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Aerospace and defence contractor Raytheon (NYSE:RTN) has seen it’s share price drop from a 52-week high of US$67.37 to close to a 52-week low at US$34.61. At Valuecruncher we decided to have a look at the company’s financial and put together an estimate of intrinsic value. (See the Valuecruncher Interactive Analyst Report For $RTN (New Format).)

Valuecruncher produces a valuation of US$45.87 for $RTN. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 32.5% above the current share price of US$34.61. $RTN is currently well below our estimate of intrinsic value.

Assumptions

  • Revenue: Reuters aggregates 12 analysts covering $RTN and these analysts have a mean estimates of 2009 and 2010 revenues of US$24.6 billion and US$25.9 billion respectively. For our analysis we have used US$24.5 billion in 2009, US$25.5 billion in 2010 and US$26.5 billion in 2011.
  • Profitability: We have used an EBITDA margin of 11.5% flat to 2011. Reuters has $RTN‘s EBITD margin at 12.9% last year with a five-year average of 11.4%
  • Capital Expenditure: We have assumed capital expenditures of US$375.0 million in 2009 rising to US$400.0 million in 2010 and beyond.
  • Discount Rate: 11.0%.
  • Terminal Growth Rate: 1.5%. This is a conservative growth rate. Valuecruncher believes that a growth rate between 1.5% and 3.0% would be reasonable.

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

Play with our assumptions – what does your analysis say?

Disclosure: None

Source: Raytheon: Undervalued Below $45/Share