Current Price: ~ $39/share
Projected Yield: ~ 3.38%
With operations that began more than 150 years ago, General Mills is now a leading global manufacturer and marketer of branded consumer foods, such as ready-to-eat breakfast cereals, refrigerated dough and other baking items, snack foods, ice cream, and yogurt. Its portfolio of well-known brands includes Cheerios, Betty Crocker, Pillsbury, Haagen-Dazs, and Yoplait. International sales account for about 20% of the firm's consolidated revenue. .
Estimated WACC for the firm today is 3.01% using the Capital Asset Pricing Model and the company's recent SEC filings.
Recent free cash flows and noted growth rates:
| Year | FCF $Millions |
| 2003 | 920 |
| 2004 | 833 |
| 2005 | 1297 |
| 2006 | 1411 |
| 2007 | 1305 |
| 2008 | 1208 |
| 2009 | 1266 |
| 2010 | 1531 |
| 2011 | 878 |
| 2012 | 1726 |
Average Annual Growth FCF: ~ 13%
CAGR FCF: ~ 7%
Consensus Forecast Industry 5-Year Growth: ~ 13% per year
Consensus Forecast Company 5-Year Growth: ~ 7.50% per year
Internal Growth Rate: ~ 4%
Sustainable Growth Rate: ~ 13%
Scenario 1
Average FCF (2012, 2011, 2010) is $1378 million
- Start at $1378 million FCF
- Assume a 5-year growth rate in FCF of 7% per year, then no growth or 0% growth in FCF per year forever:
Discounted Cash Flow Valuation
| Year | FCF $Millions |
| 0 | 1378 |
| 1 | 1474 |
| 2 | 1578 |
| 3 | 1688 |
| 4 | 1806 |
| 5 | 1933 |
| Terminal Value | 68753 |
The firm's future free cash flows, discounted at a WACC of 3.01%, give a present value for the entire firm (Debt + Equity) of $67018 million. If the firm's fair value of debt is estimated at $7665 million, then the fair value of the firm's equity could be $59353 million. $59353 million / 649 million outstanding shares is approximately $91 per share and a 20% margin of safety is $73/share.
Scenario 2
All else being equal,
- Discount the firm's future FCFs at 6.00%:
Discounted Cash Flow Valuation
| Year | FCF $Millions |
| 0 | 1378 |
| 1 | 1474 |
| 2 | 1578 |
| 3 | 1688 |
| 4 | 1806 |
| 5 | 1933 |
| Terminal Value | 34467 |
- Present Value of the entire firm (Debt + Equity): $32843 million
- Value of Equity: $25178 million or $39/share
- 20% margin of safety is $31/share
Scenario 3
All else being equal,
- Assume a 5-year growth rate in FCF of 2.50% per year, then 0% growth in FCF per year forever
- Discount the firm's future FCFs at 4.00%:
Discounted Cash Flow Valuation
| Year | FCF $Millions |
| 0 | 1378 |
| 1 | 1412 |
| 2 | 1448 |
| 3 | 1484 |
| 4 | 1521 |
| 5 | 1559 |
| Terminal Value | 39951 |
- Present Value of the entire firm (Debt + Equity): $39435 million
- Value of Equity: $31770 million or $49/share
- 20% margin of safety is $39/share
Sources
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.