Seeking Alpha

Eric Cota's  Instablog

Eric Cota
Send Message
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
My blog:
Manzanita Drive
  • Air Products & Chemicals Inc: Cash Flow Valuation Update 0 comments
    Dec 19, 2012 3:44 PM | about stocks: APD

    Current Price: ~ $84/share
    Yield: ~ 2.96%

    Established in 1940, Air Products is the world's largest supplier of hydrogen and helium. It offers a unique portfolio of products and services in a number of industries, including technology, energy, industrial, and health care. The company operates in more than 40 countries, with international sales representing 60% of revenue. Air Products generates $10 billion in annual sales and employs almost 20,000 workers.

    Estimated WACC for the firm today is 10.11% using the Capital Asset Pricing Model and the company's recent SEC filings.

    Recent free cash flows and noted growth rates:

    YearFCF $Millions
    2003423
    2004380
    2005446
    200685
    2007442
    2008595
    2009144
    2010492
    2011402
    2012278

    (click to enlarge)

    Average Annual Growth FCF: ~ 55%

    CAGR FCF: ~ -4.6%
    Consensus Forecast Industry 5-Year Growth: ~ 11% per year

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

    Internal Growth Rate: ~ 4%

    Sustainable Growth Rate: ~ 11%

    Scenario 1
    The highest level of FCF achieved in the past 10 years is $595 million

    • Start at $595 million FCF
    • Assume a 5-year growth rate in FCF of 11% per year, then 4% growth in FCF per year forever:

    Discounted Cash Flow Valuation

    YearFCF $Millions
    0595
    1660
    2733
    3814
    4903
    51003
    Terminal Value18221

    The firm's future free cash flows, discounted at a WACC of 10.11%, give a present value for the entire firm (Debt + Equity) of $14307 million. If the firm's fair value of debt is estimated at $5006 million, then the fair value of the firm's equity could be $9301 million. $9301 million / 213 million outstanding shares is approximately $44 per share and a 20% margin of safety is $35/share.

    Scenario 2
    All else being equal,

    • Assume a 5-year growth rate in FCF of 11% per year, then 6.75% growth in FCF per year forever:

    Discounted Cash Flow Valuation

    YearFCF $Millions
    0595
    1660
    2733
    3814
    4903
    51003
    Terminal Value33144
    • Present Value of the entire firm (Debt + Equity): $23527 million
    • Value of Equity: $18521 million or $87/share
    • 20% margin of safety is $70/share

    Sources

    Morningstar.com

    Yahoo! Finance

    Airproducts.com

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

    Stocks: APD
Back To Eric Cota's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.