Stock Analysis on Net
Stock Analysis on Net

Kraft Foods Group Inc. (NASDAQ:KRFT)

This company has been moved to the archive! The financial data has not been updated since April 28, 2015.

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Kraft Foods Group Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 12.68%
01 FCFF0 1,848
1 FCFF1 1,943 = 1,848 × (1 + 5.10%) 1,724
2 FCFF2 2,063 = 1,943 × (1 + 6.18%) 1,624
3 FCFF3 2,212 = 2,063 × (1 + 7.25%) 1,546
4 FCFF4 2,396 = 2,212 × (1 + 8.33%) 1,487
5 FCFF5 2,622 = 2,396 × (1 + 9.41%) 1,443
5 Terminal value (TV5) 87,716 = 2,622 × (1 + 9.41%) ÷ (12.68% – 9.41%) 48,290
Intrinsic value of Kraft Foods Group Inc. capital 56,115
Less: Debt (fair value) 11,000
Intrinsic value of Kraft Foods Group Inc. common stock 45,115
 
Intrinsic value of Kraft Foods Group Inc. common stock (per share) $76.22
Current share price $85.88

Based on: 10-K (reporting date: 2014-12-27).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Weighted Average Cost of Capital (WACC)

Kraft Foods Group Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 50,836 0.82 14.73%
Debt (fair value) 11,000 0.18 3.20% = 4.62% × (1 – 30.83%)

Based on: 10-K (reporting date: 2014-12-27).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 591,940,002 × $85.88
= $50,835,807,371.76

   Debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (25.80% + 33.60% + 33.10%) ÷ 3
= 30.83%

WACC = 12.68%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Kraft Foods Group Inc., PRAT model

Microsoft Excel
Average Dec 27, 2014 Dec 28, 2013 Dec 29, 2012
Selected Financial Data (US$ in millions)
Interest and other expense, net 484 501 258
Net earnings 1,043 2,715 1,642
 
Effective income tax rate (EITR)1 25.80% 33.60% 33.10%
 
Interest and other expense, net, after tax2 359 333 173
Add: Dividends declared 1,279 1,228 296
Interest expense (after tax) and dividends 1,638 1,561 469
 
EBIT(1 – EITR)3 1,402 3,048 1,815
 
Current portion of long-term debt 1,405 4 5
Long-term debt, excluding current portion 8,627 9,976 9,966
Equity 4,365 5,187 3,572
Total capital 14,397 15,167 13,543
Financial Ratios
Retention rate (RR)4 -0.17 0.49 0.74
Return on invested capital (ROIC)5 9.74% 20.09% 13.40%
Averages
RR 0.35
ROIC 14.41%
 
FCFF growth rate (g)6 5.10%

Based on: 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29).

1 See details »

2014 Calculations

2 Interest and other expense, net, after tax = Interest and other expense, net × (1 – EITR)
= 484 × (1 – 25.80%)
= 359

3 EBIT(1 – EITR) = Net earnings + Interest and other expense, net, after tax
= 1,043 + 359
= 1,402

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [1,402 – 1,638] ÷ 1,402
= -0.17

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 1,402 ÷ 14,397
= 9.74%

6 g = RR × ROIC
= 0.35 × 14.41%
= 5.10%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (61,836 × 12.68% – 1,848) ÷ (61,836 + 1,848)
= 9.41%

where:

Total capital, fair value0 = current fair value of Kraft Foods Group Inc. debt and equity (US$ in millions)
FCFF0 = the last year Kraft Foods Group Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Kraft Foods Group Inc. capital

FCFF growth rate (g) forecast

Kraft Foods Group Inc., H-model

Microsoft Excel
Year Value gt
1 g1 5.10%
2 g2 6.18%
3 g3 7.25%
4 g4 8.33%
5 and thereafter g5 9.41%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 5.10% + (9.41% – 5.10%) × (2 – 1) ÷ (5 – 1)
= 6.18%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 5.10% + (9.41% – 5.10%) × (3 – 1) ÷ (5 – 1)
= 7.25%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 5.10% + (9.41% – 5.10%) × (4 – 1) ÷ (5 – 1)
= 8.33%