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Colgate-Palmolive: fairly valued with a margin of safety

|Includes: Colgate-Palmolive Co. (CL)

I believe CL, at approximately $77/share is fairly valued with a margin of safety on a cash flow valuation basis.

Colgate-Palmolive is one of the world's largest consumer product companies. In addition to its namesake toothpaste and detergents, the firm manufactures shampoos, shower gels, deodorants, and shaving products. It also owns specialty pet food maker Hill's, which sells its products through veterinarians and specialty pet retailers. Colgate products are sold around the world; about three fourths of sales come from outside the United States.
(Source: Morningstar.com)

Colgate Announces 4
th
 Quarter and Full Year 2010 Results
 

I estimated the firm's WACC at 8.13% 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 6.54%.  I'll go with the higher mark, 8.13%.    
 
Recent free cash flows and noted growth rates: 
Year FCF $Millions
2000 1170
2001 1259
2002 1268
2003 1466
2004 1406
2005 1395
2006 1345
2007 1621
2008 1555
2009 2702
2010 2661

Average Annual Growth: approx 10%
CAGR: approx. 9%
Consensus Forecast Industry 5-Year Growth: approx. 11% per year
Consensus Forecast Company 5-Year Growth: approx. 9% per year

Assuming the company achieves a slightly lower 5-year growth rate of 8% per year, and assuming 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 2661
1 2874
2 3104
3 3352
4 3620
5 3910
Terminal Value 51909

The firm's future cash flows, discounted at a WACC of 8.13%, give a present value for the entire firm (Debt + Equity) of $48,365 million. If the firm's fair value of debt is estimated at $3,750 million, then the fair value of the firm's equity could be $44,615 million.

$44,615 million / 483 million outstanding shares is approx $92 per share. A 20% margin of safety from here is approx $74 so assuming all else at CL meets my standard for good business, I'd buy it today for the long term at $74 or less.