</tbody></table>
<br />
<span style="font-family: inherit;"><br /></span></div>
<div>
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">Present Value of the entire firm (Debt + Equity): $20993 million</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">Value of Equity: $17457 million or $30/share</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">20% margin of safety is $24/share</span></li>
</ul>
<span style="font-family: inherit;"><br /></span>
<div>
<span style="font-family: inherit;"><br class="Apple-interchange-newline" /></span></div>
</div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit; font-style: inherit;">Sources</span></div>
</div>
<div style="font-style: inherit; line-height: 20px;">
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: inherit;"><a href="http://morningstar.com/" style="color: #992211; text-decoration: none;"><b>Morningstar.com</b></a></span></div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: inherit;"><a href="http://finance.yahoo.com/" style="color: #992211; text-decoration: none;"><b>Yahoo! Finance</b></a></span></div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<b><a href="http://goo.gl/qwCYt" style="color: #771100; text-decoration: none;"><span style="font-family: inherit;">Sysco.com</span></a></b><br />
<div>
<span style="font-family: inherit;"><br /></span></div>
</div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: inherit; line-height: 14px;"><span class="Apple-style-span" style="line-height: 20px;"><strong style="border-width: 0px; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Disclosure: </strong></span><span class="Apple-style-span" style="line-height: 20px;">I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.</span></span></div>
</div>
</div>
</div>
</div>
Eric Cotahttp://www.blogger.com/profile/01550847614110321622noreply@blogger.com0tag:blogger.com,1999:blog-8639258474795739446.post-28951934644812305062012-09-14T17:14:00.000-07:002012-09-14T17:14:12.490-07:00Clorox Company: $CLX Cash Flow Valuation Update<br />
<span style="background-color: white; color: #333333; font-family: inherit; line-height: 14px;">Current Price: ~ $71/share</span><br />
<span style="font-family: inherit;"><span style="background-color: white; color: #333333;"><span style="background-color: white;"><span style="background-color: white;"><span style="background-color: white;"><span style="background-color: white;"><span style="background-color: white;"><span style="background-color: white;"><span style="background-color: white;"><span style="background-color: white;"><span class="Apple-style-span" style="line-height: 14px;">Yield: ~ 3.46%</span></span></span></span><br style="background-color: white;" /><span style="background-color: white; line-height: 17px;"><span style="background-color: white;"><span style="background-color: white;"><span class="Apple-style-span" style="line-height: 14px;"><br /></span></span></span></span><br style="background-color: white;" /><span style="background-color: white; line-height: 17px;"><span style="background-color: white;"><span style="background-color: white;"><span class="Apple-style-span" style="line-height: 14px;"></span></span></span></span></span></span></span></span></span></span></span><span style="background-color: #fdfdfd; line-height: 22px;">For nearly 100 years, Clorox has operated in the household product industry, expanding its portfolio to include such leading brands as Clorox, Glad, Hidden Valley, and Kingsford. The firm distributes its products through mass merchants, grocery stores, and other retail outlets. With its acquisition of Burt's Bees in 2007, Clorox gained entry into the fast-growing natural personal-care category. International sales amount to 20% of the firm's consolidated total.</span>
<br />
<div style="background-color: white; border-width: 0px; color: #333333; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="margin: 0px;">
<span style="font-family: inherit;"><br />Estimated WACC for the firm today is 5.08% using the Capital Asset Pricing Model and the company's recent SEC filings.</span></div>
<div style="margin: 0px;">
<span style="font-family: inherit;"><br /></span></div>
</div>
<div style="background-color: white; border-width: 0px; color: #333333; line-height: 17px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="margin: 0px;">
<div style="background-color: white; border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div>
<span style="border-width: 0px; font-family: inherit; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Recent free cash flows and noted growth rates:</span><br />
<span style="border-width: 0px; font-family: inherit; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></span><table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.9pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; width: 217px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72">
<div class="MsoNormal">
<span style="font-family: inherit;">Year<o:p></o:p></span></div>
</td>
<td style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 108.5pt;" valign="bottom" width="145">
<div class="MsoNormal">
<span style="font-family: inherit;">FCF
$Millions<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2003<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 108.5pt;" valign="bottom" width="145" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">598<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2004<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 108.5pt;" valign="bottom" width="145" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">727<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2005<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 108.5pt;" valign="bottom" width="145" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">614<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2006<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 108.5pt;" valign="bottom" width="145" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">342<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2007<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 