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Valuation

Valuation. Zara Ali, Cory Carlson, Daniella Comito & Emma Hebblethwaite. AGENDA. Company Overview Industry Overview Competitors Value Drivers Risk Analysis Ratio Analysis Dividend Discount Model Free Cash Flow Model Valuation Using Multiples Recommendation . COMPANY OVERVIEW.

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Valuation

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  1. Valuation Zara Ali, Cory Carlson, Daniella Comito& Emma Hebblethwaite

  2. AGENDA • Company Overview • Industry Overview • Competitors • Value Drivers • Risk Analysis • Ratio Analysis • Dividend Discount Model • Free Cash Flow Model • Valuation Using Multiples • Recommendation

  3. COMPANY OVERVIEW • Founded in 1969 • Headquarters: Stamford Connecticut • 1,162 Properties • 100 Different Countries • 171,000 Employees • 9 Brands • St. Regis, The Luxury Collection, W Hotels, Westing, Le Meridien, Sheraton, Four Points, Aloft & Element

  4. SWOT ANALYSIS

  5. INDUSTRY OVERVIEW • Lodging Industry • Service Sector • Mature Industry • Delivers Specialized Services to Customers • 8 Hotel Classifications • Commercial, Airport, Conference, Economy, All-Suite, Residential, Casino & Resort

  6. INDUSTRY TRENDS • Booking Room Process • Internet • Additional Luxury • Furniture, Complimentary Breakfast, WIFI • Smoke-Free • “Destination” Theme Decor

  7. TOP COMPETITOR Marriot International Net Income: $571 Billion 3,800 Properties 74 Countries 7 Brands Other Top Competitor: Hyatt Hotels Corporation

  8. VALUE DRIVERS • Award Winning Loyalty Program • Increases Brand Loyalty • Increases Customer Experience • Many Locations • Wide Customer Base • Element Brand • First LEED-certified Hotel Brand • Environmentally Friendly is a Growing Trend

  9. RISK ANALYSIS • Data Breach • Identity Theft • Loss of Credibility • Costly Recover • Identify Areas of Exposure • Risk Management Program • Industry • High Competition • Geographical & Brand Diversification • Loyalty Program

  10. RISK ANALYSIS CONTINUED • Staff • Poached by Competitors • High Training Costs • Economy in Recovery • Tax & Law/Regulation • Higher Tax & Higher Regulation • Increase Costs • Currently No Government Talk

  11. FINANCIAL RATIO ANALYSIS • Reduced Ability to Pay Current Debt • Highly Dependent on their Inventory to cover Debt • High Volume of Sales • Reduced Time it takes to Receive Cash • Asset Efficiency has Increased

  12. FINANCIAL RATIOS CONTINUED • Less Dependent on Creditors • Increased Ability to Pay Interest • $0.09 of Net Income per Dollar of Sales • $0.06 of Net Income per Dollar of Assets • ROE Dominates the Industry

  13. FINANCIAL RATIOS CONTINUED • Investors Willing to Pay $19.70 per Dollar of Profits • Industry is Higher • $3.75 per Book Value of Shares • Higher than Industry

  14. BETA • Regression: 2.33601704 • Chose to Use this as our Beta • Yahoo! Finance: 1.91 • Google Finance: 2.33 • MSN Money:2.13 • Conclusion: Twice as Risky as the Market

  15. CAPITAL ASSET PRICING MODEL • Cost of Equity Capital= rf + (rm – rf) β • rf = 30 Year Treasury Bond Rate = 3.65% • Use Treasury Bond because Firm may have Unlimited Life • Market Risk Premium = 2% • Low Risk/Mature Industry • Ri = 3.65% + (2%) * 2.33 = 8.31%

  16. Uses Growth Percentage From Plow Back Equation • Chose to Use this DDM

  17. Uses Growth Estimated By Historical Dividend Growth • This DDM shows Sensitivity

  18. PROJECTED UNLEVERED FREE CASH FLOW

  19. WEIGHT AVERAGE COST OF CAPITAL • Cost of Debt=Treasury Yield (3.65%)+ BBB Credit Rating (0.80%) • Equity to Value=Market Value of Equity ÷ Total Value of Debt & Equity • ($14,146,843,700) ÷ ($28,376,843,700) • Stabilize after 5 Years to Constant Growth of 2.2% • Terminal Value = 7,525,071 ÷ (.047 - .022) = 363,530,000 • Year 6 CF ÷ (Terminal WACC – Constant Growth Rate)

  20. FREE CASH FLOW VALUATION 1. Value the Firm 2. Find Value of Equity 3. Value Stock Price Equity Value ($35,802,417) ÷ # of Diluted Outstanding Shares (194,000,000) = $184.55

  21. VALUATION USING MULTIPLES • EPS: 3.3 • Industry P/E: 25.98 • Found by Averaging 12 Competitors • Marriott P/E: 22 • Very Close to Industry • Stock Price = $85.73 • Market Price = $73.87 • Undervalued by $11.86

  22. CONCLUSION • 20% P/E • Less Accurate • Simple • 40% DDM • Credible • 40% FCF • In Depth Analysis

  23. RECOMMENDATION Current Trading Price = $73.87 Intrinsic Value = $104.21 Undervalued by $30.34 Recommendation = Buy!

  24. THANK YOU!

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