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Subject: Sara Lee --SLE Date: 3/9/2004 9:28 PM
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Sara Lee's fiscal year ended June 28 2003. They have most recently reported on their 2nd quarter 2004.

Sara Lee does a lot more than cheesecake. It has five reportable segments--Sara Lee
Meats, Sara Lee Bakery, Beverage, Household Products, and Intimates and Underwear. Products and services include fresh and frozen baked goods, processed meats, coffee and tea, beverage systems, intimate apparel, underwear, sportswear, legwear and other apparel, and personal, household and shoe care products.

Sara Lee Food and Beverage

Food and Beverage's primary focus is packaged meats, bakery products and coffee and tea beverages. Sara Lee's Food business consists of packaged meats (53.3% of the business's total sales in fiscal 2003) and baked goods (46.7% of the business's total sales in fiscal 2003). The products offered by the Sara Lee Meats business include smoked sausage, bacon, hot dogs, breakfast sausage, breakfast sandwiches, premium deli and luncheon meats, ham, turkey, and packaged lunch combinations.

Some of the more prominent U.S. brands within this category include Ball Park, Hillshire Farm, Jimmy Dean, Sara Lee, Best's Kosher, Bryan, Kahn's, State Fair and Galileo. Sara Lee's more prominent European brands include Aoste, Justin Bridou and Cochonou in France, Stegeman in the Netherlands, and Nobre in Portugal. During fiscal 2003, Sara Lee deli meats was the number-one sliced meat in the U.S. grocery store deli channel in terms of dollar sales.

The bakery group produces fresh and frozen baked and specialty items. Its core
products are bread, specialty breads, refrigerated dough, bagels, frozen and fresh pies, pound cakes, cheesecakes, danishes and specialty dessert "bites."

Brands include Sara Lee, Earth Grains, IronKids, Colonial, Rainbo, Heiner's, Grandma Sycamore's, Master, San Luis Sourdough, Redding French Bakery and Break Cake. Products are also sold in the U.S. under licensed brands, including Sunbeam, Roman Meal, Country Hearth, Sun Maid, Holsum, Taystee, Grant's Farm, Healthy Choice, D'Italiano, Pillsbury, Mother's, Old Home and Kern's.

They also have a beverage business. Sara Lee's premium coffee brands include Maison du Cafe, Marcilla, Merrild and Prima in Europe, and Cafe do Ponto, Pilao and Caboclo in South America. Key brands within the United States include Chock full o'Nuts, Chase& Sanborn, Hills Bros and Superior. Sara Lee's Pickwick brand is an important brand in the European tea market. Sara Lee's other premium tea brands include Hornimans, Suenos de Oro in Spain and the Paradise iced tea brand in the United States.

Sara Lee's Food and Beverage business accounted for 53.4%, 52.3%, 43.9% of Sara Lee's consolidated revenues during fiscal 2003, fiscal 2002 and fiscal 2001, respectively.



Intimates and Underwear


Sara Lee's Intimates and Underwear business includes basic, branded "innerwear" products--intimates, underwear and legwear--and sportswear products. Sara Lee markets intimate apparel, underwear and legwear in North America, Europe and several Latin American countries with a portfolio of well-known brands including Hanes, Hanes Her Way, Playtex, L'eggs, DIM, Bali, Just My Size, Wonderbra, Lovable, Sol y Oro and
Zorba. Sara Lee's sportswear business sources, manufacturers and distributes basic fleece, T-shirts, sportshirts and other jersey products. The sportswear business consists of three divisions: Casualwear, Hanes Printables and Champion Activewear. Sportswear is marketed under several brands, including Sara Lee's Hanes and Champion lines.

Household Products

Household Products is Sara Lee's most global line of business, marketing branded consumer products in over 180 countries. They have both retail products and products designed for direct sales (model like Usana and NuSkin). Ambi Pur and Kiwi brands may be the best known. Sara Lee's Household Products business accounted for 11.6%, 11.1% and 11.5% of Sara Lee's consolidated revenues during fiscal 2003, fiscal 2002 and fiscal 2001, respectively.

