AmerisourceBergen Corp: $ABC Cash Flow Valuation Update

Current Price: ~ $46/share
Yield: ~ 1.30%


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.          

Estimated WACC for the firm today is 6.88% 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	264
2004	636
2005	1323
2006	694
2007	1090
2008	600
2009	638
2010	924
2011	1000
2012	1141

Average Annual Growth FCF: ~ 32%

CAGR FCF: ~ 18%

Consensus Forecast Industry 5-Year Growth: ~ 16% per year

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

Internal Growth Rate: ~ 4%

Sustainable Growth Rate: ~ 28%

Scenario 1
Average FCF (past five years) is $861 million

• Start at $861 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	861
1	964
2	1080
3	1210
4	1355
5	1517
Terminal Value	24684

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 million.  $21022 million / 235 million outstanding shares is approximately $89 per share and a 20% margin of safety is $71/share.

Scenario 2
All else being equal,

• Assume a 5-year growth rate in FCF of 4% per year, then 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	861
1	895
2	931
3	969
4	1007
5	1048
Terminal Value	15824

• Present Value of the entire firm (Debt + Equity): $15312 million
• Value of Equity: $13676 million or $58/share
• 20% margin of safety is $46/share

Sources

Morningstar.com

Yahoo! Finance

AmerisourceBergen

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

Fantasy Portfolio: Performance Snapshot

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.

• Dividends automatically reinvested
• Maintain near equal weightings of a maximum of 30 stocks
• Infrequent trading
• Total return of portfolio is measured against total return of the S&P 500
• Goal: to outperform the S&P 500 Index on a total return risk-adjusted basis

Below is a snapshot of the fantasy portfolio's current holdings and performance thus far.
*Note: Transaction costs and taxes not included in returns.

Source: Morningstar.com

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

Starbucks Corporation: $SBUX Cash Flow Valuation Update

Current Price: ~ $54/share
Yield: ~ 1.33%

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.     

Estimated WACC for the firm today is 9.41% 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	209
2004	408
2005	280
2006	360
2007	251
2008	274
2009	943
2010	1264
2011	1081
2012	894

Average Annual Growth FCF: ~ 35%

CAGR FCF: ~ 17.5%

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

Consensus Forecast Company 5-Year Growth: ~ 18% per year

Internal Growth Rate: ~ 12%

Sustainable Growth Rate: ~ 22%

Scenario 1
Average FCF (2012, 2011, 2010) is $1080 million

• Start at $1080 million FCF
• Assume a 5-year growth rate in FCF of 18% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	1080
1	1274
2	1504
3	1774
4	2094
5	2471
Terminal Value	30977

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 million.  $25896 million / 744 million outstanding shares is approximately $35 per share and a 20% margin of safety is $28/share.

Scenario 2
All else being equal,

• Assume a 5-year growth rate in FCF of 18% per year, then 4% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	1080
1	1274
2	1504
3	1774
4	2094
5	2471
Terminal Value	53874

• Present Value of the entire firm (Debt + Equity): $41173 million
• Value of Equity: $40499 million or $54/share
• 20% margin of safety is $43/share

Sources

Morningstar.com

Yahoo! Finance

Starbucks.com

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

Air Products & Chemicals Inc: $APD Cash Flow Valuation Update

Current Price: ~ $84/share
Yield: ~ 2.96%

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.         

Estimated WACC for the firm today is 10.11% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Year	FCF $Millions
2003	423
2004	380
2005	446
2006	85
2007	442
2008	595
2009	144
2010	492
2011	402
2012	278

Average Annual Growth FCF: ~ 55%

CAGR FCF: ~ -4.6%

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

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

Internal Growth Rate: ~ 4%

Sustainable Growth Rate: ~ 11%

Scenario 1
The highest level of FCF achieved in the past 10 years is $595 million

• Start at $595 million FCF
• Assume a 5-year growth rate in FCF of 11% per year, then 4% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	595
1	660
2	733
3	814
4	903
5	1003
Terminal Value	18221

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 million.  $9301 million / 213 million outstanding shares is approximately $44 per share and a 20% margin of safety is $35/share.

Scenario 2
All else being equal,

• Assume a 5-year growth rate in FCF of 11% per year, then 6.75% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	595
1	660
2	733
3	814
4	903
5	1003
Terminal Value	33144

• Present Value of the entire firm (Debt + Equity): $23527 million
• Value of Equity: $18521 million or $87/share
• 20% margin of safety is $70/share

Sources

Morningstar.com

Yahoo! Finance

Airproducts.com

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