From 2011 to 2013 FCF grew on average 10.43%. And from 2010 to 2014 FCF grew on average of 6.4%. In the process, they have continuously grown earnings and increased dividends while achieving ~10% returns on invested capital and over 20% returns on equity (ROE) over the last 10 years. Capex appears to be stable around 2.5B.
Furthermore, in keeping with our conservative estimates, instead of using the TTM FCF figure of $8.65B to project FCF, we will be conservative, and use the 3-year FCF average from 2012-2014, $8.02 billion.
We will use a shorter term average of free cash flow (3-year) and a conservative discount rate of 8%, given the non-cyclical, high quality, stable nature of the business.
We assume that the business is sold at the end of the year 10 at a conservative 10x FCF plus any excess capital in the business. We’ll use $8B as a conservative number of excess capital.
Based on these numbers, and to be very conservative, we come up with 3 growth scenarios for Coca-Cola over the next 10 years. The growth scenarios give us a range of $28.73 to $32.41 per share. The stock is trading ~$40.50 per share which gives very little margin of safety to our weighted assumptions.
This gives us a weighted intrinsic value of $33.36 per share. With shares trading at more than $40 per share, it appears there could be better opportunities in the market right now.