108.5pt;" valign="bottom" width="145" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">562<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2008<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 108.5pt;" valign="bottom" width="145" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">560<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2009<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 108.5pt;" valign="bottom" width="145" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">541<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 8;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2010<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 108.5pt;" valign="bottom" width="145" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">616<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 9;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2011<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 108.5pt;" valign="bottom" width="145" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">470<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 10; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: .75in;" valign="bottom" width="72" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2012<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 108.5pt;" valign="bottom" width="145" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">420<o:p></o:p></span></div>
</td>
</tr>
</tbody></table>
<br />
<span style="font-family: inherit;"><br /></span>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhCSUGhXFX-QlihlreIQY8z3OO2kiyfzSu5yRbv5BW536JEfI0MhIu5JzTx49TfispoqqmRo4G5n0y5qQtXhyyofw5dhwFPUusAer9sH833chfJOyjDHSRfY_m-4aKaAaUtp0jDFbOISijf/s1600/CLX.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="432" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhCSUGhXFX-QlihlreIQY8z3OO2kiyfzSu5yRbv5BW536JEfI0MhIu5JzTx49TfispoqqmRo4G5n0y5qQtXhyyofw5dhwFPUusAer9sH833chfJOyjDHSRfY_m-4aKaAaUtp0jDFbOISijf/s640/CLX.jpg" width="640" /></a></div>
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><br /></span></div>
<div>
<span style="font-family: inherit;">Average Annual Growth FCF: ~ 0%</span></div>
<div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: inherit; line-height: 14px;">CAGR FCF: ~ -4%</span></div>
<span style="font-family: inherit;">Consensus Forecast Industry 5-Year Growth: ~ 14% per year</span></div>
</div>
<div style="background-color: white; border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Consensus Forecast Company 5-Year Growth: ~ 8% per year</span></div>
<div style="background-color: white; border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Internal Growth Rate: ~ 5.5%</span></div>
<div style="background-color: white; border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;"><br /></span></div>
<div style="background-color: white; border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;"><br /></span></div>
<div style="background-color: white; border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background-color: white; font-family: inherit; font-style: inherit;"><b>Scenario 1</b></span></div>
<div style="background-color: white; border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="background-color: white; font-family: inherit; font-style: inherit;">Start at $420 million FCF</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="background-color: white; font-family: inherit; font-style: inherit;">Assume a 5-year growth rate in FCF of 8% per year, then no growth or 0% growth in FCF per year forever:</span></li>
</ul>
</div>
<div style="background-color: white; border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;"><br /></span></div>
<div style="background-color: white; border-width: 0px; font-style: inherit; line-height: 20px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">Discounted Cash Flow Valuation</span><br />
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.9pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; width: 253px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133">
<div class="MsoNormal">
<span style="font-family: inherit;">Year<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-left: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120">
<div class="MsoNormal">
<span style="font-family: inherit;">FCF
$Millions<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">0<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">420<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">1<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="453.6">
<div class="MsoNormal">
<span style="font-family: inherit;">454<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="489.88800000000003">
<div class="MsoNormal">
<span style="font-family: inherit;">490<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">3<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="529.07904000000008">
<div class="MsoNormal">
<span style="font-family: inherit;">529<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">4<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="571.40536320000012">
<div class="MsoNormal">
<span style="font-family: inherit;">571<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">5<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="617.11779225600014">
<div class="MsoNormal">
<span style="font-family: inherit;">617<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133">
<div class="MsoNormal">
<span style="font-family: inherit;">Terminal
Value<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="13121.249449077877">
<div class="MsoNormal">
<span style="font-family: inherit;">13121<o:p></o:p></span></div>
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<br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;"><span style="background-color: white; font-style: inherit;">The firm's future free cash flows, discounted at a WACC of 5.08%, give a present value for the entire firm (Debt + Equity) of $12524 million. If the firm's fair value of debt is estimated at $2606 million, then the fair value of the firm's equity could be $9918</span><span style="background-color: white; font-style: inherit;"> million. $9918 million / 130 million outstanding shares is approximately $76 per share and a 20% margin of safety is $61/share.</span></span></div>
