Eric Cota's  Instablog

Current Price: ~ $19/share
Yield: ~ 2.31%

Cisco Systems is the world's leading supplier of data networking equipment and software. Its products include routers, switches, access equipment, and network-management software that allow data communication among dispersed computer networks. The firm has also entered newer markets, such as video conferencing, web-based collaboration, and data center servers.

Estimated WACC for the firm today is 12.51% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

(click to enlarge)

Average Annual Growth FCF: ~ 11%

CAGR FCF: ~ 10%
Consensus Forecast Industry 5-Year Growth: ~ 14% per year

Consensus Forecast Company 5-Year Growth: ~ 8% per year

Internal Growth Rate: ~ 7%

Sustainable Growth Rate: ~ 14%

Scenario 1
Average FCF (2012, 2011, 2010) is $9478 million

• Start at $9478 million FCF
• Assume a 5-year growth rate in FCF of 8% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

The firm's future free cash flows, discounted at a WACC of 12.51%, give a present value for the entire firm (Debt + Equity) of $108717 million. If the firm's fair value of debt is estimated at $18700 million, then the fair value of the firm's equity could be $90017 million. $90017 million / 5310 million outstanding shares is approximately $17 per share and a 20% margin of safety is $14/share.

Scenario 2

All else being equal,

• Assume a 5-year growth rate in FCF of 8% per year, then 4.50% growth in FCF per year forever:

Discounted Cash Flow Valuation

• Present Value of the entire firm (Debt + Equity): $146225 million
• Value of Equity: $127525 million or $24/share
• 20% margin of safety is $19/share

Sources

Morningstar.com

Yahoo! Finance

Cisco.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Current Price: ~ $37/share
Yield: ~ 3.17%

With a heritage that dates back about 140 years, Campbell Soup is now a leading global manufacturer and marketer of branded convenience food products, most notably soup. However, the firm's product assortment spans beyond soup, as its portfolio of well-known brands includes Campbell's, Pace, Prego, Swanson, V8, and Pepperidge Farm. International operations account for around 30% of Campbell's consolidated sales.

Estimated WACC for the firm today is 4.25% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

(click to enlarge)

Average Annual Growth FCF: ~ 12%

CAGR FCF: ~ 3%
Consensus Forecast Industry 5-Year Growth: ~ 14% per year

Consensus Forecast Company 5-Year Growth: ~ 5% per year

Internal Growth Rate: ~ 6%

Scenario 1
Average the high and low FCF of the past 5 years; Average FCF (2011, 2008) is $669 million

• Start at $669 million FCF
• Assume a 5-year growth rate in FCF of 3% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

The firm's future free cash flows, discounted at a WACC of 4.25%, give a present value for the entire firm (Debt + Equity) of $18494 million. If the firm's fair value of debt is estimated at $2663 million, then the fair value of the firm's equity could be $15831 million. $15831 million / 314 million outstanding shares is approximately $50 per share and a 20% margin of safety is $40/share.

Scenario 2
Average FCF (2012, 2011, 2010) is $803 million

• Start at $803 million FCF
• Assume a higher WACC of 6.25%
• Assume a 5-year growth rate in FCF of 5% per year, then 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

All else being equal,

• Present Value of the entire firm (Debt + Equity): $16591 million
• Value of Equity: $13928 million or $44/share
• 20% margin of safety is $35/share

Sources

Morningstar.com

Yahoo! Finance

Campbellsoupcompany.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Current Price: ~ $31/share
Yield: ~ 3.46%

Sysco operates as the largest North American foodservice distributor, controlling 17.5% of the market. The firm distributes more than 400,000 food and nonfood products to 400,000 customers, including restaurants, health care and educational facilities, and lodging establishments. From its founding in 1969 through the end of fiscal 2011, Sysco acquired more than 150 companies or divisions of companies to expand its footprint. Nearly 100% of the firm's sales are derived in North America.

Estimated WACC for the firm today is 7.45% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

(click to enlarge)

Average Annual Growth FCF: ~ 6%

CAGR FCF: ~ -4%
Consensus Forecast Industry 5-Year Growth: ~ 16% per year

Consensus Forecast Company 5-Year G620rowth: ~ 7% per year

Internal Growth Rate: ~ 4%

Sustainable Growth Rate: ~ 12%

Scenario 1

• Start at $620 million FCF
• Assume a 5-year growth rate in FCF of 7% per year, then 4% growth in FCF per year forever:

Discounted Cash Flow Valuation

The firm's future free cash flows, discounted at a WACC of 7.45%, give a present value for the entire firm (Debt + Equity) of $21883 million. If the firm's fair value of debt is estimated at $3539 million, then the fair value of the firm's equity could be $18344 million. $18344 million / 587 million outstanding shares is approximately $31 per share and a 20% margin of safety is $25/share.

Scenario 2
Average FCF (2012, 2009) is $869 million

• Start at $869 million FCF
• Assume a 5-year growth rate in FCF of 7% per year, then 2% growth in FCF per year forever:

Discounted Cash Flow Valuation

• Present Value of the entire firm (Debt + Equity): $20993 million
• Value of Equity: $17457 million or $30/share
• 20% margin of safety is $24/share

Sources

Morningstar.com

Yahoo! Finance

Sysco.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.