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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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  • Genuine Parts Co: cash flow valuation 0 comments
    Jul 12, 2011 8:05 PM | about stocks: 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
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