FIN 200-B-Business Finance. Walmart Firm valuation

FIN 200-B-Business Finance 

COMPANY VALUATION PROJECT INFORMATION   You are required to analyze a company incorporating material covered in this class. Your task is to generate an extended analyst report. This project is divided into two components. First, you will produce a typewritten team report (10-15 double-spaced pages (excluding charts), proofread for spelling and grammatical errors) summarizing all your work. Second, you will present your project in class, that is, you must prepare a 10-minute PowerPoint team presentation of your work.  Purpose of the Project:    Learn how to perform firm analysis and valuation  Apply material learned in class to the real world data and obtain exposure to challenges faced when performing firm analysis and valuation  Become familiar with sources of finance and economic data   Strengthen team-work skills by working on the project in groups   Enhance presentation skills by presenting the project in class  Find a Team:   You MUST work on this project in a group of four (or a group of three, depending on the class size). You are asked to work in teams for few reasons. First, this will enable you to enhance your teamwork and leadership skills. Second, you will have an opportunity to learn from your fellow students. Third, longer presentations by each team can be scheduled.   Choose a Company:   Each group must choose a   non-financial company that is   publicly traded  has a stock price of greater than $5 and   has been traded for at least 4 years and   pays dividends and has paid dividends for at least 3 years Please note that failure to choose the right company will be penalized.  The following companies may not be chosen: Hersehy’s. McDonald’s, Apple, Target, Marriott, CVS, GE, Procter & Gamble.    It is important to follow these guidelines. If you choose a company that does not satisfy one or more of the criteria, you might not be able to perform the required necessary analyses and therefore will not be able to get the best possible grade.  2   Project Description:   You will apply skills learned in this class to evaluate company’s performance and price its securities. You must make a recommendation: buy, hold or sell and clearly justify it. Your report (written deliverable) and presentation (oral deliverable) must be clearly articulated. Every statement you make must have a purpose. Mere description of facts and numbers will receive very little credit. When working on this project, you should synthesize all material on valuation learned in this class and apply it in a comprehensive manner to your analysis.   At the minimum, your report should include:    In-depth description of the firm, its competitors and the industry o This section of your report has to provide the reader with a clear understanding of competitive advantage of your company, opportunities and challenges facing the company and the industry. Material in this section should be used to estimate the growth rate of the firm. You should be able to draw on other management classes taken at Suffolk when preparing this section. o After completing this section you must identify main value drivers of the firm.    Financial statement analysis of the firm using ratios and Dupont ROE decomposition  o When working on this section, remember that the purpose is to analyze the firm and its financial position, not simply to calculate ratios. It is essential to make it clear in your report and presentation what calculated ratios tell you about the company and how you used this information in valuation.  o You are required to perform both (i) trend/historical and (ii) benchmark analysis. You have to justify your choice of benchmark. For trend analysis, use at least three most recent years of reported data.    Analysis of firm riskiness  o What are the sources of risk of the firm (market, industry, firm, currency, etc)? How can you tell? Has the risk been changing overtime? How can you use this information to perform valuation?  o You are required to calculate your own beta for the firm and discuss why it differs from beta reported by different sources.  Remember that the main goal of the project is to VALUE THE FIRM. Therefore, the first three sections of the report have to be geared towards finding the inputs into valuation formulas and identifying the main value drivers and risks.   Firm valuation  o You have to value the stock using the following methods: 1. Dividend discount model  *  2. Valuation using multiples ** o A well executed project will clearly explain all assumptions made and the sources for all parameters. If you need to estimate parameters, clearly state your reasoning behind the choice of each method of estimation.  o A well executed project will try different alternative estimates of parameters and discuss the sensitivity of the stock price valuation to assumptions about different parameters.   o Note that this is the central part of the project.    3 * Notes on DDM Model: To value the firm using the DDM model, you will need to estimate/obtain the following parameters: D1, r, and g.  o Your D1 will be the expected divined per share for 2019. You can use your firm’s financial statements to analyze its dividends over the past several years and use its current dividends (paid out in 2018) to compute 2019 expected dividend. Remember, D1 = Do * (1+g). You will need your g calculated in order to obtain D1.  o You will compute your r from CAPM equation. Detailed directions on how to do that are provided in a separate PPT file entitled “CAPM+CompValuation” and posted in “Company Valuation Project” folder on Blackboard.  Also, it will be covered in class together with Chapter 8.  o Your g estimate will not be a result of a precise calculation, but rather, your best estimate given your thorough analysis of both quantitative and qualitative information.   You will pull up the analyst reports to assess what dividend growth rates different agencies are predicting.   