Sara Lee is nothing if not diversified. They are the owner of over 30,000 trademark registrations and applications in over 180 countries.

Income Statement


June 28, 2003 June 29, 2002 June 30, 2001

------------- ------------- -------------
Dollars in millions except per share data
Continuing Operations
Net sales $ 18,291 $ 17,628 $ 16,632

------------- ------------- -------------
Cost of sales 11,052 10,829 10,417
Selling, general and administrative 5,568 5,236 4,597
expenses
Gain on disposal of Coach business -- -- (967)
Interest expense 276 304 270
------------- ------------- -------------
Income from Continuing Operations 1,221 1,010 1,603
Net Income $ 1,221 $ 1,010 $ 2,266

Basic $ 1.55 $ 1.27 $ 1.94
Diluted $ 1.50 $ 1.23 $ 1.87

Ratios for the income statement

2003 2002 2001 2000 1999
Gross Profit 43% 43% 45% 46% 42%
Operating Margin 13% 12% 12% 13% 12%
Net Margin 7% 6% 13% 7% 6%
Growth in Revenue 4% -1% 1% -12% --
Growth Net Income 21% -55% 85% 3% --
Growth in COGS 3% 4% 2% -19% --

**Increased revenues in 2003
**Net income growth from 2002
**Stable margins

** Consolidated net sales increased $663 million, or 3.8%, in 2003 to $18,291 million. The strengthening of foreign currencies, particularly the euro, increased sales by 4.1%, or $730 million.

**Acquisitions increased net sales by $287 million, or 1.7%. Substantially all of the $287 million increase came from the fact that the Earthgrains business was acquired in August 2001 and a full year of sales was recognized in 2003. Earthgrains appears to have been a very smart acquisition and is already adding to the bottom line. Contrast this with General Mills incredible problems integrating Pillsbury. It appears Sara Lee has a better grasp of how to make acquisitions.

** Interest expense increased from $180 million in 2001 to $208 million in 2002, or $28 million. This increase was due to higher debt levels associated with the
corporation's acquisition of Earthgrains in August 2001. The interest expense went down in 2003 due to more favorable rates.

**The gross margin percent increased from 38.6% in 2002 to 39.6% in 2003. This increase was primarily attributable to the Intimates and Underwear segment which benefited from favorable raw material prices and restructuring actions initiated in prior periods.

**The gross margin percent also improved in the Sara Lee Meats and Beverage segments. Margin percentages in the Sara Lee Meats business improved primarily as a result of favorable raw material prices in both its U.S. and European businesses while the Beverage margins improved as a result of increased sales of higher margin products.

**Household Products gross margin percentages remained essentially the same while Sara Lee Bakery margins declined primarily as a result of higher raw material and labor costs.

** Total selling, general and administrative expenses increased $332 million, or 6.3%, over the comparable prior year amount. SG&A expenses increased primarily due to a $103 million increase in media advertising and promotion expense, and the strengthening of foreign currencies, particularly the euro, versus the U.S. dollar.

**Consolidated net income of $1,221 million in 2003 was $211 million, or 20.9%
higher than the prior year. $104 million of the change in net income resulted from the fact that in 2002 an after-tax charge of $101 million was recognized for exit and business disposition activities while a benefit of $3 million was recognized in 2003.

**The remaining $107 million increase in net income was primarily due to the strengthening of key foreign currencies versus the U.S. dollar; the impact of business acquisition and disposition activity; and incremental benefits resulting from operating efficiencies obtained through restructuring actions.

**Diluted EPS increased from $1.23 in 2002 to $1.50 in 2003, a change of 22.0%. The higher percentage increase in diluted EPS than in net income was a result of the corporation purchasing its outstanding common stock.

