Stryker Corporation: $SYK cash flow valuation

Current Price: ~ $59/share
Projected Yield: ~ 1.24%


Stryker develops, manufactures, and markets medical devices and equipment for use primarily in orthopedic procedures. The firm generates most of its revenue from reconstructive implants, such as knees and hips, but serves a variety of other orthopedic niches, including spine. Beyond implants, Stryker offers a wide range of operating room equipment, tools for orthopedic and other procedures, hospital beds, and stretchers.

I estimated the firm's WACC today at 11.29% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Year	FCF $Millions
2001	306
2002	365
2003	504
2004	406
2005	592
2006	650
2007	841
2008	1021
2009	1329
2010	1365

Average Annual Growth FCF: ~ 20%

CAGR FCF: ~ 18%

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

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

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	1365
1	1515
2	1682
3	1867
4	2072
5	2300
Terminal Value	22613

The firm's future cash flows, discounted at a WACC of 11.29%, give a present value for the entire firm (Debt + Equity) of $20,017 million.  If the firm's fair value of debt is estimated at $1025 million, then the fair value of the firm's equity could be $18,992 million.  $18,992 / 388 million outstanding shares is ~ $49 per share and a 20% margin of safety is ~ $39/share.

Sources

Morningstar.com

Yahoo! Finance

Stryker.com

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

The Walt Disney Company: $DIS cash flow valuation

Current Price: ~ $38/share
Projected Yield: ~ 1.05%


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.

I estimated the firm's WACC today at 12.29% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Year	FCF $Millions
2001	1253
2002	1200
2003	1852
2004	3217
2005	2446
2006	4759
2007	3855
2008	3860
2009	3311
2010	4468

Average Annual Growth FCF: ~ 22%

CAGR FCF: ~ 15%

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

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

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	4468
1	5138
2	5909
3	6795
4	7815
5	8987
Terminal Value	84068

The firm's future cash flows, discounted at a WACC of 12.29%, give a present value for the entire firm (Debt + Equity) of $71,091 million.  If the firm's fair value of debt is estimated at $13,200 million, then the fair value of the firm's equity could be $57,891 million.  $57,891 / 1890 million outstanding shares is ~ $31 per share and a 20% margin of safety is ~ $25/share.

Sources

Morningstar.com

Yahoo! Finance

The Walt Disney Company

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

Microsoft: $MSFT Reports Record Third-Quarter Results

REDMOND, Wash. — Apr. 28, 2011 — Microsoft Corp. today announced third-quarter revenue of $16.43 billion for the quarter ended Mar. 31, 2011, a 13% increase from the same period of the prior year. Operating income, net income, and diluted earnings per share for the quarter were $5.71 billion, $5.23 billion, and $0.61 per share, which represented increases of 10%, 31%, and 36%, respectively, when compared with the prior year period. Diluted earnings per share included a $0.05 tax benefit primarily related to an agreement with the U.S. Internal Revenue Service to settle a portion of their audit of tax years 2004 to 2006.


Source
Microsoft.com - press release

Johnson & Johnson: $JNJ Announces Dividend Increase of 5.6%

NEW BRUNSWICK, N.J., April 28, 2011 /PRNewswire/ -- Johnson & Johnson (NYSE: JNJ) today announced that its Board of Directors has declared a 5.6% increase in the quarterly dividend rate, from $0.54 per share to $0.57 per share.  The increase was announced this morning at the Annual Meeting of Shareholders in New Brunswick, NJ.


At the new rate, the indicated dividend on an annual basis is $2.28 per share compared to the previous rate of $2.16 per share.  The next quarterly dividend is payable on June 14, 2011 to shareholders of record as of May 31, 2011.


Source
JNJ.com - press release

Johnson & Johnson: $JNJ Announces $21.3 Billion Deal With Synthes

Johnson & Johnson said Wednesday that it had agreed to buy Synthes, the medical equipment maker, for $21.3 billion in cash and shares, one of the biggest deals ever in the healthcare sector.


Source
Dealbook
JNJ.com - press release

Pfizer Inc: $PFE cash flow valuation

Current Price: ~ $20/share
Projected Yield: ~ 4.02%

Pfizer is the world's largest pharmaceutical firm, with annual sales near $70 billion. Following the acquisition of Wyeth, prescription drugs now account for close to 90% of sales. Top sellers include cholesterol-lowering Lipitor, Celebrex for arthritis, Viagra for impotence, and Lyrica for epilepsy and some types of neuropathic pain. Recently approved drugs with blockbuster potential include oncology drug Sutent and Chantix for smoking cessation.

I estimated the firm's WACC today at 8.85% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Year	FCF $Millions
2001	7060
2002	8425
2003	9098
2004	13739
2005	12627
2006	15544
2007	11473
2008	16537
2009	15382
2010	9941

Average Annual Growth FCF: approx. 8%

CAGR FCF: approx. 4%

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

Consensus Forecast Company 5-Year Growth: approx. 3% per year

Scenario 1

Average FCF 2009-2010 is ~ $12,500 million.  Starting at $12,500 million FCF, assuming the company achieves a 5-year growth rate in FCF of 3% 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	12500
1	12875
2	13261
3	13659
4	14069
5	14491
Terminal Value	168680

The firm's future cash flows, discounted at a WACC of 8.85%, give a present value for the entire firm (Debt + Equity) of $163,514 million. If the firm's fair value of debt is estimated at $48,000 million, then the fair value of the firm's equity could be $115,514 million.  $115,514 million / 8000 million outstanding shares is approximately $15 per share and a 20% margin of safety is $12/share.

Scenario 2

Starting at $12,500 million FCF, assuming the company achieves a 5-year growth rate in FCF of 3% per year, and then 3% growth per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	12500
1	12875
2	13261
3	13659
4	14069
5	14491
Terminal Value	255205

The firm's future cash flows, discounted at a WACC of 8.85%, give a present value for the entire firm (Debt + Equity) of $220,142 million. If the firm's fair value of debt is estimated at $48,000 million, then the fair value of the firm's equity could be $172,142 million.  $172,142 million / 8000 million outstanding shares is approximately $22 per share and a 20% margin of safety is $18/share.

Sources

Morningstar.com

Yahoo! Finance

Pfizer.com

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