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Coca Cola Company: cash flow valuation

|Includes:The Coca-Cola Company (KO)

Current Price: ~ $63/share
Projected Yield: ~ 3%



I believe Coca-Cola ($KO) is fairly valued at $50/share on a cash flow valuation basis.    


Coca-Cola is the world's largest manufacturer, distributor, and marketer of nonalcoholic beverage concentrates and syrups. The firm also sells a variety of noncarbonated drinks such as water, juices, and teas. With almost three fourths of the company's revenue generated outside the United States, Coke's footprint extends throughout the world. Coke's core brands include Coca-Cola, Sprite, Dasani, Powerade, and Minute Maid.


I estimated the firm's WACC today at 8.22% using the Capital Asset Pricing Model and the company's recent SEC filings.
 

Recent free cash flows and noted growth rates:
 
Year
FCF $Millions
2001
3341
2002
3891
2003
4644
2004
5213
2005
5524
2006
4550
2007
5502
2008
5603
2009
6193
2010
7317


Average Annual Growth FCF: approx. 10%
CAGR FCF: approx. 9%
Consensus Forecast Industry 5-Year Growth: approx. 14% per year
Consensus Forecast Company 5-Year Growth: approx. 9% per year
 
Assuming the company achieves a 5-year growth rate in FCF of 9% per year, and assuming that after the next five years, the company achieves no growth in FCF or 0% growth per year forever:
Discounted Cash Flow Valuation
 
Year
FCF $Millions
0
7317
1
7976
2
8693
3
9476
4
10329
5
11258
Terminal Value
149325


The firm's future cash flows, discounted at a WACC of 8.22%, give a present value for the entire firm (Debt + Equity) of $137,995 million. If the firm's fair value of debt is estimated at $24,318 million, then the fair value of the firm's equity could be $113,677 million.  $113,677 million / 2290 million outstanding shares is approximately $50 per share and a 20% margin of safety is $40/share.


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