Segment results

Sales Operating Income

----------------- ---------------
2003 2002 2003 2002

-------- -------- ------- -------
In millions
Sara Lee Meats $ 3,746 $ 3,704 $ 375 $ 323
Sara Lee Bakery 3,276 2,976 98 97
Beverage 2,756 2,539 429 416
Household Products 2,118 1,962 369 339
Intimates and Underwear 6,399 6,455 763 596

-------- -------- ------- -------
Total business segments 18,295 17,636 2,034 1,771
Intersegment sales (4) (8) -- --

-------- -------- ------- -------
Total sales and operating segment income 18,291 17,628 2,034 1,771
Amortization of intangibles -- -- (104) (77)
General corporate expenses -- -- (248) (301)

-------- -------- ------- -------
Total net sales and operating income 18,291 17,628 1,682 1,393
Net interest expense -- -- (198) (208)

-------- -------- ------- -------
Net sales and income before income taxes $ 18,291 $ 17,628 $ 1,484 $ 1,185


**Net sales in the Sara Lee Meats segment increased by $42 million, or 1.1%, to $3,746 million from $3,704 million in the prior year. Gross margin percentage increased from 30.3% in 2002 to 31.0% in 2003, primarily as a result of lower commodity costs and benefits associated with the recent supply chain centralization and exit activities.

** Net sales in the Sara Lee Bakery segment increased in 2003 by $300 million, or 10.1% over the prior year as the current year includes an additional 38 days of operating results from the Earthgrains business. The Earthgrains business was acquired in the first quarter of 2002. The 38 days of operating results from the Earthgrains business in the first quarter of 2003 increased reported net sales by $286 million, or 9.6%.

**Net sales in the Beverage segment increased by $217 million, or 8.6%, to $2,756 million in 2003, reflecting the impact of changes in foreign currency and the results of recent acquisitions.

**Net sales in the Household Products segment increased by $156 million, or 7.9%, and operating segment income increased by $30 million, or 8.9%.

** Intimates and underwear was the only losing business segment for Sara Lee in 2003. Net sales decreased $56 million, or 0.9%, to $6,399 million in 2003. Net sales of $18 million from certain noncore businesses that were disposed of in 2002 are included in the prior year's results making 2003 negative. The remaining net sales decrease of $241 million, or 3.7%, was primarily due to decreased volume. Volume declined 3% from the prior year as sheer hosiery markets continued to decline. Unit volume by segment
component consisted of an 8% unit volume decrease in worldwide Legwear, a 1% decrease in Knit Products and flat results in Intimates from the prior year.

This business segment was also down in 2002. Sara Lee blames increasing competition. They don't seem to be able to remedy this YOY.

Balance sheet in millions
        
June 28, 2003 June 29, 2002 June 30, 2001

ASSETS
Cash and equivalents $ 942 $ 298 $ 548
Trade accounts receivable, less 1,928 1,831 1,538
allowances of $181 in 2003, $176 in
2002 and $157 in 2001
Inventories
Finished goods 1,810 1,619 1,715
------------- ------------- -------------
Total current assets 5,953 4,986 5,083
Property, net 3,350 3,155 2,146
Total assets $ 15,084 $ 13,753 $ 10,167


Notes payable $ 75 $ 468 $ 101
Accounts payable 1,286 1,321 1,505
Current maturities of long-term debt 1,004 734 480

-------- -------- --------
Total current liabilities 5,199 5,463 4,958

-------- -------- --------
Long-term debt 5,157 4,357 2,640
Pension obligation 1,178 220 38
Unearned deferred compensation (182) (208) (223)
Common stockholders' equity
Retained earnings 3,787 3,168 2,635
Accumulated other comprehensive loss (1,734) (1,470) (1,521)
Total common stockholders' equity 2,052 1,742 1,122

