In this section, you will select five stocks from the provided list and determine their values by applying an appropriate valuation model from the following options: price to multiple model (earning or sales), dividend valuation model, or free cash flow to equity valuation model.

Five selected stocks are as follows:

IBM: Dividends: $6.21 (2018), Earnings: $3.42 per share, $14.77 billion EBITDA 2017, Sales: $79.14 billion (2017), $18.6 billion in Q3 2018

KO: Dividends: $1.56 (2018), Earnings: $0.58 per share, $8.84 billion EBITADA 2017, Sales: $35.02 billion (2017), $8.245 billion in Q3 2018

BAX: Dividends: $0.70 (2018), Earnings: $0.80 per share, $2.24 billion EBITADA 2017, Sales: $10.56 billion (2017), $2.76 billion in Q3 2018

NFLX: Dividends: N/A, Earnings: $0.89 per share, $7.16 billion EBITADA 2017, Sales: $11.69 billion (2017), $3.99 billion in Q3 2018

GE: Dividends: $0.48 (2018), Earnings: -$2.62 per share, $13.38 billion EDITADA 2017, Sales: $122.09 billion (2017), $29.57 in Q3 2018

The dividends shown are total calculated dividend payments for the calendar year. (EX: GE= $0.14 dividend payment in all four quarters of 2018 = $0.48 total for 2018)

A. Determine the value of each stock by using an appropriate model based on the characteristics provided for each stock; use each model at least once.

B. Provide a rationale for the stock valuation method you chose for each stock.

C. Using the calculated valuation, the current market price, and historical performance, determine the expected return for each stock.

 

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CAPM Inputs: Market Return Risk-free Rate 9% 0.75% Stock Analysis Table: Symbol Estimated Dividends Earnings Sales Free Cash Flow 5-Year Average Dividend Industry P/E Ratio Average Industry P/S Ratio Beta Free Cash Flow Growth Growth IBM 0.86 Use Last Year Use Last Year Use Last Year Use Last Year 13.7 23.7 1.12 2.60% ко 0.66 Use Last Year Use Last Year Use Last Year Use Last Year 8.3 22.6 2.2 6.50% BMY 0.78 Use Last Year Use Last Year Use Last Year Use Last Year 2.9 24.4 3.37 N/A ORCI 1.1 Use Last Year Use Last Year Use Last Year Use Last Year 21.1 20.5 4.45 10% MMM 0.98 Use Last Year Use Last Year Use Last Year Use Last Year 15.1 23.8 2.59 7% BAX 0.75 Use Last Year Use Last Year Use Last Year Use Last Year 16.9 36.09 3.68 N/A BIG 1.04 None Use Last Year Use Last Year Use Last Year N/A 23 1.12 N/A NFLX 1.57 None Use Last Year Use Last Year Use Last Year N/A 52.5 N/A AKAM 1.34 None Use Last Year Use Last Year Use Last Year N/A 41.8 3.58 17% GE 1.12 Use Last Year Use Last Year Use Last Year Use last Year 9.7 23.8 2.59 N/A Activate CAPM Inputs: Market Return Risk-free Rate 9% 0.75% Stock Analysis Table: Symbol Estimated Dividends Earnings Sales Free Cash Flow 5-Year Average Dividend Industry P/E Ratio Average Industry P/S Ratio Beta Free Cash Flow Growth Growth IBM 0.86 Use Last Year Use Last Year Use Last Year Use Last Year 13.7 23.7 1.12 2.60% ко 0.66 Use Last Year Use Last Year Use Last Year Use Last Year 8.3 22.6 2.2 6.50% BMY 0.78 Use Last Year Use Last Year Use Last Year Use Last Year 2.9 24.4 3.37 N/A ORCI 1.1 Use Last Year Use Last Year Use Last Year Use Last Year 21.1 20.5 4.45 10% MMM 0.98 Use Last Year Use Last Year Use Last Year Use Last Year 15.1 23.8 2.59 7% BAX 0.75 Use Last Year Use Last Year Use Last Year Use Last Year 16.9 36.09 3.68 N/A BIG 1.04 None Use Last Year Use Last Year Use Last Year N/A 23 1.12 N/A NFLX 1.57 None Use Last Year Use Last Year Use Last Year N/A 52.5 N/A AKAM 1.34 None Use Last Year Use Last Year Use Last Year N/A 41.8 3.58 17% GE 1.12 Use Last Year Use Last Year Use Last Year Use last Year 9.7 23.8 2.59 N/A Activate

Answer rating: 100% (QA)

Stock Analysis A i IBM Using Dividend Growth Model PDrg From CAPM r RfBetaERMRf 0750869075 7845 Divi... View the full answer