As a health care analyst, you are valuing the stocks of three medical equipment manufacturers, including the Swedish company Getinge AB (Stockholm: GETI) in March 2013.

Based on an average of estimates obtained from capital asset pricing model (CAPM)

and bond yield plus risk premium approaches, you estimate that GETI’s required rate of return is 9 percent. You have gathered the following data from GETI’s 2012 annual report (amounts in millions of Swedish krona, or SEK):

Although sales growth picked up in 2012, it has slowed considerably in recent years and you are concerned that trend will ultimately be reflected in profit margins. Given this consideration, you make the following long-term forecasts:

Profit margin = 9.0 percent Dividend payout ratio = 35.0 percent Earnings growth rate = 7.0 percent i. Based on these data, calculate GETI’s justified P/S.

ii. Given a forecast of GETI’s sales per share (in Swedish krona) for 2013 of SEK108.9, estimate the intrinsic value of GETI stock.

iii. Given a market price for GETI of SEK196.2 on 31 March 2013 and your answer to Part 2, determine whether GETI stock appears to be fairly valued, overvalued, or undervalued.

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Net sales Growth rates (geometric) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 9,160 10,889 11,880 13,001 16,445 19,272 22,816 22,712 21,854 24,248 2003-2012 11.4% 2008-2012 5.9% Year/Year Net profit Growth rates 18.9% 9.1% 9.4 % 26.5% 17.2% 18.4% -0.5% -3.8% 11.0% 778 915 1,150 1,259 1,233 1,523 1,914 2,280 2,537 2,531 2003-2012 14.0% 2008-2012 13.5% Year/Year Net profit margin Averages 17.6% 25.7% 9.5% -2.1% 23.5% 25.7% 19.1% 11.3% -0.2% 8.5% 8.4% 9.7% 9.7% 7.5% 7.9% 8.4% 10.0% 11.6% 10.4% 2003-2012 9.2% 2008-2012 9.7% Dividend payout ratio Averages 35.1% 36.4% 35.4% 35.4% 39.3% 33.2% 34.3% 34.0% 35.3% 39.2% 2003-2012 35.8% 2008-2012 35.2%