Re: BUD - Fools Duel
 

[ QUOTE ]
I wish I could elaborate my thoughts better than this, but because of my job I'm not allowed to comment on these specific companies.

[/ QUOTE ]

I'm sure you must have posted it before, but can you remind us where you work? Thx

Re: BUD - Fools Duel
 

[ QUOTE ]
where you work?

[/ QUOTE ]
A small Registered Investment Advisor near New York. We're mainly a non-custodial manager of separate accounts for individuals, institutions, pension plans, etc.; but we also have two hedge funds. I'm not allowed to post about securities we invest in or may be interested in investing in.

Re: BUD - Fools Duel
 

I appreciate everyone's thoughts.

The way I look at (an amateur's view) is the P/E based on next years earnings is:

BUD: 17.1
PEP: 20.4

That being said BUD has marginal revenue growth and shrinking margins with no turn around that I have heard about in sight, while Pepsi should have 10-13% EPS growth.

That is what may seperate me from the "pros", but I have gotten decent growth over the past few years and expect to continue to do so.

I understand your CSCO example, but at a P/E of 80 a few years back, it is comparing apples to dump trucks.

Re: BUD - Fools Duel
 

[ QUOTE ]
Here is a link to the original post I made that included this phrase. I think it's a big and widespread problem, so I was trying to draw attention to it by saying it in one thread and repeating it in another.

[/ QUOTE ]

But your post was so cryptic it didn't do that, at least I didn't understand it.

Yes I like high growth stocks, among others, but that's not my sole criteria for buying. I also use intrinsic value when picking stocks.

I thought it was understood when we said we like growth that included the phrase "all other things being realitivily equal".

If you look at BUD it's forward p/e is almost identical to it's current p/e. I like stocks that are going to perform in the near future. So I don't like BUD.

FWIW, I have a current intrinsic value of ~33 on BUD with it's price being ~43.

Re: BUD - Fools Duel
 

[ QUOTE ]
we like growth ... "all other things being realitivily equal"

[/ QUOTE ]
I'm glad we've found some common ground [img]/images/graemlins/smile.gif[/img]...I totally agree.

[ QUOTE ]
I have a current intrinsic value of ~33 on BUD

[/ QUOTE ]
Can you show us your math?

Re: BUD - Fools Duel
 

I used Quicken's calc:

initial earnings of $1.97 billion grow at a rate of 8.42%, and we discount those future earnings at a rate of 15.00%, we arrive at a net present value for the company's next 10 years of earnings of $14.5 billion. To account for potential earnings beyond the 10th year, we estimate a growth rate of 6.00%, a discount rate of 12.00%, and we arrive at a continuing value of $19.3 billion. To complete the calculation we add these two figures together, subtract the long-term debt for BUD ($8.01 billion), and divide by the outstanding shares (776 million) to get a per share intrinsic value of $33.18.

Re: BUD - Fools Duel
 

Here's S&P's thoughts on BUD leading to 3 star (Hold) rating and a 12 month price target of 45...

[ QUOTE ]
Our 12-month target price of $45 blends our DCF and P/E analyses, giving more weight to the latter. Our DCF model calculates a $53 intrinsic value using a 9.0% cost of capital and a 2.4% five-year growth rate. Applying a below historical average P/E ratio of 16X to our 2006 EPS estimate of $2.68, we get a $43 value.

Risks to our recommendation and target price include market share declines, due to aggressive marketing by competitors, particularly in the wine and spirits categories, for first-time drinkers.

[/ QUOTE ]

Also worth noting, Berkshire holds about 45 million shares of BUD!

Re: BUD - Fools Duel
 

Thanks for the math breakdown. What led you to choose 15% and 12% for your discount rates? Do you use similar rates for other companies we've discussed (JCOM, GOOG, DNA, etc.)?

Re: BUD - Fools Duel
 

Discount rate is bond rate + risk. Bond rate is 6% and risk is 9% for BUD (9% is lowest). Newer companies get higher risk rates, so the other companies all have higher discount rates than BUD. Then all companies default to 12% after 10 years. This is the default discount rate for Quicken and I always take the default rates with this tool for discount rate.

Re: BUD - Fools Duel
 

I follow (and agree with) the framework but not the details. It seems like you might be double-counting some "risk," since the 10-year treasuries are yielding 4.5% but you're starting from a base of 6.0%.

Also, I don't get where the 9% comes from and why it is the "lowest."

For comparison purposes: the Longleaf folks discount at inflation+10%, Mr. Buffett has been using ~10% post-tax/~13% pre-tax as his floor discount rate in the current low-rate environment, and CAPM would say to use 4.5% plus some multiple of "risk premium" which I guess would work out to around 11% or so. So the 15%/12% thing to me seems excessive; to show others who may be following along how wide the swings of DCF can be...if you bring those down to 10%, the intrinsic value goes to $74 per share.