-------- -------- --------
$ 15,084 $ 13,753 $ 10,167


Ratios for the balance sheet

2003 2002 2001 2000 1999

Current ratio 1.15 0.91 1.03 0.88 0.84
Quick Ratio 0.18 0.05 0.11 0.05 0.05
Accounts receivable growth 5.30% 19.05% -12.81% 1.15% --
DSO 38.47 37.91 31.63 36.77 31.81
Days Inventory on hand 95.10 90.49 97.25 113.40 82.77
Day Payable Outstanding 45.23 47.64 56.68 67.71 55.81
ROA 8.09% 7.34% 22.29% 10.52% 11.32%
ROE 58.39% 57.39% 199.30% 97.06% 91.69%
ROIC 13.04% 14.03% 23.74% 19.07% 4.82%
Fixed asset turnover 5.46 5.59 8.27 7.55 --
Debt to equity 298.23% 313.35% 283.29% 371.96% 261.35%
Debt to capitalization 74.89% 75.81% 73.91% 78.81% 72.33%
Book value 2.69 2.24 1.45 1.49 1.47
Cash per share 1.21 0.38 0.70 0.37 0.32
Working capital 754 -477 125 -785 -966
Non Cash Working Capital 891 414 158 1336 258
Cash Conversion Cycle 88.35 80.76 72.20 82.46 58.77

**High debt, but favorable interest rates
**AR being collected more efficiently
**DSO a little over a month, which seems good for a business that wholesales and bills customers
**Inventory turns taking 3 months seems reasonable to good
**Increasing cash per share largely due to new debt
**CCC is rapid
**ROE excellent, but there is a large debt level
**WC increasing after improved efficiency in 2002 cut WC inventory and payables improved substantially in 2002 and those gains are still present for the most part in 2003. Inventory turns slowed a bit.

**The company buys Preferred Stock ESOP that provides a retirement benefit for nonunion domestic employees. The convertible preferred stock sold to the corporation's Preferred Stock ESOP is redeemable at the option of the corporation at any time. The loan is included in long-term debt and is offset in the corporation's Consolidated Balance Sheets under the caption "Unearned deferred compensation."

**Notes payable decreased by $393 million in 2003 to $75 million from $468 million in 2002 and $101 million in June 2001. The corporation repaid all of the outstanding commercial paper at the end of 2003 using cash from operations and the proceeds from a debt issuance that is further described in the debt section.

**Debt:The corporation's total long-term debt increased by $1,070 million in 2003, from $5,091 million in 2002 to $6,161. The corporation issued long-term debt at the end of 2003 to provide funding for the repayment of approximately $910 million of long-term debt obligations that mature in the first quarter of 2004. As a result of the issuance of this long-term debt, the corporation had cash and short-term
investments of $942 million on hand at the end of 2003.


**During 2003, the corporation issued $500 million of thirty-year 6.125% long-term debt, euro 250 million floating-rate notes due 2004, and $1.0 billion of fixed-rate notes consisting of $200 million of 1.95% 3-year notes, $300 million of 2.75% 5-year notes and $500 million of 3.875% 10-year notes. These proceeds, along with cash flow from operations, were used to repay euro 300 million floating-rate notes and euro 200 million fixed-rate notes that had matured, redeem early the $250 million 8.5% fixed-rate notes originally issued by The Earthgrains Company that were due in 2005, and repay $214 million of other maturing debt obligations. The corporation also redeemed $250 million of preferred stock that had been issued by a domestic subsidiary. They have repaid notes due and decreased interest rates. The debt has provided cash. the downside is the increasing levels of debt.

**Debt obligations due to mature in the next year that are not funded with cash are expected to be satisfied with a combination of short-term borrowings, new long-term debt issuances and operating cash flows.

