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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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  • Becton Dickinson & Co: Cash Flow Valuation Update 0 comments
    Jan 25, 2013 5:11 PM | about stocks: BDX

    Current Price: ~ $85/share
    Yield: ~ 2.20%

    Becton, Dickinson & Co., is engaged in manufacturing and sale of medical supplies, devices, laboratory equipment and diagnostic products used by healthcare institutions, life science researchers, clinical laboratories, industry and the general public.

    Estimated WACC for the firm today is 7.93% using the Capital Asset Pricing Model and the company's recent SEC filings.

    Recent free cash flows and noted growth rates:

    YearFCF $Millions
    2003645
    2004832
    2005909
    2006594
    2007662
    20081036
    20091016
    20101112
    20111111
    20121207

    (click to enlarge)

    Average Annual Growth FCF: ~ 10%

    CAGR FCF: ~ 7%
    Consensus Forecast Industry 5-Year Growth: ~ 16% per year

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

    Internal Growth Rate: ~ 8%

    Sustainable Growth Rate: ~ 22%

    Scenario 1
    Average FCF (2012, 2011, 2010) is $1143 million

    • Start at $1143 million FCF
    • Assume a 5-year growth rate in FCF of 7% per year, then no growth or 0% growth in FCF per year forever:

    Discounted Cash Flow Valuation

    YearFCF $Millions
    01143
    11223
    21309
    31400
    41498
    51603
    Terminal Value21635

    The firm's future free cash flows, discounted at a WACC of 7.93%, give a present value for the entire firm (Debt + Equity) of $20342 million. If the firm's fair value of debt is estimated at $4317 million, then the fair value of the firm's equity could be $16025 million. $16025 million / 197 million outstanding shares is approximately $81 per share and a 20% margin of safety is $65/share.

    Scenario 2
    All else being equal,

    • Assume a 5-year growth rate in FCF of 7% per year, then 2% growth in FCF per year forever:

    Discounted Cash Flow Valuation

    YearFCF $Millions
    01143
    11223
    21309
    31400
    41498
    51603
    Terminal Value28933
    • Present Value of the entire firm (Debt + Equity): $25326 million
    • Value of Equity: $21009 million or $107/share
    • 20% margin of safety is $86/share

    Sources

    Morningstar.com

    Yahoo! Finance

    BD.com

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

    Stocks: BDX
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