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Eric Cota
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I'm a value investor for the long term primarily focused on firms in the S&P 500 that produce solid free cash flow and pay dividends. I look for undervalued firms using a discounted cash flow model. I reinvest dividends and track performance on a total return, risk-adjusted basis. Five years... More
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  • Procter & Gamble Co: Cash Flow Valuation Update 2 comments
    Aug 27, 2012 5:35 PM | about stocks: PG

    Current Price: ~ $67/share
    Yield: ~ 3.24%

    Since its founding in 1837, Procter & Gamble has become the world's largest consumer product manufacturer. The firm operates with a lineup of leading brands, including 25 that generate more than $1 billion in annual global sales such as Tide laundry detergent, Charmin toilet paper, Pantene shampoo, Cover Girl cosmetics, and Iams pet food. P&G recently sold its last remaining food brand, Pringles, to Kellogg. Sales outside of the U.S.

    Estimated WACC for the firm today is 4.70% using the Capital Asset Pricing Model and the company's recent SEC filings.

    Recent free cash flows and noted growth rates:

    YearFCF $Millions
    20037218
    20047338
    20056541
    20068708
    200710490
    200812768
    200911681
    201013005
    20119925
    20129320

    (click to enlarge)

    Average Annual Growth FCF: ~ 4%

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

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

    Internal Growth Rate: ~ 3%

    Sustainable Growth Rate: ~ 7%

    Scenario 1

    • Start at $9320 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

    YearFCF $Millions
    09320
    110066
    210871
    311741
    412680
    513694
    Terminal Value314357

    The firm's future free cash flows, discounted at a WACC of 4.70%, give a present value for the entire firm (Debt + Equity) of $300988 million. If the firm's fair value of debt is estimated at $30148 million, then the fair value of the firm's equity could be $270840 million. $270840 million / 2810 million outstanding shares is approximately $96 per share and a 20% margin of safety is $77/share.

    Scenario 2
    All else being equal,

    • Assume a 5-year growth rate in FCF of 4% per year, then 0% growth in FCF per year forever:

    Discounted Cash Flow Valuation

    YearFCF $Millions
    09320
    19693
    210081
    310484
    410903
    511339
    Terminal Value250658
    • Present Value of the entire firm (Debt + Equity): $244849 million
    • Value of Equity: $214701 million or $76/share
    • 20% margin of safety is $61/share

    Sources

    Morningstar.com

    Yahoo! Finance

    PG.com

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

    Stocks: PG
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Comments (2)
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  • starwitchdoctor
    , contributor
    Comments (77) | Send Message
     
    Thanks for the evaluation, Fair value estimate for me comes to be about 65 dollars steady from November 2010, my latest in depth evaluation of PG.

     

    Cheers.
    SWD.
    27 Aug 2012, 05:41 PM Reply Like
  • Eric Cota
    , contributor
    Comments (22) | Send Message
     
    Author’s reply » Thanks for the read Doc :)
    28 Aug 2012, 11:04 AM Reply Like
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