Security Analysis Term Paper: You are to prepare a research report on the stock, STE - Steris Corp. - Medical Appliances & Equipment.
All students will prepare a research report on the same company.
When choosing a company for this project, several key characteristics were examined including the following:
• they pay a dividend
• they have a relatively low to moderate P/E
• they have a positive and acceptable ROE
• they are relatively small, but have been a publicly traded company for at least 10 years
• they are relatively "uncomplicated" companies.
While a 10K report is one source of information for the report, students plagiarizing from the 10K (or from any other source) can expect to receive a zero for this part of the course.
What I am looking for is not a download of past history, not a copy of text taken from a 10-K, but STRUCTURED forward looking thought to determine value.
The outline for the project and papers is as follows:
1) Company Description, and Analysis of Strategy. One good approach would be to use the "Porter Five Forces" methodology. You should have had this in an earlier course in your MBA or MSF program, but to remind you:
Power of Buyers
Power of Suppliers
Level and Type of Competition
Threat of New Entrants
Threat of Substitutes
Be sure to look at both the company"s annual report and 10-K. In particular, for this and for the next section, look at the "Management"s Discussion and Analysis. About 3 or 4 pages double spaced would be fine for this section.
2) Comment on the financial history and trends of the company. What have its key ratios been doing? It is OK to use Yahoo Finance or Morningstar or Google Finance or some similar (free) tool. This should NOT be a laborious exercise. Insert some tables, and a perhaps 1 or 2 pages of commentary. A 5-factor "DuPont" analysis breaking down the ROE into components is a good organizing tool (you are not obligated to use the DuPont analysis for this report). I assume you have a familiarity with this.
3) Build a model of the company " keep it SIMPLE. 3 years back, and extrapolate 5 years forward would be fine. The point here is to get a feel for the process, not to overkill the numbers. Include some text explaining the key assumptions of your model. We discuss this in week 9. A sample of a model titled "meredith_03e_and_04projected" is provided.
4) Generate a Valuation Using A Discount Model and a Free Cash Flow Model.
5) Cross Check Your Valuation Using Ratios and Relative Valuation Approach.
6) Come to a conclusion - is the market price of the stock above or below the valuation you have determined?
Again, the concept here is to use the term paper as a tool to apply and re-enforce the material in the course. The end result should have a coherent flow. THERE IS NO RIGHT ANSWER. I have no idea if any of the stocks noted above are over or undervalued. What I am interested in is the PROCESS - a structured analysis, covering all the steps, to demonstrate an understanding of the methodology.