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Module 9: Valuation of Equity Andrew DePalma March 24 , 2014

Module 9: Valuation of Equity Andrew DePalma March 24 , 2014. Recent Events. A&F surprised analysts when it posted a profit last quarter Stock has gained over 25% this year A&F announced plans to offer products at lower price points CEO Mike Jeffries no longer Chairman

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Module 9: Valuation of Equity Andrew DePalma March 24 , 2014

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  1. Module 9: Valuation of Equity Andrew DePalma March 24, 2014

  2. Recent Events • A&F surprised analysts when it posted a profit last quarter • Stock has gained over 25% this year • A&F announced plans to offer products at lower price points • CEO Mike Jeffries no longer Chairman • A&F announced a $150 million dollar share buyback

  3. ANF 1-Year Chart

  4. ANF Retail Fundamentals

  5. ANF Inventories

  6. ANF Margins

  7. ANF Earnings Surprises

  8. Adjusting Enterprise Value to Equity Value • Enterprise operating activities belong to debt and equity holders • The market value of debt is subtracted to determine the value of equity • Debt is usually listed at market value on the balance sheet • If debt is not shown at market value on balance sheet, then the relevant information will be provided in the footnotes • A&F does not have any debt

  9. ValueLine Forecast

  10. ValueLine Forecast

  11. Dividend Discount Model

  12. Residual Income Model

  13. Sensitivity Analysis and Valuation • Used to gauge how sensitive valuation is to changes in growth and/or discount rate • Best case scenario can be derived by applying lowest reasonable assumption for cost of capital and highest reasonable assumption for growth rate • Worst case scenario can be derived by applying lowest reasonable assumption for sales growth and highest reasonable assumption for cost of capital

  14. Sensitivity Analysis

  15. DCM, REI, and AEIG Models

  16. Forecasting Assumption

  17. Questions?

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