Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Cardinal Health Inc: cash flow valuation update

|Includes:Cardinal Health Inc. (CAH)
Current Price: ~ $41/share
Projected Yield: ~ 2.09%




Cardinal Health is a leading distributor of pharmaceuticals and medical supplies to pharmacies and hospitals. Its operations include procurement, packaging, inventory management, and logistics services. Its largest customers are CVS Caremark and Walgreen.  


I estimated the firm's WACC today at 6.71% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Year
FCF $Millions
2002
699
2003
975
2004
2215
2005
2279
2006
1697
2007
866
2008
1136
2009
1034
2010
1878
2011
1103
TTM
1408


Average Annual Growth FCF: ~ 18%
CAGR FCF: ~ 5%
Consensus Forecast Industry 5-Year Growth: ~ 16% per year
Consensus Forecast Company 5-Year Growth: ~ 12% per year


Starting at $1103 million FCF, assuming the company achieves a 5-year growth rate in FCF of 4.5% 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
1103
1
1153
2
1205
3
1259
4
1315
5
1375
Terminal Value
21420

The firm's future cash flows, discounted at a WACC of 6.71%, give a present value for the entire firm (Debt + Equity) of $20666 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 $17666 million.  $17666 million / 346 million outstanding shares is approximately $51 per share and a 20% margin of safety is $41/share.



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