Cash flow statement


June 28, 2003 June 29, 2002 June 30, 2001

------------- ------------- -------------
Dollars in millions
Operating Activities
Income from continuing operations $ 1,221 $ 1,010 $ 1,603
Depreciation 532 471 392

Net cash from operating activities 1,824 1,735 1,496

Investment Activities
Purchases of property and equipment (746) (669) (532)
Acquisitions of businesses and (10) (1,930) (300)
investments
Sales of assets 81 113 65
Net cash (used in) from investment (674) (2,475) 1,065
activities

Issuances of common stock 98 109 104
Purchases of common stock (305) (138) (643)
Redemption of preferred stock (250) -- --
Borrowings of long-term debt 1,773 1,362 1,023
Repayments of long-term debt (995) (503) (390)
Short-term (repayments) borrowings, (395) 124 (1,914)
net
Payments of dividends (497) (484) (486)



Ratios for the cash flow statement

2003 2002 2001 2000 1999
Total shares 777.3 784.7 782 846.3 883.8
Growth in Capex -70.91% 212.38% -40.14% 80.75% --
Capex/operating cash flow 41.45% 149.80% 55.61% 90.26% 47.97%
Free cash flow 1068 -864 664 150 370
Free cash flow per share 1.37 -1.10 0.85 0.18 0.42
Operating cash/Revenue 0.10 0.10 0.08 0.09 0.08
Growth in Cash Flow 223.61% -230.12% 342.67% 59.46% --

**free cash flow positive
Slow down in capex spending partially due to no acquisitions and plan of restructuring

**Net cash provided from operating activities increased 5.2% in 2003, to $1,824 million. Net cash from operations in 2003 as compared to 2002 increased primarily from improved profitability of the business, partially offset by an increased usage of cash to fund working capital. Net cash from operations in 2002, as compared with 2001, was favorably impacted by improved working capital utilization driven by effective management of receivables and inventory balances and significant items that negatively impacted cash flow in 2001, including the cash usage for the exit activities announced in 2001 and certain businesses that were disposed during 2001 that did not generate
positive cash flow.

**No major acquisitions in 2003(Earthgrains bought in 2002) Most investing was done for property plant and equipment

**The net decline in net cash used for investment activities in 2003 as compared to
2002 was the result of cash usage to fund acquisitions in 2002, primarily the acquisition of Earthgrains.

Reshaping the business

During the second and fourth quarters of 2003, the corporation's management
approved actions to reduce the cost structure of the Sara Lee Bakery and beverage businesses. Of the total charge, $15 million is for the cost associated with terminating a number of employees, $13 million is related to actions to dispose of certain manufacturing and distribution assets, $6 million is for the abandonment of certain trademarks, and $5 million is for the cost of exiting certain lease obligations. This
charge was largely offset by income of $37 million resulting from the completion of exit activities and business dispositions for amounts that were more favorable than originally anticipated. The net exit and business disposition actions recognized in 2003 had no material impact on income from continuing operations or diluted earnings per share.

As a result of the exit activities taken, the corporation's cost structure was reduced and efficiency improved. It is estimated that income from continuing operations before income taxes in 2003 included $126 million of incremental benefits over those realized in the prior year. The total annual savings expected to be generated from restructuring efforts is $258 million by 2004, of which $215 million was realized through the end of 2003.

Expenses related to wholesaling food and beverages

There are ways that wholesalers can inappropriately recognize revenue by playing with some of the fees and expenses below. It is difficult to detect without being the
company's accountant. Sara Lee has no litigation outstanding regarding these common practices.

**Expenses particular to food wholesalers include discounts, coupons and rebates. The cost of these incentives is recognized at the later of the date at which the related sale is recognized or the date at which the incentive is offered. Incentives offered in the form of free product are included in the determination of cost of sales.

**Slotting Fees --Certain retailers require the payment of slotting fees in order to obtain space for the corporation's products on the retailer's store shelves. The cost of these fees is recognized at the earlier of the date cash is paid or a liability to the retailer is created. These amounts are included in the determination of net sales.


