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Strategies & Market Trends : Value Investing
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To: AFed who wrote (50799)2/7/2013 12:09:06 AM
From: Jurgis Bekepuris  Read Replies (1) of 78744
 
MHP:

Two points:

For a business that generates $1bn in annual FCF, growing at +10%
If you believe that it will grow FCF at $10% in foreseeable future, then it is cheap. However, it has not grown FCF at 10% in the last 10 years, so it's only your belief that it can do so consistently in the future ( gurufocus.com for quick history of their FCF and other metrics)

nor save them from settlements totaling in the billions of $'s,
If you estimate settlements in billions of $'s, you should discount them from your $1bn FCF per year. This will crimp the valuation quite a bit.

Personally, I don't believe they will pay billions in settlements, my guess would be maybe $1bn at most.
But I also don't believe they will grow FCF at 10%+, so it's too expensive for me right now.

I agree that MHP is a bit more attractive than MCO. I won't buy either.
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