Eric Cota's  Instablog

Current Price: ~ $54/share
Projected Yield: ~ 3.76%

Since its founding more than 110 years ago, H.J. Heinz has grown into a globally diversified manufacturer and marketer of packaged foods, selling through grocery stores, convenience stores, and food-service distributors. Its products include ketchup, condiments, sauces, frozen food, soups, beans, pasta meals, infant nutrition, and others; its namesake brand accounts for about 40% of annual sales. International sales account for 60% of the firm's consolidated total.

Estimated WACC for the firm today is 5.20% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Average Annual Growth FCF: ~ 3%

CAGR FCF: ~ 3%
Consensus Forecast Industry 5-Year Growth: ~ 13% per year

Consensus Forecast Company 5-Year Growth: ~ 8% per year

Internal Growth Rate: ~ 3%

Sustainable Growth Rate: ~ 11%

Scenario 1
Average FCF (2012, 2011, 2010) is $1102 million

• Start at $1102 million FCF
• Assume a 5-year growth rate in FCF of 3% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

The firm's future cash flows, discounted at a WACC of 5.20%, give a present value for the entire firm (Debt + Equity) of $24802 million. If the firm's fair value of debt is estimated at $5700 million, then the fair value of the firm's equity could be $19102 million. $19102 million / 320 million outstanding shares is approximately $60 per share and a 20% margin of safety is $48/share.

Scenario 2
All else being equal,

• Assume a 5-year growth rate in FCF of 5% per year, then 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

• Present Value of the entire firm (Debt + Equity): $27507 million
• Value of Equity: $21807 million or $68/share
• 20% margin of safety is $54/share

Sources

Morningstar.com

Yahoo! Finance

Heinz.com

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