<div style="border-width: 0px; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="background-color: white; font-style: inherit; line-height: 20px;">
<b><span style="font-family: inherit;"><br /></span></b></div>
<div style="background-color: white; font-style: inherit; line-height: 20px;">
<b><span style="font-family: inherit;">Scenario 2</span></b><br />
<span style="font-family: inherit;">All else being equal,</span></div>
<div style="background-color: white; font-style: inherit; line-height: 20px;">
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="background-color: white; font-family: inherit; font-style: inherit;">Assume a 5-year growth rate in FCF of 4% per year, then 0% growth in FCF per year forever:</span></li>
</ul>
</div>
<div style="background-color: white;">
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;"><br /></span></div>
<div style="font-style: inherit; line-height: 20px;">
<span style="font-family: inherit;">Discounted Cash Flow Valuation</span><br />
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.9pt; mso-padding-alt: 0in 5.4pt 0in 5.4pt; width: 253px;">
<tbody>
<tr style="height: 13.5pt; mso-yfti-irow: 0;">
<td nowrap="" style="border: solid windowtext 1.0pt; height: 13.5pt; mso-border-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133">
<div class="MsoNormal">
<span style="font-family: inherit;">Year<o:p></o:p></span></div>
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<div class="MsoNormal">
<span style="font-family: inherit;">FCF
$Millions<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 1;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">0<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">420<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 2;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">1<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="436.8">
<div class="MsoNormal">
<span style="font-family: inherit;">437<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 3;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">2<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="454.27200000000005">
<div class="MsoNormal">
<span style="font-family: inherit;">454<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 4;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">3<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="472.44288000000006">
<div class="MsoNormal">
<span style="font-family: inherit;">472<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 5;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">4<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="491.34059520000005">
<div class="MsoNormal">
<span style="font-family: inherit;">491<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 6;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133" x:num="">
<div class="MsoNormal">
<span style="font-family: inherit;">5<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="510.99421900800007">
<div class="MsoNormal">
<span style="font-family: inherit;">511<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 13.5pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td nowrap="" style="border-top: none; border: solid windowtext 1.0pt; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 99.5pt;" valign="bottom" width="133">
<div class="MsoNormal">
<span style="font-family: inherit;">Terminal
Value<o:p></o:p></span></div>
</td>
<td nowrap="" style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 13.5pt; mso-border-bottom-alt: solid windowtext .5pt; mso-border-right-alt: solid windowtext .5pt; padding: 0in 5.4pt 0in 5.4pt; width: 1.25in;" valign="bottom" width="120" x:num="10462.433120442074">
<div class="MsoNormal">
<span style="font-family: inherit;">10462<o:p></o:p></span></div>
</td>
</tr>
</tbody></table>
<br />
<span style="font-family: inherit;"><br /></span></div>
<div>
<ul style="line-height: 1.4; list-style-image: initial; list-style-position: initial; margin: 0.5em 0px; padding: 0px 2.5em;">
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">Present Value of the entire firm (Debt + Equity): $10203 million</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">Value of Equity: $7597 million or $58/share</span></li>
<li style="border-style: none; margin: 0px 0px 0.25em; padding: 0px;"><span style="font-family: inherit; line-height: 20px;">20% margin of safety is $46/share</span></li>
</ul>
<span style="font-family: inherit;"><br /></span>
<div style="background-color: white;">
<span style="font-family: inherit;"><br class="Apple-interchange-newline" /></span></div>
</div>
<div style="font-style: inherit; line-height: 20px;">
<span style="background-color: white; font-family: inherit; font-style: inherit;">Sources</span></div>
</div>
<div style="background-color: white; font-style: inherit; line-height: 20px;">
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: inherit;"><a href="http://morningstar.com/" style="color: #992211; text-decoration: none;"><b>Morningstar.com</b></a></span></div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="color: #992211; font-family: inherit;"><a href="http://finance.yahoo.com/" style="color: #992211; text-decoration: none;"><b>Yahoo! Finance</b></a></span></div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<b><a href="http://goo.gl/9VtH9" style="color: #771100; text-decoration: none;"><span style="font-family: inherit;">The Clorox Company</span></a></b><br />
<div>
<span style="font-family: inherit;"><br /></span></div>
</div>
<div style="border-width: 0px; font-style: inherit; margin: 7px 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span class="Apple-style-span" style="font-family: inherit; line-height: 14px;"><span class="Apple-style-span" style="line-height: 20px;"><strong style="border-width: 0px; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Disclosure: </strong></span><span class="Apple-style-span" style="line-height: 20px;">I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.</span></span></div>
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</div>
</div>
</div>
Eric Cotahttp://www.blogger.com/profile/01550847614110321622noreply@blogger.com0