Equity Valuation

Please answer all questions briefly, yet succinctly. Do not only show your answer, but how you got there as well. Please organize your answers. The easier you make it for me, the easier for me to assign full credit. Neatness counts! Grading will be based on your demonstrated ability to work with valuation concepts.

This is a take home assignment. It is expected, that students will discuss their work with cohorts and other students enrolled in the class. It is imperative that you do your own work. I will not accept a student handing in a copy of another students work. I will not accept obvious replications.

Please answer each question on a separate piece of paper. Assignment #2 is due on the last day of week 4 which is Sunday 05/24 at 1 PM.

 

You have been given three (3) stock symbols. These stocks are referred to as “Your Portfolio”. With each stock in Your Portfolio:

  • Create a graph of trailing earnings. Is your company cyclical or defensive?
  • Value your stocks using each of the following methods:
  1. P/E Multiple approach
  2. P/B Multiple approach
  3. Multi-stage dividend (EPS) discount model
  • Describe your results. Are the answers consistent? Do they give you a mixed picture? Are they useful? What techniques do you have greater confidence in? Why?
  • Calculate PEG ratios. Do these help you understand where your issues are valued?
  • Create a graphs:
  1. PE/PB   (PE on the Y-axis, PB on the X-axis)
  2. Assume the market’s PE is 17.5 and the P/B is 2.8.

Answer this question: Your graph displays a trade-off? What trade-off am I referring to? Does your graph help in understanding where which issue has a better trade-off and a better value

  • Rate your stocks given a 12% market totreturn

 

Note / your 3 stocks are : (ABBOTT LABORATORIES, BOEING CO, FAST)