Current Price: ~ $46/share

Yield: ~ 1.30%

AmerisourceBergen Corporation is a pharmaceutical services company providing drug distribution and related healthcare services and solutions to pharmacy, physician, and manufacturer customers, which are based mainly in the United States and Canada.

Estimated WACC for the firm today is 6.88% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Year | FCF $Millions |

2003 | 264 |

2004 | 636 |

2005 | 1323 |

2006 | 694 |

2007 | 1090 |

2008 | 600 |

2009 | 638 |

2010 | 924 |

2011 | 1000 |

2012 | 1141 |

Average Annual Growth FCF: ~ 32%

CAGR FCF: ~ 18%

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

Consensus Forecast Company 5-Year Growth: ~ 12% per year

Internal Growth Rate: ~ 4%

Sustainable Growth Rate: ~ 28%

**Scenario 1**

Average FCF (past five years) is $861 million

- Start at $861 million FCF
- Assume a 5-year growth rate in FCF of 12% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year | FCF $Millions |

0 | 861 |

1 | 964 |

2 | 1080 |

3 | 1210 |

4 | 1355 |

5 | 1517 |

Terminal Value | 24684 |

The firm's future free cash flows, discounted at a WACC of 6.88%, give a present value for the entire firm (Debt + Equity) of $22658 million. If the firm's fair value of debt is estimated at $1636 million, then the fair value of the firm's equity could be $21022 million. $21022 million / 235 million outstanding shares is approximately $89 per share and a 20% margin of safety is $71/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

Year | FCF $Millions |

0 | 861 |

1 | 895 |

2 | 931 |

3 | 969 |

4 | 1007 |

5 | 1048 |

Terminal Value | 15824 |

- Present Value of the entire firm (Debt + Equity): $15312 million
- Value of Equity: $13676 million or $58/share
- 20% margin of safety is $46/share

Sources

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