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Today’s Goal

Today’s Goal. Equip and inspire you to participate more fully in the Investment Club Evaluate companies for Stock Reports Post reports on the website Valuation practice for you Something tangible to show for your work Good exposure for the club. Tulane’s Model. BurkenRoad reports

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Today’s Goal

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  1. Today’s Goal • Equip and inspire you to participate more fully in the Investment Club • Evaluate companies for Stock Reports • Post reports on the website • Valuation practice for you • Something tangible to show for your work • Good exposure for the club

  2. Tulane’s Model • BurkenRoad reports • Short Report, Long Report • Mutual Fund: HYBUX • Make stock recommendations • If you pick interesting stocks, recommendations are less important (market perform)

  3. Interesting Stocks • 3D Systems Corp: 3D printers • TDSC

  4. Interesting Stocks • American Technology Corporation: Laser Sound • ATCO

  5. Interesting Stocks • TurboChef Technologies: Superfast Toasters • OVEN

  6. Small Firms Have Little Coverage

  7. Stock Reports • The club should build a template that everyone should follow • Looks professional • Discussion of business, effects of current events, lists accounting information and forecasts • Valuation and maybe a price target • Recommendation

  8. Sources of Information • Company’s website: MD&A in 10K • Goizueta Resources • Business Insights: Industry level information • Thomson One: good charts • Hoovers: List of competitors • Investext: Actual analyst reports • Bloomberg: Beta • S&P’s NetAdvantage: IDK • http://business.library.emory.edu/eresources/title/index.php

  9. Valuing Firms • Simple method based on similar firms • Easy to understand • Can learn quickly • Not emphasized much in class • Based on rule of thumb rather than theory

  10. Valuing Firms Using Comps • A group of similar companies are identified for the basis of comparison with the company being valued. • Key financial multiples are calculated for these companies and then used for valuing the company in question. • Motivation • Similar companies should have similar value. • Benefit: • Ease of use • Drawback • Values obtained are crude measures

  11. P/E • Price divided by earnings per share • How much are investors willing to pay for each dollar of earnings? • Measure of growth

  12. How much is Google Worth • Yahoo • Price $27.36 • EPS 0.79 • P/E 34.68 P = (P/E) * E • Google • EPS 7.88 P = (P/E) * E P = (34.68) * 7.88 = $273.28 P = $479 P/E = 60.86

  13. Key Valuation Multiples • Price / Earnings • Price / EBIT or EBITDA • EV / EBITDA • EBIT = Earnings Before Interest and Taxes, • Income from operations before the effects of the financing and taxes • income independent of capital structure • EBIT is measure of Operating Income • EBITDA = Also before Depreciation and Amortization • Measure of Operating Cash Flow • Enterprise Value = Stock Value + Net Debt + Pref. + Minority Interest • Includes all forms of capital

  14. What’s a Minority Interest • Search “minority interest” in yahoo:

  15. Steps for Comparable Analysis • Determine the peer group (your comps universe) • Gather the appropriate financial information • Enter the financial information into your spreadsheet • normalize for non-recurring items • Calculate relevant historical or forward multiples (P/E; EV/EBITDA) • Forecast your company’s future financial performance (EBITDA, EPS, Cash Flow, etc.) • Apply appropriate multiples to your company’s financial stats and derive implied valuation range

  16. Finding Comps • “Comparable” or “similar” in terms of: • Operations • Products / services; distribution; costs structure; geography; interest exposure; customers, etc. • Financial Aspects • Size (sales, mkt cap); capital structure; margins / profitability; management experience, etc. • You are probably better off to not exclude the comps that are different but use them to explain different relative valuation • Use the average (or median) multiples as the benchmark

  17. Issues • Subjective nature and process • How do you asses differences in the operations and financial aspects? • Do you assess intangible differences such as brand equity, reputation or management expertise? • What is the appropriate number of comps? • Selection may be more art than science • Use judgment • Or Hoovers 

  18. Alternative Multiples • Multiples will vary by industry • Retail: EPS, PEG • Industrials: EBITDA, EPS • Internet: Revenues, Subscribers, Page views • Banks/Financial institutions: EPS, Book Value • REITS: Funds from operations, Net asset value • Use forward multiples if possible • Projected EBITDA, EPS

  19. Spreadsheet

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