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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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  • Campbell Soup Co: Cash Flow Valuation Update 0 comments
    Nov 30, 2012 6:10 PM | about stocks: CPB

    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:

    YearFCF $Millions
    2003590
    2004456
    2005658
    2006917
    2007340
    2008468
    2009821
    2010742
    2011870
    2012797

    (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

    YearFCF $Millions
    0669
    1689
    2710
    3731
    4753
    5776
    Terminal Value18799

    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

    YearFCF $Millions
    0803
    1843
    2885
    3930
    4976
    51025
    Terminal Value17218

    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.

    Stocks: CPB
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