Honeywell International Inc: $HON cash flow valuation

Current Price: ~ $57/share
Projected Yield: ~ 2.35%

Honeywell International is a diversified manufacturer that operates four major business segments: aerospace (32% of sales); automation products for process controls, sensing instruments, and safety and security products (41%); specialty materials (14%); and transportation products (13%).

I estimated the firm's WACC today at 13.13% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and growth rates:

Year	FCF $Millions
2001	1120
2002	1709
2003	1544
2004	1624
2005	1758
2006	2478
2007	3144
2008	2907
2009	3337
2010	3552
TTM	2312

Average Annual Growth FCF: ~ 15%

CAGR FCF: ~ 14%

Consensus Forecast Industry 5-Year Growth: ~ 15% per year

Consensus Forecast Company 5-Year Growth: ~ 15% per year

Scenario 1

Average FCF over the past three years is $3265 million.  Starting at $3265 million FCF, assuming the company achieves a 5-year growth rate in FCF of 15% 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	3265
1	3755
2	4318
3	4966
4	5711
5	6567
Terminal Value	57513

The firm's future cash flows, discounted at a WACC of 13.13%, give a present value for the entire firm (Debt + Equity) of $48,187 million. If the firm's fair value of debt is estimated at $8132 million, then the fair value of the firm's equity could be $40,055 million.  $40,055 million / 787 million outstanding shares is approximately $51 per share and a 20% margin of safety is $41/share.

Scenario 2

Starting at $3265 million FCF, assuming the company achieves a 5-year growth rate in FCF of 15% per year, and then a growth rate in FCF of 2.00% per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	3265
1	3755
2	4318
3	4966
4	5711
5	6567
Terminal Value	67846

The firm's future cash flows, discounted at a WACC of 13.13%, give a present value for the entire firm (Debt + Equity) of $53,763 million. If the firm's fair value of debt is estimated at $8132 million, then the fair value of the firm's equity could be $45,631 million.  $45,631 million / 787 million outstanding shares is approximately $58 per share and a 20% margin of safety is $46/share.

Sources

Morningstar.com

Yahoo! Finance

Honeywell.com

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

PPG Industries Inc: $PPG cash flow valuation

Current Price: ~ $89/share
Projected Yield: ~ 2.57%

PPG Industries is a global producer of coatings, optical materials, chemicals, and glass. The company is the second-largest coatings producer worldwide, with 75% of sales generated by coatings. PPG's products are sold to a wide variety of end users, including the automotive, aerospace, construction, and industrial markets. Additionally, the company has a footprint in many regions around the globe with less than half of sales coming from North America.

I estimated the firm's WACC today at 12.18% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and growth rates:

Year	FCF $Millions
2001	769
2002	634
2003	906
2004	774
2005	777
2006	758
2007	643
2008	975
2009	1106
2010	1003
TTM	892

Average Annual Growth FCF: ~ 5%

CAGR FCF: ~ 3%

Consensus Forecast Industry 5-Year Growth: ~ 14% per year

Consensus Forecast Company 5-Year Growth: ~ 11% per year

Scenario 1

Average FCF over the past three years is $1028 million.  Starting at $1028 million FCF, assuming the company achieves a 5-year growth rate in FCF of 11% 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	1028
1	1141
2	1267
3	1406
4	1561
5	1732
Terminal Value	15787

The firm's future cash flows, discounted at a WACC of 12.18%, give a present value for the entire firm (Debt + Equity) of $13,866 million. If the firm's fair value of debt is estimated at $4358 million, then the fair value of the firm's equity could be $9508 million.  $9508 million / 158 million outstanding shares is approximately $60 per share and a 20% margin of safety is $48/share.

Scenario 2

Starting at $1028 million FCF, assuming the company achieves a 5-year growth rate in FCF of 11% per year, and then a growth rate in FCF of 4.25% per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	1028
1	1141
2	1267
3	1406
4	1561
5	1732
Terminal Value	24248

The firm's future cash flows, discounted at a WACC of 12.18%, give a present value for the entire firm (Debt + Equity) of $18,629 million. If the firm's fair value of debt is estimated at $4358 million, then the fair value of the firm's equity could be $14,271 million.  $14,271 million / 158 million outstanding shares is approximately $90 per share and a 20% margin of safety is $72/share.

Sources

Morningstar.com

Yahoo! Finance

PPG.com

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

VF Corporation: $VFC cash flow valuation

Current Price: ~ $115/share
Projected Yield: ~ 2.19%

VF manufactures and markets clothing, specializing in jeans, sportswear, outdoor apparel, and footwear. Its apparel brands include Lee, Wrangler, The North Face, Nautica, Seven For All Mankind, lucy, Majestic Athletic, and John Varvatos. Other brands include JanSport, Eastpak, and Eagle Creek backpacks and Vans and Reef footwear. In June 2011 the firm announced its intention to purchase Timberland. Pro-forma international sales account for more than 35% of revenue.

I estimated the firm's WACC today at 12.12% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and growth rates:

Year	FCF $Millions
2001	604
2002	581
2003	456
2004	646
2005	451
2006	355
2007	700
2008	544
2009	888
2010	890
TTM	656

Average Annual Growth FCF: ~ 11%

CAGR FCF: ~ 4%

Consensus Forecast Industry 5-Year Growth: ~ 15% per year

Consensus Forecast Company 5-Year Growth: ~ 10% per year

Scenario 1

Average FCF over the past three years is $774 million.  Starting at $774 million FCF, assuming the company achieves a 5-year growth rate in FCF of 10% 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	774
1	851
2	937
3	1030
4	1133
5	1247
Terminal Value	11314

The firm's future cash flows, discounted at a WACC of 12.12%, give a present value for the entire firm (Debt + Equity) of $10,042 million. If the firm's fair value of debt is estimated at $978 million, then the fair value of the firm's equity could be $9064 million.  $9064 million / 109 million outstanding shares is approximately $83 per share and a 20% margin of safety is $67/share.

Scenario 2

Starting at $774 million FCF, assuming the company achieves a 5-year growth rate in FCF of 10% per year, and then a growth rate in FCF of 4.25% per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	774
1	851
2	937
3	1030
4	1133
5	1247
Terminal Value	17425

The firm's future cash flows, discounted at a WACC of 12.12%, give a present value for the entire firm (Debt + Equity) of $13,491 million. If the firm's fair value of debt is estimated at $978 million, then the fair value of the firm's equity could be $12,513 million.  $12,513 million / 109 million outstanding shares is approximately $115 per share and a 20% margin of safety is $92/share.

Sources

Morningstar.com

Yahoo! Finance

VFC.com

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