Deliverables: 1. [Relative Valuation using Multiples] Estimate the (1) total equity value and (2) per-share equity...
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Deliverables: 1. [Relative Valuation using Multiples] Estimate the (1) total equity value and (2) per-share equity value of Target using relative valuation approaches. Follow the instructions below 1) Come up with an initial set of potentially comparable firms for Target. Please begin with a group of firms in the same or similar industries from Capital IQ (Peer Analysis'-'Quick Comps') or FactSet (*Company/Security'-'Overviews'-'Comps'). Optional: You can add and/or remove some companies to/from the set, if you'd like. In that case, please explain your justification (e.g., exclude non-US firms, which might have different valuations). 2) Construct your own price-to-sales (P/S) multiples as ratios between the market value of equity and fiscal year 2021² consensus forecasted sales (S) for this initial set of comparable firms, as well as Target.³ Please do not simply use "off-the-shelf" values of the multiple from standard data sources (such as Capital IQ), which are often based on historical fundamentals. Hint: Market value of equity is current (i.e., today's) market capitalization. 3) For the initial set of comparable firms and Target, collect information on the following key value drivers and their proxies for P/S, and show it in a table: a. Growth rate of net income (or even sales) from fiscal 2020 (last historical year) and onward (such as into 2021/2022) b. Net income margins = net income/sales c. Costs of capital (equity beta can be a good proxy) d. Firm size (proxied by, e.g., revenue, market cap) 4) Using the key value drivers and proxies you collected above as much as possible, narrow down the initial comparable set to a final set of comparable firms for the purpose of P/S multiples valuation. Hint: Using all firms in the same or similar industry, or choosing comparable firms based only on qualitative characteristics (e.g., geographic location, business models) will not suffice. 2 Target's fiscal year ends on the Saturday closest to January 31 in the following year. Therefore, its 2021 fiscal year will end on January 29, 2022, yet it is called 'fiscal 2020' (essentially because it is much closer to the end of calendar year 2021). Similarly, many peer companies in the retail sector also end their fiscal years in January or February of the following year. 3 Forward multiples are computed using forecasted, future fundamentals such as earnings and sales in the future, as opposed to historical, realized ones. Sources of these estimates by analysts include: Capital IQ (under 'Estimates'- *CIQ Estimates'), FactSet (under 'Company/Security'-'Estimates'-'All Estimates'), and www.ft.com Markets Data section. If you are using Capital IQ's CIQ Estimates section, note that "fiscal years YYYY" there are actually fiscal years that ends in calendar year YYYY. For example, Target's "fiscal year 2022" in that section represents a fiscal year ending in calendar 2022, which is its fiscal year 2021. 2 Deliverables: 1. [Relative Valuation using Multiples] Estimate the (1) total equity value and (2) per-share equity value of Target using relative valuation approaches. Follow the instructions below 1) Come up with an initial set of potentially comparable firms for Target. Please begin with a group of firms in the same or similar industries from Capital IQ (Peer Analysis'-'Quick Comps') or FactSet (*Company/Security'-'Overviews'-'Comps'). Optional: You can add and/or remove some companies to/from the set, if you'd like. In that case, please explain your justification (e.g., exclude non-US firms, which might have different valuations). 2) Construct your own price-to-sales (P/S) multiples as ratios between the market value of equity and fiscal year 2021² consensus forecasted sales (S) for this initial set of comparable firms, as well as Target.³ Please do not simply use "off-the-shelf" values of the multiple from standard data sources (such as Capital IQ), which are often based on historical fundamentals. Hint: Market value of equity is current (i.e., today's) market capitalization. 3) For the initial set of comparable firms and Target, collect information on the following key value drivers and their proxies for P/S, and show it in a table: a. Growth rate of net income (or even sales) from fiscal 2020 (last historical year) and onward (such as into 2021/2022) b. Net income margins = net income/sales c. Costs of capital (equity beta can be a good proxy) d. Firm size (proxied by, e.g., revenue, market cap) 4) Using the key value drivers and proxies you collected above as much as possible, narrow down the initial comparable set to a final set of comparable firms for the purpose of P/S multiples valuation. Hint: Using all firms in the same or similar industry, or choosing comparable firms based only on qualitative characteristics (e.g., geographic location, business models) will not suffice. 2 Target's fiscal year ends on the Saturday closest to January 31 in the following year. Therefore, its 2021 fiscal year will end on January 29, 2022, yet it is called 'fiscal 2020' (essentially because it is much closer to the end of calendar year 2021). Similarly, many peer companies in the retail sector also end their fiscal years in January or February of the following year. 3 Forward multiples are computed using forecasted, future fundamentals such as earnings and sales in the future, as opposed to historical, realized ones. Sources of these estimates by analysts include: Capital IQ (under 'Estimates'- *CIQ Estimates'), FactSet (under 'Company/Security'-'Estimates'-'All Estimates'), and www.ft.com Markets Data section. If you are using Capital IQ's CIQ Estimates section, note that "fiscal years YYYY" there are actually fiscal years that ends in calendar year YYYY. For example, Target's "fiscal year 2022" in that section represents a fiscal year ending in calendar 2022, which is its fiscal year 2021. 2
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Related Book For
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1285190907
8th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
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