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Becton Dickinson & Co: cash flow valuation update

|Includes:Becton, Dickinson and Company (BDX)
Current Price: ~ $74/share
Projected Yield: ~ 2.42%


Becton Dickinson is the world's largest manufacturer and distributor of medical surgical products, such as needles, syringes, and sharps-disposal units. The company also manufactures diagnostic instruments and reagents, as well as flow cytometry and cell-imaging systems. International revenue accounts for 55% of the company's business.

I estimated the firm's WACC today at 6.87% using the Capital Asset Pricing Model and the company's recent SEC filings.
 
 
Recent free cash flows and growth rates:

Year
FCF $Millions
2002
576
2003
645
2004
832
2005
909
2006
594
2007
662
2008
1036
2009
1126
2010
1207
2011
1201
Click to enlarge

Average Annual Growth FCF: ~ 11%
CAGR FCF: ~ 9%
Consensus Forecast Industry 5-Year Growth: ~ 16% per year
Consensus Forecast Company 5-Year Growth: ~ 9% per year

Scenario 1
Starting at $1201 million FCF, 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
1
1309
2
1427
3
1555
4
1695
5
1848
Terminal Value
29297
Click to enlarge



The firm's future cash flows, discounted at a WACC of 6.87%, give a present value for the entire firm (Debt + Equity) of $27384 million. If the firm's fair value of debt is estimated at $3000 million, then the fair value of the firm's equity could be $24384 million.  $24384 million / 215 million outstanding shares is approximately $113 per share and a 20% margin of safety is $91/share.


Scenario 2
Starting at $1201 million FCF, assuming the company achieves a 5-year growth rate in FCF of 6% per year, and then a growth rate in FCF of 0% per year forever:
 
Discounted Cash Flow Valuation
 
Year
FCF $Millions
1
1273
2
1349
3
1430
4
1516
5
1607
Terminal Value
24780
Click to enlarge



The firm's future cash flows, discounted at a WACC of 6.87%, give a present value for the entire firm (Debt + Equity) of $23631 million. If the firm's fair value of debt is estimated at $3000 million, then the fair value of the firm's equity could be $20631 million.  $20631 million / 215 million outstanding shares is approximately $96 per share and a 20% margin of safety is $77/share.
 
 
Sources
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Stocks: BDX