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Module 5 – Valuation Using Forecasts of Cash Flows

Module 5 – Valuation Using Forecasts of Cash Flows. Wilbur Benitez February 5 , 2014 . Cabela’s Overview. Was founded in 1961 and has been a leader in outdoor gear since Leading retailer in hunting, fishing and outdoor gear Went public in June 2004 Market Cap of 4.7B

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Module 5 – Valuation Using Forecasts of Cash Flows

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  1. Module 5 – Valuation Using Forecasts of Cash Flows Wilbur Benitez February 5, 2014

  2. Cabela’s Overview • Was founded in 1961 and has been a leader in outdoor gear since • Leading retailer in hunting, fishing and outdoor gear • Went public in June 2004 • Market Cap of 4.7B • Total revenues of 3.1M in 2012 • Two main segments • Merchandise sales and financial services • Currently seeking to expand with smaller stores • Traditionally has operated using large “Legacy” stores

  3. Current Expansion • Current retail segment consists of 48 stores • 2013: Seven next generation stores were opened • New stores are more productive and generate higher returns on invested capital • 12.5% increase in retail space (5.8 million square feet in 2013) • Future plans • 2014: Fourteen next generation stores are scheduled to open • 2015: three next generation stores have been announced

  4. Industry Risk • Decline in discretionary consumer spending (non-essential goods) • Unseasonal weather conditions • Difficult economic conditions • Consumer spending, oil prices, unemployment rates, etc. • Cyber security breaches (Target) • Decreased consumer confidence • Political and economic uncertainty in foreign countries • Many vendors are located in countries such as China, Mexico and various Eastern Asian and European countries • Political unrest, wars, work stoppages etc. • Current and future government regulations (firearms) • Laws and regulations related to hunting and fishing licenses • State and Federal regulations related to items such as firearms and ammunition

  5. Product Categories

  6. Valuation Using Forecasts of Cash Flows • Expected future earnings can be seen as possible distributions to investors • Our forecast will be based on various assumptions

  7. Assumptions • Our assumptions should be based on both historical performance and future expectations • Sales growth should consider the impact that future store openings will have

  8. Forecasting 2013 Results

  9. Forecast of Free Cash Flows • Free cash flows will serve as the basis for our DCF valuation

  10. Discounted Cash Flow Model

  11. Sensitivity Analysis • Value Drivers • Discount rate • A higher discount rate will lower enterprise value • Sales growth • It is important to consider more than just historical performance • Perpetual growth rate

  12. Questions?

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