Raytheon Company: $RTN Cash Flow Valuation Update

Current Price: ~ $87/share
Yield: ~ 2.46%


Raytheon Company provides technology-driven solutions that provide integrated mission systems for the critical defense and non-defense needs of its customers.

      
    

Estimated WACC for the firm today is 8.49% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Year	FCF $Millions
2003	1141
2004	1605
2005	2102
2006	2371
2007	800
2008	1637
2009	2378
2010	1556
2011	1670
2012	1542

YTD Free Cash Flow for nine months ending 9/30/2013 is $1112million; $1483 million annualized

Average Annual Growth FCF: ~ 14.8%

CAGR FCF: ~ 3.4%

Consensus Forecast Industry 5-Year Growth: ~ 12% per year

Consensus Forecast Company 5-Year Growth: ~ 9.6% per year

Internal Growth Rate: ~ 4.8%

Sustainable Growth Rate: ~ 17.4%

Scenario 1
Average FCF (YTD, 2012, 2011, 2010) is $1563 million

• Start at $1563 million FCF
• Assume a 5-year growth rate in FCF of 9.6% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	1563
1	1713
2	1878
3	2058
4	2255
5	2472
Terminal Value	31911

The firm's future free cash flows, discounted at a WACC of 8.49%, give a present value for the entire firm (Debt + Equity) of $29291 million. If the firm's fair value of debt is estimated at $5046 million, then the fair value of the firm's equity could be $24245 million.  $24245 million / 319 million outstanding shares is approximately $76 per share and a 20% margin of safety is $61/share.

Scenario 2
All else being equal,

• Assume a 5-year growth rate in FCF of 12% per year, then 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	1563
1	1751
2	1961
3	2196
4	2459
5	2755
Terminal Value	36340

• Present Value of the entire firm (Debt + Equity): $32787 million
• Value of Equity: $27741 million or $87/share
• 20% margin of safety is $70/share

Sources

Morningstar.com

Yahoo! Finance

Raytheon.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Raytheon Company: $RTN Cash Flow Valuation Update

Current Price: ~ $55/share
Projected Yield: ~ 3.63%


Raytheon is a major United States defense contractor with nearly $25 billion in annual sales that operates through six segments: integrated defense systems, intelligence and information, missile systems, network-centric systems, space and airborne systems, and technical services. Sales to the U.S. government account for more than 88% of the company's total sales. Waltham, Mass., based Raytheon employs 72,000 people.

Estimated WACC for the firm today is 7.54% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Year	FCF $Millions
2002	443
2003	1141
2004	1605
2005	2102
2006	2371
2007	800
2008	1637
2009	2378
2010	1556
2011	1670

Average Annual Growth FCF: ~ 33%

CAGR FCF: ~ 16%

Consensus Forecast Industry 5-Year Growth: ~ 12% per year

Consensus Forecast Company 5-Year Growth: ~ 9% per year

Internal Growth Rate: ~ 5%

Sustainable Growth Rate: ~ 16%

Scenario 1

• Start at $1670 million FCF
• Assume a 5-year growth rate in FCF of 9% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	1670
1	1820
2	1984
3	2163
4	2357
5	2570
Terminal Value	37156

The firm's future cash flows, discounted at a WACC of 7.54%, give a present value for the entire firm (Debt + Equity) of $34532 million. If the firm's fair value of debt is estimated at $5136 million, then the fair value of the firm's equity could be $29396 million.  $29396 million / 333 million outstanding shares is approximately $88 per share and a 20% margin of safety is $70/share.

Scenario 2
All else being equal,

• Assume a 5-year growth rate in FCF of 5% per year, then 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	1670
1	1754
2	1841
3	1933
4	2030
5	2131
Terminal Value	29689

• Present Value of the entire firm (Debt + Equity): $28421 million
• Value of Equity: $23285 million or $70/share
• 20% margin of safety is $56/share

Sources

Morningstar.com

Yahoo! Finance

Raytheon.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Raytheon Company: $RTN Increases Dividend by 15 Percent, its Seventh Consecutive Annual Increase

WALTHAM, Mass., March 23, 2011 /PRNewswire via COMTEX/ --

Raytheon Company's (NYSE: RTN) Board of Directors has voted to increase the Company's annual dividend payout rate by 15 percent from $1.50 to $1.72 per share. The Board also authorized payment of a quarterly cash dividend of $0.43 per outstanding share of common stock to be paid onApril 28, 2011 to shareholders of record as of the close of business on April 6, 2011. Payment of quarterly dividends is subject to Board authorization.

