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Eric Cota

Molson Coors Brewing Company: $TAP cash flow valuation

March 21, 2011 | About:

Molson Coors Brewing Company (NYSE:TAP) is fairly valued at $39/share on a cash flow valuation basis.

Molson Coors is one of the largest brewers in the world. Major brands include Coors Light, Molson Canadian, Carling, Blue Moon, Killian's, Caffrey's, Worthington's, and Keystone. Its largest markets are Canada (47% of operating profit), the United States (43%), and the United Kingdom (10%). Molson Coors retains 41% share of the Canadian beer market, 30% share of the U.S. beer market (with SABMiller), and 19% share of the U.K. beer market.

I estimated the firm's WACC today at 8.96% 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 -51
2002 19
2003 304
2004 288
2005 16
2006 387
2007 188
2008 181
2009 700
2010 572

CAGR FCF 2003-2010: approx. 9%. Consensus Forecast Industry 5-Year Growth: approx. 14% per year. Consensus Forecast Company 5-Year Growth: approx. 8% per year.

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
0 572
1 618
2 667
3 721
4 778
5 840
Terminal Value 10130

The firm's future cash flows, discounted at a WACC of 8.96%, give a present value for the entire firm (Debt + Equity) of $9381 million. If the firm's fair value of debt is estimated at $2138 million, then the fair value of the firm's equity could be $7243 million. $7243 million / 187 million outstanding shares is approximately $39 per share and a 20% margin of safety is $31/share.

About the author:

Eric Cota
Charlie Tian, Ph.D., is the founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

Rating: 3.4/5 (7 votes)


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