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Module 9: Valuation of Equity Catalog & Mail order houses industry Matt Lynch

Module 9: Valuation of Equity Catalog & Mail order houses industry Matt Lynch. Presentation Outline. Summary of Valuation Models Valuation of Equity Using the market value of debt Using analysts’ forecasts Dividend Discount Model Residual Income Model Adjusting Value Due to Date

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Module 9: Valuation of Equity Catalog & Mail order houses industry Matt Lynch

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  1. Module 9: Valuation of Equity Catalog & Mail order houses industry Matt Lynch

  2. Presentation Outline • Summary of Valuation Models • Valuation of Equity • Using the market value of debt • Using analysts’ forecasts • Dividend Discount Model • Residual Income Model • Adjusting Value Due to Date • Sensitivity Analysis • WACC vs. long-term growth rates

  3. Recap Cost of Capital = 10.1% (Bloomberg) Growth Rate in the horizon = 14% Long-Term Growth Rate = 5.5% Enterprise Value = $61,439m

  4. Equity Value • Enterprise Value = $61,439 • Value of Debt: Debt due within one year $ 6 Long-term debt 4,117 Short-term investments (4,531) Long-term investments (4,971) Excess cash (4,173) NFA (= VD) $(9,552) • Therefore, the value of equity is: $61,439 – ($9,552) = $70,991

  5. Equity Value • Therefore, the estimated value of equity is: $61,439 – ($9,552) = $70,991 • 1,294m common stock shares outstanding • Equity Value per share = $54.99 • Share Price at close on Friday: $56.96 • (Market Cap = $73,740)

  6. Note: No Dividends issued by eBay

  7. Valueline Valueline Forecasts as of February 14, 2014:

  8. Valuing eBay – Analysts’ Forecast Implied Earnings Growth Rate = 15.24%

  9. Equity Valuation using Dividend Discount Model Cost of Equity = 9.19% Estimated Valueline target price = $75

  10. Equity Valuation using Residual Income Model Cost of Equity Capital = 9.19%

  11. Equity Valuation using Residual Income Model Cost of Equity Capital = 9.19%

  12. Adjusting Date of Value Estimate Estimated Value using 12/31/13 Balance Sheet Date Adjust to Today (3/24/13): V(3/24/14) = V(12/31/13)*(1+r(ent))(83/365) V(3/24/14) = 61,438*(1+.101)(83/365) V(3/24/14) = $62,797 Mid-Year Adjustment: $62,797 * (1+.101)(0.5) =$65,892

  13. Sensitivity Analysis Will use the Abnormal Income Growth Model to analyze the value when the r(ent) and continuing growth rate are varied

  14. Sensitivity Analysis Market Cap of eBay (3/21/14) = $73,740

  15. Sensitivity Analysis Market Cap of eBay (3/21/14) = $73,740 Sell = Yellow

  16. Questions?

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