Source

Raytheon.com

Raytheon Company: $RTN valuation update

Current Price: ~ $53/share


Raytheon Company ($RTN) filed a 10K annual report for 2010 recently so here's an update to the cash flow valuation posted January 19.  This update incorporates the firm's year-end 2010 data.  I believe $RTN is fairly valued at $56/share on a cash flow valuation basis.    


Raytheon is a major United States defense contractor with nearly $25 billion in annual sales that operates through six segments: integrated defense systems, intelligence and information, missile systems, network-centric systems, space and airborne systems, and technical services. Sales to the U.S. government account for more than 88% of the company's total sales. Waltham, Mass., based Raytheon employs 75,000 people.

I estimated the firm's WACC today at 9.46% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Year	FCF $Millions
2000	529
2001	-353
2002	581
2003	1043
2004	1708
2005	2177
2006	2371
2007	800
2008	1711
2009	2445
2010	1556

Average Annual Growth FCF ex-2001: approx 27%

CAGR FCF: approx. 11%

Consensus Forecast Industry 5-Year Growth: approx. 13% per year

Consensus Forecast Company 5-Year Growth: approx. 8% per year

Assuming the company achieves a 5-year growth rate in FCF of 8% per year, and assuming that after the next five years, the company achieves no growth in FCF or 0% growth per year forever:

Discounted Cash Flow Valuation

Year	FCF $ Millions
0	1556
1	1680
2	1815
3	1960
4	2117
5	2286
Terminal Value	26110

The firm's future cash flows, discounted at a WACC of 9.46%, give a present value for the entire firm (Debt + Equity) of $24,093 million. If the firm's fair value of debt is estimated at $3783 million, then the fair value of the firm's equity could be $20,310 million.  $20,310 million / 360 million outstanding shares is approximately $56 per share and a 20% margin of safety is $45/share.

Sources

Morningstar.com

Raytheon.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Raytheon - Good value on a cash flow valuation basis

I believe $RTN, at approximately $51/share, is a good value with a margin of safety.

Raytheon is a major United States defense contractor with nearly $25 billion in annual sales that operates through six segments: integrated defense systems, intelligence and information, missile systems, network-centric systems, space and airborne systems, and technical services. Sales to the U.S. government account for more than 88% of the company's total sales. Waltham, Mass., based Raytheon employs 75,000 people.
(Source: Morningstar.com)

I estimated the firm's WACC at 9.11% using the Capital Asset Pricing Model and the company's recent SEC filings. 

Recent free cash flows and noted growth rates:

Year	FCF $Millions
2000	529
2001	-353
2002	581
2003	1043
2004	1708
2005	2177
2006	2371
2007	800
2008	1711
2009	2445
TTM	1824

CAGR: approx. 19%
Internal Growth Rate: approx. 7%
Sustainable Growth Rate: approx. 18%
Consensus Forecast Industry 5-Year Growth: approx. 13% per year
Consensus Forecast Company 5-Year Growth: approx. 8% per year

Assume a lower 5-year growth rate of 6% per year, and assume that after the next five years, the company achieves no growth or 0% growth per year forever.

Discounted Cash Flow Valuation:

Year	FCF $ Millions
0	1824
1	1933
2	2049
3	2172
4	2303
5	2441
Terminal Value	28397

The firm's future cash flows, discounted at a WACC of 9.11%, give a present value for the entire firm (Debt + Equity) of $26,731 million. If the firm's fair value of debt is estimated at $2,781 million, then the fair value of the firm's equity could be $23,950 million.

$23,950 million / 365 million outstanding shares = $65.62 per share. A 20% margin of safety from here is approx $52 per share and $RTN's current share price is approx $51.  I consider $RTN a good buy with a margin of safety for the long term on a cash flow valuation basis.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.