Monday, December 17, 2012

The Walt Disney Co: $DIS Cash Flow Valuation Update


Current Price: ~ $49/share
Yield: ~ 1.54%


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.     


Estimated WACC for the firm today is 10.70% 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
1852
2004
3217
2005
2446
2006
4759
2007
3855
2008
3860
2009
3311
2010
4468
2011
3435
2012
4182




Average Annual Growth FCF: ~ 16%
CAGR FCF: ~ 9%
Consensus Forecast Industry 5-Year Growth: ~ 18% per year
Consensus Forecast Company 5-Year Growth: ~ 11% per year
Internal Growth Rate: ~ 7%
Sustainable Growth Rate: ~ 14%

Scenario 1
Average FCF (2012, 2011, 2010) is $4028 million 
  • Start at $4028 million FCF
  • Assume a 5-year growth rate in FCF of 11% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
4028
1
4471
2
4963
3
5509
4
6115
5
6787
Terminal Value
70392


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 million.  $47494 million / 1770 million outstanding shares is approximately $27 per share and a 20% margin of safety is $22/share.


Scenario 2
All else being equal,
  • Assume a 5-year growth rate in FCF of 11% per year, then 5.25% growth in FCF per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
4028
1
4471
2
4963
3
5509
4
6115
5
6787
Terminal Value
138163


  • Present Value of the entire firm (Debt + Equity): $103402 million
  • Value of Equity: $88256 million or $50/share
  • 20% margin of safety is $40/share

Sources
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Posted by at 2:06 PM 0 comments
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Tuesday, December 11, 2012

Emerson Electric Co: $EMR Cash Flow Valuation Update


Current Price: ~ $52/share
Yield: ~ 3.14%


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. 


Estimated WACC for the firm today is 12.25% 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
1394
2004
1816
2005
1669
2006
1911
2007
2335
2008
2579
2009
2555
2010
2768
2011
2586
2012
2388




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
Internal Growth Rate: ~ 3%
Sustainable Growth Rate: ~ 8%

Scenario 1
The highest level of FCF achieved in the past 10 years is $2768 million
  • Start at $2768 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
2768
1
3017
2
3289
3
3585
4
3907
5
4259
Terminal Value
37904


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 million.  $28868 million / 724 million outstanding shares is approximately $40 per share and a 20% margin of safety is $32/share.


Scenario 2
All else being equal,
  • Assume a 5-year growth rate in FCF of 9% per year, then 3.50% growth in FCF per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
2768
1
3017
2
3289
3
3585
4
3907
5
4259
Terminal Value
53071


  • Present Value of the entire firm (Debt + Equity): $42468 million
  • Value of Equity: $37380 million or $52/share
  • 20% margin of safety is $42/share

Sources
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Posted by at 4:52 PM 0 comments
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Walgreen Company: $WAG Cash Flow Valuation Update


Current Price: ~ $37/share
Yield: ~ 2.75%


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.

Estimated WACC for the firm today is 10.80% 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
696
2004
713
2005
134
2006
1102
2007
571
2008
814
2009
2184
2010
2730
2011
2430
2012
2881




Average Annual Growth FCF: ~ 93%
CAGR FCF: ~ 17%
Consensus Forecast Industry 5-Year Growth: ~ 12% per year
Consensus Forecast Company 5-Year Growth: ~ 12% per year
Internal Growth Rate: ~ 4%
Sustainable Growth Rate: ~ 8%

Scenario 1
Average FCF (2009 - 2012) is $2556 million
  • Start at $2556 million FCF
  • Assume a 5-year growth rate in FCF of 12% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
2556
1
2863
2
3206
3
3591
4
4022
5
4505
Terminal Value
46728


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 million.  $34679 million / 944 million outstanding shares is approximately $37 per share and a 20% margin of safety is $30/share.


Scenario 2
All else being equal,
  • Assume a 5-year growth rate in FCF of 12% per year, then 2% growth in FCF per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
2556
1
2863
2
3206
3
3591
4
4022
5
4505
Terminal Value
57353


  • Present Value of the entire firm (Debt + Equity): $47552 million
  • Value of Equity: $41042 million or $43/share
  • 20% margin of safety is $34/share

Sources
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Posted by at 3:51 PM 0 comments
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