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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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  • Campbell Soup Co: cash flow valuation update 0 comments
    Jan 5, 2012 8:38 PM | about stocks: CPB
    Current Price: ~ $32/share
    Projected Yield: ~ 3.54%

    With a heritage that dates back about 140 years, Campbell Soup is now a leading global manufacturer and marketer of branded convenience food products, most notably soup. However, the firm's product assortment spans beyond soup, as its portfolio of well-known brands includes Campbell's, Pace, Prego, Swanson, V8, and Pepperidge Farm. International operations account for around 30% of Campbell's consolidated sales.  


    I estimated the firm's WACC today at 4.49% 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
    748
    2003
    590
    2004
    456
    2005
    658
    2006
    917
    2007
    340
    2008
    468
    2009
    821
    2010
    742
    2011
    870

    Average Annual Growth FCF: ~ 11%
    CAGR FCF: ~ 2%
    Consensus Forecast Industry 5-Year Growth: ~ 14% per year
    Consensus Forecast Company 5-Year Growth: ~ 5% per year

    Scenario 1
    Starting at $870 million FCF, assuming the company achieves a 5-year growth rate in FCF of 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
    870
    1
    914
    2
    959
    3
    1007
    4
    1057
    5
    1110
    Terminal Value
    25940

    The firm's future cash flows, discounted at a WACC of 4.49%, give a present value for the entire firm (Debt + Equity) of $25235 million. If the firm's fair value of debt is estimated at $3300 million, then the fair value of the firm's equity could be $21935 million.  $21935 million / 319 million outstanding shares is approximately $69 per share and a 20% margin of safety is $55/share.


    Scenario 2
    All else being equal, discount the future cash flows at a firm WACC of 7.00%:

    Discounted Cash Flow Valuation
    Year
    FCF $Millions
    0
    870
    1
    914
    2
    959
    3
    1007
    4
    1057
    5
    1110
    Terminal Value
    16655

    The firm's future cash flows, discounted at a WACC of 7.00%, give a present value for the entire firm (Debt + Equity) of $15987 million. If the firm's fair value of debt is estimated at $3300 million, then the fair value of the firm's equity could be $12687 million.  $12687 million / 319 million outstanding shares is approximately $40 per share and a 20% margin of safety is $32/share.


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