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Eric Cota
Eric Cota

General Mills Inc. (GIS): Cash Flow Valuation

April 06, 2011 | About:

With operations that began more than 150 years ago, General Mills (NYSE:GIS) is now a leading global manufacturer and marketer of branded consumer foods, such as ready-to-eat breakfast cereals, refrigerated dough and other baking items, snack foods, ice cream and yogurt. Its portfolio of well-known brands includes Cheerios, Betty Crocker, Pillsbury, Haagen-Dazs, and Yoplait. International sales account for about 20% of the firm's consolidated revenue.

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
Average Annual Growth FCF: approx. 21%

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
Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

Rating: 2.3/5 (4 votes)


Shunngai - 6 years ago    Report SPAM

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.

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GuruFocus has detected 4 Warning Signs with General Mills Inc $GIS.
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