With concerns about the global economy’s near term health – analysts are looking at companies that may benefit from the prevailing economic conditions. Kraft ($KFT) is seen as one of the companies that could benefit. How does the current share price look from an intrinsic value perspective?

Valuecruncher valuation model of $KFT with interactive assumptions

Valuecruncher produces a valuation of US$35.44 for $KFT This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 20.9% above the current share price of US$29.31.

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.

Play with our assumptions – what does your analysis say?

Disclosure: None