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Genuine Parts Co: cash flow valuation

|Includes:Genuine Parts Company (GPC)
Current Price: ~ $55/share
Projected Yield: ~ 3.25%
 
 
Genuine Parts Corporation is a distributor of automotive (50% of sales) and industrial replacement parts (31%), electrical/electronic products (15%), and office products (4%). The company has around 2,000 locations in the United States, Mexico, and Canada. In the automotive segment, the company operates under the NAPA brand. This segment consists of nearly 60 distribution centers that supply more than 400,000 parts to roughly 5,000 stores, 1,000 of which are company-owned.
 
I estimated the firm's WACC today at 9.47% using the Capital Asset Pricing Model and the company's recent SEC filings.
 
Recent free cash flows and growth rates:
Year
FCF $Millions
2001
291
2002
208
2003
328
2004
483
2005
355
2006
307
2007
526
2008
425
2009
703
2010
593
TTM
502
 
Average Annual Growth FCF: ~ 15%
CAGR FCF: ~ 8%
Consensus Forecast Industry 5-Year Growth: ~ 17% per year
Consensus Forecast Company 5-Year Growth: ~ 11% per year
 
Average FCF over the past three years is $574 million.  Starting at $574 million FCF, assuming the company achieves a 5-year growth rate in FCF of 11% 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
574
1
637
2
707
3
785
4
871
5
967
Terminal Value
11340
 
The firm's future cash flows, discounted at a WACC of 9.47%, give a present value for the entire firm (Debt + Equity) of $10,207 million. If the firm's fair value of debt is estimated at $524 million, then the fair value of the firm's equity could be $9683 million.  $9683 million / 157 million outstanding shares is approximately $62 per share and a 20% margin of safety is $49/share.
 
Sources
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Stocks: GPC