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Justification for Potential Upside or Downside vs. Base-Case Essay

Essay Instructions:

My stock is Wendy's(WEN)
Just finish the Exhibit 30( Yellow highlight part)

 

Setting Price Targets, Part 1. Derive Upside and Downside EPS Estimates for Year 1 and Year 2 

 

In a prior exercise you were asked to build a “base-case” earnings forecast which was used to create your base-case price target.  To help avoid some of the most common psychological pitfalls found in investing, it’s helpful to create upside and downside EPS scenarios and price targets, which stretch our thought process to explore where we could be wrong.  As with forecasting a base-case scenario, this isn’t an exact science, but accuracy improves based on your current and historical knowledge of the industry and company fundamentals.

 

  1. After reviewing the associated video for this assignment, complete the tables below

PLEASE!!! WATCH THE VIDEO CAREFULLY TO COMPUTE THESE CORRECTLY BECAUSE STUDENTS OFTEN GET THIS WRONG

Exhibit 28: EPS Scenarios for Year 1

Ticker

Last Full Year EPS “Year 0”

Base-case Growth Rate

Upside Growth Rate

Downside Growth Rate

Base-case “Year 1”

Upside “Year 1”

Downside “Year 1”

MCD

$7.84

7%

17%

4%

$8.34

$9.17

$8.15

RUTH

$1.41

10%

25%

2%

$1.55

$1.76

$1.44

WEN

$0.59

30.5%

20%

8%

$0.77

$0.71

$0.64

Exhibit 29: EPS Scenarios for Year 2

Ticker

Base-case Growth Rate

Upside Growth Rate

Downside Growth Rate

Base-case “Year 2”

Upside “Year 2”

Downside “Year 2”

MCD

7%

15%

3%

$8.98

$10.55

$8.39

RUTH

10%

20%

2%

$1.71

$2.11

$1.47

WEN

30.5%

25%

5%

$1.00

$0.89

$0.67

 

For your stock, explain what would need to occur for your company to achieve your upside and downside scenarios, making sure to discuss the possible outcomes for your critical factors when applicable:

Exhibit 30: Justification for Potential Upside or Downside vs. Base-Case 

The following events would need to occur for the company to generate EPS well ABOVE my base-case scenario:

The following events would need to occur for the company to generate EPS well BELOW my base-case scenario:
  • IMPORTANT: You are describing outcomes compared to your base-case growth rate (not compared to the prior year).  Please do not use phrases like “XXX will be better than the past” or “the company will continue to XXX” because this box is to compare YOUR upside-scenario to YOUR base-case scenario.
  • Be specific about the company’s threats and opportunities that would change versus your base-case scenario.  Try to include your critical factors in terms of being better than your base-case scenario.
  • IMPORTANT: You are describing outcomes compared to your base-case growth rate (not compared to the prior year).  Please do not use phrases like “XXX will be worse than the past” or “the company will continue to XXX” because this box is to compare YOUR downside-scenario to YOUR base-case scenario.
  • Be specific about the company’s threats and opportunities that would change versus your base-case scenario.  Try to include your critical factors in terms of being worse than your base-case scenario
  

 

 

 

Essay Sample Content Preview:

Wendy’s Company Downside and Upside
Student’s Name
Institutional Affiliation
Wendy’s Company Downside and Upside
To achieve the downside scenario, Wendy’s Company must introduce the put option. The firm must give a controlling act, offering the owner the right but not the obligation to sell a specified amount of underlying security at a specific price within a specified period. When the cost of the stock falls, the investor can sell the stock at the listed price on the put or sell the put since it would have increased in value because it is the money. Wendy’s company should also stop loss. The entity must place an order with a broker to automatically sell a security when it falls at or below a specific price. The company should also con...
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