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Cardinal Health offers long term value with a margin of safety

|Includes: Cardinal Health Inc. (CAH)

I believe CAH, at approximately $41/share, offers long term value with a margin of safety on a cash flow valuation basis.

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 at 10.17% using the Capital Asset Pricing Model and the company's recent SEC filings.  ValuePro has a baseline WACC calculator here and it calculates the firm's WACC at 7.48%.  I'm going with the higher mark, 10.17%.  
CAH's recent free cash flows and noted growth rates:

Year FCF $Millions
2001 531
2002 699
2003 975
2004 2215
2005 2279
2006 1697
2007 866
2008 1136
2009 1034
2010 1878
TTM 1664

Average Annual Growth: approx 26%
CAGR: approx. 15%
Internal Growth Rate: approx. 2%
Sustainable Growth Rate: approx. 6%
Consensus Forecast Industry 5-Year Growth: approx. 16% per year
Consensus Forecast Company 5-Year Growth: approx. 13% per year

Assume the company achieves a lower 5-year growth rate of 5% per year, and assume that after the next five years, the company achieves no growth or 0% growth per year forever.

Discounted Cash Flow Valuation:

Year FCF $ Millions
0 1664
1 1747
2 1835
3 1926
4 2023
5 2124
Terminal Value 21932

The firm's future cash flows, discounted at a WACC of 10.17%, give a present value for the entire firm (Debt + Equity) of $20,735 million. If the firm's fair value of debt is estimated at $2,322 million, then the fair value of the firm's equity could be $18,413 million.

$18,413 million / 349 million outstanding shares = $52.76 per share. A 20% margin of safety from here is approx $42 per share and CAH's current share price is approx $41.  I believe CAH offers good long term value with a margin of safety on a cash flow valuation basis.