Procter & Gamble: $PG cash flow valuation update

Current Price: ~ $63/share
Projected Yield: ~ 3.31%

Since its founding in 1837, Procter & Gamble has become the world's largest consumer product manufacturer, with a lineup of famous brands. The brands are sold through three global business units, and include Tide laundry detergent, Charmin toilet paper, Pantene shampoo, Cover Girl cosmetics, and Iams pet food. Since 2001, the company has doubled the sales it derives from developing markets, acquired and integrated Wella and Gillette, and sold its pharmaceutical and coffee businesses.

I estimated the firm's WACC today at 6.31% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and growth rates:

Year	FCF $Millions
2002	6063
2003	7218
2004	7338
2005	6541
2006	8708
2007	10490
2008	12768
2009	11681
2010	13005
2011	9925

Average Annual Growth FCF: ~ 7%

CAGR FCF: ~ 6%

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

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

Starting at $9925 million FCF, assuming the company achieves a 5-year growth rate in FCF of 9% 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	9925
1	10818
2	11792
3	12853
4	14010
5	15271
Terminal Value	263699

The firm's future cash flows, discounted at a WACC of 6.31%, give a present value for the entire firm (Debt + Equity) of $247,693 million. If the firm's fair value of debt is estimated at $35,400 million, then the fair value of the firm's equity could be $212,293 million.  $212,293 million / 2750 million outstanding shares is approximately $77 per share and a 20% margin of safety is $62/share.

Sources

Morningstar.com

Yahoo! Finance

PG.com

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

General Dynamics: $GD cash flow valuation

Current Price: ~ $70/share
Projected Yield: ~ 2.69%

Falls Church, Va.-based General Dynamics manufactures ships, armored vehicles, defense-oriented information technology systems, and business jets. The firm gets around 72% of revenue from the Department of Defense and the rest from foreign sales and Gulfstream business jets. In 2010, the firm generated $32.4 billion in sales and $2.6 billion in earnings.

I estimated the firm's WACC today at 12.93% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and growth rates:

Year	FCF $Millions
2001	747
2002	861
2003	1499
2004	1536
2005	1777
2006	1794
2007	2451
2008	2620
2009	2455
2010	2616
TTM	2735

Average Annual Growth FCF: ~ 17%

CAGR FCF: ~ 15%

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

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

Starting at $2616 million FCF, 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	2616
1	2825
2	3051
3	3295
4	3559
5	3844
Terminal Value	32105

The firm's future cash flows, discounted at a WACC of 12.93%, give a present value for the entire firm (Debt + Equity) of $28,942 million. If the firm's fair value of debt is estimated at $4200 million, then the fair value of the firm's equity could be $24,742 million.  $24,742 million / 372 million outstanding shares is approximately $67 per share and a 20% margin of safety is $53/share.

Sources

Morningstar.com

Yahoo! Finance

GeneralDynamics.com

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

Avery Dennison Corp: $AVY cash flow valuation

Current Price: ~ $33/share
Projected Yield: ~ 3.06%

Avery Dennison manufactures pressure-sensitive materials, office products, merchandise tags, and labels. The company also runs a specialty converting business that produces radio frequency identification inlays and labels. Avery Dennison draws a significant amount of revenue from outside the United States, with international operations accounting for 66% of sales in 2009.

I estimated the firm's WACC today at 12.88% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and growth rates:

Year	FCF $Millions
2001	240
2002	371
2003	134
2004	338
2005	253
2006	316
2007	245
2008	348
2009	497
2010	403
TTM	299

Average Annual Growth FCF: ~ 21%

CAGR FCF: ~ 6%

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

Consensus Forecast Company 5-Year Growth: ~ 7% per year

Scenario 1

Starting at $403 million FCF, assuming the company achieves a 5-year growth rate in FCF of 7% 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	403
1	431
2	461
3	494
4	528
5	565
Terminal Value	4696

The firm's future cash flows, discounted at a WACC of 12.88%, give a present value for the entire firm (Debt + Equity) of $4284 million. If the firm's fair value of debt is estimated at $1570 million, then the fair value of the firm's equity could be $2714 million.  $2714 million / 106 million outstanding shares is approximately $26 per share and a 20% margin of safety is $20/share.

Scenario 2

Starting at $403 million FCF, assuming the company achieves a 5-year growth rate in FCF of 7% per year, and then a growth rate in FCF of 3.00% per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	403
1	431
2	461
3	494
4	528
5	565
Terminal Value	6122

The firm's future cash flows, discounted at a WACC of 12.88%, give a present value for the entire firm (Debt + Equity) of $5062 million. If the firm's fair value of debt is estimated at $1570 million, then the fair value of the firm's equity could be $3492 million.  $3492 million / 106 million outstanding shares is approximately $33 per share and a 20% margin of safety is $26/share.

Sources

Morningstar.com

Yahoo! Finance

AveryDennison.com

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