**Volume-based Incentives--These incentives typically involve rebates or refunds of a specified amount of cash consideration that are redeemable only if the reseller completes a specified cumulative level of sales transactions. Under incentive programs of this nature, the corporation estimates the anticipated rebate to be paid and allocates a portion of the estimated cost of the rebate to each underlying sales transaction with the customer.

**Cooperative Advertising--Under these arrangements, the corporation agrees to
reimburse the reseller for a portion of the costs incurred by the reseller to advertise and promote certain of the corporation's products. The corporation recognizes the cost of cooperative advertising programs in the period in which the advertising and promotional activity first takes place. The costs of these incentives are generally included in the determination of net sales.

**Fixtures and Racks--Store fixtures and racks are given to retailers to display certain of the corporation's products. The cost of these fixtures and racks is recognized in the determination of net income in the period in which they are delivered to the retailer.

Hedging commodities

Also unique to companies that require commodities to operate are hedges on those commodities. Airline buy hedges on fuel and Sara Lee hedges food. The corporation uses futures contracts to hedge commodity price risk. The principal commodities hedged by the corporation include hogs, beef, coffee, wheat, butter and corn. The corporation does not use significant levels of commodity financial instruments to hedge commodity prices, due to a high correlation between the commodity costs and the ultimate selling price of the corporation's products.

Stock
Changes in outstanding common shares for the past three years were:

2003 2002 2001

-------- ------- --------
Shares in thousands
Beginning balances 784,721 781,964 846,331
Stock option and benefit plans 6,797 7,835 7,099
Business acquisitions 11 2 25
Restricted stock plans 1,035 226 (1,130)
Stock purchased (15,911) (6,701) (30,692)
ESOP share redemption 579 1,331 1,684
Other 115 64 49

-------- ------- --------
Ending balances 777,347 784,721 781,964

Common stock dividends and dividend per share amounts declared were $480 and
$0.615 in 2003, $467 and $0.595 in 2002 and $468 and $0.57 in 2001.

**Fewer shares outstanding in 2003 as a result of share buybacks

Options
 

Shares in Exercise
thousands price
Outstanding at July 1, 2000 89,605 $ 20.32
Granted 5,411 21.68
Exercised (8,532) 17.71
Canceled/Expired (8,496) 21.04

-------- --------
Outstanding at June 30, 2001 77,988 20.62
Granted 15,702 21.55
Options converted from acquisition of Earthgrains 1,947 8.02
Exercised (10,105) 16.28
Canceled/Expired (4,913) 21.14

-------- --------
Outstanding at June 29, 2002 80,619 21.04
Granted 12,357 20.24
Exercised (8,861) 17.17
Canceled/Expired (8,059) 23.00

-------- --------
Outstanding at June 28, 2003 76,056 $ 21.15


The weighted average fair value of individual options granted during 2003, 2002 and 2001 was $2.76, $4.88 and $4.65, respectively.

The weighted average fair value of individual options granted during 2003, 2002 and 2001 was $2.76, $4.88 and $4.65, respectively.

**8 million options exercised
**9.8% dilution
**$210 million total value Black-Scholes
**Value per share $0.27

Pension Fund

The funded status of defined benefit plans at the respective year-ends was:

2003 2002 200
--------- ------- -------
Projected benefit obligation
Beginning of year $ 3,513 $ 2,957 $ 2,928
Service cost 106 95 92
Interest cost 217 190 179
Plan amendments (32) 3 2
Acquisitions/dispositions (6) 157 10
Benefits paid (176) (168) (141)
Participant contributions 3 1 1
Actuarial loss (gain) 443 73 37
Foreign exchange 295 205 (151)

--------- ------- -------
End of year $ 4,363 $ 3,513 $ 2,957

--------- ------- -------
Fair value of plan assets
Beginning of year $ 2,957 $ 2,701 $ 3,007
Actual return on plan assets (335) 60 (55)
Employer contributions 124 81 56
Participant contributions 3 1 1
Benefits paid (176) (168) (141)
Acquisitions/dispositions 12 89 (1)
Foreign exchange 206 193 (166)

--------- ------- -------
End of year $ 2,791 $ 2,957 $ 2,701

--------- ------- -------
Funded status $ (1,572) $ (556) $ (256)


**The projected benefit obligation of the defined benefit plans exceeded plan assets by $1,572 million at the end of 2003. This increase in underfunding was was due to a decline in plan asset value during the year while plan obligations grew as a result of a lower discount rate and benefits accrued during the year.

