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Campbell Soup Co: cash flow valuation update

|Includes: Campbell Soup Company (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.