Feedback
European Shorting
My Portfolios
Browse Gurus
Print
Email
Bookmark
I estimated the firm's WACC today at 5.50% 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 | 429 |
| 2002 | 407 |
| 2003 | 920 |
| 2004 | 833 |
| 2005 | 1297 |
| 2006 | 1411 |
| 2007 | 1305 |
| 2008 | 1208 |
| 2009 | 1266 |
| 2010 | 1531 |
| TTM | 1217 |
CAGR FCF: approx. 15%
Consensus forecast industry five-year growth: approx. 14% per year
Consensus forecast company five-year growth: approx. 8% per year
Assuming the company achieves a five-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 | 1217 |
| 1 | 1314 |
| 2 | 1420 |
| 3 | 1533 |
| 4 | 1656 |
| 5 | 1788 |
| Terminal Value | 35107 |
The firm's future cash flows, discounted at a WACC of 5.50%, give a present value for the entire firm (Debt + Equity) of $33,391 million. If the firm's fair value of debt is estimated at $7361 million, then the fair value of the firm's equity could be $26,030 million. $26,030 million/638 million outstanding shares is approximately $41 per share and a 20% margin of safety is $33 per share.
About the author:
Eric Cota is a value investor for the long term, focused on firms in the S&P 500 that produce solid free cash flow and pay dividends. He looks for undervalued firms using a DCF model and tracks performance on a total return, risk-adjusted basis. More articles at manzanitadrive.blogspot.com and contact cota.eric at gmail
Subscribe RSS
RSS
Wouldn't the WACC is a starting point rather than the discount rate we used? And even the terminal growth rate won't be a big deal if the rate we used is so low? Just wondering how should we look at WACC when actually value a mature company.