Is Kraft Recession Proof?

With concerns about the global economy’s near term health - analysts are looking at companies that may benefit from the prevailing economic conditions. Kraft (KFT) is seen as one of the companies that could benefit. How does the current share price look from an intrinsic value perspective?

Valuecruncher valuation model of $KFT with interactive assumptions

Valuecruncher produces a valuation of US$35.44 for $KFT This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 20.9% above the current share price of US$29.31.

Assumptions

• Revenue: Reuters aggregates 12 analysts covering $KFT and these analysts have mean estimates of 2008 and 2009 revenues of US$43.2 billion and US$44.9 billion respectively. For our analysis we have used US$43.0 billion in 2008, US$44.5 billion in 2009 and US$45.5 billion in 2010.
• Profitability: We have used an EBITDA margin of 13.0% in 2008 rising to 14.0% in 2010. Reuters has $KFT‘s EBITD margin at 13.2% last year and averaging 17.0% over the last five-years.
• Capital Expenditure: We have assumed capital expenditures of US$1.25 billion per annum moving forward.
• Discount Rate: 7.5%. You could make an argument for a discount rate anywhere in the 7-8% range.
• Terminal Growth Rate: 3.0%. The US economy grew at an average of 3.6% over the last five-years.

Our analysis incorporates the cash and debt the $KFT balance sheet – Valuecruncher calculates a net debt number.

Play with our assumptions – what does your analysis say?

View the full KFT chart at Wikinvest

Disclosure: None.