Kraft Foods Inc. (KFT)

Discount cash flow analysis

Sell Overvalued by 17.3%

5% margin of safety What's this?

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How does this work?

This is an interactive analyst report for Kraft Foods Inc., based on a discounted cash flow valuation approach.

You can modify the assumptions and the valuation will be updated automatically. You can also save and share your valuation.

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Values in $ millions
2007 2008 2009 2010 2011 2012 2013 2014
 
                 
               
 

What will the revenues be in the future?

Growth beyond year three is driven by the terminal growth rate.

Price history

Sensitivity matrix

   
-1%
Discount Rate %
0%

1%
  -1% $35.93 $35.13 $34.35
Terminal Growth% 0 $36.25 $35.44 $34.65
  +1% $36.58 $35.75 $34.96

How does a change in discount rate or terminal growth affect valuation?

This table shows the sensitivity of the valuation to two key variables - the discount rate and the terminal growth rate

Valuations and comments

  • Valuecruncher created a new valuation of $76.05 (undervalued by 77.52%) - 12 months ago
  • wassup121 created a new valuation of $30.39 (undervalued by 14.38%) - almost 8 years ago
  • SethWellbourne created a new valuation of $12.52 (overvalued by 42.67%) - over 8 years ago
  • GordonGekko created a new valuation of $26.14 (undervalued by 14.2%) - over 8 years ago
  • TheCrunchBlog created a new valuation of $35.44 (undervalued by 21.45%) - almost 9 years ago
  • GordonGekko created a new valuation of $25.44 (overvalued by 12.82%) - almost 9 years ago
  • BudFox1987 created a new valuation of $23.25 (overvalued by 25.77%) - over 9 years ago

Comments

Running The Numbers - is Kraft ($KFT) recession proof?

This valuation is part of this blog post:

http://blog.valuecruncher.com/2008/11/running-the-numbers-is-kraft-kft-recession-proof/

Assumptions

Revenue: Reuters aggregates 12 analysts covering $KFT and these analysts have mean estimates of 2008 and 2009 revenues of US$43.2 billion and US$44.9 billion respectively. For our analysis we have used US$43.0 billion in 2008, US$44.5 billion in 2009 and US$45.5 billion in 2010.

Profitability: We have used an EBITDA margin of 13.0% in 2008 rising to 14.0% in 2010. Reuters has $KFT‘s EBITD margin at 13.2% last year and averaging 17.0% over the last five-years.

Capital Expenditure: We have assumed capital expenditures of US$1.25 billion per annum moving forward.

Discount Rate: 7.5%. You could make an argument for a discount rate anywhere in the 7-8% range.

Terminal Growth Rate: 3.0%. The US economy grew at an average of 3.6% over the last five-years.

Our analysis incorporates the cash and debt the $KFT balance sheet – Valuecruncher calculates a net debt number.

By TheCrunchBlog, almost 9 years ago

The boring details

All amounts in millions Figures
Enterprise Value: 83,379
Net Debt (Long-term borrowings less cash): 20,442
Equity Value: 42,869
Number of Shares Outstanding: 1,469,000,000
Calculated value per share: $35.44

Enterprise Value is the present value of the post-tax cash flows for a business into the future.


Calcuation of EV

Where:

  • C1, C2, C3 - the cash flow in period 1, 2, 3, ...
  • r - the discount rate

To capture the cash flows into the future a terminal value is calculated via a perpetuity calculation -
based on the final years forecast post-tax free cash flow.


Perpetuity

Where:

  • Cn - the cash flow in the final forecast period.
  • LTG - the long-term growth rate
  • r - the discount rate
  • g - the terminal growth rate

The Capital Asset Pricing Model (CAPM) is used to determine the equity component in the discount rate.


CAPM model

Where:

  • rt - the risk free rate
  • t - the tax rate
  • B - the beta of the company
  • MRP - the Market Risk Premium

Valuecruncher uses an estimate of Weighted Average Cost of Capital (WACC) to determine the discount rate in the calculation.