Your will read extensively to assess if your company appears to be a high growth or a low growth firm. Is it launching a new product some time soon? What are the growth prospects for your firm? And so forth.   You will look at historical dividends for several years and compute retroactive annual growth rates for your firm by using the formula D1 = Do * (1+g) and solving for g.   You will also compute g from the following formula: g = ROE * plowback ratio.   Finally, you will assess the differing levels of growth rates that you obtained by the above means, and decide on the growth rate to use in your DDM formula, to compute D1 from Do.  Remember that DDM formula assumes a constant g – the growth rate that should coincide with that of the economy (see Chapter 7 PPT).   ** Notes on valuation using multiples: Valuation using multiples is typically intended as an alternative to other models, such as DDM model. It uses the industry P/E ratio to compute the stock price of your firm. To value your firm using multiples, you will multiply your firm’s most recent earnings per share (or its estimate for the next year) by the industry P/E ratio (not your own firm’s P/E ratio!). If unable to locate P/E ratio for your industry, you may alternatively apply the average P/E obtained from P/Es of your main competitors. The latter method will be less precise, however.   Please note that your final estimate of the stock price should be the weighted average of the stock prices obtained from DDM and valuation using multiples. You must justify your choice of weights.   Conclusion and recommendation  o Your project should conclude with your recommendation, as to whether the firm is a good investment (is the firm undervalued, fairly valued or overvalued).   Keep in mind that the purpose of the project is to value the company. A common mistake made by students is to spend too much time describing the company and its position and to spend very little time on valuation, which includes explaining the assumptions in the models, derivation of the relevant parameters, and attempted scenario analyses (i.e., observing how the results change as the different parameters are varied).   To be a good analyst, you must be able to differentiate between a good story and a good stock. You might be analyzing a wonderful company that does everything right and had a great growth potential (“good story” company). However, as an analyst you need to determine whether all that “goodness” of the company is already priced in the market. If it is, then it might not be a good stock (it is fairly valued or overpriced).      4  General Project Rules:    Project has to include an executive summary highlighting main results and the table of contents.   You are expected to meet professional presentation standards – expect to be severely penalized for grammatical and spelling errors.   Use bullets and numbers to highlight important points.  Use as much visual aid as you can (pie charts, tables, diagrams).  Tables should be properly referenced in the text. Tables should appear in the body of the report rather than in appendix.   Please number pages.  Using material from outside sources is acceptable only if the source is cited properly. Use footnotes for citations rather than endnotes.   Plagiarism is unacceptable.  Subcontracting is unacceptable.  Due Dates:     You will be asked to hand in your intermediate results as the course progresses. Your project progress report is due in a hard copy on Tuesday, October 29 in class.   Hard copies of the project final report and presentation are due for all teams on Tuesday, Dec 3 in class.   Soft copies of the project final report and presentation are due for all teams by Monday, Dec 2 by 5 PM. Please email your work to the professor.   Please note only one submission is allowed. Once emailed to the professor / submitted in a hard copy, your submission is final and no further revisions are allowed. Please do not resend multiple copies.   Presentations will take place on Tuesday, December 3 and Thursday, December 5.   RESOURCES GUIDE  Library has a variety of research guides to help students select appropriate databases and other resources, including Company Research:  http://suffolk(dot)libguides(dot)com/companyresearch  The complete list of all guides relating to business can be found on the Sawyer Library homepage, or with this direct link: http://suffolk(dot)libguides(dot)com/cat.php?cid=20936  GRADING RUBRIC  PRESENTATION – out of 30 points:  - High standard of professional communication during presentation /5 - Professional quality of Power Point slides  /5 - All project areas well described, presented, and supported /20 o In-depth description of the firm, its competitors and industry /3 o Financial statement analysis /3 o Risk analysis /3 o Firm Valuation: DDM /4 o Firm Valuation: multiples /4 o Recommendation /3 TOTAL: /30  5  WRITTEN REPORT – out of 70 points:  In-depth description of the firm, its competitors and the industry - Competitive advantage of your firm well articulated  /6 - Opportunities and challenges of your firm well articulated /6 - Key value drivers thoroughly evaluated /5 Financial statement analysis  - Firm and its financial position is thoroughly analyzed using trend/historical and benchmark analysis /5 - All categories of ratios employed as explained in project description /3 Analysis of riskiness  - Sources of risk clearly and thoroughly evaluated (firm, industry, market)  /5 - Process of Beta estimation clearly explained /3 Firm Valuation and Recommendation (key part of the project)  - Assumptions for all parameters well explained for each model /10 - Estimation of all parameters well explained and carried out for each model /10 - Recommendation clearly stated and supported with findings /10  Other  - Report well proofread, edited, and serves as a representative sample of professional writing  /4 - Executive summary well-written and a concise summary of all work /3