**The corporation does not expect that cash contributions to its pension plans in 2004 will differ significantly from amounts contributed in 2003. They are not predicting that they will have to make a large contribution to bring the plan into compliance in 2004. If they do end up having to make a major contribution at some point that will hurt earnings.

The amortization of this actuarial loss will significantly increase pension expense in 2004. The corporation expects annual pension expense in 2004 to increase by approximately $125 million. This is bad news. The hope was that 2003 would increase returns to these huge corporate pension funds. Sara Lee is not gaining ground. There will come a time when a substantial contribution will most likely have to be made.

Discussion and DCF

For the next 6 years, SLE is going to be paid for the sale of a tobacco company. The terms state the payments are to be made as long as tobacco remains legal in the Netherlands, Belgium and Germany. It seems likely that this contingency will be met. That practically guarantees SLE 95 million euros per year. Even though this is a sale of a a property, since it is providing cash for six years, it seems reasonable to consider it as income. That will start in 2004. It is not considered in the current DCF.

SLE has large amounts of debt and a large pension liability. While it seems they can meet these obligations, it is going to limit the things they can do with cash flow. It might be more difficult to buy any new businesses and dividend increases may be affected. They have not stated any intention of cutting dividends and don't appear to be in financial distress. They generate a lot of cash, but there will be many claims on that cash going forward. I would look for future growth to be muted. An acquisition on the level of he Earthgrains deal might be harder to pull off with so much debt already on the books.

A DCF was done:
High growth 5 years at 6%
Stable growth 3%
Cost of equity 9.7%
Beta 1
Capex exceeds depreciation 100% long term
Capex and WC increase at same rate as revenue.

Value $37.31
Options worth $0.27

I think this is optimistic. The growth rate of 6% seems conservative, but given the levels of debt and obligation, it's possible SLE won't grow steadily at 6% per year for 5 years. Growth in revenue has been erratic, only increasing to 4% in 2003. Because of these uncertainties, if you drop the growth rate to the 2003 levels the intrinsic value decreases to $34.25.

Currently, SLE trades around $22. That is a considerable discount to the value of the DCF. The PE is around 16 and the dividend yield is 3.4. For an equity like Sara Lee, a ratio used by John Neff might be appropriate.

Neff defined total return as growth plus yield. He used a valuation ratio that he never got around to giving a catchy name apart from "total return ratio". This ratio is easy to calculate, you divide the total return by the PE (or you can flip it around and divide the PE by the total return if you are accustomed to using PEG ratios). Neff looked for stocks with a total return ratio around twice that of the market or the sector. Neff points out in his book that at the time of writing (1999) low PE stocks became much harder to find, the total market had a forecast earnings growth of 8% and a dividend yield of 1.5%, giving a 9.5% total return, with a market PER of 27 the ratio was 0.35. Neff sought at this time to find stocks with a total return ratio exceeding 0.7. Currently, median PE is 19.2 and growth is estimated at 8%. Dividend yield is 1.6%. The ratio for the market is .50 and the ratio for Sara Lee is .60. By Neff's ratio SLE is not a great value. It is not close to twice the value of the market.
 
Sara Lee is not likely to lose principal and with the shifting winds in the market towards large cap non-cyclicals like big pharma and consumables, Sara Lee may grow in spite of itself due to increased interest by investors in this type of company. It may get a tailwind from this shifting sentiment. While waiting to see if the price will appreciate significantly, you can collect a decent dividend.
>^..^<
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